CAT

Caterpillar ($CAT) Directors Signal Confidence With Consecutive Stock Purchases Following Trade War-Induced Price Plunge

05/08/2025 12:53

As Caterpillar Inc.'s ($CAT) stock continues to show volatility following a sharp decline in early April due to U.S.-China trade tensions, two board members have recently made consecutive share purchases, drawing investor attention. On May 7, 2025, Caterpillar director David Maclennan acquired 375 shares at $320.70 per share, totaling $120,262.50. This followed another purchase on May 2 by director Gerald Johnson, who bought 100 shares at $318.48 per share, amounting to $31,848. These back-to-back purchases occurred after the stock had partially recovered from its April plunge, when it dropped from the $330s to the $270s. Notably, Gerald Johnson's purchase follows a consistent pattern. He previously acquired 100 shares each in September 2024, December 2024, and February 2025, demonstrating a regular investment schedule that reflects long-term confidence in the company's value. Caterpillar's stock reached historic highs above $410 in early November 2024 but has since experienced a gradual decline. The situation dramatically worsened in early April 2025 following President Trump's announcement of new tariffs and China's immediate retaliatory measures. Trump proposed imposing a 10% baseline tariff on all imports with higher duties on major trading partners, while China responded with 34% retaliatory tariffs on U.S. farm equipment and automobiles. This trade conflict shock caused the stock to plummet from $333.056 on April 3 to $304.295 on April 4, and further to $272.627 by April 8, losing approximately 18% of its value. The stock partially recovered after Trump announced a 90-day tariff pause on April 9, but still remains more than 15% below its year-beginning levels. In its Q1 2025 earnings report released on April 30, Caterpillar posted disappointing results with revenue of $14.25 billion (down 9.8% year-over-year), net income of $2 billion (down 30% year-over-year), and EPS of $4.25 (down from $5.60 a year earlier). The Construction Industries segment showed particularly weak performance, with North American sales declining significantly. Caterpillar's underwhelming performance can be attributed to weakened construction demand and global economic uncertainty. High lending rates in the U.S. and uncertainty in government spending have reduced demand for construction equipment. Additionally, intensified U.S.-China trade tensions have disrupted global supply chains and increased costs. In this context, the directors' share purchases send an important signal. Directors of large industrial companies like Caterpillar typically have deep insights into the company's long-term business outlook, and their buying activity suggests they believe the current stock price is below the company's intrinsic value. David Maclennan, in particular, brings valuable expertise as a veteran of the agriculture and food industry, having served as the former CEO of Cargill. His purchase of 375 shares may reflect confidence in the long-term recovery of demand for Caterpillar's agricultural and construction equipment. On April 15, Caterpillar announced an internal promotion, naming Joe Creed as its new CEO effective May 1, succeeding Jim Umpleby. This leadership transition through internal promotion aims to ensure operational continuity while navigating economic uncertainties. Industry experts project that Caterpillar will begin a gradual recovery toward the end of 2025. Citi Research recently reported that U.S. core machinery markets (truck, agricultural, and construction) are expected to bottom in 2025 before recovering in 2026. J.P. Morgan analysts predict that a recovery in European construction and strength in the Energy & Transportation (E&T) sector will drive Caterpillar's growth in 2025. Caterpillar's competitors, including Deere & Co. and CNH Industrial, face similar challenges. Deere maintained profitability through strong pricing and cost control in its August 2024 quarterly results despite experiencing revenue declines due to overall demand slowdown. Recently, Deere and CNH Industrial stocks also fell following the tariff announcements but partially recovered after the 90-day tariff pause was declared. Currently, analysts have issued 10 'strong buy' or 'buy' ratings, 15 'hold' ratings, and 3 'sell' or 'strong sell' ratings for Caterpillar, with a median price target of $372. This suggests an upside potential of approximately 16% from current levels. Investors should closely monitor the evolution of U.S.-China tariff disputes, the pace of recovery in global construction and mining markets, and Caterpillar's strategic direction under its new CEO. The consecutive purchases by two directors can be interpreted as a positive signal, reflecting internal confidence in the company's long-term outlook despite current challenges.

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