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Caterpillar is about to report earnings, and Oppenheimer sees stock stabilizing

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Trading Nation: Caterpillar gets downgraded to underweight at Morgan Stanley

Caterpillar is set to report earnings, one of the largest industrials stocks to give insight into how the coronavirus pandemic has hit the sector.

The heavy-machinery maker is expected to post a 42% drop in first-quarter profit and 18% decline in revenue. Results will be released before the bell Tuesday.

Caterpillar heads into that report sharply lower for the year — it has dropped 21% in 2020, broadly in line with the XLI industrials ETF, which has fallen 21%.

Ari Wald, head of technical analysis at Oppenheimer, says it may level off here.

"For the sector broadly we downgraded industrials back in February and remain on the sidelines. Now Caterpillar actually looks a little bit better than the overall sector, and it's currently trying to stabilize at important support at $112 dating back to October of 2018," Wald said on CNBC's "Trading Nation" on Monday.

Caterpillar was trading at $116 on Monday afternoon. 

"Still, its 200-day average is pointing lower, indicating its trend is down with resistance at $129, and this is another reason we recommend allocating funds elsewhere," said Wald.

A move to $129 implies roughly 12% upside for Caterpillar shares. 

John Petrides, portfolio manager at Tocqueville Asset Management, says the entire construction industry will endure a painful stretch in the economic slowdown.

"The industry overall is going to have a rough time in the short term for those construction companies that have exposure to the energy market and the basic materials market — those capital expenditure budgets have been cut drastically by those companies," Petrides said during the same segment.

However, he does see hope over the longer period, especially for the larger companies in the industry.

"The larger players will use their size and scale to pick up market share, and there will be a rebound," Petrides said. "And every day that the economy is shut down it means that infrastructure gets older and they're going to have to rebuild infrastructure in the future, so we do think there will be pent-up demand."

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