CAT Stock Pulls Back: Is This an Opportunity to Buy?

Caterpillar's stock has pulled back about 10% from its recent high, but investors are wondering if this is an opportunity to pounce. The heavy-equipment giant has a strong backlog of orders, with some customers placing orders as far out as 2030.

Historically, buying Caterpillar stock on weakness has been rewarding for investors. Over the last decade and a half, the stock has seen a sharp drop of 20% or more on 7 separate occasions. In every case where there was enough data to analyze, the stock recovered within a year, with a median gain of 42%. The median time to peak return after a dip event was 221 days.

Despite this positive history, the current price tag for Caterpillar stock is a concern. Even after the recent pullback, the stock trades at a price-to-earnings ratio of about 34, which is significantly higher than the S&P 500's multiple of roughly 23.