We recently published a list of Stocks On the Rise: 8 Best Stocks to Invest in Now. In this article, we are going to take a look at where Caterpillar Inc. (NYSE:CAT) stands against other best rising stocks to invest In now.
The market experts believe that Q3 2024 saw stocks experience increased volatility, witnessing rapid declines and then rebounding. As per the US Bank, a significant Q3 2024 trend is the rotation away from the tech sectors. All the investors continue to ask the same question: Will the rally in mega-cap stocks continue? JP Morgan believes that their outperformance has been noteworthy for quite some time. The investment firm stated that, from a research perspective, the valuations of the biggest stocks appear historically expensive, not just in the US but throughout the developed markets. Therefore, the investment firm’s expected return signals now favour the smaller market cap cohorts.
That being said, fundamentals for mega-cap stocks remain outstanding. Such giants have much higher profitability, lower debt, and improved earnings momentum. The bank believes that for investors who are worried about a slowdown, pivoting to mid/small caps remains difficult. On the other hand, investors seeing AI enthusiasm entering the speculative phase will find it easier to liquidate the winners. Therefore, the firm believes that the case for building mid/small cap exposure remains reasonable but not compelling.
Goldman Sachs increased its year-end target for the S&P 500 and expects more gains for the benchmark in 2025. These gains stem from the stocks, which continue to increase on the back of strong economic growth, lower Federal Reserve interest rates, and expansion of corporate earnings. The US stocks are expected to be aided by numerous tailwinds in the final months of the year, after the Fed’s pivot to rate cuts and the new fiscal stimulus from China. Both these measures improved the risk sentiments. Market experts believe that stocks should see support from the Q3 earnings season and expansion of corporate profits in the final 3 months as the economy continues to surpass expectations.
LSEG data demonstrates that collective S&P 500 earnings for Q3 2024 should grow 5% as compared to the previous year to ~$5.11 billion. This reflects a decline from the earlier projections of a $5.19 billion tally. Nonetheless, it still indicates strong momentum for this year and next, with Q4 profits anticipated to increase by ~12.5%.
Recently, Goldman trimmed its 2024 earnings growth forecast to 8.2% from 8.4%. However, the investment firm expects that earnings momentum will continue to build in the next year. The firm increased its profit growth projection by 5 percentage points to 11%. This upward revision to its 2025 EPS estimate revolves around increased margin expansion. The firm added that the broader macroeconomic backdrop is conducive to slight margin expansion.
Moreover, the firm increased its year-end S&P 500 target to 6,000 points, exhibiting a rise from the prior forecast of 5,600. The investment firm expects a P/E multiple of ~22x for the S&P 500, which remains in line with the company’s macro model of fair value. This will largely remain unchanged over the upcoming 3 months. For 2025, the bank expects the S&P 500 to increase by another ~300 points, to reach the year-end target of 6,300.
Market strategists believe that the momentum in the broader equities is likely to be aided by a blowout September 2024 jobs report, the start of the US Fed’s rate-cutting cycle, and China’s economic stimulus.
Our methodology
To make a list of 8 Best Stocks to Invest in Now, we used stock screeners to find quality stocks that have gained at least 30% on a YTD basis, as of October 7. We also made sure that these stocks were popular among elite hedge funds. The stocks have been arranged in ascending order of their hedge fund sentiment, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A construction crew operating a hydraulic shovel during a nighttime project.
Caterpillar Inc. (NYSE:CAT)
% Gain on a YTD Basis: ~36%
Number of Hedge Fund Holders: 49
Caterpillar Inc. (NYSE:CAT) is engaged in designing, manufacturing, and marketing construction, mining, and forestry machinery.
Caterpillar Inc. (NYSE:CAT)’s growth story stems from the extensive breadth of products and intangible assets. The company’s commitment to shareholder returns is aided by a significant $20 billion share repurchase authorization. The power generation industry, mainly for data centers, should maintain a healthy demand for reciprocating engines and solar turbines. Moreover, Caterpillar Inc. (NYSE:CAT) expects growth in high-speed marine and rail services.
Caterpillar Inc. (NYSE:CAT) sold solar gas turbines for a data center in Ireland, which hints at strong demand for power generation. The company’s investments in new technologies and services are focused on supporting customers in achieving climate goals, which might place the company favorably as industries have been prioritizing sustainability.
Caterpillar Inc. (NYSE:CAT)’s strategic initiatives and healthy cash flow management continue to exhibit resilience. CFRA, a financial research firm, believes that the demand for capital equipment, like construction machinery, is expected to increase because of the expectations of rate cuts. The research firm expects that such an easing of monetary policy will positively impact end-market spending.
Bank of America increased the price objective on the shares of Caterpillar Inc: (NYSE:CAT) from $376.00 to $434.00, giving a “Buy” rating on 30th September. Diamond Hill Capital, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“Other bottom Q2 contributors included Caterpillar Inc. (NYSE:CAT) and Home Depot. Shares of heavy construction machinery manufacturer Caterpillar fell as dealer inventories have declined and the market wrestles with concerns construction activity may be decelerating.”
Overall, CAT ranks 8th on our list of Best Stocks to Invest in Now. While we acknowledge the potential of CAT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than CAT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
