With the slowing of both commercial and residential construction, and rumors of an impending recession grow, two mainstay companies in the construction industry are seeing their values dipping—particularly because of the lack of demand for backhoes, cranes, and dump trucks.
Wells Fargo analysts downgraded shares of Caterpillar and Deere in September, believing demand has peaked. “A potential 2020 U.S. construction equipment demand drop will put downward pressure on earnings power,” analyst Andrew Casey wrote. Both stocks were downgraded from “Buy” to “Hold”.
The news isn’t just about Deere and Caterpillar, though. US construction spending matters a lot to the economy. It is a trillion-dollar market and construction spending has been good for the past several years, but it’s also a bellwether of things to come and, like auto sales and other businesses that drive industrial markets, things aren’t as good as they once were.
Total US construction spending peaked at $1.3 trillion in October of 2018 and fells for the first time, year over year, since February 2012.
While they haven’t been downgraded yet, Wells Fargo said to watch stocks like Volvo, Terex, Oshkosh, and Allison Transmission, as they all build large-scale construction equipment.
For more information, check out this article in Barrons