Caterpillar is among the most overbought stocks on Wall Street
Strong earnings boosted the artificial intelligence trade and sent stocks higher on Friday, but some stocks could soon head for a selloff, according to one technical yardstick. As of Friday, about 63% of companies in the S & P 500 had reported their latest earnings. Of these, nearly 83% had posted an upside earnings surprise, while 79% of reported revenue numbers beat Wall Street forecasts. The positive third-quarter earnings season sent all three major averages higher for the week, with the S & P 500 gaining 0.71% and the Dow Jones Industrial Average rising 0.75%. The tech-heavy Nasdaq Composite was the outlier, popping 2.24% on the week. CNBC Pro used its stock screener tool to identify the most overbought stocks on Wall Street as measured by their 14-day relative strength index, or RSI. Stocks with a 14-day RSI above 70 are considered overbought, meaning that a selloff could be on the horizon. Conversely, a reading below 30 indicates that a stock may be oversold and due for a potential rebound. The table below shows stocks with an RSI above 70 that also rose at least 5% over the week, as of Friday morning. Overbought With an RSI of 75, Caterpillar was a standout on the list. Shares of the construction and agriculture equipment manufacturer jumped 12% Wednesday and 12% on the week after Caterpillar posted better-than-expected results for the third quarter. The company earned an adjusted $4.95 per share on revenue of $17.64 billion. Analysts polled by LSEG had forecast earnings of $4.59 and revenue of $16.77 billion. Following the earnings report, Bank of America reiterated a buy rating on Caterpillar and raised its price target to $650 from $594. This updated forecast is approximately 13% above where shares of Caterpillar ended on Friday. “Q3 results provide a window that CAT’s through cycle EPS power is trending higher vs prior expectations,” the bank wrote. Caterpillar is currently trading roughly 9% above Wall Street’s average price target. Cardinal Health , up 19% this week and with an RSI of 86, was another company on the most overbought list. Shares rose 15% on Thursday after the drug and medical equipment distributor’s fiscal first-quarter results topped analysts’ expectations. Cardinal’s adjusted earnings came in at $2.55 per share, exceeding the $2.18 consensus, according to LSEG. Revenue of $64 billion was also higher than the expected $59 billion. Cardinal also raised its full-year earnings guidance. Oversold On the other hand, the week’s most oversold names included Chipotle Mexican Grill . The table below shows stocks with an RSI below 30 that also fell 5% week to date, as of Friday morning. Chipotle Mexican Grill fell 21% this week, leaving it with an RSI of just 20. Shares tumbled 18% on Thursday after Chipotle cut its full-year same-store sales forecast for a third straight quarter, saying that younger diners are cutting back their purchases. Chipotle’s adjusted earnings in the third quarter were 29 cents per share, in line with expectations. Its $3 billion revenue disappointed analysts looking for $3.03 billion, according to LSEG. “While we did see encouraging results as we accelerated our marketing spend and rolled out carne asada and red chimichurri, our underlying trends remain challenged throughout the quarter and into October,” CFO Adam Rymer said. Across Wall Street, analysts cut their price targets for the stock. Citigroup’s Jon Tower lowered is one-year target to $44, down from $54, still implies potential upside of 39% for the stock. “It’s difficult to call a bottom for sales given the multitude of factors weighing on demand,” Tower wrote. Analysts were similarly bearish on Fiserv . The fintech stock cratered 46% this week, ending with an RSI of 13. Shares plummeted 44% on Wednesday alone, their worst day ever, after Fiserv cut its earnings outlook and announced management changes. The company now expects adjusted earnings for its full year to come in between $8.50 and $8.60 versus a prior forecast for $10.15 to $10.30. Fiserv’s revenue is now expected to grow between 3.5% to 4%, versus prior estimates of 10%. “Our current performance is not where we want it to be nor where our stakeholders expect it to be,” CEO Mike Lyons wrote in a release . Morgan Stanley was one of the Wall Street investment banks to downgrade Fiserv in reaction, cutting the stock to an equal weight rating from overweight. “40 years of double-digit EPS growth ends. Downgrade to EW as mgmt goes through an investment process to improve service and product, targeting eventual mid-single-digit revenue growth and a return to double-digit EPS growth,” Morgan Stanley said.
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