By Karee Venema / September 20, 2017 / www.schaeffersresearch.com /
Article Link
Aerospace name Boeing Co (NYSE:BA) and construction concern Caterpillar Inc. (NYSE:CAT) have displayed impressive price action in 2017. While BA is the best Dow stock in terms of year-to-date returns, fellow blue chip CAT isn't far behind. In fact, both Dow stocks are hovering near record highs, and could extend their surge next week. Specifically, "window dressing" at the end of the third quarter could help buoy the two stocks, according to Schaeffer's Senior Quantitative Analyst Rocky White. And according to two volatility indicators we track, it could be a prime time to buy calls on BA and CAT.
Booming Boeing Looks Overdue for Upgrades
Boeing stock is up 0.9% today to trade at $254.79. This is just more of the same for the equity, though, which is boasting a 63.4% year-to-date lead -- and hit an all-time peak of $255.44 earlier this morning.
Seven out of 16 brokerages still maintain a tepid "hold" rating on the outperforming stock, while its average 12-month price target of $266.85 stands just 4.8% above current trading levels. A round of upgrades and/or
price-target hikes could draw more buyers to BA's table.
Plus, it looks like an attractive time to for options buyers to strike. The stock's Schaeffer's Volatility Scorecard (SVS) stands at a lofty 95, suggesting BA has tended to make outsized moves over the past year, relative to what the options market has priced in.
CAT Stock Hit a Record High Today
Caterpillar shares topped out at a record high of $125.28 this morning, last seen trading at $124.56. The stock has climbed 34.3% i n 2017, with Monday's
upgrade at UBS helping CAT clear recent congestion in the $122 region.
While more upgrades are certainly a possibility -- 61% of analysts maintain a "hold" or "strong sell" -- CAT shares could also benefit from a round of short covering. It would take short sellers more than a week to cover their bearish bets, at the stock's average pace of trading, ample sideline cash to help fuel a continued surge.
Additionally, extremely low volatility expectations are being priced into short-term CAT options -- a potential boon to premium buyers. After tagging a 52-week low yesterday, the stock's 30-day at-the-money implied volatility was last seen at 16.4%, in the 1st annual percentile.