3 Reasons to Buy Caterpillar Stock in 2026

Caterpillar (NYSE: CAT) is an iconic company with a huge portfolio of earth-moving products. In 2025, the company generated $67.6 billion in sales and $19.06 in adjusted earnings per share. The future is likely to be bright, as well, with the company's $51 billion backlog sitting at record levels. Here are three reasons to buy Caterpillar stock in 2026.

1. Caterpillar is benefiting from reshoring efforts

Caterpillar's equipment gets used to build everything from roads to buildings, and a lot in between. Over the past several years, companies have made a material effort to build in their home markets rather than manufacturing abroad and importing finished products. This so-called reshoring move generally requires the construction of new factories and other assets.

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Notably, spending on manufacturing plants in the United States has increased by more than 40% since 2020. While this spending isn't quite as "hot" as it was a couple of years ago, it is still running at an elevated pace, and that should translate into strong demand for Caterpillar's products. For example, Caterpillar's sales to construction industries were up 11% worldwide in the fourth quarter of 2025.

2. Data centers are a new and growing category

The hot construction topic of the day, however, is data centers. The emergence of artificial intelligence as a major new technology has dramatically increased the need for data centers. Spending on data centers has increased by nearly 350% since 2020. To be fair, construction spending on data centers is just a fraction of the spending on manufacturing. Still, data centers are an additional catalyst for demand.

3. Caterpillar also provides power

One lesser-known product category for Caterpillar is power. It makes engines that can provide power in remote locations or serve as backups in case of problems with the power grid. The company's power products are particularly useful for energy-related businesses that operate in remote areas, such as oil drilling. However, Caterpillar's power products can also help get a data center up and running before it has access to grid power. And those same products can keep a data center running even when the grid is down. Given the increasing importance of technology to modern life, Caterpillar's power business could be a hidden gem.

There's one problem with Caterpillar

There are clearly reasons to like Caterpillar stock in 2026. However, there is one sticking point that will stop many investors. The stock's 37x price-to-earnings ratio is far above its five-year average of roughly 19x. That said, Caterpillar's business tends to be cyclical, which can lead to material drawdowns. If you like the long-term opportunity Cat offers but not its current valuation, you should probably keep it on your wish list just in case there's a sell-off in 2026.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Caterpillar. The Motley Fool has a disclosure policy.