The shares, up only about 4% for the year to date, could keep coming down as Caterpillar faces additional challenges next year. Should you invest here? No. Here's why.
CAT revised its profit outlook upwards in the past few earnings reports. In the third quarter earnings per share for the year was revised up to $6. Despite this improvement, however, the company still projects its revenue to reach only $55 billion this year, 1% lower than its revenue in 2013.
For next year, the circumstances aren't favorable: China, one of Caterpillar's prime countries where it operates, is expected to grow even slower than in 2014. Moreover, in the first nine months of 2014, China's construction machinery industry dropped by 10%, year over year. Even the company's management stated that it projects "challenges in the near future."
The company's fastest-growing region remains North America. But the recent plunge in oil and gas prices is likely to eventually reduce the demand for Caterpillar's machinery used in well servicing, gas compression, and drilling applications. So we could see a fall in Caterpillar's revenue in North America related to drilling equipment.
The mining industry, including iron ore and coal, is also struggling. Prices are expected to decline further next year; according to the International Monetary Fund, iron ore prices are projected to drop by nearly 20% and coal prices by 1% to 4%. This turn of events is likely to also reduce the demand for Caterpillar's equipment in this industry.