Why Growth Investors Should Consider Buying Caterpillar Stock Now

Caterpillar Stock

Growth-oriented investors are perpetually on the lookout for opportunities that promise above-average financial growth, as such stocks have the potential to capture the market’s attention and yield remarkable returns. However, identifying a truly promising growth stock can be quite challenging. The reason is simple: these stocks often come with elevated levels of risk and volatility. Indeed, placing your bets on a stock whose growth trajectory has plateaued or is nearing its end can result in substantial losses.

Caterpillar (NYSE:CAT) is a stock that is currently catching the eye of the Zacks proprietary system, and for good reason. Not only does the company boast a favorable Growth Score, but it also holds a prominent Zacks Rank, further enhancing its appeal to investors.

Research has consistently shown that stocks exhibiting strong growth attributes tend to outperform the broader market. Let’s delve into the three key factors that make Caterpillar, a leader in construction equipment, a compelling choice for growth-oriented investors at this juncture.

Earnings Growth

Earnings growth is arguably the most crucial aspect for investors, as surging profit levels are typically what investors covet. For growth investors, a double-digit earnings growth rate is highly desirable and often serves as an indicator of robust prospects and potential stock price gains for the company in question.

While Caterpillar’s historical earnings per share (EPS) growth rate stands at a respectable 7.5%, it’s the projected growth that commands attention. The company’s EPS is anticipated to soar by a remarkable 43.6% this year, outstripping the industry average, which calls for EPS growth of 40%.

Cash Flow Growth

Cash flow is the lifeblood of any business, and for growth-oriented companies, achieving above-average cash flow growth is particularly advantageous. This growth in cash flow empowers such companies to expand their operations without relying heavily on expensive external funding sources.

At present, Caterpillar boasts a year-over-year cash flow growth rate of 26.5%, a figure that surpasses that of many of its industry peers. In fact, this rate compares favorably to the industry average of 18%. It’s important to consider not only the current cash flow growth but also the historical rate to gain a proper perspective. Over the past 3-5 years, Caterpillar has maintained an annualized cash flow growth rate of 8.4%, exceeding the industry average of 7.5%.

Promising Earnings Estimate Revisions

In addition to the aforementioned metrics, investors should pay attention to the trend in earnings estimate revisions, where a positive trend holds significant value. Empirical research has consistently shown a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

Caterpillar has seen upward revisions in its current-year earnings estimates. The Zacks Consensus Estimate for the current year has surged by 0.3% over the past month.

Bottom Line

Cumulatively, these factors have not only secured Caterpillar a Zacks Rank #2 designation but have also earned it a Growth Score of A, based on various compelling factors discussed above. This unique combination positions Caterpillar for potential outperformance, making it an attractive option for growth-oriented investors looking to make a strategic investment.

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