How I Made $5000 in the Stock Market

Caterpillar Stock Has Outperformed the S&P 500. Its Rally May Only Be Getting Started.

Sep 30, 2025 11:00:00 -0400 by Al Root | #Follow-Up

Caterpillar is still on track to reward investors, following Barron’s recommendation in Sept. 2024. (Justin Sullivan/Getty Images)

Key Points

Caterpillar stock hasn’t turned into a butterfly just yet—but all it needs is time.

Barron’s picked Caterpillar in September 2024 when it was trading for just under $380 a share, arguing that declining interest rates would help the company’s mining and construction businesses. The call worked out well, if not spectacularly: Shares have risen about 23% since the pick, outpacing the by 7 percentage points.

It hasn’t been easy. Caterpillar stock trailed the index for a good portion of the year, particularly in April, amid peak fears that President Donald Trump’s steep tariff rates would derail the global economy. What’s more, the rate cuts that we had expected were MIA for most of the year, adding another headwind for the stock.

Yet, the last three months have been spectacular for shares of Caterpillar. The stock has gained 22% because trade issues have been nowhere near as bad as initially feared, even if they did raise costs, and because the Federal Reserve finally resumed interest rate cuts in September after cutting by one percentage point in 2024.

Most of the recent gains have come because of valuation expansion. Today, shares trade for about 23 times 12-month forward earnings, in line with the S&P 500. A year ago, the stock traded for about 17 times. That makes today’s multiple seem high, but Caterpillar’s earnings are cyclical, rising and falling with the economy. While it’s expected to generate earnings of $18 per share in 2025, it earned north of $21 a share in 2023. Over time, Caterpillar’s earnings have grown about 9% a year on average, similar to the S&P 500, and its valuation, too, has averaged out to a market multiple.

Caterpillar’s valuation now implies things are on the upswing—a high multiple is a result of earnings being at a low point—and Wall Street projects sales and earnings growth for 2026. Baird analyst Mig Dobre designated the company a “Bullish Fresh Pick” on Sept. 17, a label used when analysts believe a stock will move higher sooner than later.

Dobre sees a bevy of positive catalysts, including more Fed rate cuts, a weaker U.S. dollar, demand improvement in mining and construction industries, used equipment price stabilization, and lower inventory levels at dealers. All that creates “a uniquely attractive setup,” he says.

Caterpillar has even morphed into an artificial intelligence play. Power-hungry AI data centers need backup power, which Caterpillar provides, and the boom in AI-related construction spending has been cited as a positive for the company by both Baird and BofA Securities.

BofA Securities analyst Michael Feniger has a Buy rating on Caterpillar stock with a $517 price target, up 11% from recent levels. Dobre also rates shares a Buy, and his $540 price target suggests 16% of upside.

Feniger and Dobre are more bullish than most of the Street. Just half of the analysts covering the stock have Buy ratings on the stock, according to FactSet, up from 33% a year ago. The average Buy-rating ratio for stocks in the S&P 5oo is about 55%. The average analyst price target is about $460, a little below where the stock is trading. Still, those targets have moved up about $90 from a year ago.

Targets will march higher, along with earnings estimates, if business gets better. And as business improves, Caterpillar will be a solid holding for investors looking for high-quality industrial exposure.

It’s only now starting to spread its wings.