Shares in construction, mining, transportation, and energy equipment company Caterpillar (NYSE: CAT) soared 18.8% in March, according to data provided by S&P Global Market Intelligence . You don't have to look hard to see why the company had such a strong month. In a nutshell, the war in Ukraine has sent mining and energy prices soaring and given fresh support to the thesis that we are only in the early innings of a commodity super-cycle. If the hypothesis is correct, Caterpillar is set for long-term growth .
Caterpillar is a classic example of a cyclical stock . Its revenue, profit margin, and profit follow the cyclical flow of its end markets. Therefore, investors need to understand where the company is in the cycle to understand how to value the company. For example, Caterpillar in the early innings of the cycle and trading with a current price-to-earnings ratio of, say, 20 times earnings is a lot more attractive than Caterpillar trading in the last legs of the cycle but trading on, say, 18 times current earnings.
In March, investors took a look at the soaring energy prices and the difficulties of Russia and Ukraine to export energy and mining commodities. They concluded that capital spending (by miners and energy companies) would increase as a consequence -- good news for Caterpillar.
For further details see:
Why Caterpillar Stock Soared in March