Is Caterpillar Inc. (CAT) A Good Stock To Buy?

The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Caterpillar Inc. (NYSE:CAT).

Is CAT a good stock to buy? Caterpillar Inc. (NYSE:CAT) was in 46 hedge funds’ portfolios at the end of September. The all time high for this statistic is 63. CAT investors should be aware of a decrease in enthusiasm from smart money in recent months. There were 62 hedge funds in our database with CAT holdings at the end of June. Our calculations also showed that CAT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a gander at the latest hedge fund action regarding Caterpillar Inc. (NYSE:CAT).

Do Hedge Funds Think CAT Is A Good Stock To Buy Now?

At Q3’s end, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in CAT over the last 25 quarters. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

The largest stake in Caterpillar Inc. (NYSE:CAT) was held by Bill & Melinda Gates Foundation Trust, which reported holding $1859.3 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $1312.3 million position. Other investors bullish on the company included Two Sigma Advisors, Citadel Investment Group, and D E Shaw. In terms of the portfolio weights assigned to each position Bill & Melinda Gates Foundation Trust allocated the biggest weight to Caterpillar Inc. (NYSE:CAT), around 8.02% of its 13F portfolio. Plaisance Capital is also relatively very bullish on the stock, earmarking 2.4 percent of its 13F equity portfolio to CAT.

Seeing as Caterpillar Inc. (NYSE:CAT) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of hedgies that decided to sell off their entire stakes last quarter. Interestingly, Matthew Stadelman’s Diamond Hill Capital dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, valued at close to $264.5 million in stock. Stanley Druckenmiller’s fund, Duquesne Capital, also dropped its stock, about $34 million worth. These moves are important to note, as total hedge fund interest was cut by 16 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Caterpillar Inc. (NYSE:CAT) but similarly valued. We will take a look at Deere & Company (NYSE:DE), S&P Global Inc. (NYSE:SPGI), 3M Company (NYSE:MMM), Airbnb, Inc. (NASDAQ:ABNB), Stryker Corporation (NYSE:SYK), Atlassian Corporation Plc (NASDAQ:TEAM), and Booking Holdings Inc. (NASDAQ:BKNG). This group of stocks’ market caps match CAT’s market cap.

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As you can see these stocks had an average of 62.6 hedge funds with bullish positions and the average amount invested in these stocks was $4540 million. That figure was $4779 million in CAT’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand 3M Company (NYSE:MMM) is the least popular one with only 46 bullish hedge fund positions. Compared to these stocks Caterpillar Inc. (NYSE:CAT) is even less popular than MMM. Our overall hedge fund sentiment score for CAT is 10.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards CAT. Our calculations showed that the top 5 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th but managed to beat the market again by 5.6 percentage points. Unfortunately CAT wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); CAT investors were disappointed as the stock returned 1.3% since the end of the third quarter (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.

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