Caterpillar (CAT) has been the poster-child for U.S. multi-nationals who are heavily exposed to emerging markets for future growth and are feeling the adverse affects of the strength of the U.S. dollar since the end of QE in Q4 2014. Shares of CAT are down 40% from its 2014 high, and despite its recent 15% bounce off of 6 year lows, the stock remains in a very sharp downtrend:
Earnings declined 27% in 2015 on a 15% sales decline, and consensus estimates call for a 20% and 11% decline respectively in 2016. The stock trades above a market multiple at about 17.7x expected earnings. The company bought back about $2 billion worth of shares last year, and pays a dividend that currently yields 4.6%.
And sentiment is horrible in the stock, with only 2 Wall Street analysts who rate the shares a Buy, 19 with Hold ratings, and 4 Sells with an average 12 month price target of $61, or $5 below where it is trading. Short interest sits at 8.5% of the float.
This poor sentiment is reflected in Options Open Interest with 9 of the top 10 largest strikes puts, and total put open interest nearly 2x that of calls.
Taking a 10 year view of the chart, $60 might serve as a little bit of support with little below, while $80 should serve as long term technical resistance:
[caption id="attachment_61148" align="aligncenter" width="600"]
CAT 10 year chart from Bloomberg[/caption]
CAT has rallied as OIL and industrial commodities and miners caught a bid in the last couple weeks. High short, interest, poor sentiment and seller exhaustion might have caused the stock itself to catch a bid after the company’s Q4 results which were wildly expected to stink.
I suspect the stock fails at the downtrend, but at some point in 2016 the stock will be a screaming buy if emerging market growth fears abate, and the dollar where to come in a tad.
Stay tuned.