(FORTUNE Magazine) – Stocks are roiling: The economy is past the recovery stage and is defiantly expanding, bringing with it fears of rising interest rates and renewed inflation. But not every company is quaking in its boots, nor every stock richly priced and due to fall. For capital goods companies that have been painfully restructuring and patiently waiting for even a hint of renewed demand, the renaissance is finally here. Investors seeking bargains among companies poised to grow worldwide could not do much better than bet on the best American makers of engines, pumps, plants, and the like. Capital goods stocks began to slough off a 12-year stretch of underperformance only last year. What do these companies offer? Strong earnings, leading global market shares, and the potential for years of superior stock price appreciation. With the U.S. economy heating up, demand likely to grow in Europe and Japan, and plenty of potential in emerging markets, the peak in earnings may not occur until 1997. For investors, that leaves plenty of time to make money.

For real portfolio power, try Caterpillar, the world's largest maker of earthmoving equipment. From a high of $75 per share in 1987 until early last year, the stock did nothing. Earnings slid from a 1988 peak of $6 per share into the red in 1991 and 1992, while Japanese archrival Komatsu gained market share. Cat, meanwhile, buckled down to cut costs and modernize plants. Late last year the payoff began: Earnings in the fourth quarter surpassed Wall Street estimates by a resounding 72%, and for the year the company earned over $3 per share from operations. The gains came partly from Cat's improvements but also from rising demand in North America, where the company draws half its sales. Analysts on Wall Street think Cat is capable of earning $10 to $15 per share when worldwide demand is at full strength. The stock currently sells for $115, but Smith Barney analyst Tobias Levkovich thinks it could easily reach $200 as those chunkier earnings come in over the next three to five years. On a smaller scale, but possessing equally great appreciation potential, is Clark Equipment, or little Cat, as capital goods analyst Karen Ubelhart at Lehman Brothers likes to call it. Clark's $875 million in sales is less than one-tenth of Caterpillar's, but like big Cat, roughly half its sales are international. Ubelhart is looking for the company to earn $3.80 per share this year and $4.75 next as its European business recovers. Clark hasn't earned that much since 1980. Like Cat, it is much leaner today. Operating profit margins, 7.4% last year, were the strongest in a decade and are expected to rise to over 10% in 1994. The stock has tripled in a year, but at its recent price of $65 a share it trades at a reasonable multiple of 17 times expected 1994 earnings. Machine-tool maker Giddings & Lewis, with just over half a billion in sales, is also emerging as a stock market leader. Last spring the company ousted then-CEO William Fife, a move that knocked the shares down 25%. The new chief, Joseph Coppola, who came from Cooper Industries armed with 30 years of manufacturing experience, has restored investor confidence, and the stock is nearly back to its old highs. Analysts say it's headed higher. Orders in the fourth quarter of 1993 were the best the company has seen in two years, notes NatWest Securities analyst Tom Burns, with demand coming largely from the automotive industry. Anticipating a rise in orders from other industrial companies, Burns is looking for earnings per share of $1.50 this year and $2 next. The stock sold recently for $26 a share.

Engineering and construction companies like Fluor and Foster Wheeler are also capital-goods bets worth considering. Fluor, with sales of $7.8 billion last year, is the largest international E&C company based in the U.S. Although construction remains soft stateside, business is booming overseas. Thanks to lucrative contracts like a $1.3 billion deal to build an oil refinery in Thailand, its backlog outside the U.S. has more than tripled since 1987. Foster Wheeler, less than half the size of Fluor, gets 68% of sales from foreign operations, mostly from building refineries. Like Fluor, Foster Wheeler is bidding on a wave of orders in the Pacific Rim, which should drive earnings until its European business turns. Mutual fund manager Robert Brody owns both stocks in his American Growth Fund. At $49 per share, Fluor is trading at 21 times estimated earnings for 1994. Foster Wheeler is a $43 stock trading at 24 times 1994 estimates. Lofty P/Es? Sure, says Brody, but when you consider that these companies should increase earnings at a 20% annual rate over the next five years, they are bargains nonetheless.