Analyst: High Valuation Makes Caterpillar Stock a "Sell"

Options bears are chiming in as well

Digital Content Manager
Mar 10, 2023 at 11:12 AM
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Caterpillar Inc. (NYSE:CAT) is down 2.8% to trade at $234.25 at last check, after UBS downgraded the blue chip to "sell" from "neutral," and lowered its price objective to $225 from $230. The brokerage noted valuation concerns, and that there is not enough cyclical momentum, with backlog growth decelerating and seemingly set to roll over.

Now, 20 of the 31 analysts in coverage call CAT a "hold" or worse. Meanwhile, short interest is on the rise, up 5.1% over the last two reporting periods. The 9.36 million shares sold short make up a whopping 19.5% of the stock's available float, or more than eight days' worth of pent-up buying power.

Options bears are chiming in, too, with 8,733 puts across the tape so far today -- double the intraday average volume -- compared to only 3,615 calls. The most popular contract is the April 230 put, followed by the weekly 3/10 247.50-strike put.

This penchant for bearish bets has been prevalent for some time. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CAT's 50-day put/call volume ratio of 4.29 ranks higher than all but 2% readings from the last 12 months.

Now could be a great opportunity to weigh in on Caterpillar stock's next moves with options. This is per CAT's Schaeffer's Volatility Index (SVI) of 43%, which stands in the low 18th percentile of annual readings.

The shares are today testing a floor at the $235 level, but are slipping below long-term support at the 100-day moving average. The $255 region has capped the equity since its pullback from a Jan. 27 all-time high of $266.04, though it maintains an 11.5% year-over-year lead.


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