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Should Value Investors Choose Caterpillar (CAT) Stock Now?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Caterpillar Inc. (CAT - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Caterpillar has a trailing twelve months PE ratio of 12.53, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 18.23. If we focus on the long-term PE trend, Caterpillar’ current PE level puts it slightly below its midpoint of 17.08 over the past five years. Moreover, the current level stands well below the highs for the stock, suggesting that it can be a solid entry point.
Further, the stock’s PE also compares favorably with the Zacks Industrial Products sector’s trailing twelve months PE ratio, which stands at 17.62. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Caterpillar has a forward PE ratio (price relative to this year’s earnings) of 11.51, so it is fair to say that a slightly more value-oriented path may be ahead for Caterpillar’s stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Caterpillar has a P/S ratio of 1.51. This is much lower than the S&P 500 average, which comes in at 3.31 right now. Also, as we can see in the chart below, this is considerably below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Caterpillar currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Caterpillar a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Caterpillar is just 0.74, a level that is lower than the industry average of 0.84. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though Caterpillar might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of B and Momentum Score of F. This gives CAT a Zacks VGM score — or its overarching fundamental grade — of B. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been disappointing. The current year has seen one upward and one downward revision in the past sixty days, whereas the next year estimate has also seen one upward and one downward revision in the same time period.
As a result, the current year consensus estimate has declined 0.41% in the past two months, while the next year estimate declined by 2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Owing to such bearish estimate trends, the stock has a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
Bottom Line
Caterpillar is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, a strong industry rank (among top 17% of more than 250 industries) instils our confidence.
However, with a Zacks Rank #3 it is hard to get too excited about this company overall. In fact, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below:
So, value investors might want to wait for estimates to turn around in this name first, but once that happens, this stock could be a compelling pick.
Is Your Investment Advisor Fumbling Your Financial Future?
See how you can more effectively safeguard your retirement with a new Special Report, “4 Warning Signs Your Investment Advisor Might Be Sabotaging Your Financial Future.”
Image: Bigstock
Should Value Investors Choose Caterpillar (CAT) Stock Now?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Caterpillar Inc. (CAT - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Caterpillar has a trailing twelve months PE ratio of 12.53, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 18.23. If we focus on the long-term PE trend, Caterpillar’ current PE level puts it slightly below its midpoint of 17.08 over the past five years. Moreover, the current level stands well below the highs for the stock, suggesting that it can be a solid entry point.
Further, the stock’s PE also compares favorably with the Zacks Industrial Products sector’s trailing twelve months PE ratio, which stands at 17.62. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Caterpillar has a forward PE ratio (price relative to this year’s earnings) of 11.51, so it is fair to say that a slightly more value-oriented path may be ahead for Caterpillar’s stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Caterpillar has a P/S ratio of 1.51. This is much lower than the S&P 500 average, which comes in at 3.31 right now. Also, as we can see in the chart below, this is considerably below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Caterpillar currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Caterpillar a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Caterpillar is just 0.74, a level that is lower than the industry average of 0.84. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though Caterpillar might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of B and Momentum Score of F. This gives CAT a Zacks VGM score — or its overarching fundamental grade — of B. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been disappointing. The current year has seen one upward and one downward revision in the past sixty days, whereas the next year estimate has also seen one upward and one downward revision in the same time period.
As a result, the current year consensus estimate has declined 0.41% in the past two months, while the next year estimate declined by 2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Caterpillar Inc. Price and Consensus
Caterpillar Inc. Price and Consensus | Caterpillar Inc. Quote
Owing to such bearish estimate trends, the stock has a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
Bottom Line
Caterpillar is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, a strong industry rank (among top 17% of more than 250 industries) instils our confidence.
However, with a Zacks Rank #3 it is hard to get too excited about this company overall. In fact, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below:
So, value investors might want to wait for estimates to turn around in this name first, but once that happens, this stock could be a compelling pick.
Is Your Investment Advisor Fumbling Your Financial Future?
See how you can more effectively safeguard your retirement with a new Special Report, “4 Warning Signs Your Investment Advisor Might Be Sabotaging Your Financial Future.”
Click to get it free >>