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4 Manufacturing Stocks to Watch

Stocks in this article: PCAR KMT CAT ITW

Caterpillar manufactures construction and mining equipment, diesel and natural gas engines and industrial gas turbines. The company's three major lines of business are machinery, engines and financial products. Nearly 57% of analysts covering the stock rate it a a buy while the remaining ones rate it a hold. There are no sell ratings on the stock. On average, analysts polled by Bloomberg believe the stock has potential upside of 15.1%.

Fourth-quarter net income quadrupled to $968 million, or $1.47 per share, while revenue was up 62% to $12.8 billion. For all of 2010, net profit increased 202% from 2009. Machinery sales of $8.57 billion and quarterly engine sales of $3.57 billion topped analyst's estimates during the quarter. Demand from Asia was higher than estimated.

Heading into 2011, sales and revenue are likely to surpass the $50 billion mark, and profit per share is seen at around $6. The company's guidance for 2011 includes the acquisition of Electro-Motive Diesel, but does not include the acquisitions of Motoren-Werke Mannheim Holding and Bucyrus International (BUCY) since the deals have not yet closed. Caterpillar plans $3 billion in capital expenditures in 2011 -- with more than half in the U.S.

The company is focusing on China, where its capacity expansion will produce 60% more excavators, compared with 2010. In addition to Caterpillar's growth in emerging market, the company is now optimistic about the prospects in North America and Europe. Caterpillar will open a new manufacturing facility in Thailand to produce a full range of underground mining articulated trucks and loaders, with production scheduled for 2012 and expected to employ 800 people.

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