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Cramer: Caterpillar’s stock could be ready to break out

Caterpillar could be heading higher if there is further improvement in China, CNBC's Jim Cramer said Monday.

"This company has been down so long, to me the balance sheet is much better than expected, the dividend is intact and, if China turns around, look out above," Cramer said on "Squawk on the Street."

The world's largest maker of heavy equipment raised hopes Friday that China's battered construction sector may be showing signs of life, pointing to its strongest post-holiday period in three years after a government boost.

"Asia was actually up in the quarter year over year; [Caterpillar] has seen a gain from the recent improvement in commodity prices, and it's only going to get stronger, I think," Cramer said.

Still, the company reported first-quarter earnings that fell short of estimates Friday, and lowered its midpoint 2016 revenue outlook.

Shares of Caterpillar closed nearly 2 percent lower and have shed 9.2 percent in the last year.