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Today's Water-Logged And Getting Wetter Stock: Caterpillar (CAT)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Caterpillar ( CAT) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Caterpillar as such a stock due to the following factors:

  • CAT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $368.6 million.
  • CAT has traded 4.9 million shares today.
  • CAT traded in a range 240.3% of the normal price range with a price range of $3.27.
  • CAT traded below its daily resistance level (quality: 34 days, meaning that the stock is crossing a resistance level set by the last 34 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on CAT:

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. The stock currently has a dividend yield of 2.3%. CAT has a PE ratio of 18.0. Currently there are 7 analysts that rate Caterpillar a buy, no analysts rate it a sell, and 12 rate it a hold.

The average volume for Caterpillar has been 5.2 million shares per day over the past 30 days. Caterpillar has a market cap of $66.3 billion and is part of the industrial goods sector and industrial industry. The stock has a beta of 1.65 and a short float of 3.4% with 5.23 days to cover. Shares are up 16.1% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Caterpillar as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, good cash flow from operations, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:

  • CAT's revenue growth has slightly outpaced the industry average of 6.4%. Since the same quarter one year prior, revenues slightly increased by 0.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • Net operating cash flow has increased to $1,897.00 million or 33.21% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -4.00%.
  • CATERPILLAR INC has improved earnings per share by 9.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CATERPILLAR INC reported lower earnings of $5.75 versus $8.49 in the prior year. This year, the market expects an improvement in earnings ($6.20 versus $5.75).
  • The net income growth from the same quarter one year ago has exceeded that of the Machinery industry average, but is less than that of the S&P 500. The net income increased by 4.8% when compared to the same quarter one year prior, going from $880.00 million to $922.00 million.

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