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Stretched Valuations in Heavy Equipment

Overly optimistic assumptions about the impact of a Trump infrastructure plan have left many heavy equipment manufactures looking pricey.

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Kwame Webb: Our heavy equipment coverage includes marquee construction, agriculture, truck, and engine manufacturers such as Deere, Caterpillar, Cummins, and Paccar.

In 2016, this group had a median total return of 45% and a 14% return since the November election results were announced. Although many of these companies are exposed to the increased infrastructure spending plans of our president-elect, we would note that direct exposure to North American construction spending is 20% or less of sales for many of these companies and that the magnitude of spending contemplated by the government only translates into an incremental 1-3% of sales over a 10 year period.

Kwame Webb does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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