Caterpillar Stock Win Streak at Risk After Downgrade

Atlantic Equities thinks macro headwinds will pressure CAT stock

Jun 21, 2019 at 10:29 AM
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Atlantic Equities downgraded Caterpillar Inc. (NYSE:CAT) to "underweight" from "neutral," citing concerns over a potentially slowing global economy. The brokerage firm said it expects "the shares .. to come under the most pressure and lag the average return we see for our overall coverage."

Most analysts are already skeptical of Caterpillar, with nine of 17 maintaining a "hold" or worse recommendation on the Dow stock. Meanwhile, the average 12-month price target of $148.65 is a lukewarm 11% premium to current levels.

This bearishness is seen in the options pits, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CAT's 10-day put/call volume ratio of 0.77 ranks in the 80th annual percentile. So, while calls have outweighed puts on an absolute basis, the high ranking shows the rate of put buying relative to call buying has been accelerated.

Today, puts are crossing the tape at more than two times the average intraday pace, with nearly 3,900 contracts traded already. Day traders appear to be buying to open the June 134 puts for a volume-weighted average price $1.09. If this is the case, breakeven for the put buyers at tonight's close is $132.91 (strike less premium paid).

At last check, CAT stock is down 0.6% at $132.85, retreating back below its 200-day moving average. The shares managed a modest close above this trendline yesterday, following a 12.5% rally off their May 31 low at $118.75 -- and notched a sixth straight consecutive win -- but have not had back-to-back settlements above it since early May.

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