Reviewing Graham (NYSE:GHM) and Caterpillar (NYSE:CAT)

Graham (NYSE:GHM) and Caterpillar (NYSE:CAT) are both industrials companies, but which is the better business? We will contrast the two companies based on the strength of their earnings, institutional ownership, risk, analyst recommendations, dividends, valuation and profitability.

Profitability

This table compares Graham and Caterpillar’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Graham	5.10%	11.94%	5.40%
Caterpillar	14.51%	55.53%	11.38%

Analyst Ratings

This is a breakdown of current ratings and price targets for Graham and Caterpillar, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Graham	0	3	2	0	2.40
Caterpillar	0	12	13	0	2.52

Graham presently has a consensus target price of $132.50, indicating a potential upside of 26.58%. Caterpillar has a consensus target price of $995.52, indicating a potential upside of 15.85%. Given Graham’s higher possible upside, research analysts plainly believe Graham is more favorable than Caterpillar.

Earnings and Valuation

This table compares Graham and Caterpillar”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Graham	$245.29 million	5.00	$12.50 million	$1.13	92.63
Caterpillar	$74.73 billion	5.30	$8.88 billion	$23.24	36.97

Caterpillar has higher revenue and earnings than Graham. Caterpillar is trading at a lower price-to-earnings ratio than Graham, indicating that it is currently the more affordable of the two stocks.

Volatility & Risk

Graham has a beta of 1.04, suggesting that its stock price is 4% more volatile than the S&P 500. Comparatively, Caterpillar has a beta of 1.6, suggesting that its stock price is 60% more volatile than the S&P 500.

Dividends

Graham pays an annual dividend of $0.44 per share and has a dividend yield of 0.4%. Caterpillar pays an annual dividend of $6.52 per share and has a dividend yield of 0.8%. Graham pays out 38.9% of its earnings in the form of a dividend. Caterpillar pays out 28.1% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Caterpillar has increased its dividend for 30 consecutive years. Caterpillar is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider & Institutional Ownership

69.5% of Graham shares are held by institutional investors. Comparatively, 71.0% of Caterpillar shares are held by institutional investors. 2.4% of Graham shares are held by insiders. Comparatively, 0.3% of Caterpillar shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Summary

Caterpillar beats Graham on 14 of the 17 factors compared between the two stocks.

About Graham

Graham Corporation, together with its subsidiaries, designs and manufactures fluid, power, heat transfer, and vacuum equipment for chemical and petrochemical processing, defense, space, petroleum refining, cryogenic, energy, and other industries. It offers power plant systems, including ejectors and surface condensers; torpedo ejection, propulsion, and power systems, such as turbines, alternators, regulators, pumps, and blowers; and thermal management systems comprising pumps, blowers, and drive electronics for defense sector. The company also provides rocket propulsion systems consisting of turbopumps and fuel pumps; cooling systems, which include pumps, compressors, fans, and blowers; and life support systems that comprise fans, pumps, and blowers for space industry. In addition, it offers heat transfer and vacuum systems, including ejectors, process and surface condensers, liquid ring pumps, heat exchangers, and nozzles; power generation systems, such as turbines, generators, compressors, and pumps; and thermal management systems comprising pumps, blowers, and electronics for energy sector. Further, the company offers heat transfer and vacuum systems consisting of ejectors, process and surface condensers, liquid ring pumps, heat exchangers, and nozzles for chemical and petrochemical processing industry. The company also services and sells spare parts for its equipment. It sells its products directly in the United States, the Middle East, Canada, Asia, South America, and internationally. Graham Corporation was founded in 1936 and is headquartered in Batavia, New York.

About Caterpillar

Caterpillar Inc. manufactures and sells construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives in worldwide. Its Construction Industries segment offers asphalt pavers, compactors, road reclaimers, forestry machines, cold planers, material handlers, track-type tractors, excavators, telehandlers, motor graders, and pipelayers; compact track, wheel, track-type, backhoe, and skid steer loaders; and related parts and tools. The company's Resource Industries segment provides electric rope and hydraulic shovels, draglines, rotary drills, hard rock vehicles, tractors, mining trucks, wheel loaders, off-highway and articulated trucks, wheel tractor scrapers and dozers, fleet management products, landfill and soil compactors, machinery components, autonomous ready vehicles and solutions, work tools, and safety services and mining performance solutions, as well as related parts and services. Its Energy & Transportation segment offers reciprocating engine powered generator sets; reciprocating engines, drivetrain, and integrated systems and solutions; turbines, centrifugal gas compressors, and related services; and diesel-electric locomotives and components, and other rail-related products. The company's Financial Products segment provides operating and finance leases, installment sale contracts, revolving charge accounts, repair/rebuild financing services, working capital loans, and wholesale financing; and insurance and risk management products and services. Its All Other Operating segment offers filters and fluids, undercarriage, ground engaging tools, fluid transfer products, precision seals, and rubber sealing and connecting components; parts distribution; logistics solutions and distribution services; brand management and marketing strategy services; and digital investments services. Caterpillar Inc. was founded in 1925 and is headquartered in Irving, Texas.