Caterpillar (CAT) - Get Report stock could break higher if the heavy-machinery company can surprise Wall Street with an earnings beat on Tuesday -- something it has achieved just once in the past four quarters. But revenue expectations are still low.
The stock, meanwhile, has crushed even the most bullish assumptions, soaring some 40% since bottoming out at around $57 in January and reaching a 52-week high of $81.38 last week. That's almost 20% above its consensus price target of $68.
The chart below, courtesy of TradingView, suggests a breakout towards $90 is possible.
Caterpillar stock closed Friday at $79.38, down 0.79%. They are down 1% in Monday morning trading.
The shares have returned 15.7% year to date, compared to a 6% rise in the S&P 500 (SPX) . Caterpillar stock has also outperformed the 10% rise in the Industrial Select Sector SPDR ETF (XLI) - Get Report .
This suggests that the company's dismal earnings track record has completely been ignored and the stock is trading purely in its technical metrics. But its earnings Tuesday could catalyze a breakout.
Caterpillar stock last week met resistance at $80.70 on multiple occasions. In mid April, Caterpillar shares were also at that level before falling some 15% in the weeks following its first-quarter earnings miss. Fundamentally, the company has not grown earnings at a rate fast enough to sustain the stock.
But thanks to strong second-quarter results from competitor Joy Global (JOY) , beaten-down equipment manufacturers could recover. Caterpillar, which pays a yield of almost 4%, is well-positioned to benefit.
If some of Caterpillar's huge cost-cutting measures boost earnings per share Tuesday, the stock could rise to $81 per share as investors speculate on higher profits in the second half of the year. Then the next range becomes $85 to $90 -- the January 2015 high.
From a risk-vs.-reward perspective, a bet on Caterpillar stock today looks good, as Cat stock looks like it has already bottomed.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.