Caterpillar Inc. (CAT): A Bull Case Theory

We came across a bullish thesis on Caterpillar Inc. on Quality Value Investing’s Substack by David J. Waldron. In this article, we will summarize the bulls’ thesis on CAT. Caterpillar Inc.'s share was trading at $527.47 as of October 14th. CAT’s trailing and forward P/E were 24.98 and 23.20 respectively according to Yahoo Finance.

Caterpillar, Inc. is a leading global manufacturer of construction and mining equipment, off-highway engines, industrial gas turbines, and diesel-electric locomotives, with a rich history dating back to 1925 and headquarters in Irving, Texas. The company is widely recognized for its strong brand, reliable products, and low total cost of ownership, earning it a Morningstar-assigned wide economic moat and a bullish value proposition rating. Caterpillar has demonstrated consistent profitability, with double-digit net margins and high gross margins, supported by strong cost management and brand loyalty, though recent revenue growth of -4.9% lagged the S&P 500’s broader gains.

Its management has delivered impressive returns on equity, exceeding 40% and aligning with market leaders, aided by strategic capital allocation, including a $21.8 billion share buyback announced in June 2024. Returns on invested capital have modestly exceeded the company’s weighted average cost of capital, indicating efficient deployment of shareholder funds. Over the trailing five years, Caterpillar’s owners’ earnings—reflecting EPS growth plus dividend growth—have achieved positive double-digit annualized returns, underscoring the company’s ability to generate durable shareholder value.

While revenue growth has been challenged by cyclical market conditions, Caterpillar’s strong brand, loyal customer base, and leading positions in construction machinery and heavy equipment provide resilience and long-term growth potential. With solid margins, robust cash generation, and ongoing capital return programs, the company remains well-positioned for continued wealth creation. These factors, combined with a proven management team and strategic capital allocation, make Caterpillar a compelling investment for long-term oriented investors, offering a balance of current cash flow yield and potential upside through disciplined operational execution and shareholder-friendly actions.

Previously we covered a bullish thesis on Terex Corporation (TEX) by Value Don’t Lie in February 2025, which highlighted the ESG acquisition, cyclical troughs in its Materials Processing and Aerial Work Platforms segments, and potential multiple expansion as leverage declines. The company's stock price has appreciated approximately by 19% since our coverage. The thesis still stands as Terex’s diversification and trough-level valuation support upside. David J. Waldron shares a similar bullish perspective on Caterpillar Inc. but emphasizes its wide economic moat, strong margins, and shareholder-friendly capital allocation.

Caterpillar Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 76 hedge fund portfolios held CAT at the end of the second quarter which was 62 in the previous quarter. While we acknowledge the potential of CAT as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.