This Thursday before the open, farm and heavy construction machinery leader Caterpillar (CAT) is set to report earnings.

Going into this report, here’s what you need to know…

Shares of CAT are down 7% in 2023 – which puts the stock’s value at 14X its earnings per share (EPS) over the next 12 months.

Is this a bargain?

Well, consider this…

At the height of the COVID peak, CAT traded for 26X its EPS – meaning that the stock’s earnings per share valuation has nearly gotten chopped in half since the pandemic.

Considering that the S&P 500 trades at 18X its EPS, some might consider the current valuation on CAT a bargain.

Why has it gotten so low?

Nearly 75% of CAT’s sales come from construction and energy customers – which have reduced their purchasing as both sectors have slowed down.

However, CAT might have an ace up its sleeve – and it comes from the U.S. dollar.

You likely know that the U.S. dollar has been declining.

But if you examine where U.S. companies generate the majority of their sales, you’ll see that CAT generates at least HALF of its sales from overseas – which reduces its exposure to U.S. dollar weakness.

And that could be the opportunity that CAT capitalizes on this Thursday…

YOUR ACTION PLAN

If you’ve been watching the earnings scoreboard so far in 2023, then you know that 90% of S&P 500 companies have reported a positive EPS surprise. However, strangely enough, this has not translated into market gains. Meanwhile, the S&P 500’s blended earnings have dropped 6.2%, which would represent the largest earnings decline since Q2 2020 – and is why many are calling this latest earnings season “muddled.” Will Caterpillar (NYSE: CAT) break out of this earnings trend? We’ll know that answer on Thursday.

NOTE: If you want to see how we’re trading CAT – and any other earnings plays this week – you’re invited to join us inside The War Room. You might even be able to play a stock that’s part of what we call “The Magic 9.” Stay tuned… more on that soon…

Click here to join Karim and me in The War Room.

MONDAY MARKET MINUTE

• Getting Back Into Schwab: On April 17, there was a bullish engulfing pattern on the Charles Schwab (SCHW) daily chart. To me, that was the day that the bulls regained control of the stock. Despite taking a deposit hit, Schwab beat earnings – so the stock (at these levels) remains depressed and undervalued. If we see the bulls continue to make a stand, be ready for a play. Tracking.
• Lots of Bone, Not So Much Meat… There hasn’t been a lot of meat on the bones of our War Room trades recently, and this statistic shows why…
• Super-Tight Range. The Nasdaq-100 has had a trading range of just 2.9% so far in April. If that holds, it would be just the sixth time since 1986 that the index has traded in a range of less than 3%. In other words, we’re trading within a SUPER-TIGHT trading range, which means that we haven’t had much delta, beta or other movement to play with. As a result, we’ve been forced to take what the market has given us – and that means quick trades with reduced gains. This cannot last forever, and we’ll eventually see a break in one direction or the other.
• Semiconductor Group Looks Enticing. After tapping $100 in February, Ambarella (AMBA) stock is now settling into an “S” zone between $65 and $67.50. The company’s next big application could be specialized chips that can unlock a car using a facial scan – if the pullback is overdone and the bulls start coming back, let’s be ready.
• Pharmaceutical Company Makes a Premarket Move. Crinetics Pharmaceuticals (CRNX) was up 6% this morning after Piper Sandler initiated coverage of shares with an “Overweight” rating and a $56 price target.