Few large-cap companies have been more hit by politics of late than Caterpillar (CAT). Most notably, trade war concerns have notably colored the perception of the stock, after a cost-cutting-driven turnaround had led CAT stock to nearly triple between late 2015 and early 2018.
To be sure, trade war and tariff fears have impacted companies across the market (and likely the broad market as a whole). But for Caterpillar, the concerns impact seemingly every aspect of its business.
The Asia/Pacific region accounted for over 20% of revenue in 2017, with China the primary driver of 39% growth in regional Construction Industries revenue, per the 10-K. Lost sales in that market would hurt the company’s ability to grow the top line going forward.
And it was China’s aggressive stimulus in the beginning of the decade that led the so-called “supercycle” that sent Caterpillar earnings soaring. Higher input costs, driven by tariffs, could pressure margins.
Those costs also could lead to more mining activity and offset some of that pressure. Looser U.S. drilling regulation and the revival of the “shale boom” have helped sales of reciprocating engines. But now, lower oil prices could lead that demand to recede.
Caterpillar always has some political exposure. But with trade issues – between the U.S. and China, in “Brexit”, and elsewhere- such a focus worldwide, politics will have an even larger effect on CAT stock in 2019. And that seems likely to lead to some bumpy trading – and perhaps at some points a buying opportunity for investors who believe the company can fight through the noise.