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Should You Buy Caterpillar (CAT) Stock Right Now?

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Shares of Caterpillar (CAT - Free Report) closed up marginally on Friday, ending a streak of nearly two straight weeks of losses on the back of heightened trade war tensions between the U.S. and China. With that said, now might be the time for investors to consider buying Caterpillar stock based on its currently stellar valuation picture and strong growth prospects.

Caterpillar has been one of the Dow’s worst performers during its recent downbeat stretch, which stands in stark contrast to its standing over the last few years. Some investors might not want to jump into CAT at the moment, given the uncertainty about how the current tariff situation might eventually impact the Deerfield, Illinois-based company. Inventors should note that Caterpillar said as recently as January that the company didn’t anticipate that the Trump administration’s policies would spark a trade war.

Amid this confusion, one thing that is certain is how attractive CAT stock looks at the moment based on its relatively near-term growth outlook and other fundamentals. So let’s jump right into it.                      

Recent Price Movement

Caterpillar stock was down 11.1% since June 12, before Friday’s small climb. Interestingly enough, the stock is down roughly 11.2% year to date. Still, shares of CAT are up over 34% during the last year.

Investors will see that Caterpillar stock has surged nearly 79% over the last two years, which tops the S&P 500’s 31% climb and outpaces its industry’s roughly 42% growth. This industry includes the likes of include H&E Equipment (HEES - Free Report) , Terex Corporation (TEX - Free Report) , and The Manitowoc Company (MTW - Free Report) .

Valuation

Now that we have covered Caterpillar’s recent price movement it’s time to take a look at its current valuation picture, which looks even better based on its recently plummeting stock price. Going into Friday, CAT stock was trading at 12.4X forward 12-month Zacks Consensus EPS estimates, which marks a discount compared to its industry’s 15.6X average, as well as the S&P’s 17.1X. But we’re just getting started.

Over the last year, Caterpillar has traded as high as 24.7X, with a one-year median of 18.7X. Furthermore, CAT stock has traded as high as 32.6X during the last two years—a figure it hit in January 2017. Caterpillar stock is currently trading at its two-year low. Therefore, investors should be able to say with some confidence that Caterpillar stock is pretty attractive at its current valuation. Coupled with the fact that its actual stock price is technically cheap, resting well below its 52-week high, CAT stock might just be a steal at the moment.

 

Growth Outlook

Lastly, Caterpillar’s growth projections are worth diving into, since a stock is usually only as good as the company’s ability to expand its top and bottom lines. Our current Zacks Consensus Estimates are calling for Caterpillar’s second quarter revenues to hit $13.77 billion, which would mark a 21.5% climb from the year-ago period. For the full-year, the company’s revenues are projected to surge by over 18% to touch $53.68 billion. 

Meanwhile, Caterpillar’s Q2 earnings are projected to skyrocket by nearly 78% to reach $2.65 per share. Looking a bit further down the road, the company’s full-year earnings are expected to reach $10.74 per share, representing a 56.1% expansion.

CAT has also earned eight earnings estimate revisions for Q2, with nearly 100% agreement to the upside, all within the last 60 days. The company has also received 11 full-year revisions during this same timeframe, against zero downward revisions—with two more upward earnings estimate revisions coming in the last 30 days.

Caterpillar is currently a Zacks Rank #1 (Strong Buy) and sports “A” grades for Value and Momentum as well as a “B” for Growth in our Style Scores system.

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