By Dan Burrows, CBS MoneyWatch columnist

After nearly quintupling from the bear-market bottom of 2009, shares in Caterpillar (CAT) have had a lousy run in 2011. That's great news for investors looking to build a position in this high-quality stock on the cheap.

Caterpillar is the world's largest maker of construction and mining equipment, and it's trading at bargain-basement levels with fears of a global economic slowdown more than baked into its share price.

CAT stock, a component of the Dow Jones Industrial Average, has lost 7% as of this writing in 2011, lagging the broader market's tiny gains year-to-date. Even worse, the stock logged its loss in the most gut-wrenching fashion.

It was up more than 20% by early May -- and then down nearly 25% at the start of October. Indeed, with a beta of more than 2.0, Caterpillar has been twice as volatile as the S&P 500. (Shares sport a nauseating 52-week range of $67.54 to $116.55.)

Chalk it up to macroeconomic uncertainty, as well as institutional investors being forced to sell some of their winners. Caterpillar is finely attuned to the global economy, and anxiety over recession in Europe and a possible slowdown in China has beaten a good stock down.

And yet a funny thing happened on the way to the recession: it never showed up in Caterpillar's quarterly results or monthly dealer statistics. Dealer retail sales grew 31% in October from a flat September, despite macro worries, notes Jefferies analyst Stephen Volkmann, who has a buy rating on the stock.

Not only did the North American machinery business reaccelerate, but demand from Asia picked up, too, noted Raymond James analyst Theoni Pilarinos, who rates shares at outperform. That's especially comforting given that China is just now gearing up for the seasonally strong months following Chinese New Year, the analyst wrote.

The punishing sell-off in Caterpillar's stock from its 52-week high has made the valuation too compelling for value investors to forego. With a forward price/earnings ratio of 10, Caterpillar trades at a 40% discount to its own five-year average, according to data from Thomson Reuters. It's also 28% cheaper than the S&P 500.

Furthermore, on a trailing earnings basis, Caterpillar's P/E of 14 offers a 23% discount to its own five-year average and a 22% discount to the broader market.

Meanwhile, Caterpillar's price/earnings-to-gr​owth ratio (PEG) -- which measures how fast a stock is rising relative to its growth prospects -- stands at just 0.6. Not only is that 58% below Caterpillar's own five-year average, it also represents a 75% discount to the S&P 500, according to Thomson Reuters data.

With a return on equity of 35%, the numbers don't lie: Caterpillar has all the makings of a cheap, high-quality stock.

The company has exceeded Wall Street's bottom-line forecasts in six of the last eight quarters, and has topped revenue estimates six quarters in a row. That helps bolster the case that analysts' average price target is on the money.

Wall Street's mean (and median) price target for Caterpillar currently stands at $114.50, according to Thomson Reuters data. Add in the 2% yield on the dividend, and the stock offers an implied return of 28% in the next 12 months or so. Not too shabby for a company with a market cap of more than $58 billion.

If you're screening for beaten-down blue chips with the ability to generate superior returns in 2012,  look no farther than big CAT.

Dan Burrows is a contributor to CBS MoneyWatch and a veteran of AOL's DailyFinance, SmartMoney and MarketWatch from Dow Jones.  You can reach him at dan.burrows@gmail.co​m and follow him on Twitter at @danburrows. He holds no individual securities.

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