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Goldman Sachs Upgrades Caterpillar, the DOW's Best Stock This Year

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Shares of heavy equipment maker Caterpillar (CAT - Free Report) have gained nearly 30% this year, making the stock the best performer in the Dow Jones Industrial Average so far. Despite its already impressive gains, Goldman Sachs argues that it’s still not too late to be buying CAT.

Based on the upcoming profit potential it identified, Goldman Sachs upgraded Caterpillar to a “buy” rating from “neutral.”

“We upgrade CAT… as we see structurally higher margins in this cycle,” said Goldman Sachs analyst Jerry Revich in a note to clients on Monday.

Revich noted that he thinks the machinery market is bottoming out, and there’s still reason to be upbeat about the U.S. construction industry’s recovery. The firm also noted that it expects earnings to come in higher than many investors are expecting.

“Our view of $8 in normalized earnings is well ahead of investor expectations, and if realized, we believe will drive the next leg of upside for the stock,” Revich said.

Caterpillar has also posted impressive earnings data recently. The company has surpassed the Zacks Consensus Estimate by an average of 5.20% in each of the trailing four quarters.

Furthermore, Caterpillar has seen one positive estimate revision for its current-quarter earnings in the past 60 days, raising its Zacks Consensus Estimate by a penny. Based on recent revisions, the company has a positive Earnings ESP for the current quarter, next quarter, and next fiscal year.

On top of this, Caterpillar has gained nearly 12% in the past 12 weeks, earning it a Momentum grade of “A” in our Style Scores System.

Nevertheless, Caterpillar remains a Zacks Rank #3 (Hold). If the U.S. construction business continues to improve, it should be reflected in earnings performance and additional revision adjustments, which could push Caterpillar’s rank up, but only time will tell.

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