If you bought Caterpillar (NYSE: CAT) stock on election day and sold exactly one week later, you would have an 11.5% return on investment. President-elect Donald J. Trump has stated his support for an over $1 trillion, larger than his opponent’s $275 billion, stimulus bill to rebuild the nation’s infrastructure. Aside from the election results at the national level, 71% of public transportation related measures passed across the United States, creating nearly $170 billion in transportation funding to be utilized in 2017. Many of these measures passed were in populous urban areas that President-elect Trump did not win in the election, including San Francisco, Seattle, Los Angeles, and Atlanta. This would suggest that, regardless of party affiliation, new roads will need to be paved.
Cooperation between parties is present on this subject. With or without a new stimulus going into effect, a large infrastructure deficit already exists currently. As House and Senate Democrats advocated for the American Recovery and Reinvestment Act in 2009, there is much hope for bipartisan support for a stimulus package in 2017 under the new administration.
Surely, if this legislation were to pass, CAT would profit. Just how much, is to be debated.
In the 2008 recession, CAT’s stock price plunged along with many others. After the signing of the American Recovery and Reinvestment Act of 2009, CAT’s stocks surged from $23.23 in March 2009, to $58.30 by December 2009. By April of 2011, CAT reached $113.12 per share— a 387% ROI from March 2009. With CAT’s stock sitting over $95 per share, and a solid chance of a stimulus package valued up to one trillion dollars, it would be possible to see its value rise over $115. Heavy machinery will be in great demand once thousands of infrastructure improvements projects pop up across the United States. Investors should take the possibility of a stimulus package very seriously. It is easy to see how dramatic of an impact a stimulus bill would have on CAT’s stock.
The icing on the cake is that, since 2007, the company’s cash dividend has more than doubled. Caterpillar has paid a cash dividend every year since the company was formed in 1925 and has paid a quarterly dividend since 1933. On October 12, 2016, the Board of Directors of CAT decided to maintain a quarterly cash dividend of $0.77 per share of common stock. Every year since 1996, the quarterly cash dividend given to stockholders has increased, and it can be expected to be stable through the next four years. Stimulus or not, investors in CAT will reliably be paid cash dividends in the future.
In North America, CAT stands unchallenged as the leader of the construction machinery industry. Their reign extends outside of North America — as of 2015, CAT was responsible for 17.8% of the market’s business, the most of any construction machinery company in the world. The closest competitor is Japan’s Komatsu of 10.6% of the market share. The combined revenue of two other main US competitors, John Deere and Terex, is less than half of CAT’s revenue. In other words, when the infrastructure bills passed this election take effect, CAT is expected to be the largest benefactor of the new infrastructure spending.
CAT has secured business in 2017, but what if gridlock in congress continues, or the infrastructure stimulus is shot down? The possible conflict that could arise from legislation like this would be how to fund such a large bill. Even without a stimulus bill, CAT equipment will be present at nearly every infrastructure project approved this election cycle.
Stimulus aside, there is disagreement as to where the market will lead in 2017. If Donald Trump takes an aggressive stance towards American companies making products overseas, CAT should be safe. Investors may be weary of businesses that hold production plants in foreign countries because of possible tax reparations under the new administration.
In February of 2016, CAT closed a manufacturing facility in China and has moved it to Illinois. CAT appears to be a stable stock option and only has room to grow in 2017.