Part 4

Caterpillar, Inc. (CAT)

Company background and financial performance

Our next stock pick from the SPY for June is Caterpillar, Inc. (CAT).

Caterpillar, very well-known for its iconic yellow machines, is the largest global manufacturer of construction and mining equipment. The company is a global leader in the sectors it operates – infrastructure, construction, as well as mining, oil & gas and transportation.

Many analysts claim that Caterpillar’s financial performance is a good source that reflects on the overall situation in the global economy.

The company has delivered very strong financial results in the past 4 quarters even during the coronavirus pandemic that led to an economic slowdown.

As the situation with the coronavirus is getting better and the economy is slowly going back to normal levels, the company’s business is expected to increase and we would be expecting to see more strong quarters reported by CAT and would be looking to make high profits on its share price to the upside.

By looking at the company’s financial performance, we shall say Caterpillar beat analysts’ expectations in all of the past 4 reported quarters. The most recent Q1 results showed earnings of $2.87 per share, while analysts had expected only $1.93 per share. Moreover, the company has managed to keep increasing its earnings over the past 4 quarters during the coronavirus pandemic and proving its strong financial performance and market positioning during the pandemic times and the economic slowdown that followed.

As mentioned above, with the business picking up steam now and the global economy recovering from the pandemic times, we would expect Caterpillar to boost its revenues and profits in the next few quarters and that would have a further bullish impact on its share price afterwards, which by itself would give us a chance to maximize our profitability to the upside.

Technical analysis

By looking at the daily candles of CAT, we shall say the past 12 months has been extremely bullish for the stock. In fact, CAT bounced from the $100 lows in May last year to reach the $245 highs in May this year, meaning the stock has gone up 145% in 12 months, making it one of the most successful stocks in the meantime. The price is currently trading at around $240, while there is a very strong support mark at $224-$225 where lots of buying pressure is expected to take place. The lower Bollinger band matches with the strong support mark at that level and is currently standing at $218-$219. In fact, the rest of the technical indicators have remained strongly bullish and we believe any potential short-term corrections on the price would give investors a great opportunity to buy at a strong support mark and follow the strong bullish trend, making high profits to the upside. Based on the company’s strong financial performance and market positioning, we have decided to add CAT to our portfolio.

Chart: CAT

We would wait for a short-term pullback on the price and start buying CAT stock at around $225-$227, right above the first strong support at $224. If the price drops further in the short-term we would be buying more at the next support at $215. Our initial profit-taking target is set at $237-$240, followed by the next target at $255-$260 where we would be fully cashing in our profits.

Celanese Corp.  (CE)

Company background and financial performance

Celanese Corporation is a global hybrid chemical company, based in Texas, United States.

The company produces chemical substances and materials and is part of the Fortune 500 companies.

Celanese is the world’s leading producer of acetic acid with a production of around 2 million tonnes per year, representing around 25% of the global production.

The company has shown an earnings growth and has been beating analysts’ expectations for 4 quarters since Q2 2020 and with the economy picking up steam and going back to normal levels, Celanese should further benefit and make higher profits for its shareholders in the future.

In fact, the company’s price to earnings (P/E) ratio is only 13x at the moment, with a price-to-book (P/B) is only 4.7x. Moreover, the current return on equity (RoE) of the company is 30%, while the return on assets (RoA) is 10%.

It is quite important to mention here that the company has got such a low P/E ratio of only 13 even after the share price more than tripled in value in the past 14 months. As a matter of fact, the company has kept in increasing its earnings and has been reporting stronger results and better than analysts’ expectations for 4 quarters in a row.
Overall, that shows the company’s strong financial performance and market positioning as well as great expectations for the future as the economy goes back to normal levels.

Moreover, the low interest rates in the US would keep supporting spending and that would further enhance the company’s financial performance.

Technical analysis

The daily chart shows the massive uptrend the stock has been following since March 2020. In fact, the price bounced from the lows at $51 to reach the $171 highs in early May this year. In other words, the stock is up 235% since then. We believe the global demand for Celanese’s products would keep increasing with the economy picking up and that would keep boosting the company’s revenues and profits, as well as its share price in the next few months.

The chart shows the strong support at the $159 mark, which matches with the 50-day moving average and the lower Bollinger band at that point, giving further bullish indications. Furthermore, the Stochastics indicator is standing close to the oversold territory and is expected to soon start heading higher from that level, giving further bullish indications to follow up on. Should the price test that key support mark at $159, the RSI is also likely to go to the oversold territory at that level and that would be giving further bullish indications.

We would like to add CE stock to our portfolio due to the fact that we have been impressed by the company’s strong financial performance, earnings beat and great expectations for the future.

Chart: CE

We would wait for a bit of a further profit-taking correction that could send CE closer to the support and would start buying the stock at around $161-$162, right above the support at $159. In case of a further drop in the short-term, we would be looking to buy more of it at the next strong support at $150, which would give us a chance to improve our average cost basis on the stock. Our initial profit-taking target is set at $169-$173, followed by the next target at $190-$200 where we would be taking all profits on it and waiting for another profit-taking correction that would give us a chance to buy the stock again at an attractive level in the future.


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