Caterpillar Spikes After Upgrade

Caterpillar shares rise sharply after Morgan Stanley makes a bullish call on the bellwether's stock.
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(Caterpillar article updated for closing stock prices.)

NEW YORK (

TheStreet

) --

Caterpillar

(CAT) - Get Report

shares jumped sharply Tuesday, leading a broad market rally among heavy industry and commodities names.

Helping Caterpillar's stock price was an upgrade from

Morgan Stanley

(MS) - Get Report

analyst Robert Wertheimer, who said the call marks the first time in three years that he and his firm have been bullish on the stock.

His rationale? Essentially: that many of the cyclical industries that Caterpillar sells its equipment into are recovering at a quicker pace than most believe, and that Caterpillar has prepared itself to ramp up production quickly -- ready to procure parts from suppliers and flip the switch on a renovated manufacturing system -- once it has determined that a real recovery in demand for its products has taken hold.

Morgan Stanley upgraded industrial conglomerates and electrical equipment manufacturers as a group Tuesday. In addition to Cateripillar, the firm singled out shares of

Rockwell

(ROK) - Get Report

and

Ingersoll Rand

(IR) - Get Report

for upgrades.

The upward move in Caterpillar stock gained momentum as the Tuesday session progessed and the broader equities markets gathered strength, with

investors pouring back into stocks

, their fears of Greek default having faded.

Indeed,

commodities-linked stocks across the board led the Tuesday rally

, from miners to energy conglomerates to steelmakers to chemicals producers to heavy equipment makers, Caterpillar foremost among them.

Caterpillar shares ended trading Tuesday at $53.53, up $2.75, or 5.4%, on volume of 15.5 million shares. Daily turnover over the last three months has averaged about 8.5 million shares.

Morgan's Wertheimer indicated in his research note to clients Tuesday that his "contacts in the supply chain" have confidence in Caterpillar's readiness to pounce on a recovery. "In contrast," the analyst went on, "we think many investors are still highly skeptical," especially of the company's claim that it can hit annual earnings per share of $8 to $10 by 2012.

"We're not completely there yet either," Wertheimer admitted, "but this feels like an area where too many people are underestimating" the Peoria, Ill., bellwether. He noted that, in the last boom cycle, Caterpillar posted peak annual per-share profit of $5.66, "despite being hampered by lack of capacity and an outdated production system."

Caterpillar's recent efforts to streamline its arrangements with suppliers -- from which it buys the many ingredients that go into its huge yellow machines -- could wind up saving the company "hundreds of millions to billions" of dollars, the analyst wrote.

He lifted his rating on Caterpillar stock to outperform from underweight. His price target on the shares rocketed to $70 from $51.

The Morgan Stanley upgrade comes just two weeks after

Caterpillar released its fourth-quarter results

and appeared to tamp down investor expectations for 2010. Its stock fell sharply that day -- as of Monday's close, it had declined by more than 9% since then -- but buried in the company's earnings release were several bullish signals, including an optimistic outlook from Caterpillar's in-house economists on U.S. GDP growth.

-- Written by Scott Eden in New York

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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.