Will Caterpillar Stock Continue To See Lower Levels Or Is A Rise Imminent?

CAT: Caterpillar logo

The stock price of Caterpillar (NYSE: CAT) has seen a fall of 13% over the last month, while it is down 10% YTD, owing to a mix of global geo-political factors weighing over the broader markets and the rising costs for the company, given the inflationary headwinds and supply chain constraints.

In our previous update on Caterpillar, we maintained our view that CAT stock is undervalued, and the dip following its Q4 release can be used as a buying opportunity. Since then, CAT stock has declined 9%, implying a further rise in its upside potential. With the worst of the pandemic appearing behind us, the supply-chain constraints are likely to ease going forward, and demand for construction equipment is expected to remain strong in the near term. We estimate Caterpillar’s Valuation to be around $244 per share, reflecting a 30% upside from its current levels of $187. That said, there are near-term headwinds for the broader markets, including the Russia-Ukraine conflict and its impact on the oil market. Any adverse reaction on the broader markets will also impact Caterpillar stock.

But what about the near term? Given that CAT stock has seen a fall of 13% in a month, will it continue its downward trajectory, or is a rise imminent? Going by its historical performance, there is a good chance of a rise in CAT stock over the next month. Of 77 instances in the last ten years that CAT stock saw a twenty-one-day decrease of 13% or more, 60 of them resulted in CAT stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 60 out of 77, or about a 78% chance of a rise in CAT stock over the coming month. See our analysis on Caterpillar Stock Chances of Rise for more details.

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While CAT stock may see higher levels over the next month, it is helpful to see how its peers stack up. Check out Caterpillar’s Peers to see how CAT stock compares against peers on metrics that matter. You can find more useful comparisons on Peer Comparisons.

Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using last ten years’ data

  • After moving -3.9% or more over five days, the stock rose on 51% of the occasions in the next five days.
  • After moving -7.9% or more over ten days, the stock rose in the next ten days on 58% of the occasions
  • After moving -12.7% or more over a twenty-one-day period, the stock rose on 78% of the occasions in the next twenty-one days.

This pattern suggests a higher chance of a rise in CAT stock over the next five days, ten days, and one month.

Caterpillar (CAT) Stock Return (Recent) Comparison With Peers

  • Five-Day Return: ASTE highest at 33.0%; DE lowest at -8.8%
  • Ten-Day Return: ASTE highest at 25.1%; BDX lowest at -11.7%
  • Twenty-One Days Return: CNHI highest at 29.2%; ACT lowest at -12.7%

While CAT stock may see higher levels, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Caterpillar vs. IAA.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

 Returns Feb 2022
MTD [1]
YTD [1]
Total [2]
 CAT Return -7% -10% 102%
 S&P 500 Return -3% -8% 96%
 Trefis MS Portfolio Return -1% -11% 251%

[1] Month-to-date and year-to-date as of 2/28/2022
[2] Cumulative total returns since the end of 2016

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