Monday offered the markets strong manufacturing numbers for both the US's and China's economies, boosting international equity markets, and easing concerns over a global economic slowdown. S&P 500 is up 1.2% this week, the London Exchange index: FTSE 100 rallied 1.7%, and the Shanghai SE index traded up 2.7% this week. These optimistic March manufacturing results have lifted the US’s biggest exporters including Caterpillar (CAT - Free Report) , which has seen 3.3% gains so far this week, and Boeing (BA - Free Report) which has rallied 2.8% in trading this week.
Below you can see that China’s manufacturing index had been trailing down for the last year leading investors to believe that the Chinese economy was on track for a downturn. The positive March manufacturing results puts optimism back into the Chinese economy and its investors.
Caterpillar (CAT - Free Report)
Caterpillar is the world’s leading manufacturer of construction and mining equipment. CAT posted top-line revenue of $54.7 billion with 59% of that coming from outside the US, making them very sensitive to international economic changes as well as any geopolitical adjustments. The trade war with China (23% of CAT’s revenue from Asia) along with concerns about a global economic slowdown has caused this stock to trade effectively sideways for the last 52 weeks. Despite all of these impending anxieties, Caterpillar grew its top-line by over 20% and it’s adjusted bottom-line by 66%. CAT is expected to grow its EPS by 9.09% in 2019 and another 8.55% in 2020.
Right now could be a great buying opportunity for this international steamroller. CAT is trading at one of its lowest P/E multiples since 2013, positioning this security to be a shrewd buy. One thing that you should consider before investing in CAT, is the potential of an economic slowdown both domestically and internationally as well as the possibility of the China trade deal going south. With a 1.47 beta this stock is quite susceptible to outside pressures. Caterpillar offers a 2.45% dividend yield, adding a small safeguard for an investor. If China and the US are able to come to a favorable trade agreement and the world economy can keep its head above water, I believe that CAT would see substantial gains – Zacks Rank #2 (Buy)
Boeing (BA - Free Report)
Boeing is the world's largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems. BA is the top US exporter, supporting commercial and government customers in more than 150 countries. Making them also susceptible to geopolitical issues and global economic fragility.
BA has been in the news quite a bit recently with their 737 MAX airplane experiencing two devastating crashes. The cause of the accidents has been determined to be an issue with its stall prevention system, pushing the plane’s nose down. BA took a nosedive after the most recent crash, because of implied systemic problems with the aircraft, dropping over 11% in 2 days. This issue is being resolved as we speak and Boeing is hoping to have these planes back in the air in the coming weeks.
This drop has given investors an opportunity to get into this aerospace behemoth at a discount. BA is currently trading at 18x forward earnings which is one of the lowest multiples this stock has seen since mid-2017. With expected EPS growth north of 25% this multiple is more than equitable. Earnings estimates keep getting pushed further and further up by analysts, bumping this stock into Zacks Rank #1 (Strong Buy).
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