The U.S. economy has been in expansion mode for a decade. Sans more government stimulus, the economy will likely fall. That does not bode well for cyclical companies like Caterpillar (CAT). The company makes everything from earth moving equipment to equipment to oil and gas equipment. Caterpillar’s fortunes will likely be tied to the vagaries of the global economy.

Top-Line Growth Has Been Impressive

I have been bearish on CAT for a while. However, government stimulus and recent GOP tax cuts have buoyed the stock. Caterpillar’s Q3 2018 revenue of $13.5 billion was up 18% Y/Y. Each of its major operating segments grew by double digits. That does not sound like a company headed for decline.

Construction is the largest segment at 43% of total revenue. The segment benefited from higher demand for oil and gas pipelines, and non-residential construction activities in North America. Much of the government stimulus has been designed to spur business fixed investment. How long can such investment last if the consumer is weak? At some point, construction activity will slow, which could hurt Caterpillar’s largest operating segment.

Revenue from the Resources segment was up 35% Y/Y. The segment benefited from positive commodity fundamentals for its mining customers and higher heavy construction equipment sales. Energy & Transportation grew revenue 15% Y/Y. This is the company’s second largest segment, and in my opinion, the most vulnerable. Revenue from the segment fell 3% sequentially. Read more:



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