Caterpillar (CAT), the global manufacturer of construction and mining equipment, diesel engines, and industrial turbines, emerges as a top pick to benefit from President Donald Trump’s tax-and-spending legislation dubbed the “One Big Beautiful Bill Act.” 

According to Citi analysts, the “big beautiful bill” will support industrial equipment demand, domestic manufacturing, and industrial activity, areas where Caterpillar stands uniquely positioned to capitalize.

Tariff Resilience Through Domestic Manufacturing

Unlike many industrial companies vulnerable to trade tensions, Caterpillar enjoys protection from tariff impacts due to its U.S. manufacturing footprint. It operates as a net exporter from the United States. Some plants exclusively serve export markets with zero domestic consumption, highlighting Caterpillar’s century-long commitment to American manufacturing.

When supply chain disruptions occur, whether from tariffs, natural disasters, or geopolitical tensions, Caterpillar can shift production between facilities in Texas, Japan, France, Brazil, China, and India to maintain customer service levels.

How Did Caterpillar Perform in Q1 2025?

Despite a challenging macroeconomic environment, Caterpillar delivered solid Q1 results with sales of $14.2 billion. While revenues declined 10% year-over-year due to dealer inventory adjustments and pricing pressures, it reported a healthy operating margin of 18.3%, due to favorable manufacturing costs.  

Most notably, Caterpillar’s backlog surged by a record $5 billion to $35 billion, with growth across all three primary segments. This backlog provides substantial revenue visibility and demonstrates strong underlying demand despite economic uncertainty. 

Caterpillar benefits from multiple infrastructure drivers beyond federal legislation. For instance, its Construction Industries segment reported better-than-expected sales, particularly in North America, where residential construction showed strength despite interest rate concerns.

Is CAT Stock Undervalued?

Caterpillar’s focus on higher-margin services provides additional growth momentum. The company leverages data from 1.5 million connected machines to offer predictive maintenance and reduce customer downtime. 

With margins more than doubling over the past decade through operational discipline, Caterpillar appears well-positioned to benefit from any infrastructure spending increase while maintaining profitability through economic uncertainty.

Analysts tracking CAT stock forecast adjusted earnings to expand from $18.69 per share in 2025 to $32.18 per share in 2029. If the industrial giant trades at a forward price-earnings multiple of 18x (which is in line with its 10-year average), CAT stock will be priced around $576, indicating an upside potential of over 42% from current levels. 

Out of the 22 analysts covering CAT stock, 11 recommend “Strong Buy,” one recommends “Moderate Buy,” and 10 recommend “Hold.” The average target price for CAT stock is $387.50, 5% below the current trading price.