Portfolio: Zacks Focus List

Caterpillar is a dominant industrial compounder with an unassailable 16% global market share in construction equipment and $59.4 billion in 2024 revenue, capturing structural demand from both traditional infrastructure cycles and an emerging AI-driven power generation boom. The company’s Q3 2025 results showcased this dual advantage: total sales surged 10% to $17.6 billion, powered by a remarkable 31% sales increase in the Energy & Transportation segment as hyperscalers rush to build data centers requiring massive backup power systems. Management’s 5-7% compound annual sales growth guidance through 2030 toward a $60+ billion revenue base reflects confidence in durable AI infrastructure demand, while the company’s fortress balance sheet supports aggressive capital returns including a $21.8 billion share buyback program and generates exceptional ROE exceeding 40% with attractive 20% return on invested capital. This is a dream combination for investors: a business with a wide moat earning attractive returns on capital that is enhanced with leverage.

However, the company faces some headwinds: construction and mining sales declined 7% and 4% respectively in Q2 2025 amid tariff costs reaching $1.8 billion annually, unfavorable price realization pressures, and softening North American demand (down 15% in Construction, 8% in Mining), compressing margins despite revenue growth. But the company’s strategic pivot toward autonomous technology, robotics, and digitization (CAT Connect) positions it for long-term technological leadership, while its unmatched global distribution network across 180+ countries and best-in-class after-sales service create sustainable competitive moats.