Caterpillar’s Momentum Machine

Caterpillar’s stock price had an amazing run in Q3, leading industrial ETFs past the rest of the market.

(click to expand)

Caterprillar (CAT) is up 70% since July 10 compared to a 19% return for the SPDR S&P 500 (SPY) in the same period.

CAT started outpacing the market in mid-July even as the company was reporting a Q2 sales decline of 41% from the prior year.  The catalyst for the stock’s upward trajectory was an improved 2009 outlook.  CAT’s management tightened revenue projections on signs of economic improvement in Japan, India and Latin America and raised its profit outlook based on low dealer inventory and successful cost cutting measures.

Several industrial ETFs have material positions in CAT including the Industrial Select Sector SPDR Fund (XLI)  which tracks an index that represents the industrial sector of the S&P 500 Index.  In addition to holding 3.4% of the portfolio in CAT, XLI also owns GEUnited TechnologiesUPS3M and Boeing.

Other industrial ETFs include the iShares Dow Jones U.S. Industrial Sector Index Fund (IYJ) with a 2.3% stake in CAT and the Vanguard Industrials ETF (VIS) which has 2.5% allocated to CAT.

A leveraged ETF that focuses on industrials is the ProShares Ultra Industrials (UXI).

For more ETF investing choices, see the ETF Directory for a complete list of Sector ETFs.