A nearly 8% surge in Caterpillar followed a Goldman Sachs recommendation and an earnings call that showed the first quarter-on-quarter sales growth after four years of a global machinery slump.
CAT led the Dow average up, accounting for 50 of the nearly 250 point rise in the index (McDonald’s accounted for another 50 points). But CAT’s sales turnaround amounted to just 1% growth (McDonald’s sales growth in the US was just 1.7% vs. 4% worldwide).
From a valuation standpoint CAT is looking awfully pricey, with a forward P/E of 22 versus about 15 times earnings back in 2007 before the recession hit. The global machinery cycle may be turning around, and CAT’s management may be adept at reducing costs, but a lot of assumptions have to come out right to justify these numbers.