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Caterpillar shares after analysts at Goldman Sachs added the heavy machinery maker known for its yellow loaders and excavators to its “conviction buy list” and said they see a 30 per cent upside.

Shares in the Illinois-based company rose more than 2 per cent to $94.34 as analysts at Goldman reiterated their buy rating and said their $120 price target implied a 30 per cent premium to where the stock is trading.

The upbeat view comes as Jerry Revich, an analyst at Goldman Sachs said demand for machinery, — which is considered one of the most discretionary parts of mining capital expenditure budgets and was hurt during a protracted slump in the mining and construction industry — is at an inflection and added that “we now believe the global reduction in mining capex is over as 35% of mining companies have introduced higher capex guidance for 2017 for the first time in four years”. He also added that demand for construction machinery is in the early stages of a recovery.

Mr Revich also said he sees scope for higher-mid-cycle earnings per share of $8 and pointed to the downbeat sentiment on the stock. The average mutual fund is underweight Caterpillar by about 20 per cent and on the sell-side 36 per cent of analysts currently have “buy” ratings on the company, below the historical average of 45 per cent and a peak of 71 per cent.

The news offered some reprieve to Caterpillar shares that have been hurt in recent weeks after US law enforcement authorities raided the company’s headquarters and two other facilities in Illinois as part of a long-running tax investigation into financial transactions involving CSARL, a Caterpillar subsidiary in Switzerland. .

While Mr Revich acknowledged the litigation risk surrounding the IRS allegations, he noted that the company’s market value is down $4bn since the beginning of March on what is expected to be a $2bn dispute based on the company’s disclosures and correspondence with the SEC.

Caterpillar shares are now up nearly 2 per cent year-to-date.

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