Caterpillar ( CAT ) has been weak over the last month, partly due to concerns over a trade war with China, but the stock could rebound on the back of a solid construction spending report on July 2. CAT stock has lost 12.6% on the year.
CAT was recently trading at $137.26, down $35.98 from its 12-month high and $32.45 above its 12-month low. Overall technical indicators for CAT are bearish with a weak downward trend. The stock has recent support above $135.00, and recent resistance below $144.00. Of the 20 analysts who cover the stock, nine rate it a "strong buy", two rate it a "buy", and nine rate it a "hold". CAT gets a score of 57 from InvestorsObserver's Stock Score Report.
Caterpillar is another stock that is particularly vulnerable to trade tensions. The tariffs that President Trump has already put in place on steel and aluminum will ratchet up the company's costs, and if an all-out trade war erupts the company could face a drop in demand for its heavy machinery both in the U.S. and abroad. The U.S. economy remains pretty solid, and that should be reflected in the May construction spending report. Last month spending jumped more than expected and marked the fifth time in the last six months that construction spending rose more than 1%. Strength was seen across the board, with the biggest gains seen in private construction. Rising construction spending indicates strength in the overall economy, and higher construction spending leads to higher demand for Caterpillar's machinery. If we see another strong jump in spending for May look for CAT to make back some of its recent losses.
Stock Only Trade
If you want a bullish hedged trade on the stock, consider an August 110/115 bull-put credit spread for a $0.30 credit. That's a potential 6.4% return (47.6% annualized*) and the stock would have to fall 16.0% to cause a problem.
If you want to take a bearish stance on the stock at this time, consider an August 155/160 bear-call credit spread for an $0.40 credit. That's a potential 8.7% return (64.8% annualized*) and the stock would have to rise 13.2% to cause a problem.
Covered Call Trade
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Originally published on InvestorsObserver.com