Is Caterpillar Inc. (CAT) the Best Dow Stock for the Next 12 Months?

We recently published a list of The Best and Worst Dow Stocks for the Next 12 Months. In this article, we are going to take a look at where Caterpillar Inc. (NYSE:CAT) stands against other best and worst dow stocks for the next 12 months.

The Dow Jones Industrial Average (DJIA), or the Dow, is a price-weighted index that has long been seen as a barometer of the health of the U.S. economy. After touching all-time highs in late November 2024, the index has corrected nearly 7% in 2025 (as of April 23) and is down 12% from its highs. Rightly so, the correction reflects several unfavourable developments, including economic uncertainties and geopolitical tensions weighing on economic growth. The market is expected to remain volatile as the trade and other aspects of the US administration’s policy agenda play out.

Amid this volatility, based on the potential for share price appreciation in the next 12 months, we have created a selection of the best and worst Dow stocks from the 30 Dow constituent stocks.

Has This Been the Most Volatile Period for The Dow?

If we analyse its trackable history from 1899, the Dow has fallen 7% or more on a single day twenty times. Of those, only seven occurred after the year 2000, and the 5.5% decline on April 5, 2025, doesn’t count as one of those seven, or not even in the historical top twenty. So, technically, this correction was not as severe as earlier. From corrections post 2000, the sharp declines when Covid-19 struck were the most noticeable – Dow fell 7.8%, 10%, and 12% on 9, 12, and 16^th March, respectively, and saw further significant declines in that year.

That said, the current period remains one of the most confusing times for market participants, even for the larger players in the equity market, who remain uncertain about their estimates for the broader markets, such as the Dow.

Is Volatility Expected to Continue?

In a recent interview, Lauren Goodwin, Chief Market Strategist at New York Life Investments, emphasized that the fundamental picture remains cloudy and investors are still looking for clarity in macroeconomic fundamentals. Despite some positive economic data recently, policy uncertainty is limiting visibility. As more data is released, she believes markets are entering a sustained period of elevated volatility across equities and fixed income.

What is The Best Way Forward for Investors?

In these testing times, investors should examine fundamentals more critically, preferring Dow stocks with earnings resilience, clear competitive advantages, and exposure to long-term, secular growth themes. On April 28, Stephanie Link, Hightower Advisors’ chief investment strategist, shared her positive outlook on the stock market in an interview on CNBC. With major tech companies, consumer, and financial companies set to announce results, she believes that if corporate earnings remain strong, the recent market rebound could continue. Since early April, the market has recovered significantly, and she attributed the rally to better-than-expected profit margins and steady corporate performance. Although the prominent tech names aren’t cheap in terms of valuation, she views the recent declines as long-term buying opportunities.

While markets may remain volatile in the coming months, the best opportunities in the Dow over the next 12 months should come from stocks with strong pricing power and earnings momentum. Investors should stick to stocks with strong brands, recurring revenue models, and competitive moats, which enable them to navigate macro uncertainty. Since the Dow comprises large-cap companies across various industries, these stocks might perform better during sell-offs.

Our Methodology

To identify the best and worst Dow stocks, we began with the 30 constituent stocks of the DJIA Index. We then ranked these stocks in ascending order based on the consensus 1-year median potential upside. Additionally, we also include data on hedge funds holding stakes in these stocks, utilizing Insider Monkey’s Q4 2024 hedge fund database to provide deeper insights into institutional investor trends.

It is important to note here that the terms “best” and “worst” refer strictly to the relative upside potential and do not imply any fundamental strengths or weaknesses of the underlying companies.

Note: All pricing data is as of market close on April 23.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 363.5% since May 2014, beating its benchmark by 208 percentage points (see more details here).

Caterpillar Inc. (NYSE:CAT)

Upside Potential: 20.0%

Market Cap: $141 billion

Number of Hedge Fund Holders: 62

Caterpillar Inc. (NYSE:CAT) manufactures construction and mining equipment, diesel and natural gas engines, industrial turbines, and diesel-electric locomotives.

The outlook for Caterpillar Inc. (NYSE:CAT) has been mixed recently, and the stock has thus been seeing lower levels since the start of the year. Although precise exposure to China is not clear, the company derives 18% to 19% of its revenue from the Asia Pacific region, and thus, it has substantial exposure to China. Higher tariffs would result in steeper import costs for Chinese companies and, therefore, could lead to deal cancellations or project postponements.

Despite the macroeconomic pressures, consensus still sees a 20% upside potential with a 1-year median price target of $355. An analyst at BofA Securities recently lowered his share price target to $335 from $414 but maintained his Buy rating. He holds a cautious view on the Machinery, E&C, and Waste sector and expects a challenging earnings season for companies in the industry.

Similarly, JP Morgan analyst Tami Zakaria reiterated his Overweight rating on the shares but reduced the price target to $380 from $490 earlier. The analyst believes that a higher recession probability may weigh on the industry outlook and the near-term guidance of construction equipment group companies. On a slightly worrying note, the analyst also said that the earlier expected second-half acceleration might not materialize.

Overall, CAT ranks 12th on our list of best and worst dow stocks for the next 12 months. While we acknowledge the potential of Dow stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than CAT but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.