U.S. Markets closed
  • S&P 500

    4,577.10
    +64.06 (+1.42%)
     
  • Dow 30

    34,639.79
    +617.75 (+1.82%)
     
  • Nasdaq

    15,381.32
    +127.27 (+0.83%)
     
  • Russell 2000

    2,206.33
    +58.91 (+2.74%)
     
  • Crude Oil

    67.40
    +0.90 (+1.35%)
     
  • Gold

    1,770.90
    +8.20 (+0.47%)
     
  • Silver

    22.43
    +0.12 (+0.53%)
     
  • EUR/USD

    1.1306
    -0.0017 (-0.1470%)
     
  • 10-Yr Bond

    1.4480
    +0.0140 (+0.98%)
     
  • Vix

    27.95
    -3.17 (-10.19%)
     
  • GBP/USD

    1.3301
    +0.0023 (+0.1769%)
     
  • USD/JPY

    113.0680
    +0.2880 (+0.2554%)
     
  • BTC-USD

    56,645.99
    -475.54 (-0.83%)
     
  • CMC Crypto 200

    1,450.10
    +11.22 (+0.78%)
     
  • FTSE 100

    7,129.21
    -39.47 (-0.55%)
     
  • Nikkei 225

    27,753.37
    -182.25 (-0.65%)
     

Here's Why Caterpillar (CAT) is a Strong Value Stock

  • Oops!
    Something went wrong.
    Please try again later.
·5 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

It doesn't matter your age or experience: taking full advantage of the stock market and investing with confidence are common goals for all investors. Luckily, Zacks Premium offers several different ways to do both.

Featuring daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks #1 Rank List, Equity Research reports, and Premium stock screens, the research service can help you become a smarter, more self-assured investor.

Zacks Premium includes access to the Zacks Style Scores as well.

What are the Zacks Style Scores?

The Zacks Style Scores is a unique set of guidelines that rates stocks based on three popular investing types, and were developed as complementary indicators for the Zacks Rank. This combination helps investors choose securities with the highest chances of beating the market over the next 30 days.

Each stock is given an alphabetic rating of A, B, C, D or F based on their value, growth, and momentum qualities. With this system, an A is better than a B, a B is better than a C, and so on, meaning the better the score, the better chance the stock will outperform.

The Style Scores are broken down into four categories:

Value Score

Value investors love finding good stocks at good prices, especially before the broader market catches on to a stock's true value. Utilizing ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and many other multiples, the Value Style Score identifies the most attractive and most discounted stocks.

Growth Score

Growth investors are more concerned with a stock's future prospects, and the overall financial health and strength of a company. Thus, the Growth Style Score analyzes characteristics like projected and historic earnings, sales, and cash flow to find stocks that will see sustainable growth over time.

Momentum Score

Momentum trading is all about taking advantage of upward or downward trends in a stock's price or earnings outlook, and these investors live by the saying "the trend is your friend." The Momentum Style Score can pinpoint good times to build a position in a stock, using factors like one-week price change and the monthly percentage change in earnings estimates.

VGM Score

What if you like to use all three types of investing? The VGM Score is a combination of all Style Scores, making it one of the most comprehensive indicators to use with the Zacks Rank. It rates each stock on their combined weighted styles, which helps narrow down the companies with the most attractive value, best growth forecast, and most promising momentum.

How Style Scores Work with the Zacks Rank

The Zacks Rank, which is a proprietary stock-rating model, employs earnings estimate revisions, or changes to a company's earnings expectations, to make building a winning portfolio easier.

#1 (Strong Buy) stocks have produced an unmatched +25.41% average annual return since 1988, which is more than double the S&P 500's performance over the same time frame. However, the Zacks Rank examines a ton of stocks, and there can be more than 200 companies with a Strong Buy rank, and another 600 with a #2 (Buy) rank, on any given day.

This totals more than 800 top-rated stocks, and it can be overwhelming to try and pick the best stocks for you and your portfolio.

That's where the Style Scores come in.

To have the best chance of big returns, you'll want to always consider stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B, which will give you the highest probability of success. If you're looking at stocks with a #3 (Hold) rank, it's important they have Scores of A or B as well to ensure as much upside potential as possible.

As mentioned above, the Scores are designed to work with the Zacks Rank, so any change to a company's earnings outlook should be a deciding factor when picking which stocks to buy.

A stock with a #4 (Sell) or #5 (Strong Sell) rating, for instance, even one with Scores of A and B, will still have a declining earnings forecast, and a greater chance its share price will fall too.

Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.

Stock to Watch: Caterpillar (CAT)

Caterpillar, known for its iconic yellow machines, is the largest global manufacturer of construction and mining equipment. Given that it serves a gamut of sectors - infrastructure, construction, mining, oil & gas and transportation, the company is considered a bellwether of the global economy.

CAT is a #3 (Hold) on the Zacks Rank, with a VGM Score of B.

It also boasts a Value Style Score of B thanks to attractive valuation metrics like a forward P/E ratio of 21.17; value investors should take notice.

10 analysts revised their earnings estimate higher in the last 60 days for fiscal 2021, while the Zacks Consensus Estimate has increased $0.41 to $10.08 per share. CAT also boasts an average earnings surprise of 29.9%.

With a solid Zacks Rank and top-tier Value and VGM Style Scores, CAT should be on investors' short list.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Caterpillar Inc. (CAT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research