Why Caterpillar Could Suffer From Low Growth in China, Mining Sector

NEW YORK (TheStreet) -- Caterpillar (CAT) , the world's largest maker of construction and mining equipment, has slowly recovered in the past year. Over the past 52 weeks, its stock grew by 28.5% to $107.85, as of Monday afternoon at 3:15 p.m.

But Caterpillar still faces risks that could impede its progress. Let's examine them.

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Caterpillar has recently revised down its annual revenue outlook from an average of $56 billion to $55 billion - close to a 2% drop. This news didn't help the company's stock, which has lost 1% of its value since the revised estimates.

The company's operations in Asia/Pacific and Latin America, which in the past grew fast, have also contracted in the first half of 2014 by 13% and 15%, respectively. These two regions combined accounted for nearly a third of Caterpillar's sales.

Looking forward, the IMF has revised down its growth outlook for 2015 in many countries in Asia and the Pacific, including China, and Latin America, including Brazil. These lower projections suggest that Caterpillar's revenue will keep contracting next year. The company also continues to face foreign exchange risks, which could also adversely affect its bottom line.

In terms of operations, the company's sales in the mining equipment segment have been falling. In the first half of 2014, this segment dropped by 33% throughout all regions. In general, the global mining sector, especially for coal and precious metals, hasn't done well in the past couple of years. The low prices in these sectors are likely to keep depressing the stock price, which could curb Caterpillar's recovery.

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