Who Will Hit $100 First? (CAT, UNP)

Caterpillar

and Union Pacific

have been spectacular large-cap stocks in 2010, up 53.6% and 41.7%, respectively. Can they continue their run in 2011? The thesis behind these names is that emerging markets will continue to grow at a robust rate, fueling demand for agricultural, industrial, and energy commodities. Furthermore, the FED and U.S. government are content to keep the dollar weak through multiple rounds of quantitative easing and tax cuts/deficit spending to prop up a weak domestic economy. These actions will continue to exert downward pressure on the U.S. dollar while pushing up prices of all commodities, regardless of end demand. Caterpillar currently trades at just under $90 and for 15.7 times next year's consensus earnings estimate while Union Pacific trades just over $92 and at 14.4 times next year's consensus earnings estimate. Both stocks are not overly expensive, but are not necessarily a bargain either. I think both stocks can reach $100. From there, one may want to step back and evaluate the macro environment to see how much further they can run. A lot of their future performance will depend on China and its monetary policy towards inflation. If inflation remains stable in 2011, China will not have to tighten and these commodity-related names will have further to run.