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Caterpillar to rally 27% on 'structurally higher' profit margins, Goldman Sachs says

Daniel Acker | Bloomberg | Getty Images

Investors should buy Caterpillar shares on the prospect of better profitability in the coming years, according to Goldman Sachs, which raised its rating on the company to buy from neutral.

"We upgrade CAT ... as we see structurally higher margins in this cycle," Goldman Sachs' Jerry Revich wrote in a note to clients Monday.

"Our view of $8 in normalized earnings is well ahead of investor expectations, and if realized, we believe will drive the next leg of upside for the stock."

As of Monday's close, shares of the mining equipment maker are up 29.8 percent this year on growing optimism from recovering commodity prices, according to the analyst.