Pros and Cons of Investing in Caterpillar

Aaditya Patel
2 min readOct 9, 2021
PHOTO CREDIT: Caterpillar

OVERVIEW

Caterpillar Incorporation is a company based in the United States. The company designs, manufactures, and sells heavy equipment and other products related to these machines around the world. The company also offers other financial and maintenance services related to this core business. Thie company was founded in 1925.

PROS

  1. Caterpillar is a great reopening play in an investor’s portfolio. The company saw a drop in sales as the pandemic shut down the construction industry. However, once the pandemic is over, strong growth and recovery in the construction and energy industry will benefit the company and its investors in the short to mid-term.
  2. The Biden administration looks to pass a massive infrastructure bill and spend over 1.5 trillion dollars for traditional infrastructure projects (like roads, bridges, etc.). This increase in infrastructure spending might drive the sales of Caterpillar equipment domestically in the mid to long term. This will also benefit investors in the company.
  3. Caterpillar continues to innovate in the heavy machinery industry. For example, the company recently started to roll out IoT-connected machines which will alert operators to know when to repair and replace the machine and which parts were impacted. This will save millions of dollars for customers and will also increase Caterpillar’s productivity in maintenance.
  4. Caterpillar currently offers a great dividend to its investors, something that the company continues to increase year after year. At the moment, Caterpillar offers a dividend of $4.44 (or 2.28%). This makes Caterpillar a great blue-chip dividend stock.

CONS

  1. The company faces tough competition in the heavy machinery industry. Some of these competitors include Komatsu, Deere and Company, and Hyundai. This competition might hurt the company and its investors in the future.
  2. The company continues to face supply chain issues. With a shortage of semiconductor components and its suppliers facing increasing transportation times (due to a shipping container shortage), the company reported slightly weaker results in its most recent quarter. These supply chain issues will continue to hurt the company until these problems end.
  3. As a result of these massive supply chain issues, the company has reported rising costs. This is because the company has had to pay more for workers, more for shipping, and more for raw materials. These higher costs have hurt the company’s results and will continue to impact the company until price levels return to normal.

MY OPINON

I think that Caterpillar is a great long-term investment due to its position as a good reopening play, a good dividend option, increased infrastructure spending, as well as continued innovation in its business. However, tough competition, supply chain issues, and higher costs might hurt the company and its investors in the future.

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Aaditya Patel

Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.