Shares of Caterpillar Inc.  (CAT) - Get Report climbed 3.2% to $140.03 Monday after Bank of America Merrill Lynch upgraded the construction and farm equipment maker to buy from neutral following a cease-fire in the U.S.-China trade war.

The firm also raised its 12-month price forecast on the stock to $163 from $140.

Analyst Ross Gilardi mentioned the cease-fire in a note to investors and pointed out that Federal Reserve Chairman Jerome Powell appeared "less hawkish last week on the future path of interest rate increases." Gilardi added that "we see 20% upside potential."

News outlets reported that during a dinner meeting Saturday at the G-20 summit in Argentina, President Donald Trump and Chinese President Xi Jinping agreed to hold off on additional tariffs on each countries' goods at the start of 2019 to allow for talks to continue for 90 days.

The U.S. agreed to leave tariffs on more than $200 billion worth of Chinese products at 10%. China also reportedly agreed to purchase a "substantial" amount of agricultural, energy, and industrial U.S. products.

The announcement also caused oil prices to jump Monday. Caterpillar's share price "is highly correlated with crude oil prices," which Gilardi said has been down over 30% since early October.