Caterpillar | Caterpillar Digs Deeper Into China, Stock Worth $100

Caterpillar, the worlds leading maker of heavy construction and mining equipment, recently offered to purchase Chinese underground coal mining equipment manufacturer ERA Mining Machinery Ltd. for up to $894 million. [1]

The Peoria, Ill., company is pushing further into the booming Asian economy as part of its long-term goal of becoming a global leader in the mining industry. Caterpillar already has a strong presence in China and is investing capital in a wide range of new Chinese facilities there.

Caterpillars move further into China comes on the heels of American mining equipment maker Joy Globals announcement this summer of plans to acquire a majority stake in Chinas International Mining Machinery Holdings Ltd. pending government approval. Moving earth in emerging markets U.S. heavy-equipment makers have increasingly beefed up international operations and planned expansion in growing foreign markets to ride out American economic troubles and tap fast-growing economies. Caterpillars profits are soaring (rising 44% in the most recent quarter) on the back of strong sales due to stepped up construction and mining activity in the developing markets like China, India, Latin America and the Middle East, even as U.S. sales have slowed. Zeroing in on East Asia China is undergoing a sweeping infrastructure build-out that has created an almost insatiable demand for coal, copper and iron ore (for steel production). Three-quarters of Chinas electricity comes from coal-fired plants and the Asian countrys demand for energy is expected to soar in coming years as the economy continues to grow and modernize. Caterpillar is planning to build a mining truck facility in Batam, Indonesia, to tap growing markets across the Asia-Pacific region. The facility is scheduled to be operational next year, with the first complete trucks expected to roll out in the third quarter of 2013. [2] The performance of the company, serving customers in 180 countries, is seen as a bellwether of the global economy. Its current order backlogs stand at record levels and higher commodity prices are playing right into its plans to grow its mining business. Although Caterpillar shares are currently above their Trefis price estimate, the stock is trading at about 10 times expected 2012 earnings, offering a 2.1% dividend yield. Moreover, earnings are projected to grow by at least 20% in the next five years. So, despite bullish signs, the companys moves will likely pay off well in the longer term.