Expecting Upside For Construction Stocks Following Hitachi Announcement

Includes: CAT, JOY, TEX
by: Jeffrey Lin

Caterpillar (NYSE:CAT), along with other machinery stocks, was down on a strong tape yesterday after the Commerce Department reported a larger-than-expected drop in durable goods orders. However, a news release by Hitachi Construction Machinery Co. yesterday suggests the mining and construction machinery business is very strong. Hitachi Construction reached earnings target early. Bloomberg reports:

Hitachi Construction Machinery Co., the world’s biggest maker of large excavators, said earnings are rising faster than forecast as construction, and mining booms in China, Russia and India drive demand.

As I’ve said many times, the global infrastructure boom is strong and lifting all boats in related industries. We’ve known the U.S. housing has been weak, if not in a recession, and has been a drag on machinery sales. The same argument weighted on Caterpillar’s stock until they blew away last quarter’s earnings with strength in international sales. Caterpillar, as well as machinery companies like Terex (NYSE:TEX) and Joy Global (JOYG), should have strong upside surprises in light of this new data point from Hitachi.

Disclosure: I own shares of CAT as of this post