Industrial stocks are doing great. On Tuesday, I wrote about Rolls-Royce, Illinois Tool Works, and Emerson Electric. This article will look at Caterpillar (NYSE: CAT) stock price, which has surged to a record high as demand, revenues, and profits jump.
Caterpillar is doing greatCaterpilar is one of the biggest American industrial companies. It is an iconic brand that is well-known for its yellow products that are widely used in key areas like construction, mining, and agriculture. It competes with the likes of Deere, Komatsu, and Hyundai.
Caterpillar stock price has surged hard as investors cheer the company’s financial results. The company published mixed results a few weeks ago. On the one hand, its total backlog retreated to $27.8 billion from the previous year’s $30 billion.
Caterpillar’s revenue rose by just 3% in the fourth quarter to $17.1 billion. It increased its efficiency, leading to a 15% increase in operating profit to over $3.2 billion. Further, its free cash flow jumped to over $10 billion.
Caterpillar is set to benefit from several important tailwinds. Prices of key machines are expected to continue rising this year, which could boost its total profit margins.
Further, the company’s profitability metrics are doing well. Its gross profit margin came in at 31.73%, higher than the sector margin of 30.36% and its five-year average of 26%. Its EBITDA and net profit margins came in at 23% and 15%.
Most importantly, there are signs that Caterpillar is actually undervalued even as it sits at its all-time high. It has a forward PE ratio of 16.6, which is lower than the sector median of 18.4 and its five-year average of 18.1%.
Caterpillar’s forward EV to EBITDA stood at 13.6, which is also lower than the sector median of 14.2.
Investors also love Caterpillar’s dividend track record. It is a dividend aristocrat that has paid grown its payouts for over 30 years. It has paired these payouts with share buybacks, which have helped to reduce the outstanding shares to 499 million from 597 million in 2018.
There are risks for investing in Caterpillar though. For one, some key sectors like mining and agriculture could go through weakness as the prices of key resources drop.
Caterpillar stock price analysis
Turning to the weekly chart, we see that the CAT share price has been in a strong bull run for a long time. It has continually formed a series of higher highs and higher lows. Most recently, the stock crossed the crucial resistance point at $290.13, its highest swing on July 31st last year.
Caterpillar’s share price has constantly remained above all moving averages. The Relative Strength Index (RSI) and the Commodity Channel Index (CCI) have all moved to the overbought level. The Awesome Oscillator has remained in the green zone in the past eight straight weeks.
Therefore, the outlook for the Caterpillar stock price is bullish, with the next level to watch being at $400. However, with the shares being oversold, we can’t rule out a situation where it pulls back in the coming weeks as bears target the support at $290.
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