Will Caterpillar Become A Fourth Quarter Favorite?

After falling roughly 12% from mid-September through the start of this week, shares of Caterpillar are roaring back on news of a possible trade deal between the U.S. and China.

After gaining 2.7% on Thursday Caterpillar shares have jumped 4.7% higher on Friday after Bloomberg reported that U.S. and Chinese negotiators have reached a tentative partial trade agreement that would see the U.S. freeze tariffs, and China make concessions on agricultural products. Caterpillar led gains on the Dow in both sessions.

The two day rally in Caterpillar on hopes for a trade deal have been enough to turn the stock positive again for the year, with shares now up 1.5% since the start of the year.  That’s actually not bad considering the ongoing trade war, and the volatility that the stock has experienced this year.

On a longer term basis shares have done very well, more than doubling in price since 2016. If the strength of the stock on rumors of a trade deal has caused such a strong rally in the stock, the fourth quarter could be exemplary for holders of Caterpillar stock if the U.S. and China come to a solid trade agreement.

Let’s face it, the heavy equipment produced by Caterpillar helps build roads and factories, is used in mining and industrial turbines, and is always in demand, even when the economy slows. With the stock sitting 10% off its high this year it could still be a bargain, and that becomes especially true if the trade war finally comes to an end.

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