Evaluating Caterpillar Stock's Actual Performance

Core Insights - Caterpillar (CAT) has significantly outperformed the S&P 500 index over the past year, three years, and five years, with a notable 58.6% increase compared to the S&P's 15.7% over the last year [1] Group 1: Company Performance - Caterpillar's earnings, measured by EBITDA, are highly cyclical, influenced by global economic conditions and infrastructure spending for construction machinery, as well as mining commodity prices for mining machinery [2] - The company's valuation, as indicated by the EV/EBITDA ratio, tends to peak when EBITDA is about to rise and trough when EBITDA is about to decline, reflecting typical cyclical stock behavior [4] - Currently, Caterpillar's valuation is near a historical high, suggesting market expectations for improved earnings in the coming years [6] Group 2: Business Segments - The growth in Caterpillar's power generation equipment business, which includes diesel and natural gas-powered equipment for data centers, is a key driver of optimism [7] - In the third quarter, the power generation business accounted for 15.7% of total equipment sales, growing by $623 million, or 31%, compared to the same quarter in 2024, while overall equipment sales increased by $872 million [8] Group 3: Market Sentiment - Investors are likely considering substantial growth from Caterpillar's exposure to AI and data center spending, alongside potential lower interest rates that could stimulate construction spending and ongoing infrastructure development [10]