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Brand Face-Off: Deere & Company vs. Caterpillar Inc.

Evaluating DE and CAT from technical and sentiment viewpoints

by 3/17/2014 1:30:53 PM
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Deere & Company (NYSE:DE) and Caterpillar Inc. (NYSE:CAT) are big names in the industrial sector that have fared quite differently on the charts in recent months. To be specific, DE shares have tumbled about 4% since the turn of the year to trade at $87.70, while CAT has advanced 11.5% from its Jan. 24 intraday low of $85.88 to perch at $95.76. While both stocks are currently facing a thick layer of resistance (at $90 for DE, and at $98 for CAT), CAT appears ready for a contrarian breakout in the near term, while DE could continue to churn underneath the aforementioned barrier.

Daily Chart of DE since January 2014

Daily Chart of CAT since January 2014

Despite their technical differences, Deere and Caterpillar have received similar treatment from the brokerage firms on Wall Street. Right now, DE maintains nine "holds" and seven "sell" or worse suggestions, compared to just three "strong buy" recommendations. Plus, the equity's average 12-month price target of $87.78 is just a stone's throw away from the shares' current price.

Likewise, CAT sports 12 tepid "hold" ratings, and eight "strong buy" endorsements, along with a consensus price target of $100.57, which denotes a slim 5% premium to the stock's current price. Given its recent technical backdrop, however, CAT may receive some upgrades and/or price-target lifts in the short term, which could give the shares an additional boost on the charts.

Back on Main Street, sentiment is just more of the same toward Deere and Caterpillar. Particularly, in the options pits, both equities have seen notable put activity among options expiring in three months or less. In fact, DE's Schaeffer's put/call open interest ratio (SOIR) of 1.32 ranks in the 62nd percentile of its 12-month range, indicating short-term option traders are more put-focused than usual toward the stock right now.

Furthermore, CAT has racked up a SOIR of 1.67, which ranks higher than 99% of comparable readings from the past year. This means short-term speculators have been more put-biased toward the equity just 1% of the time during the past 12 months. An unwinding of these bearish bets could create some technical tailwinds for the shares.

With that being said, it seems Caterpillar Inc. (NYSE:CAT) is more likely than Deere & Company (NYSE:DE) to surpass its layer of resistance in the near term, and hit annual highs along the way. Therefore, CAT is the winner of this week's Brand Face-Off.

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