Industrial companies have been on a tear for the past two months, largely thanks to the election of Donald Trump. Hopes are high that this segment will be a prime beneficiary from a surge in America-focused spending, particularly in the infrastructure world.
This has pushed companies like Caterpillar (CAT) sharply higher, as CAT stock has gained more than 11% since the election, roughly doubling the S&P 500’s return in the same time period. But, while people might be bullish on the stock thanks to this political shift, analysts haven’t jumped on the bandwagon at all.
That is why investors might want to take a closer look at the earnings estimate picture for companies in this sector, and consider only focusing on the top tier instead of ones, like CAT, which might not have the best positioning right now.
Earnings Estimates
Despite the market optimism, we haven’t seen any estimates go higher for CAT stock in the past two months for either the current year or next year time frame. We have, however, seen nine estimates go lower in the past month for the next year time frame, pushing the company’s expected growth rates for the next two years to -30% and -6.6%.
And it doesn’t help that earnings estimates have really taken a beating over the past few months, as the magnitude of the analyst cuts has been pretty severe. The consensus estimate for the coming quarter has declined by about 8% in the past two months, while the next year estimate has fallen by about 9.8%. And with declines in sales projected for all time periods we have discussed thus far (when compared to year ago numbers) it isn’t a great picture for CAT stock right now.
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So really, analysts appear to be in a wait-and-see mode regarding the earnings potential for CAT in this new environment, believing that the company still needs to get its act together before its earnings potential rises once more. No wonder the stock has a Zacks Rank #5 (Strong Sell) and why we are looking for underperformance from this name to start the new year.
Other Choices
Instead of Caterpillar and its sluggish industry, investors might want to look to the manufacturing tools and related products industry, as this has a top 10% rank right now. One company that stands out as a solid potential pick in 2017 is Actuant ( ATU), as this company has a Zacks Rank #1 (Strong Buy).
Unlike CAT, Actuant has seen rising earnings estimates for the full year and next year time frames, and is expected to see double digit EPS growth in the next year period too. So, if you are looking for a top choice in the industrial world, definitely give Actuant a closer look instead of CAT, at least until we learn a bit more about what is coming from the new administration in D.C.