What You Need to Know Before Buying Caterpillar Stock
Investors and potential investors in Caterpillar (NYSE: CAT) find themselves in an unusual position. There's no shortage of speculation about the possibility that the global economy will experience a significant slowdown in 2023, and that's usually bad news for a stock traditionally labeled as "cyclical."
On the other hand, there's no guarantee that a severe slowdown is on the way, and plenty of arguments suggest that Caterpillar is well-positioned to thrive in the current environment. Let's consider its investment thesis from both sides.
With cyclical companies, it's a good idea to look at their valuations in the context of their revenues, earnings, and cash flow volatility. For example, the chart below (the gray areas show recessionary periods) shows how volatile Caterpillar's revenue has been. Also, note that its operating margin tends to fluctuate in conjunction with its revenue generation -- leading to fluctuating operating profits, which generate volatile free cash flows.
Source Fool.com
