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Wall Street is running the numbers on the tariffs, and the impact is not good for heavy equipment manufacturers.
Shares of Caterpillar (NYSE: CAT) fell by as much as 7% and Deere (NYSE: DE) by 4% after both companies were hit by downgrades, and Toro (NYSE: TTC) fell as much as 5% in sympathy. The stocks all rallied into the close and were all down about 2% as of 3:30 p.m. ET.
A difficult operating environment
Heavy equipment manufacturers figure to get hit by tariffs both on the supply and demand sides. The massive tractors, construction, and agricultural equipment they make requires a lot of steel and other raw materials that are subject to tariffs, and their high-priced finished goods sell best when customers are flush with cash.
On Monday, UBS analyst Steven Fisher cut Caterpillar to a sell from neutral and lowered his price target to $243, from $385. Deere was kept at a neutral, but its price target was cut to $440 from $462.
The downgrades are based on concerns that the macroeconomic impact of tariffs, and the uncertainty surrounding trade policy, will erode demand.
Toro is more focused on consumer and industrial-grade lawn care, but could end up pinched by some of the same pressures that are likely to impact the makers of larger equipment. Deere could be especially vulnerable if "reciprocal tariffs" target agricultural exports, leaving farmers with less cash to invest in new equipment.
Is now the time to buy heavy equipment stocks?
In theory, onshoring could work out fine for these companies. If the tariffs are successful in bringing economic activity to the United States, new factories and facilities will be required, creating demand for heavy equipment. But that payoff is likely to be well into the future, and the downsides could hit almost immediately.
These are three best-of-breed operators with a history of surviving in what are highly cyclical industries. Existing investors need not panic about any of these companies failing due to a trade war, but for now, there is little concrete reason to get excited about buying these stocks.
Should you invest $1,000 in Caterpillar right now?
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