Caterpillar reports October 24

What's Happening

Heavy machinery maker Caterpillar ( CAT ) releases its third-quarter results on October 24. The company is scheduled to report before the market open, with the consensus calling for earnings of $1.22 per share, up from $0.85 during the same period last year. CAT shares are up 39.4% year to date.

Technical Analysis

CAT was recently trading at $130.99, down $1.13 from its 12-month high and $50.66 above its 12-month low. Technical indicators for CAT are bullish and the stock is in a strong upward trend. The stock has recent support above $126.00 and has recent resistance below $132.10. Of the 18 analysts who cover the stock, six rate it a "strong buy", one rates it a "buy", 10 rate it a "hold", and one rates it a "strong sell". CAT gets a score of 70 from InvestorsObserver's Stock Score Report.

Analyst's Thoughts

After a couple of tough years while commodity prices were falling in 2014 and 2015, Caterpillar has been one of the strongest stocks over the last two years, with shares up almost 40% this year alone. Improvements in commodities as well as the overall economy have been a plus for the stock, and with President Trump pledging to boost federal spending on infrastructure, it is easy to understand why Wall Street has been so bullish on the stock. Caterpillar has posted positive earnings surprises the last five quarters, and for the upcoming report the street has a whisper number of $1.35, which is well above the $1.22 consensus, which clearly illustrates how bullish the market remains on the company's underlying business. CAT is expected to grow earnings by 54.7% during the current year, and by 26.5% next year.

Stock Only Trade

If you're looking to establish a long stock position in CAT, consider buying the stock under $131.00. Sell if it falls below $118.00 or take profits if it gets to $151.00.

Bullish Trade

If you want to set up a bullish hedged trade on CAT, consider a January 110/115 bull-put credit spread for a 30-cent credit. That's a potential 6.4% return (25.6% annualized*) and the stock would have to fall 12.0% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider a January 145/150 bear-call credit spread for a 45-cent credit. That's a potential 9.9% return (40.0% annualized*) and the stock would have to rise 11.0% to cause a problem.

Covered Call Trade

If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a January $135 covered call. Buy CAT shares (typically 100 shares, scale as appropriate), while selling the January $1135.00 call for a debit of $127.75 per share. The trade has a target assigned return of 5.7%, and a target annualized return of 23.1% (for comparison purposes only).

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