Which Would You Rather – Caterpillar or John Deere?

2013 has been hailed as a turnaround year for real estate sales. Whereas news from the sector had been mostly dour since 2008, 2013’s positive signs gave real estate market watchers something to celebrate. But most of the growth in home sales affected the existing home sales segment of the market, far more than the new construction segment. Heavy equipment manufacturers, such as Caterpillar CAT and Deere & Co. DE are directly affected by the new construction markets, as an increase in construction can lead to greater demand for their products. Here we will take a look at how these two companies fared during the 2013 turnaround in the real estate market, and into 2014.

Caterpillar began 2013 trading for $92.95. The company’s stock faced significant volatility during the year, vacillating wildly between a low of $80 and a high of $90 for most of the duration of 2013. But overall the year was a loser for the company, which closed at $90.81 – for a slight loss on the year. 2014 seemed like it would hold a similar fate for the company, which dropped sharply in late January, and even briefly traded under $86 per share. But going into February Caterpillar came back to life and began a climb which saw the stock trade to almost $98 at the end of the third week of the month.

Deere opened 2013 in the midst of an upswing, trading at $87.97. But going into the spring the company stalled badly, falling at one point under $83.00 per share. Though Deere was able to pull to $92.88 just weeks later, the company was not able to sustain the momentum and saw its stock price fall yet again, a fall from which the stock would not recover until the end of the year. In December Deere was able to mount a sustained upward move which saw the stock close at $91.33. The meager 4 percent return was dwarfed by the Dow’s and S&P’s 2013 returns which were both in the mid to high 20 percent range. Going into the fourth week of February 2014 Deere gave back all of its 2013 progress, trading in the sub-$85.00 range.

The industrial construction equipment business is intimately tied to the residential and commercial real estate construction markets. When those markets boom, it is likely that companies such as Caterpillar and Deere will benefit from the activity. But in times of depressed construction activity these stocks can suffer. As can be seen by the 2013-2014 stock valuations for these two companies, investors apparently are not expecting a serious rebound in construction activity in 2014 to occur, or at least not in such a way that will significantly affect the fortunes of Caterpillar and Deere.