December 28, 2023
Top 10 Stock Caterpillar Hold Recommendation

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For each investment strategy, we provide you with more detailed analysis and our recommendation. You see the ranks of the top 10 stocks ranked by that particular investment strategy (360° View, Sentiment, Value, Growth, Safety and Combined Financial Performance).

360° View: Obermatt 360° View Caterpillar Hold

360 METRICS	December 28, 2023
VALUE
VALUE	37
GROWTH
GROWTH	61
SAFETY
SAFETY	21
SENTIMENT
SENTIMENT	61
360° VIEW
360° VIEW	46

ANALYSIS: With an Obermatt 360° View of 46 (better than 46% compared with alternatives), overall professional sentiment and financial characteristics for the stock Caterpillar are below the industry average. The 360° View is based on consolidating four consolidated indicators, with half of the metrics below and half above average for Caterpillar. The consolidated Growth Rank has a good rank of 61, which means that the company experiences above-average growth momentum when looking at financial metrics such as revenue, profit, and invested capital growth as well as stock returns. This means that growth is higher than for 61% of competitors in the same industry. The consolidated Sentiment Rank also has a good rank of 61, which means that professional investors are more optimistic about the stock than for 61% of alternative investment opportunities. But the consolidated Value Rank has a less desirable rank of 37, which means that the share price of Caterpillar is on the higher side compared with typical size in indicators such as revenues, profits, and invested capital. This means the stock price is higher than for 63% of alternative stocks in the same industry. Finally, the consolidated Safety Rank has a riskier rank of 21, which means that the company has a financing structure that is riskier than those of 79% comparable companies when looking at the amount of its debt, its refinancing requirements, and its ability to service debt. ...read more

RECOMMENDATION: With a consolidated 360° View of 46, Caterpillar is worse than 54% of all alternative stock investment opportunities based on the Obermatt Method. Only half of the consolidated Obermatt Ranks exhibit excellent performance, so one needs to take a close look. Growth is above-average (Growth Rank of 61), and professional market sentiment is positive (Sentiment Rank of 61), but value and safety are below average. The Safety Rank is the least significant of the four consolidated ranks, because it only reflects financing practices. In the case of high growth, aggressive financing is a good thing. So the question is: How to assess below-average value against above-average growth and sentiment? Growth may be the strongest driver of the investment rationale in this case, which is reflected in institutional investors' opinions. It is typical for growth companies to have low value, as is the case here. Investors are willing to pay more for companies that outperform their competitors. So the question is, how much do you sacrifice value for growth? You can use the following rule of thumb: If you take 100 minus the growth rank, you arrive at a possibly minimum level for the value rank. For example, if the growth rank is at 75, and the value rank is at 5, you should tread carefully. If the value rank is at 40, it still might be a good value if the growth rank is above 60. Sometimes market sentiment just extrapolates the past, but sometimes it reflects reality. You pay more than the market average for this stock, but it may be worth it. ...read more

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Sentiment Strategy: Professional Market Sentiment for Caterpillar positive

SENTIMENT METRICS	December 28, 2023
ANALYST OPINION
ANALYST OPINION	23
OPINIONS CHANGE
OPINIONS CHANGE	50
PRO HOLDINGS
PRO HOLDINGS	90
MARKET PULSE
MARKET PULSE	60
CONSOLIDATED RANK: SENTIMENT
CONSOLIDATED RANK: SENTIMENT	61

ANALYSIS: With an Obermatt Sentiment Rank of 61 (better than 61% compared with alternatives), overall professional sentiment and engagement for the stock Caterpillar is above average. The Sentiment Rank is based on consolidating four sentiment indicators, with all but one indicator above average for Caterpillar. Analyst Opinions are at a rank of 23 (worse than 77% of alternative investments), which means that currently, stock research analysts tend to warn against investing in the stock of the company. But they are changing their opinions! Analyst Opinions Change has a rank of 50, which indicates a shift in stock research experts opinions for the better. In other words, they are getting more optimistic about stock investments in Caterpillar. Even better, the Professional Investors rank is 90, meaning that professional investors hold more stock in this company than in 90% of alternative investment opportunities. Pros tend to favor investing in this company. Furthermore, Market Pulse has a rank of 60, which means that the current professional news and professional social networks are upbeat when discussing this company (more positive news than for 60% of competitors). ...read more

RECOMMENDATION: With a consolidated Sentiment Rank of 61 (more positive than 61% compared with investment alternatives), Caterpillar has a reputation among professional investors that is above-average compared with that of its competitors. While analysts are still critical of the company, some are changing their minds. In addition, the professional news channels are optimistic, and many institutional investors have already bought stock in the company. These are encouraging signals, despite the still lower level of analyst recommendations. They may be due to a problematic past, and about to change. The positive sentiment signals are stronger than the negative. ...read more

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Value Strategy: Caterpillar Stock Price Value below-average critical

VALUE METRICS	December 28, 2023
PRICE VS. REVENUES (P/S)
PRICE VS. REVENUES (P/S)	30
PRICE VS. PROFITS (P/E)
PRICE VS. PROFITS (P/E)	63
PRICE VS. CAPITAL (Market-to-Book)
PRICE VS. CAPITAL (Market-to-Book)	1
DIVIDEND YIELD
DIVIDEND YIELD	84
CONSOLIDATED RANK: VALUE
CONSOLIDATED RANK: VALUE	37

ANALYSIS: With an Obermatt Value Rank of 37 (worse than 63% compared with alternatives), Caterpillar shares are more expensive than the average comparable stock. The Value Rank is based on consolidating four value indicators, with half of the indicators below and half above average for Caterpillar. Price-to-Profit (also referred to as price-earnings, P/E) is 63 which means that the stock price compared with what market professionals expect for future profits is lower than for 63% of comparable companies, indicating a good value concerning Caterpillar's profit levels. The same is valid for Price-to-Book Capital (also referred to as market-to-book ratio) with a Price-to-Book Rank of 1, which means that the stock price is lower as regards to invested capital than for 1% of comparable investments. On the other hand, Price-to-Sales is less favorable than 70% of alternatives (only 30% of peers have an even less favorable ratio). The same is valid for dividend yield, which is lower than 16% of comparable companies, making the stock more expensive as regards to the company's expected dividend payouts. ...read more

RECOMMENDATION: The overall picture with a consolidated Value Rank of 37, is a hold recommendation based on Caterpillar's stock price compared with the company's operational size and dividend yields. This is a puzzling picture, because it means that profits are high while dividends are low. Since the stock price is low compared with invested capital but high in respect to expected revenues, it means that the company has more invested capital than peers for generating the same amount of revenue. Since profits are higher, it could be a "cash cow" situation (using the classic Boston Consulting BCG matrix naming convention) where the company is on a downward trend, still living from the profits of past products. As the company pays low dividends, it may harbor the opinion that a turnaround is possible, and it rather invests the cash than pay it out to shareholders, thus sealing the company's fate early. Any investment optimism should only be a buy trigger once thorough research is completed. ...read more

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Growth Strategy: Caterpillar Growth Momentum good

GROWTH METRICS	December 28, 2023
REVENUE GROWTH
REVENUE GROWTH	21
PROFIT GROWTH
PROFIT GROWTH	80
CAPITAL GROWTH
CAPITAL GROWTH	57
STOCK RETURNS
STOCK RETURNS	51
CONSOLIDATED RANK: GROWTH
CONSOLIDATED RANK: GROWTH	61

ANALYSIS: With an Obermatt Growth Rank of 61 (better than 61% compared with alternatives), Caterpillar shows an above-average growth dynamic in its industry. Investors also speak of positive momentum. The Growth Rank is based on consolidating four value indicators, with all but one indicator above average for Caterpillar. Profit Growth has a rank of 80 which means that currently professionals expect the company to grow its profits more than 80% of its competitors. The same is valid for capital growth and stock returns. Capital Growth has a rank of 57, and Stock Returns has a rank of 51 which means that the stock returns have recently been above 51% of alternative investments. Only revenue growth is low with a Sales Growth has a rank of 21 (79% of its competitors are better). ...read more

RECOMMENDATION: The overall picture with a consolidated Growth Rank of 61, is a buy recommendation for growth and momentum investors. The many positive growth indicators indicate a positive growth momentum with only low revenue growth. That can also be attributed to divestments or the sale of unprofitable businesses. If that is the reason, overall growth is well on track to making this stock attractive for growth investors. ...read more

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Safety Strategy: Caterpillar Debt Financing Safety risky

SAFETY METRICS	December 28, 2023
LEVERAGE
LEVERAGE	10
REFINANCING
REFINANCING	32
LIQUIDITY
LIQUIDITY	62
CONSOLIDATED RANK: SAFETY
CONSOLIDATED RANK: SAFETY	21

ANALYSIS: With an Obermatt Safety Rank of 21 (better than 21% compared with alternatives), the company Caterpillar has much riskier financing practices than comparable other companies, which means that their overall debt burden is significantly above the industry average. This doesn't mean that the business of Caterpillar is also risky, it only means that the company is on the riskier side in respect to bankruptcy in case things turn sour, assuming that public reporting is correct. The Safety Rank is based on consolidating three financing indicators, with just one indicator above average for Caterpillar. Liquidity is at 62, meaning the company generates more profit to service its debt than 62% of its competitors. This indicates that the company is safer when it comes to debt service. But Refinancing is riskier at a rank of 32, which means that the portion of the debt that is about to be refinanced is above average. It has more debt in the refinancing stage than 68% of its competitors. Leverage is also high at a rank of 10, which means that the company has an above-average debt-to-equity ratio. It has more debt than 90% of its competitors. ...read more

RECOMMENDATION: With a consolidated Safety Rank of 21 (worse than 79% compared with alternatives), Caterpillar has a financing structure that is significantly riskier than that of its competitors. High Leverage (a low Obermatt Leverage Rank) is good in good times, because it usually indicates that shareholders get higher returns. The good Liquidity performance of the company is an indicator that this is the case. However, if you expect an economic downturn, you may stay clear of this stock because they have an above-average debt level that needs refinancing soon. ...read more

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Combined financial peformance: Caterpillar Below-Average Financial Performance

COMBINED PERFORMANCE	December 28, 2023
VALUE
VALUE	37
GROWTH
GROWTH	61
SAFETY
SAFETY	62
COMBINED
COMBINED	29

ANALYSIS: With an Obermatt Combined Rank of 29 (worse than 71% compared with investment alternatives), Caterpillar (Heavy Machinery, USA) shares have somewhat below-average financial characteristics compared with similar stocks. Shares of Caterpillar are low in value (priced high) with a consolidated Value Rank of 37 (worse than 63% of alternatives), and are riskily financed (Safety Rank of 21, which means above-average debt burdens) but show above-average growth (Growth Rank of 61). ...read more

RECOMMENDATION: A Combined Rank of 29, is a hold recommendation based on Caterpillar's financial characteristics. As the company Caterpillar shows low value with an Obermatt Value Rank of 37 (63% of comparable investments are less expensive), investors should look at the other ranks. In this case, growth is expected to be above-average, better than 61% of comparable companies (Obermatt Growth Rank is 61). This is a typical case. Companies with above average growth tend to cost more than stocks with slower growth expectations. If this is a high-growth company, the low Obermatt Safety Rank of 21 is a good sign. The more debt a well-performing company has, the higher the returns to shareholders. However, if growth turns negative or interest rates increase, high debt may become a burden. If you believe the future is bright for Caterpillar, even a low-value company (in terms of its key financial indicators) can be a good investment. ...read more

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