This industrial giant on Josh Brown’s Best Stocks list is seeing a ‘masterpiece’ breakout
(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh — Look at this masterpiece… I’m showing it to you as a simple line chart without any technical indicators or trendlines to point out how simple it can be when you buy a breakout out of a multiyear consolidation. Caterpillar (CAT) shook off years of sideways churn and slow-and-steady advances to become an absolute beauty. They should be calling this company Butterfly now. CAT broke out last July as enthusiasm for its power business became part of the AI bull market on Wall Street. And once it took off, it never looked back. This name has not even been near its rising 200-day moving average ever since, despite the pullbacks and volatility in the stock market. This was a one-decision stock that hasn’t forced you to reconsider ever since the breakout. If only they all could do this. We haven’t gotten around to writing about CAT despite it being on our list for the last 10 months. Today, we’re going to fix that. Best Stock Spotlight: Caterpillar, Inc. (CAT) Sean — Caterpillar’s equipment is easy to spot. Their brand is synonymous with the yellow colored equipment you see on the side of the road across the U.S. They actually have their own yellow, called Caterpillar Yellow, which was introduced in 1979 for higher visibility and better brand alignment. You may remember this is a similar story to Deere , which we wrote about first here on June 5. DE is up 13% since that first write up, and it has been a rough ride. The stock was kicked off the list in the fall of 2025, traded sideways through year end, and was added back as things picked up in 2026. In hindsight, we should have written about CAT. From the date of when we wrote about DE in June of 2025, Caterpillar is up 120%. The entire industry that both CAT and DE reside in has been ripping. The Machinery industry within the industrial sector group is home to these two companies, along with stocks like Paccar, Ingersoll Rand, Illinois Tool Works, Otis, and a number of other heavy industrials. There are 34 machinery stocks within the Russell 1000, and 28 are positive on the year. The median return for a machinery stock this year is up 14%, relative to the median S & P 500 stock’s return of 2%. CAT leads this group up 33%, while DE is not far behind up 23% in total return. Interestingly, construction is not the fundamental driver of the business these days. CAT’s Power & Energy segment is both the largest and fastest growing segment of the business. This segment supports industrial applications within oil and gas, power generation, marine, and rail markets. This includes the fabrication of engine-powered assets, turbines, and solutions for integrated systems within electric power generation applications. Surprise, surprise, CAT is tied to both the AI-build AND the energy sector renaissance. Looking at this segment specifically, in 2025 total sales hit $32.2 billion up 12%, while profit was $6.4 billion up 12% throwing down 20% profit margins. Here’s the coup de grâce: power generation was the standout sub-segment, surging 32% to $10.3 billion, primarily driven by data center applications. What do you think that segment does this year? (hint: it’s going higher) Full-year revenue for all segments is expected to be in the 5%-7% range year over year, while margins are expected to exceed 2025 levels (if you exclude CATs tariff assumption, margins would be in the top half of their annual target range). CEO Joe Creed stated demand for power generation is strong “for the next five-plus years”, driven primarily by data center build-out and natural gas needs. The 2030 investor day target is > 2.0x the 2024 baseline — which implies another 50%+ of growth still to come from current levels. Risk management Josh — Caterpillar is still in a powerful uptrend, but yes, it is way extended above the 200-day. The stock is at $770 versus a 200-day at $565, which tells you just how strong the move has been. But this hasn’t been a straight line higher. It’s been a stairstep advance, with repeated periods of consolidation followed by new highs. Even the February pullback helped reset momentum, and now the stock has reclaimed the 50-day at $730 and is pushing back toward the highs. RSI at 59 says momentum is firm without being overbought. For traders, the setup is straightforward. As long as CAT is holding the 50-day around $730, the near-term trend is still intact. A close back below that level would suggest this latest push has failed and the stock likely needs more time. For investors, this is not the place to start a position. The stock is too stretched above its 200-day to offer an attractive entry here. What you want is the next consolidation period, something that works off the gains without breaking the major uptrend. Until that happens, the message is to wait rather than chase. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, 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 BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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