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May 12 2015, 06.55am GMT


Some analysts are suggesting that the time to buy Caterpillar Inc.’s (NYSE: CAT) stock is now especially if you want to be one of the first in line in a new inflationary cycle which has started in commodities and mining.

RW Baird analyst, Mircea “Mig” Dobre, increased his rating on the company from neutral to outperform, a rating he has maintained since September 2013. Dobre also increased his price target for the stock from $80 to $101, indicating a 13 percent increase from the levels currently seen.

This assisted in pushing the stock of the mining and farm equipment maker upward 2.1% in mid-day trading on Monday to a 4 month high. This was also enough to give CAT the title of best performing stock amongst other blue-chip Dow components.

According to Dobre, the deflationary cycle in commodity and mining prices over the past few years is on track with the 1980’s “bust.” If it happens to get worse, then it would start to mimic the 1920’s period during the Great Depression. Despite this, Dobre believes this is not likely though given the stimulus that global central banks provide.

Mircea Dobre further added in a note to his clients that there are signs indicating that the worst may be over, saying that, history indicates that being early yields a better payoff.

He also said that since CAT’s stock history shows a tendency of bottoming 3 to 5 quarters in advance before a turn in shipments of mining equipment, to wait for a meaningful upturn in bookings to be confirmed, could mean that these investors are will be late in getting in on the action.

Interestingly, the company’s stocks have underperformed on the Dow Jones Industrial Average (DJIA) for the past four years. Whilst it seems to be heading for another year of weakness, the stock has seen a 2.5% loss year-to-date, compared to the Dow’s increase of 1.7%. Dobre also said that going right back to 1930, CAT’s stock has never underperformed in the wider market for 5 consecutive years.

Dobre also said that in the past, relatively long losing streaks have usually been followed by solid snapback rallies. Caterpillar’s stock has managed to cumulatively beat the S&P 500 index (SPX) by 39% over the last 3 years following a relative losing streak lasting from 1981 thru 1984, and after the relative drop from 1988 thru 1991 by 94%.

MT4 Chart: Caterpillar

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