Analyst, Options Traders See 2-Year Lows Ahead for Caterpillar

Put buying has picked up the pace on CAT in recent weeks

Aug 15, 2019 at 12:41 PM
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Stephens initiated coverage on Caterpillar Inc. (NYSE:CAT) with an "underweight" rating and $100 price target -- a more than 13% discount to last night's close. While the analyst in coverage waxed optimistic on the construction concern's restructuring efforts, he said a slowing global economy could create risk for the trade-sensitive name.

This is just the latest bearish brokerage note for the Dow stock, with Goldman Sachs downgrading CAT one week ago, and 10 analysts maintaining a "hold" or worse rating on Caterpillar prior to today, compared to six "buy" or better recommendations. However, the average 12-month price target of $143.61 is a 25% premium to current levels.

The skepticism toward Caterpillar stock has ramped up in the options pits, too. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 1.04 ranks in the 96th annual percentile, meaning puts have been bought to open over calls at an accelerated clip.

The January 2020 100-strike put saw the biggest increase in open interest over this two-week time frame, with almost 7,000 contracts added. Data from Trade-Alert suggests a number of new positions were purchased here on Aug. 7. Considering CAT was trading near $121 at the time, it's possible some of this is hedging activity.

The last time Caterpillar shares traded below the century mark was all the way back in May 2017. The stock has been making a series of lower highs since its early 2018 peak above $173. More recently, CAT is down 18.2% since its mid-July rejection near $141 to trade at $115.34, and is pacing for its fifth straight weekly loss -- the longest such stretch since right before the 2016 U.S. presidential election.

cat stock weekly price chart on aug 15


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