Goldman flips its call to sell Caterpillar stock after watching it climb 31% this year

Goldman Sachs has placed a “Buy” rating on Caterpillar shares less than a year after telling clients to sell and following a 31% rally year-to-date.

In a client note on January 25, Jerry Revich, an analyst, downgraded his rating on Caterpillar shares to “Sell.”

He forecast an extended slump in commodity prices and lower infrastructure investment. That’s not good for Caterpillar, which is the largest supplier (by market cap) of heavy machinery to the mining and construction industries.

Revich in January placed a 12-month price target of $51 on the stock, implying back then that he expected it to fall 61%.

Instead, Caterpillar has gained 30% this year. On Tuesday, Goldman upgraded the stock to “Buy” with a $112 price target over the next year. The stock was little-changed in early trading; it opened at $89.25.

Revich’s latest note also upgraded the entire machinery sector. He said it appeared key markets were bottoming, and the manufacturing restructuring would likely lead to higher margins for Caterpillar.

Additionally, Revich said he believed Caterpillar’s margins would be stronger as it reduces its European footprint, spends less on research and development, and invests more in product lines that have the potential for higher return.

This wasn’t a sudden reversal on his rating on Caterpillar, however. In late April, Revich raised the stock to “Neutral” with a price target of $78.

But based on the stock’s year-to-date performance, those calls could have been better-timed.

Here’s a chart for reference:

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