It’s as good as it gets!? Following a very positive earning’s report, earth-moving and mining equipment giant Caterpillar commented in its conference call with analysts that it’s at a “high water mark”. This unfortunate choice of words rumbled throughout Wall Street that the bellwether company was signaling the end of growth for the economy. The initial earnings release prompted CAT stock to jump about 4%, but it quickly reversed direction after the remark to lose 11 percent of its value and failed to recover for the week. Then came word from blog conservative candidate 3M, that sales and earnings guidance will not be all that Wall Street expected sending the stock into bear market territory (see below). Not only did the share price of CAT and MMM suffer, but the Dow Industrials gave back 425 points on the day. A blip to over 3% in the ten-year Treasury note didn’t help matters either, signaling that inflation is moving ahead faster than the Federal Reserve has judged.
Nonetheless, despite the headlines, the Dow managed to lose only about 0.6% on the week, as trading stabilized during the last three trading sessions. The S&P 500 was flat and the NASDAQ surrendered about 0.3%. Utility stocks outperformed all other sectors by a wide margin adding nearly 3% in value on average. Health care and telecom stocks also did well, gaining 1.6% and 1.5%, respectively. But Caterpillar and 3M shrouded the industrial sector, which gave up 3%.
For now, I don’t believe the fundamental story for 3M has changed enough to warrant exiting my position, which enhances the diversification and safety of the conservative portfolio; not to mention over 100 years of dividend payouts. Despite this week’s drop, the shares have returned about 118% to investors (not including dividends) since entering the list. And the company’s collection of high-quality businesses leave it well-positioned to continue its trend of sustainable dividend growth in the future. Elsewhere, more earning’s news will affect trading this week. On Tuesday, Gilead Sciences reports first quarter earnings estimated at $1.67 compared to $2.33 last year. Then on Wednesday CVS Health reports ($1.41 vs. $1.17) and Harris Corp. ($1.63 for the third quarter compared to $1.38). In sum, even assuming the bull market perseveres, the road ahead for stocks is likely to remain challenging.
Here is the answer to last week’s trivia question: Ketchup king H.J. Heinz Co. – now a part of The Kraft Heinz Co. – can trace its roots back to 1869. The company’s first product was? Horseradish, Mustard, Pickles or Brown (Steak) Sauce. Answer: Horseradish.
Today’s Trivia Question; CVS Health, a buttonwoodproject conservative choice, owns about 9,800 retail drugstores throughout the U.S including those in Target outlets, except for which state? Hawaii, Alaska, Wyoming or North Dakota.