Analyst Says Buy the Dip on This Dow Stock

Stifel says the bad news is already priced into Caterpillar stock

by Patrick Martin

Published on Mar 16, 2020 at 2:22 PM

Everywhere you look on Wall Street, stocks are swimming in red ink. However, one Dow name that's hanging on so far today is Caterpillar Inc. (NYSE:CAT), up 0.3% to trade at $99.21, after Stifel issued an upgrade to "buy" from "hold." Although the analyst in coverage trimmed its price target to $137 from $140, they noted that much of the bad news for CAT is already priced in. 

Caterpillar stock hit a nearly three-year low of $87.50 last Thursday. And despite the upgrade, the shares are still down 32% year-to-date, with breakouts turned away by their descending 10-day moving average. Plus, CAT sports a 14-day Relative Strength Index (RSI) of 29 -- on the cusp of "oversold" territory, suggesting a short-term bounce may soon be in the cards.

Today's upgrade runs counter to the overall analyst backdrop. Of the 15 brokerages in coverage of the equity, 11 rate it a "hold" or "strong sell," leaving plenty of room for bull notes in the weeks ahead.

In the options pits, calls remain in vogue. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 1.63 calls have been bought for every put in the past 10 days. This ratio sits in the 82nd percentile of its annual range, suggesting the appetite for calls is higher than usual.

It's interesting to note that CAT has been more volatile than expected during the past 12 months. This is based on its Schaeffer's Volatility Scorecard (SVS) of 90 (out of 100.) 

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