Caterpillar (NYSE:) stock has been on the receiving end of a nasty sell-off that has dragged it down 20% from its May 2021 peak.

After the incredible rise from 2020’s lows, Caterpillar (NYSE:) stock was due for a sell-off. The Evergrande situation (EGRNF), which put China-reliant businesses like Caterpillar in jeopardy, has made the selling pressure seem excessive.

Due to this, I remain bullish on Caterpillar stock despite its recent move into bear market territory. (See CAT stock charts on TipRanks)

Market Turns on Cyclical Stocks

Increased infrastructure spending, and the early stages of a new market cycle have been meaningful tailwinds for Caterpillar. The CAT stock could experience negative momentum due to concerns over slowing growth during a transition phase.

The possibility of a midcycle shift from early to middle-cycle has already affected the stock. The recent Evergrande worries are a reason why Evergrande has become one the least-loved stocks in the market.

Long-Term Fundamentals Intact

Despite the jitters and pessimism, there are still some pretty strong longer-term tailwinds that are likely to overpower any newly discovered headwinds over the next several years.

The President Joe Biden’s drive to raise infrastructure spending will likely lead to higher demand for Caterpillar equipment. China is still a major growth engine that can sustain double-digit revenue growth for years, despite Evergrande’s contagion problems.

Caterpillar stocks could be held below $200 despite such long-term catalysts. For those who have a long-term perspective, this fast-falling knife might be worthwhile to catch.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, CAT stock comes in as a Moderate Buy. There are nine analyst ratings: six Buys and two Sells.

The average CAT price target is $241.33, representing 22.7% upside potential. The price targets of analysts range from $172 to $270 per shares, with a minimum of $172.

Bottom Line

While the full impact of Evergrande’s potential default may not be fully understood at this time, analysts may need to re-evaluate its potential effect on Caterpillar. Investors shouldn’t be surprised if the effect isn’t as severe as they initially thought.

Caterpillar remains at the top in its field and can continue to benefit from infrastructure spending and mining in emerging and developed markets.

If you add the attractiveness of innovation (think about the long-term potential in autonomous and carbon capture), CAT stock is very appealing, even though there may still be the bottom.

Disclosure: Joey Frenette did not hold shares in the mentioned companies at publication.

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