Caterpillar-stockLooking for cheap stock in a company that’s down but not necessarily out? You might want to take a close look at Caterpillar (NYSE: CAT), which took a beating last week after it reported steep drops in second-quarter revenue and income and trimmed its full-year sales forecast.

Caterpillar stock fell 3.6% on Thursday following a weak second-quarter earnings report and widespread proclamations that the good days are over for the heavy equipment maker, which in recent years has drawn a lot of business from emerging markets like India and China.

But most stories are not as simple as the tale of boom and bust would have you believe. If you take a closer look at Caterpillar shares, you’ll see a pattern of boom and bust over the past decade, which most likely mirrors the shifting outlook for emerging economies, where growth is unsteady.

Through it all, there’s a trend of growth. Caterpillar’s shares are up about 10% over the past five years and 37% over the past decade – not bad considering it pays a 4% dividend. And over that time, many investors have made a lot more money than those percentages suggest, by buying at opportune times when the stock was in a valley.

Caterpillar seems to be one of those stocks where past performance is actually a pretty good indicator of future returns The core industries it serves, such as construction, are ones where there is certain to be both significant future demand and rocky times, particularly in the overseas markets that make up a big piece of its business.

Now about that second quarter. To be clear, it wasn’t pretty. Quarterly revenues fell 13% year-over-year and net income tumbled 29%. Sales declined in all regions.

To be clear, this is more than a blip. The company’s historical income statement shows last year’s revenues totaled $55.18 billion, down from $65.88 billion two years ago. Its 2014 net income of $3.7 billion compares with earnings of $5.7 billion two years earlier. Caterpillar is a company facing some serious challenges.

It is also a 90-year-old company that is no stranger to market disruptions and difficult economic times, but has continuously innovated its product offering and expanded into new markets to meet evolving demands and capture new business. The odds are good that it has more good times ahead.

Those good times may not come next year, or the year after, however. Caterpillar is a stock to buy and hold for the long haul.

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Published by Wyatt Investment Research at