For these two industrial giants, this could be a big business. Both are important makers of locomotives and such a switch could result in a large and long sales curve as train companies switch over aging fleets.
Old Yellow
Caterpillar Inc. (NYSE:CAT) is best known for its deep-yellow earth moving equipment. That’s been a good business for years as Asian growth has spurred demand. The company’s sales have nearly tripled over the past decade to almost $66 billion dollars last year. However, Asian growth has slowed and sales have fallen year-over-year in the last two quarters.
If the North American market starts a global trend toward increased use of natural gas as a fuel for locomotives, CAT might find additional support for its top line to offset slower sales of earth moving equipment in Asia. Despite the drop in sales, however, CAT is wildly profitable and has a long history of annual dividend increases.
The shares have pulled back from their all-time highs and yield around 2.9%. If Asian markets continue to weaken, look for Caterpillar Inc. (NYSE:CAT)’s shares to remain weak, too. That said, this could be an interesting entry point for long-term growth and income investors, natural gas locomotives or not.
Turning Things Around
General Electric Company (NYSE:GE) shares have more than doubled since the lows they reached after the company’s financial arm led to a government bailout and dividend cut during the 2007-2009 recession. That said, they remain well off of their all-time highs. The company is still working to prove that it is an industrial giant worth owning.
Things appear to be going in the right direction. The company is hitting management targets and working to shrink its finance business, though it still accounts for a disproportionate share of the top and bottom lines. The improvement includes earnings and dividend both trending higher again. The top line, meanwhile, has seen a lot of noise as GE refocuses its business, including the sale of NBC.
One of the big pushes for GE is in the environmental arena. Building natural gas powered locomotives is right in line with that. Although this single product isn’t going to turn the giant’s results overnight, like Caterpillar Inc. (NYSE:CAT), it would be a solid business for GE and help it move beyond its troubled past. The shares recently yielded around 3.2% and still hold turnaround appeal.
Looking Beyond
Natural gas is an increasingly abundant fuel and is being considered for more and more applications. While there are direct plays like Clean Energy, there are other companies that will feel the benefit of a shift, including Waste Management, Inc. (NYSE:WM), General Electric Company (NYSE:GE), and Caterpillar. This trio offers a much safer way to get involved in the transition.
For GE, the recent financial crisis struck a blow, but management took advantage of the market’s dip to make strategic bets in energy. If you’re a GE investor, you need to understand how these bets could drive this company to become the world’s infrastructure leader. At the same time, you need to be aware of the threats to GE’s portfolio.
The article Is This Natural Gas’ Next Big Market? originally appeared on Fool.com.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Clean Energy Fuels Corp (NASDAQ:CLNE). The Motley Fool owns shares of General Electric Company. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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