Caterpillar (CAT) shares' more than 7% drop at the market open Tuesday is reflective of sector concerns, not the company.
Bullish analysts are pointing out that the company's strong earnings report and sales numbers as evidence the company is being unfairly stung by sentiment.
"The stock price doesn't reflect what is happening at the company," BMO Capital Markets analyst Joel Tiss told Real Money on Tuesday morning. "Everything in the stock price is macro, it's interest rates, it's tariffs, it's the strengthening dollar, not the company."
He added that in recent meetings with the company and its executives they have highlighted factory closures and staff cuts as bulwarks against macro impacts. He sees these actions as important and effective in pumping up profitability.
"It's a cyclical stock historically," Tiss explained. "They are in the crosshairs of the cyclical slowdown for the market."
He said that the focus on the cycle and the overall factors are causing people to overlook the fundamentals and positive results the company is producing, such as the 21% increase in worldwide retail machine sales for the third quarter despite concerns of a "high water mark" in global growth dating back to April.
He set a "Buy" rating for the stock and a price target of $185 per share in his last available research. The target sets a hefty premium for the shares that have dropped below $120 per share in pre-market hours.
Not all are so quick to drink the Kool-Aid of analysts, two thirds of which are recommending buying the stock, according to research published on FactSet in October.
One should never forget the self confidence expressed in biz media by talking heads who adored/owned $CAT.— Douglas Kass (@DougKass) October 23, 2018
Check out the chart.
20 days ago $159, now $119.
They will not say they were wrong.
They will say that this drop has created even more value.
Another lesson learned.
The stock has recorded an over 18% year-to-date decline despite analyst bullishness in 2018.
Overall, the shares have been negatively impacted by concerns over increased interest rates, tariffs, and heightened freight costs stinging margins much more than the underlying story at the company.
Caterpillar's earnings call at 11:00 a.m. ET will try to get investors back on the same page as the shares continue to tumble alongside the noisy macro environment.