3 Stocks to Watch in the Promising Construction & Mining Equipment Industry

The construction and mining equipment industry has gained 59.7% over the past year versus 15.8% for the S&P 500, supported by U.S. infrastructure spending, energy-transition-driven mining demand and expanding manufacturing activity. Caterpillar reported a record $72B Q2 2026 backlog, up 92% year over year, while its fiscal 2026 EPS estimate rose 10% in 60 days and implies 43.6% growth. Sector fundamentals remain constructive, although elevated input costs persist: the ISM Prices Index was 71.1% and supplier deliveries slowed for a ninth consecutive month amid tariffs, freight, fuel and Middle East-related supply-chain pressures.

Analysis

The investable read-through is less broad construction cyclicality than a tightening power-and-mining-equipment capacity cycle. CAT is uniquely positioned where grid-constrained data-center buildouts require dispatchable on-site power: engine/turbine availability, dealer service coverage and installed-base parts attach can support mix and aftermarket margins even if conventional construction orders normalize. This creates a second-order headwind for smaller equipment OEMs without power-generation exposure, while suppliers of large engines and electrical equipment may face extended lead times rather than immediate volume conversion.

The main risk is that backlog is being capitalized as earnings certainty while a meaningful portion may be cancellable or subject to delivery slippage; high input inflation also tests whether price/cost remains positive as prior pricing anniversaries. Over the next 1-3 months, order-book commentary, power-generation margins and dealer inventories matter more than aggregate PMI; over 6-18 months, copper/mining capex and data-center power interconnection delays determine whether the cycle extends. Consensus likely underestimates CAT's power optionality but overestimates the near-term earnings contribution until capacity ramps; the stock should be bought on evidence of conversion, not simply backlog headlines.

TEX is the more contrarian execution setup: specialty-vehicle capacity additions can improve fixed-cost absorption, but earnings upside depends on merger integration, procurement synergies and municipal budget releases rather than the commodity cycle. The modest estimate revision profile leaves room for a rerating if integration milestones validate cross-selling, but it also makes TEX vulnerable to any manufacturing disruption or delayed deliveries. Treat the promotional AI/automation framing as non-material until management quantifies recurring software, labor-hour reduction, or gross-margin impact.

Key Decisions for Investors

• Maintain an overweight in CAT versus XLI for a 6-12 month horizon, but add only on post-earnings weakness or after confirmation that power-generation backlog converts to revenue; target 10-15% upside with a 7-8% downside stop. Falsify on a sequential decline in power orders, dealer inventory build, or margin guidance falling despite backlog.
• Initiate a 3-6 month pair trade: long TEX / short CAT in equal beta only if TEX confirms merger synergies and Specialty Vehicles delivery cadence at the next results. This isolates underappreciated integration upside from CAT's more fully priced power narrative; exit if TEX lowers synergy targets or reports material production delays.
• Set an earnings alert for CAT service revenue growth, order cancellations and power-system lead times. If service growth decelerates while dealer inventories rise, reduce CAT exposure even if headline backlog remains elevated; that combination would signal late-cycle double ordering.
• Do not express the equipment thesis through NVDA, AMZN or GOOG: data-center power demand is a plausible indirect support for CAT, but the article provides no evidence of a material revenue linkage or timing for those technology names.