As US Senate finalises $1T infrastructure bill, is it time to buy Caterpillar shares?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Aug 2, 2021
  • A group of US bipartisan senators met on Sunday to finalise a $1 trillion infrastructure bill.
  • Democratic Senator Joe Manchin expressed optimism the bill would pass by the end of the week.
  • The new bill added $550 billion to the previously approved $450 billion for spending over five years.

A group of US bipartisan senators met on Sunday to finalise a bill that will increase funds for the initially approved infrastructure bill from $450 billion to $1 trillion. And according to Democratic Senator Joe Manchin, the new $1 trillion 5-year infrastructure bill could gain approval by the end of the week.

If all goes to plan, companies like Caterpillar Inc. (NYSE:CAT) stand to benefit significantly, boosting their value propositions. According to reports, $110 billion will go to roads and bridges in the bill, while rail and water & wastewater will receive $66 billion and $55 billion, respectively. On the other hand, $39 billion goes to public transit. Caterpillar has business operations across all these verticals.

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Other sectors that will benefit from the bill include high-speed internet, sports, and a network of EV charging stations. 

Why you should consider investing in Caterpillar now

With the new inflated infrastructure bill expected to sail through, Caterpillar’s immediate outlook seems promising. Moreover, the CAT stock price is down more than 15% since the start of June, making it an ideal target for cyclical investors. 

Furthermore, the company posted better than expected earnings per share of $2.60, beating analyst estimates by 7.67%. The pullback prices the stock at a forward P/E ratio of 16.92, making it attractive to value investors. In addition, analysts expect CAT EPS to grow at an average of 31.41% annually, making the stock compelling to investors over the next five years.

Therefore, Caterpillar stock’s current pullback is a great opportunity to buy ahead of an exciting growth story over the next few years.

Source – TradingView

Technical overview: CAT stock price forecast for August 2021

Technically, Caterpillar shares appear to have fallen closer to oversold conditions in the 14-day SRI. The stock crossed below the 100-day moving average for the first time in several months amid increased bearish pressure. 

However, with optimism returning in the infrastructure and heavy machinery industry, the stock could bounce back soon. Therefore, investors can target rebound profits at approximately $218.87 or higher at $233.53. The support levels are $193.41 and $180.94.

Bottom line: the catalyst for buying CAT shares now

Caterpillar stock has fallen more than 15% over the last two months, pushing the share price closer to oversold conditions. Recent news about a bill that could increase government spending on infrastructure boost the long-term outlook.

Therefore, the pullback creates a perfect opportunity to add Caterpillar to your portfolio ahead of an exciting period ahead.

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