(This is “The Best Stocks in the Market” brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh – Check out this masterpiece…I’ve shown it as a simple line graph with no technical indicators or trend lines to show you how easy it is when buying breakouts from multi-year consolidations. Caterpillar (CAT) has shaken off years of domineering and slow and steady progress to become an absolute beauty. They should call this company Butterfly now. CAT broke out last July when its enthusiasm for the power business became part of Wall Street’s AI bull market. And once he took off, he never looked back. Since then, despite stock market declines and volatility, this stock has not come close to its rising 200-day moving average. This was a stock that was never forced to reconsider its decision since its breakout. If only they could all do this. Even though CAT has been on my list for the past 10 months, I never got around to writing about it. We’re going to fix that today. Stock to watch: Caterpillar, Inc. (CAT) Sean — Caterpillar equipment is easy to find. Their brand is synonymous with the yellow equipment seen on roadsides across the United States. It actually has its own yellow color called Caterpillar Yellow, which was introduced in 1979 to improve visibility and brand alignment. You may remember that this is a similar story to Deere, which I first wrote about here on June 5th. Since our first article, DE is up 13%, but things continue to be tough. The stock was removed from the list in the fall of 2025, traded sideways through the end of the year, and was added back in 2026 as conditions improved. In hindsight, I should have written about CAT. Caterpillar is up 120% since June 2025, when we wrote about DE. The entire industry that both CAT and DE exist in is being disrupted. The machinery industry within the industrial sector group is home to stocks such as Packer, Ingersoll Rand, Illinois Tool Works, and Otis, as well as the home of these two companies, as well as many other heavy industries. There are 34 machinery stocks in the Russell 1000, and 28 of them are positive year-to-date. The median return for machinery stocks this year is up 14%, compared to the S&P 500’s median return of 2%. CAT leads this group by 33%, and DE is not far behind with a total return of 23%. Interestingly, the fundamental driver of business these days is not construction. CAT’s Power and Energy segment is the largest and fastest growing segment of the business. This segment supports industrial applications within the oil and gas, power generation, marine, and rail markets. This includes manufacturing solutions for engine-driven assets, turbines, and integrated systems within power generation applications. Surprisingly, CAT has been linked to both building AI and renaissance in the energy sector. Focusing specifically on this division, total sales in 2025 increased by 12% to $32.2 billion, profits increased by 12% to $6.4 billion, and margins decreased by 20%. This is where we achieved our greatest success. Power generation was the most prominent of the subsegments, jumping 32% to $10.3 billion, driven primarily by data center applications. What do you think that segment will do this year? (Hint: It’s trending up) Full-year sales across all segments are expected to be in the range of 5% to 7% year over year, but margins are expected to exceed 2025 levels (excluding CAT tariff assumptions, margins would be in the upper half of the annual target range). CEO Joe Creed said power generation demand will remain strong “over the next five years,” driven primarily by data center construction and natural gas demand. The 2030 Investor’s Day target is more than 2.0 times the 2024 baseline. This means that it is expected to grow by more than 50% from current levels. Risk Management Josh — Caterpillar is still on a strong uptrend, but yes, it’s well over 200 days. The stock price is $770 compared to the 200-day price of $565, which shows how strong this move is. However, this has not been a linear increase. The stock has been progressing step-by-step, with periods of price collapse followed by new highs. Even the February pullback helped reset momentum, with the stock now regaining its 50-day mark of $730 and pushing back toward higher highs. RSI (59) says momentum is solid without being overbought. For traders, setup is easy. As long as CAT maintains its 50-day period near $730, the short-term trend is still intact. A close below this level would indicate that this rally has likely failed and the stock needs more time. For investors, this is not the place to start a position. The stock has grown too much beyond 200 days to make an attractive entry here. What you want is the next consolidation period, one that removes the gains without interrupting the big uptrend. The message is to wait, not chase, until that happens. Disclosure: (none) All opinions expressed by CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, its parent or affiliates, and may have been previously disseminated on television, radio, the Internet, or another medium. This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any securities or other financial assets. The Content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of your own financial or investment advisor. Click here for full disclaimer.
