My Top 2 Megacap Stocks to Buy After GE Aerospace's Latest Pullback

Key Points
Caterpillar is seeing high sales growth from its energy and transportation segment.
Honeywell expects its profitability to improve after it spins off its aerospace division.
Both companies have long track records of raising their dividends.
- 10 stocks we like better than Caterpillar ›
GE Aerospace (NYSE: GE), one of the largest U.S. industrial companies, has seen its shares fall by more than 4% so far in March. That slump came despite the megacap delivering a strong fourth-quarter report. Revenue and earnings per share (EPS) rose by 18.9% and 32%, respectively.
When the company announced earnings on the morning of Jan. 22, the stock actually fell by 3.6% from opening to closing. What gives? Well, some of that had to do with profit-taking by investors using the news to unload the stock, which some saw as being overpriced after a run-up of more than 57% over the prior year.
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More recently, the steep rise in oil prices is turning investors against GE Aerospace because its main customers -- airlines -- will be adversely affected by higher fuel costs. The thinking is that high fuel costs will lead to deferred maintenance by airlines or a slowdown in new aircraft orders.
While rising fuel costs can hurt just about any company, at least two megacap industrial stocks have so far shrugged off the fuel concerns: Caterpillar (NYSE: CAT) and Honeywell International (NASDAQ: HON). Here are three reasons why each appears to be a buy right now.
The case for Caterpillar
1. It's a pick-and-shovel AI play
Caterpillar is known as a heavy-equipment company, but its energy and transportation segment provides large-scale reciprocating engines and backup generators that operators of artificial intelligence (AI) data centers often use to ensure those facilities have access to continuous, reliable energy.
In the company's Q4 report, it said that its backlog rose 71% year over year to a record $51.2 billion, and attributed much of that growth to power orders from hyperscalers such as Amazon and Microsoft. Caterpillar posted revenue of $67.6 billion in 2025, up 4%, and EPS of $18.81, down 17.2%.
The company has the advantage of a relatively high moat, as few companies are set up to build the huge, high-reliability reciprocating engines needed to support megawatt-scale data centers. That gives Caterpillar pricing power.
2. It benefits from the shift toward electrification
Global trends in energy and infrastructure are helping Caterpillar maintain its share in mining and construction sales. The electrification drive is increasing demand for elements such as copper, lithium, and an array of rare-earth metals. That, in turn, is leading mining companies to invest more in Caterpillar's autonomous hauling systems and other heavy machinery as they seek to increase their output.
Meanwhile, increased government spending on infrastructure has boosted the construction industry broadly, which is leading companies to buy more Caterpillar equipment. Management said it expects revenue to grow by 5% to 7% in 2026. It is increasingly seeing revenue from not only selling equipment but also from its 20- to 30-year contracts to service it. Service revenue is generally higher-margin than equipment sales.
3. Dependable dividend growth
Caterpillar has increased its dividend for 31 consecutive years, including a 7% raise in 2025 to $1.51 per share quarterly. Over the past decade, it has boosted its dividend by 96%.
Despite that, its yield today is only around 0.8%, and the payout ratio is only 31.5%, meaning there's plenty of room for further hikes. One reason the yield is so unusually low for this company is that the stock price is up more than 105% over the past year.
The case for Honeywell
1. Strong growth
Honeywell is an industrial conglomerate that operates in four sectors: aerospace technologies, building automation, industrial automation, and process automation and technology. All four are benefiting from organic market trends.
In 2025, revenue rose 8% to $37.4 billion, while EPS slid less than 1% to $7.57, due in part to charges relating to a settlement with FlexJet. However, adjusted EPS from continuing operations was up 12% to $9.78. Its stock is up more than 20% so far this year.
For 2026, the company is forecasting revenue between $38.8 billion and $39.8 billion, up 5% at the midpoint, and for adjusted EPS between $10.35 and $10.65, up 7.4% at the midpoint.
2. It will be more profitable after it completes its spinoffs
In October, Honeywell spun off its specialty materials business as a new public company: Solstice Advanced Materials. And later this year, it will spin off its aerospace division into another separate company.
The changes will transform Honeywell into a pure-play industrial automation and software company. The hope is that focusing on those segments will allow the company to achieve higher margins and greater stability than it has currently with its exposure to the volatile aerospace business.
3. It pays an above-average dividend
Honeywell has raised its dividend payouts for 15 consecutive years, including a 5% increase in 2025 to $1.19 per share quarterly. The yield is above average at 1.9%, with a payout ratio of 57.3%. The combination of strong share price performance and an increasing dividend has delivered a total return of 177% over the past decade.
Two good choices
Both companies offer a blend of aggressive growth and defensive income that sets them apart from their peers.
Caterpillar's transition toward a more service-heavy business model is adding higher-margin recurring revenue streams that will cushion it from cyclical downturns. Meanwhile, Honeywell rewards patient investors with a robust dividend yield and a solid track record of payout increases.
As GE Aerospace struggles with the secondary effects of oil price volatility on airlines, Caterpillar and Honeywell are leveraging their deep moats in automation and energy infrastructure to maintain their momentum in 2026.
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James Halley has positions in Microsoft. The Motley Fool has positions in and recommends Amazon, Caterpillar, GE Aerospace, Honeywell International, and Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.