Caterpillar: An Attractive Infrastructure Play

We view Caterpillar (CAT) as well positioned to take advantage of an anticipated surge in global stimulus spending resulting from plans being finalized by world governments, of which infrastructure construction is a major component. The major stimulus packages proposed as of this writing, according to various reports, are: the U.S. ($850 billion), China ($586 billion), Europe ($280 billion), Canada ($5 billion), and Australia ($3.2 billion).

In addition to the planned stimulus packages, additional required infrastructure spending in emerging markets will likely continue. For example, over the next five years China is proposing to spend $1.46 trillion while Argentina plans $21 billion in outlays. Elsewhere, Australia expects to spend $13.6 billion over the same period. We expect Caterpillar to be a major beneficiary of the global infrastructure boom we see, with an estimated 6.4¢ of every dollar spent on highway construction used toward the purchase or lease of equipment or on major repair and maintenance, according to a recent report from Associated Equipment Distributors, an industry organization. In regard to water infrastructure, 12¢ of every dollar spent on sewer and drinking water projects is for construction equipment, according to Associated Equipment Distributors.