Stock Wars: Northrop Grumman vs. Caterpillar
Nothing underscores human ingenuity better than giant, finely tuned machines.
Think bulldozers and rocket ships.
Most of us will never get a chance to captain either of those glorious “rigs.”
But nothing can stop us from investing in them!
If you haven’t noticed, Caterpillar (NYSE: CAT) and Northrop Grumman (NYSE: NOC) are each sitting near all-time highs.
So which company is more worthy of our investment dollars?
I asked my senior analysts to battle it out.
Your vote decides the winner.
Good luck, gentlemen!
Integral to Our Nation’s Defense
If there is one military need that the United States requires above all else, it’s missile defense.
Obama — like previous Democratic administrations — neglected and underfunded this initiative. They claimed that the “Star Wars” missile defense concept was a fantasy of President Reagan that couldn’t work.
However, the recent activities of “Little Rocket Man” Kim Jong Un of North Korea, along with the rapid surge toward a nuclear capability in Iran, make missile defense in the U.S. a crucial No. 1 priority.
Otherwise, we may face the consequences in a few years when we’ll be saying “Hasta la vista, Los Angeles.”
Sure enough, the 2018 U.S. defense budget has included an additional $20 billion beyond 2017 spending in this area.
And Northrop Grumman Corp. has the most to gain from the budget expansion. The company is a leader in both offensive and defensive missile technology.
It was largely responsible for a successful U.S. missile defense test in May when the Pentagon shot down a mock intercontinental ballistic missile using a long-range interceptor missile.
So the company stands to benefit greatly as that system is beefed up in the coming months.
Northrop Grumman has also received a preliminary contract to design and test a replacement for the entire U.S. Minuteman missile fleet.
The company has grown earnings in each of the last five years and that growth is projected to continue.
At 23 times earnings, I expect the company to take maximum economic advantage of the next great U.S. defense buildup.
Providing a Basic Human Need
As long as humans roam the earth, we’ll need to build big, strong things to keep us alive and productive.
I’m talking about buildings, roads, bridges, mines… you name it.
And thanks to heavy machinery, we can do it faster — and cheaper — than ever before.
Founded nearly a century ago in California, Caterpillar Inc. is the world’s largest maker of construction equipment.
The industrial giant boasts a current market value of $81 billion.
In the wake of the financial crisis, many construction projects were halted or shelved indefinitely around the world.
And as a result, Caterpillar suffered through several consecutive years of losses.
But thanks to steep economic recoveries in Latin America and Asia in 2016, Caterpillar has snapped its sales and earnings “recessions” to become one of the Dow Jones’ best performers.
In fact, the company has beaten earnings estimates in seven of the last eight quarters.
And annual earnings are projected to rise by more than 80% over the next 12 months.
Better still, the company trades at 18.2 times forward earnings — a discount to the industry of 14%.
The stock has soared on the stellar projections…
In the last two years, shares have gained a whopping 88%.
That’s nearly triple the rise of the Dow over the same period.
To be fair, the big knock on Caterpillar is that it sits on $25 billion in long-term debt – most of which was incurred post-recession.
But the company has paid down more than 40% of its debt from an all-time peak of $41 billion in 2013.
And with improving fundamentals around the globe — and a $1 trillion infrastructure bill backed by the White House — Caterpillar’s soaring stock has plenty of fuel to keep chugging.
Time to Vote
Well, you’ve heard what Hutch and Jonathan had to say.
Now it’s time to vote…
Which company would you invest in based on their analysis?
Your vote decides the winner…
Ahead of the tape,
Chief Investment Strategist, Wall Street Daily