Caterpillar ( NYSE: CAT ) on Monday hit a 52-week high as investors appear to be taking a more favorable view of stocks that are sensitive to economic cycles. The rally could continue if stock-market benchmarks such as the Standard & Poor’s 500 index ( SP500 ) maintain the break out of a downtrend, according to a column by Barron’s stock pick writer Jacob Sonenshine.
“The recent stock market rally could easily have more fuel in it,” he writes. “If it continues, so-called cyclical stocks are likely to be some of the top performers.”
Caterpillar ( CAT ), PPG Industries ( NYSE: PPG ), Sherwin-Williams ( NYSE: SHW ) and Lowe’s ( NYSE: LOW ) are among the companies that may be poised to outperform the market.
Caterpillar ( CAT ) has surged about 50% since hitting a 2022 low in late September, helped by a favorable third-quarter earnings report.
“Even now, the stock isn't wildly expensive, trading at 16 times forward EPS, still below its peak this year,” Sonenshine writes. “The stock's technical signals indicate that gains remain a possibility.”
As for Caterpillar’s ( CAT ) technicals, it rose above a resistance level of $230 a share – which three times this year has been occasion for a reversal lower. A move higher than $245 “could make bulls feel even more confident,” Sonenshine writes.
A key risk is that the Federal Reserve’s efforts to bring down the inflation rate by raising borrowing costs may contribute to recessionary pressures.
“The bottom line is that these stocks might continue rising for the rest of the year, but at a slower pace than in the past few weeks,” Sonenshine writes. “Next year might prove challenging for them.”
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Caterpillar receives favorable mention in Barron’s on recent gains