Are Caterpillar Shares Digging Their Way Up From A Bottom?

Caterpillar Inc. CAT shares have fallen 29.17 percent since their height in 2012 after suffering a commodities bear market and global slowdown. Some experts, however, believe the company hit a temporary bottom giving a strategic buy point.

BMO Capital's Take

BMO Capital's Joel Tiss met with Caterpillar management recently to "figure out" whether shares were at a bottom yet. After further analysis, Tiss believes there would be more weakness ahead before a recovery would occur.

The analyst maintains his Market Perform rating and $72.00 price target, while waiting for a more optimistic environment to institute a Buy rating.

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"Although Caterpillar has experienced a 39 percent peak-to-trough revenue decline already there are few signs of rising demand," according to Tiss. "In addition, barring any significant commodity price boom or demand spike —neither of which seems realistic — equipment in the field is not wearing out to the point of needing to be replaced within the next 12 months," stated the BMO analyst.

The analyst thought future weakness would occur before a recovery due to current weaknesses in mining, energy, power generation and "anything else commodity related."

Catalysts Could Drive Recovery

The strongest drivers for a potential economy would be from strength in North American, European construction equipment and natural gas compression equipment according to Tiss.

"Other large regional declines versus prior peaks provide some hope for a rebound in these geographies, as Brazil is down over 50 percent, Russia and the Commonwealth of Independent States (CIS) down closer to 75 percent, and China easily cut in half over the past few years," stated Tiss.

At time of writing, Caterpillar traded at $82.76, up 1.22 percent Friday.