UKRAINE – 2021/05/23: In this photo illustration a Caterpillar Inc logo seen displayed on a … [+]
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The stock price of Caterpillar (NYSE: CAT) has seen a rise of 19% over the last month, while it is up 7% YTD, outperforming the broader markets with the S&P 500 rising 5% over the last month, while it is down 5% YTD. The broader markets have seen increased volatility due to global geopolitical factors and their impact on commodities and the global economy. The recent rise in CAT stock can be attributed to the impact of the ongoing Ukraine crisis, which may result in increased diversification of energy supplies. This is likely to require increased investments. Furthermore, the surge in commodity prices following Russia’s invasion of Ukraine will likely bode well for Caterpillar’s business. That said, there will be near term impact from its exit from the Russian market. Earlier this month, one of the Wall Street research firms upgraded its view on CAT stock, bolstering the stock price growth.
In our previous updates on Caterpillar, we maintained that CAT stock is undervalued. The dip following its Q4 release and in late February was a good buying opportunity. With the worst of the pandemic appearing behind us, the supply-chain constraints are likely to ease going forward, and demand for construction and resource industries equipment is expected to remain strong in the near term. The rise in commodities prices is also a positive for Caterpillar. However, the stock has already rallied close to 20% over the last month or so, narrowing the upside potential. We estimate Caterpillar’s Valuation to be around $244 per share, reflecting only a 10% upside from its current levels of $222.
But what about the near term? Given that CAT stock has seen a rise of 19% in a month, will it continue its upward trajectory, or is a fall imminent? Going by its historical performance, there is a high chance of a fall in CAT stock over the next month. Of 17 instances in the last ten years that CAT stock saw a twenty-one-day increase of 19% or more, only four resulted in CAT stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 4 out of 17, or about a 24% chance of a rise in CAT stock over the coming month. See our analysis on Caterpillar Stock Chances of Rise for more details.
While CAT stock may see lower 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 -0.2% or more over five days, the stock rose on 54% of the occasions in the next five days.
After moving 3.7% or more over ten days, the stock rose in the next ten days on 53% of the occasions
After moving 19.4% or more over a twenty-one-day period, the stock rose on 24% of the occasions in the next twenty-one days.
This pattern suggests a marginally higher chance of a rise in CAT stock over the next five days and ten days but a higher chance of a fall in one month.
Caterpillar Stock Return (Recent) Comparison With Peers
Five-Day Return: ASTE highest at 53.8%; TEX lowest at -3.3%
Ten-Day Return: ASTE highest at 63.0%; ALSN lowest at 0.4%
Twenty-One Days Return: ASTE highest at 36.9%; TEX lowest at -8.4%
While CAT stock may see lower levels in the near term, 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.
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