CAT

Construction equipment maker Caterpillar (CAT) is back in the spotlight, just being stuck in a phase of disappointing pullback, less than a week after the recent hit to its historical high at $441.15. I described many signs of the firm's long-term strength about one year ago, in early August 2024. At that time, the stock was trading at $325+ then quickly added more than 25% to its market value to knock several times at its next saturation ceiling area above $410 in winter. Next, it was back at $325+ once again by early April after the crowd mostly decided to fix profits. The further launch of protracted tariff battles provided CAT buyers with excellent bottoms under $270, followed by a creeping 65% rally in less than four months. That was unparalleled for the entire industrial segment during this year, and now the quarterly earnings gave it a reason to wallow into a rather fast but probably short-lived correction.

Caterpillar share price lost initially 3% to below $420 on the pre-market on Tuesday, as solid demand for energy and construction equipment to repair pretty worn infrastructure of U.S. roads, bridges and transhipment hubs led the stock to nearly repeating of its absolute revenue record at $16.6 billion vs consensus estimates of $16.27 billion, but failed to generate the appropriate profit margin as the company announced its Q2 EPS (equity per share) of $4.72 only, $0.18 worse than the average expert forecast of $4.90. This meant they sold more energy and transportation equipment for example, at higher prices for customers, but growing inner costs and tariff impact reduced net income. The company CEOs admitted they suggest net incremental tariffs of approximately $1.3 billion to $1.5 billion for the full year of 2025, with $400 million to $500 million expected in Q3 already.

I don't think this should be a reason for sentiment to reverse, so that the asset would barely dive below $400, and even the range near last winter's highs (between $410 and $420 per share) could serve well as new support. If a one-off drop below $400 does happen, then my worst-case scenario is that the bottom could be around $380, but that's not the base case. The company's potential to participate broader in power generation and data centre building may also help to overcome some current challenges in earning more money on its traditional construction and mining machines businesses where it is still a pure global leader. Thus, I prefer to keep driving my cautiously optimistic way concerning Caterpillar. Consider resuming a Big Long strategy here rather sooner than later - perhaps in a couple of weeks or so, once the dust from quarterly report would settle a bit.

It's also worth noting that earnings may not have jumped as much as Wall Street expected, and are still far from last year's ideal of $6 per share, but still it rose by 18% QoQ despite all tariff headwinds and other economic uncertainties. Its operating profit even added 18% YoY, while adjusted operating profit (corrected by currency fluctuations) climbed 22%. Caterpillar has strong cash flow, at $2.4 billion in its Machinery, Energy & Transportation segment in Q2 2025, only slightly below the $2.5 billion generated in a very successful and record-breaking Q2 2024. Here is also another 7% increase in Caterpillar's quarterly dividend, in the 5th consecutive year with a high single-digit quarterly increase in payment for shareholders. As to the company's forward guidance, it expects 2025 sales to be "slightly higher" vs 2024, compared to its previous quarter’s estimate of "flat to slightly down" which did not prevent CAT shares from rallying in the previous three months.