An Enduring Market Buster Despite of Being Lackluster

Josef Ray is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The Great Recession of ’08-‘09 saw many industrial companies experience a significant drop in their previously sizable earnings. Now, a few years down the road, it seems the worst of the crisis is over. It doesn’t make things a walk in the park, but good figures tend to bring about a hopeful attitude among investors. So, where are your investments in the grand scale of the stock market?

What’s Your Number?  

From the major brokerages that made analyst recommendations, Caterpillar (NYSE: CAT) landed on the 20th spot. A price target increase to $124 per share from its previous $94.63 (from Credit Suisse) is apparently due to the company meeting its sales projections. Stellar earnings were reported per share as the third quarter of 2012 saw revenue rise by about 33% from the same quarter of 2011.

Credit Suisse also gives Caterpillar an “Outperform” rating due to general performance. Overall, however, Caterpillar’s stock has been under performing for the past half-decade given its potential, although it has still netted income that exceeds those of major rivals Deere & Company (NYSE: DE) and Joy Global (NYSE: JOY), due to the impetus of decent performance throughout the past few decades. This is partly due to its expansion of manufacturing facilities in the country, as well as in inland China and other areas of the Asia-Pacific region.

Upgrades and Downgrades

Operating in three segments (agriculture and turf, construction and forestry, and financial services), alongside its subsidiaries, Deere & Company got an upgrade from JPMorgan Chase when it went from an “underweight” rating to a “neutral” rating. The target price is also up from $80 to $90. The tractor icon opened at $89.62 with revenue of $9.79 billion for the quarter, up by 14.5% from the same quarter in 2012. Deere also has a market cap nearing $35 billion, and a P/E ratio of 11.76. Thus far, it has outperformed industrial machinery pioneer Caterpillar by earning $33.5 billion in 2012, with the bulk of those earnings coming from Canada and the United States, with sales expected to grow about 5% in 2013.

However, the implications of weather in the Midwest, drought, and the subsequently poor growth of crops mean less purchases and equipment upgrades for farmers. What this means is that Deere has to diversify this year to match the almost 13% growth in revenue it experienced last year. In a nutshell, there may be better stocks for the average investor other than DE, stocks that have the capability to perform better, such as Caterpillar.

In the meantime, rival Joy Global may be facing a bleak 2013, with reports of even further restructuring, consolidation, and transfer of operations for lower costs towards the possibility of recuperation bringing down the positive effects of a fourth-quarter net sales increase of almost twenty percent.  Joy Global, however, is undervalued considering the ration of stock price to potential earnings, so it may be a good bet for those into long-term investing. The company's profit margin is currently at 13.46%, and the equity return is  at almost thirty-four percent.

Tallying the Score

The Illinois-based company might not have the most aggressive stock in terms of general performance, but the pioneering machinery giant can still count on decades of momentum to coast on, and give it a boost in terms of how solid the company’s shares are. Among other major factors, its endurance allows Caterpillar to compensate for relatively lackluster gains in the meantime, making it a viable choice for trading. Its current and upcoming projects, such as those comprised by the international $2 billion distribution and parts network upgrade, can only serve to bolster that standing and keep investors’ heads way above water, at least for the near future.

JosefRayDagatan has no position in any stocks mentioned. The Motley Fool owns shares of Joy Global. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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