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Caterpillar To Take Out $85 A Share Before June

Summary

Caterpillar has outperformed since oil bottomed in February. The rally should still have more to go but now may be time to take some capital off the table.

Caterpillar reduced its first quarter EPS guidance but kept its annual guidance the same at $4 per share. I see big activity around the back end of this year.

Caterpillar has gained market share in this commodity slump. Also because of huge cost cutting measures, expect profits to be higher on machinery going forward.

We are selling the January-2017-$85 covered call for additional income. Dividends and option premium will reduce our cost basis by 8% over the 9 months to expiration.

Caterpillar (NYSE:CAT) stock has really been on the rampage since crude oil bottomed in mid February. In fact, the machine manufacturer has almost outperformed the ascent in the price of crude which is up 28%+ since the 11th of February last (see chart).

Can it last is the question? Well commodity prices will have a huge bearing on the outcome and with oil prices down 4.72% today in pre-market (due to OPEC members again not reaching an agreement), Caterpillar stock will undoubtedly be adversely affected. The company announces earnings on the 22nd of this month for its first fiscal quarter in 2016 and the general earnings per share consensus is $0.66. Caterpillar received some unfavorable press a few weeks ago when guidance for the first quarter was cut. However Caterpillar didn't cut its own guidance (as it had previously only given its annual guidance which was an EPS of $4) but instead cut analyst's guidance which was far too much for the first quarter ($0.3 too high).

When analysts are given a yearly figure, they try to divide it up among the four quarters but Caterpillar has already stated that it will have significantly higher earnings in subsequent quarters this year because it hasn't...


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