Deere & Company (DE), Caterpillar Inc. (CAT): What Heavy Machine Stocks Are Best Bets

Free Cash Flow presents an entirely different picture, though CNH Global NV (ADR) (NYSE:CNH) has a high payout ratio but its free cash flow is negative and is declining sharply. John Deere’s free cash flow despite being negative is recovering at a high growth rate. Caterpillar Inc. (NYSE:CAT) on the other hand has positive free cash flow which is increasing at a constant rate.

Final thought

In the past few quarters, construction related spending has slowed down. As a result companies providing heavy construction equipment like Caterpillar Inc. (NYSE:CAT) are facing headwinds from lower demand. Moreover, Caterpillar’s most profitable mining equipment business also struggles with lower demand cycles. Coal companies are cutting back on their capital expenditure, where the machinery and equipment expenditure also has declined rapidly. Market conditions are expected to remains the same for a few quarters for Caterpillar, only after when the sales would start to pick up.

John Deere has been doing pretty well, since globally agriculture sector is growing rapidly. High commodity prices and strong farm incomes are continuing to support a favorable level of demand for Deere’s farm machinery in much of the world. John Deere also continues to increase its exposure in the high growth markets, which paints bright prospects for the company. Need for efficient technology and increasing commodity prices have helped increase demand for John Deere’s agriculture equipment. In the light of above argument, John Deere seems to be a better option among all.

Zain Raza has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article What Heavy Machine Stocks Are Best Bets originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.