Buy the Dip in Caterpillar, Here's Why

CAT has dipped more than 10% in the past month amid concerns that the economic expansion going to start slowing. There was also some profit-taking amid the Fed's more hawkish than anticipated statement.

Is CAT worth buying on the dip? Let’s take a closer look at the stock to determine if its current price is a good entry point.

CAT Points of Note

CAT has a forward P/E ratio of 22.19. This is a slightly elevated forward P/E ratio considering CAT is a maker of construction vehicles. The stock's beta of 0.93 is quite low so your money should be safe in CAT even if the market gets choppy.

CAT is currently trading around $214. CAT's 52-week high is $246.69. The stock's 52-week low is $120.80.

CAT’s Dividend is Increasing

CAT recently increased its dividend, hiking it much sooner than anticipated. Thanks to strong cash flows, CAT bumped up its dividend by 8%. Though company executives hinted at a possible dividend boost in the first-quarter earnings conference call, no guidance was provided for the remainder of the year.

This is the 25th straight year in which CAT has increased its dividend. The hike in the dividend is the result of CAT's robust balance sheet and strong liquidity position. Furthermore, CAT is generating elevated free cash flow more so now than ever before.

Is CAT in the Catbird Seat?

Part of the appeal of CAT is the expectation that the company's machines will play a central role in rebuilding America's infrastructure. If Biden's infrastructure bill or another form of it is eventually passed, CAT vehicles and machines will inevitably be used in the infrastructure work to follow.

However, there is always a chance that Biden’s infrastructure legislation will be stuck in limbo and an agreement won’t be reached. Furthermore, if an infrastructure spending bill is passed and it does not provide the expected amount of funding, CAT could regress as some investors will assume the stock is currently priced with infrastructure revenue baked in.

The Analysts’ Take on CAT

CAT is favored by the analysts. If the analysts are correct, the stock will hit $240.10. A jump to this price point represents nearly 15% upside potential. CAT's highest analyst target price is $303. The stock's lowest target price is $125.

A total of 27 analysts have issued CAT recommendations. Exactly four of these analysts consider the stock to be a Strong Buy. One analyst considers the stock to be a Strong Sell and another considers it a Sell.

CAT According to the POWR Ratings

CAT has a B POWR Rating. This means the stock is a Buy. CAT has a B grade in the Growth component of the POWR Ratings. The stock has C grades in the Momentum, Stability, and Value components. Investors who are curious as to how CAT grades out in the Quality and Sentiment components of the POWR Ratings can find out by clicking here.

CAT is ranked 32nd of 84 stocks in the Industrial - Machinery space. As a whole, the stocks in this space have an A POWR Rating grade. You can learn more about the stocks in this segment by clicking here.

Buy the Dip

CAT has the potential to bounce back quickly if an agreement is reached on infrastructure spending. Add in the fact that CAT’s dividend is increasing 8% and investors have even more reason to be bullish on this Industrial – Machinery superstar.