Caterpillar Share Forecast November 2021 – Time to Buy CAT?

Shares of American Fortune 100 corporation Caterpillar (NYSE:CAT) are in the green today, after closing at $214.25 with an uptrend of 4.07% (as of November 8^th 22:01 EST). The company’s second-quarter revenue increased by 29% compared to a year ago. Despite raw material and transportation headwinds, the company reported a profit of $2.56 per share.

Caterpillar – Technical Analysis

According to Caterpillar’s financial statement, the market cap of the company is at $115.897 billion with total assets worth $80.784 billion. Revenue for 2020 was at $41.75 billion with a profit margin of 7.18% compared to $53.79 billion in 2019.

Oscillators such as Relative Strength Index (14)(66.38), Stochastic %K (14, 3, 3)(72.52), Commodity Channel Index (20)(201.23) and Average Directional Index (14)(21.84) are neutral. Moving averages such as Exponential Moving Average (10)(205.35), Simple Moving Average (10)(204.36), Exponential Moving Average (20)(202.79), Simple Moving Average (20)(201.22) and Exponential Moving Average (30)(201.97) are indicating a buy action.

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Recent Developments

Caterpillar traces its origins back to the steam tractor machines manufactured by the Holt Manufacturing Company in 1890. After becoming a company, Caterpillar now boasts some 400 products for purchase through its network of dealers. The company divided its products, services, and technologies into three principal lines of business: machinery, engines, and financial products for sale to private and governmental entities back in 2010. Since 2011, the company reports its financials after dividing it into five business segments – construction industries, resource industries, power systems, financial products and others.

Caterpillar acquired Weir Group’s Weir Oil and Gas division and rebranded it to SPM Oil and Gas in early February. This deal is considered to be a bargain, considering West Texas International (WTI) crude oil prices are above $60 a barrel (the highest price since late 2019. The company was able to generate free cash flow (FCF) to fund its $2.2 billion annual dividend obligation despite the pandemic.

All of these are positive signs that indicate that Caterpillar’s operations, instead of debt, can support its dividend during hard times. However, in an effort to bolster liquidity, Caterpillar added $2 billion in debt to its balance sheet in 2020. Dividend raises are likely to follow as the company enters a period of growing FCF. The company is considered a “Dividend Aristocrat” as it has raised its annual payout for 27 consecutive years. It has raised its dividends during tough and challenging market cycles in the past, so there is no doubt that it will be able to do it again.

Should You Buy CAT Shares?

Caterpillar show characteristics of what is known as a “cyclical stock” as the business operates in cycles. The market is seeing raw material prices at their ten-year high and near their all-time peak. If we take a look at previous instances, this has resulted in a downturn in prices and ultimately equipment purchases. As Caterpillar also runs in cycles, the current rise has been driven solely by the expansion of the price-to-sales multiple and the price-to-earnings multiple. It’s only a matter of time till the situation changes, as betting on further expansion in multiples for a company that isn’t growing long-term is speculative at best. Thus, CAT shares are not a buy today as there are two major factors working against the company. While the market can send the shares even further up from their all-time highs, the company’s operations could suffer if there’s a recession or if commodity prices fall. For now, the shares have gotten a little ahead of themselves and it’s best for investors to monitor its progress from the sidelines.

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