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Caterpillar: Potential Tailwinds From New Infrastructure Bill

Nov. 12, 2021 9:34 AM ETCaterpillar Inc. (CAT)EGRNQ, EGRNY2 Comments
Ben Howard profile picture
Ben Howard


  • The $1 trillion package intends to invest in refurbishing roads, bridges, ports, water pipes, and the power grid while simultaneously focusing on supply chain issues, internet access, and climate change.
  • As the world's leading manufacturer of construction equipment, Caterpillar will potentially experience immense tailwinds from this spending package.
  • With valuation multiples relaxing from being near all-time highs earlier this year, Caterpillar could potentially be an alpha-rich investment as this new spending package unfolds.

Excavator machinery at construction site

guvendemir/iStock via Getty Images


Even with the current stock price up almost 40% from just prior to the COVID meltdown, valuation levels for Caterpillar (NYSE:CAT) have become relaxed over the past five months, in my opinion. With trailing twelve

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Ben Howard profile picture
Industry-agnostic, special situations/GARP investor. My focus is on businesses that the market is significantly mispricing. This includes special situations and high-quality companies whose future growth is being undervalued. I look for companies with high normalized earnings yields and quality business models that possess high or growing reinvestment rates. My portfolio is typically highly concentrated on a few ideas that I know well.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in CAT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (2)

This piece, though well intentioned, fails to address with hard data the two most salient aspects of the so-called "Infrastructure Bill," to wit:

- Expenditures ("investments" in Beltway Newspeak) contemplated in this legislation occur over a period of 10 years. That's 2.5 Presidential terms of office. This fact dilutes and therefore rarely appears alongside the "$1 Trillion" windfall kabuki incessantly bandied about. And in any event the total package value is ~$1.2 triilion, not $1 trillion.

- Only a portion of the approximate $1.2 trillion 10-year total funds tangible ("hard") infrastructure likely to benefit cyclical industrials such as $CAT directly. A more useful analysis would endeavor to evaluate the projected annual value of such funding, and further the fraction of such value likely to appear in $CAT revenue.

I'm a long-term (> 10 years, no plans to sell) $CAT shareholder and certainly want revenues, earnings, and most importantly cash flow to increase, but I'm a long way from hyperventilating over the potential of this legislation to be in any way transformative to those metrics.
Just think what impact the Eisenhower Interstate System had on Cat in the 60s and 70s. I think it will be even more.
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