Stock your truck at the Caterpillar (CAT) warehouse, says Jefferies analyst Steven Volkmann.
“The recent turmoil in Eastern Europe is fundamentally changing global commodity markets, causing structurally higher prices, and after several years of underinvestment in both the mining and oil and gas sectors, additional capacity and supply diversification will be needed, although new projects will take time. Caterpillar has historically been a strong hedge in commodities and general inflation,” Volkmann said in a new note published Tuesday.
Volkmann upgraded his recommendation for Caterpillar from Hold to Buy. The analyst sees a fair value of $260 per share, about 22% above current levels.
Volkman added: “The company was a safe bet during the high inflation period of the 1970s. At the peak of the last cycle, 2/3 of Caterpillar’s profits came from mining, oil and gas and related activities, compared to about 40% today. The mining industry in particular remains well below previous peak levels and we believe that new capacity needs to be more energy efficient and more automated to continue meeting ESG targets. “
Shares in the heavy equipment maker rose 8% to $213 in the session. The stock is one of the ten most popular tickers on the Yahoo Finance platform.
Caterpillar shares are up 3.2% in 2022, outperforming the S&P 500’s 12% drop.
FILE – A Puckett Machinery technician walks past a new heavy-duty Caterpillar excavator waiting to be modified at the Puckett Machinery Company in Flowwood, Mississippi, Sept. 18, 2019. Caterpillar continued to see strong sales growth in the fourth quarter of 2022 as the economy strengthens. Sales rose 23% to $13.8 billion. (AP Photo/Rogelio V. Solis)
According to Volkman, the Russian-Ukrainian war has ignited the prices of almost all goods.
Wheat closed in Chicago at its highest price on Monday. Estimated futures for corn and soybeans are up 26% this year. On Sunday evening, Brent oil rose briefly to $139 a barrel.
And, of course, trading in nickel was suspended today as it reached $100,000 per ton.
“Remember, the bread riots are what started the Arab Spring, the bread riots are what started the French Revolution,” Sal Gilberti told Yahoo Finance Live.
The story goes on
Gilberti is the CEO of Teucrium, the largest U.S. exchange-traded fund issuer focused exclusively on agricultural funds.
“It’s a biblical event when you run out of wheat. You won’t see a global food shortage. Unfortunately, what you will see around the world is that billions of people will not be able to afford to buy food,” added Gilberti.
Sounds like a fertile backdrop for Caterpillar.
Julie Hyman of Yahoo Finance contributed to this story.
Brian Sozzi is the editor-in-chief and Lead at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and beyond LinkedIn.
Follow Yahoo Finance at Twitter, facebook, Instagram, flipboard, LinkedIn, YouTubeas well as reddit