Caterpillar faces many challenges and opportunities in the year 2022

This year, the movement of quotations of the manufacturer of heavy machinery Caterpillar Inc. (CAT), was alternately influenced by both bullish and bearish sentiments. As a result, since the beginning of the year, the company’s shares have lost about 13%. At the auction on July 20, the stock was worth $179.97. The main reason for Caterpillar’s volatility is inflation and a possible recession. 

As a result, sharp increase cost of raw materials and demand for machinery, and in 2021, this year, there is a reversal of the trending background of an increase in interest rates. In addition, Caterpillar shares are under pressure from concerns about a possible recession, which could slow down the construction industry. A significant change in commodity prices is likely to put pressure on Caterpillar’s independent dealers, and they will prefer to reduce existing inventory before ordering new equipment. 

So far, Caterpillar has not released an update for its earlier forecast. Recall that in April, management noted that it expects margin improvement in the second half of this year. But the change in the estimates may already be in the following quarterly report. At the same time, commodity prices are falling, and capital expenditures on mining have experienced a multi-year decline, so the industry needs to catch up. Moreover, the prices of many commodities, including copper, aluminum, nickel, and oil, are still significantly higher than before the pandemic. 

These factors can stimulate purchases of Caterpillar equipment. Some investors even see positive changes in the economy’s slowdown: this will help reduce restrictions in the supply chain. As a result, transportation and other supply chain costs can live significantly reduced. Thus, 2022 is likely to be a challenging year for Caterpillar; however, the company’s management recently confirmed its expectations of $4 billion to $8 billion of free cash flow during the current cycle.