Buy This Dow Stock Before Year-End

There is plenty of room for upgrades

Dec 27, 2022 at 3:30 PM

Shares of Caterpillar Inc. (NYSE:CAT) experienced a pennant breakout on the charts, as well as a successful retest and hold during the market volatility, both of which point toward relative strength. The equity is also holding above its 20-day moving average following a post-earnings consolidation, with the +10% year-to-date level acting as support.

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There's plenty of room for upgrades, too, should any optimistic economic news roll in, with analysts begin pricing in a recession in early 2023. More specifically, 18 of 30 covering brokerages rate CAT a "hold" or worse.

An unwinding of pessimism in the options pits could create additional tailwinds. Data from the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the equity's 50-day put/call volume ratio of 2.09 ranks higher than all other annual readings. Multiple bull runs have started when this ratio was above 2.

Caterpillar stock's Schaeffer's Volatility Index (SVI) of 29% sits in the relatively low 32nd percentile of its 12-month range, indicating implying options are reasonably priced at the moment. Our recommended call has a leverage ratio of 8.5, and will double on an 11.3% rise in the underlying shares.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this CAT commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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