The market has ripped higher through the first few months of 2024, but Caterpillar (CAT 1.59%) stock's start is even more impressive. The heavy equipment specialist recently reported impressive fourth-quarter 2023 financial results that included company records for annual revenue and adjusted earnings per share.

But while there's no argument that 2023 was a success, there's debate about whether now's the best time to buy Caterpillar stock. To provide insight on the different perspectives, two fool.com contributors discuss the different arguments.

The bull case for Caterpillar stock

Scott Levine: Soaring nearly 15% higher since the start of the year, Caterpillar stock has notably outperformed the market. The S&P 500 has risen about 7% during the same period. For prospective investors, now might not seem like the best time to build a better portfolio with shares of Caterpillar. The stock is currently trading around 13.7 times operating cash flow, a premium to its five-year average valuation of 10.9. But the stock's recent climb and its valuation should hardly be deterrents to buying shares right now. 

Unlike some business that ebb and flow with the seasons, Caterpillar's business is cyclical on a much larger scale. Caterpillar is extremely sensitive to interest rates. When rates climb, Caterpillar's customers -- companies that operate in the mining, construction, and energy industries, among others -- are less likely to pursue growth projects since they are less likely to achieve high rates of return, so demand for Caterpillar's equipment declines. And in fact Caterpillar recently reported year-over-year revenue declines from its construction and resource industries businesses.

But the high interest rate environment that we're currently experiencing won't last forever. And when rates taper off, demand for Caterpillar's services will undoubtedly rise as it has in the past.

The stock may have a seemingly unattractively valuation now, but it's important to remember how foolhardy it is to try and time the market. Caterpillar is an industry stalwart that has proven to be a long-term winner for investors. The company seems to be at the height of a cycle (as Lee will discuss), but it's also quite possible that the stock extends its run.

Better to leave the timing games to others; smart investors would be well served to fortify their portfolios with Caterpillar today.

The bear case for Caterpillar stock

Lee Samaha: Caterpillar is a great company, but it might not be the best stock to buy now. The company is firing on all cylinders, raising its medium-term profit margin and cash flow outlook ranges on its recent earnings call. Caterpillar's management talks about ranges through the cycle, recognizing that its revenue and earnings will always be cyclical. In other words, it fluctuates with the economy and its construction, mining, energy, infrastructure, power, and transportation end markets.

The new free cash flow (FCF) guidance is for $5 billion to $10 billion through the cycle, from a previous estimate of $4 billion to $8 billion. But here's the thing: Caterpillar's FCF was $10 billion in 2023, and management expects its FCF in 2024 to be "in the top half of the updated target range." Moreover, sales are expected to be similar to 2023, with an adjusted profit margin in the top half of its range. That all points to the possibility that Caterpillar's earnings and FCF have peaked.

As previously discussed, there are pathways to Caterpillar outperforming expectations in 2024, not least if lower interest rates support growth in construction and mining activity. However, even if that's the case, then there are better value stocks out there, and you can play the theme of a cyclical recovery in growth in the second half of 2024. As such, Caterpillar's risk/reward calculus suggests it isn't an outstanding value stock right now.

Should you turn to Caterpillar to help build a better portfolio?

While value investors don't likely have Caterpillar stock on their radars, it doesn't mean that picking up shares now would be an unwise strategy. Those who have a long-term mindset -- our favorite type of investors -- shouldn't be dismayed at the stock's high valuation. On the other hand, those who want to stretch their investment dollar may want to wait for a pullback before clicking the buy button.