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Dow 30 Stock Roundup: Cisco, Home Depot, Wal-Mart Beat, Berkshire Raises Stake in Apple

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The Dow increased over last week, buoyed by gains made by energy and material shares. Rising hopes that major oil producing countries would reach an agreement on capping production and favorable data helped oil prices surge over this period. Mixed signals emerged from the Fed over the possible path of rate hikes. While some officials said a rate hike was likely later this year, minutes of the Fed’s last policy meeting indicated that policymakers were divided over policy tightening.

Last Week’s Performance

The index decreased 0.2% on Friday following weak retail sales and disappointing wholesale prices data. Both the Dow and the S&P 500 closed in the red, with the materials sector declining the most after the EU opened an antitrust probe on the Dow Chemical (DOW - Free Report) and DuPont (DD - Free Report) merger.

Weaker-than-expected retail sales numbers dampened investor sentiment. The metric remained unchanged from the prior month at $457.73 billion last month. The consensus had estimated growth of 0.4%. Additionally, wholesale prices dropped 0.4% in July from the prior month, its biggest drop since September 2015.  This was also the first drop in four months, with both food and energy prices tanking.

The Dow also gained 0.2% over last week. Rise in oil prices helped benchmarks finish in the green for the week. Saudi Arabia’s Energy Minister Kahlid al-Falih showed willingness to talk with major crude-oil producers to limit oil production, which eventually boosted oil prices. Separately, better-than-expected earnings results from large retailers had a positive impact on the broader markets.

The Dow This Week

The index increased 0.3% on Monday, boosted by gains in energy and material shares. Hopes that the prolonged rout in oil prices will lead to a production freeze helped oil prices to gain on Monday. Russian Energy Minister Alexander Novak said that his country is in consultation with Saudi Arabia and other oil producing countries to achieve stability in the oil market.

As a result, WTI crude ended its highest settlement price since July 15 and Brent crude also moved upward. On the economic front, builders’ morale improved, which raised hopes for higher construction activity. The NAHB/Wells Fargo Housing Market Index increased 2 points to 60 in August from a downwardly revised 58 in July.

The Dow closed in the red on Tuesday, losing 0.5%, following hawkish comments from Fed officials. Both William Dudley and Dennis Lockhart expect that there is a possibility of a rate hike this year. On the economic front, industrial production experienced its biggest gain in 20 months in July.

Housing starts also rose 2.1% in July from June to a seasonally adjusted annual rate of 1,211,000, beating the consensus estimate of 1,175,000. However, Consumer Price Index (CPI) remained unchanged in July, in line with the consensus estimate, indicating that inflation is still tepid.

The index increased 0.1% on Wednesday after the minutes of the Federal Reserve’s July 26–27 policy meeting indicated that policy makers were divided over the need for a rate hike. Some policymakers argued that a rate hike should take place soon as the labor market was nearing full employment.  However, others believe factors like weak economic outlook for China and the failing conditions of European banks are concerns.

This in turn lowered speculation over chances of a rate hike in the near term and had a positive impact on debt dependent sectors like utilities. Separately, the U.S. Energy Information Administration (EIA) reported a decrease in crude inventories.

The index gained 0.1% on Thursday, boosted by gains in energy shares. Rally in oil prices helped energy shares gain traction. Oil prices officially entered a bull market; thanks to fall in stockpiles and rising expectations that top oil producers will cap output.

In the meantime, applications for unemployment benefits dropped last week. Additionally, investors kept an eye on the annual meeting of the world’s central bank chiefs to be held in Jackson Hole, Wyoming, next week.

Components Moving the Index

Cisco Systems (CSCO - Free Report) reported fourth-quarter fiscal 2016 earnings of 58 cents, exceeding the Zacks Consensus Estimate by 3 cents. The adjusted earnings per share figure exclude one-time items but include stock-based compensation expenses.

Moreover, management took the opportunity to announce a restructuring initiative that would reduce the head count by 5,500 positions or 7% effective first-quarter fiscal 2017.

Revenues increased 5.3% sequentially but declined 1.6% year over year to $12.6 billion, which came in above the Zacks Consensus Estimate of $12.5 billion.

For the first quarter of fiscal 2017, Cisco expects revenues in the range of -1% to 1% on a year-over-year basis. The company expects a non-GAAP tax rate of 22%, yielding non-GAAP earnings per share of 58 cents to 60 cents. The Zacks Consensus Estimate is pegged at 55 cents. (Read: Cisco Beats Earnings and Revenue Estimates in Q4)

The Home Depot Inc. (HD - Free Report) posted fiscal second-quarter adjusted earnings of $1.97 per share, which jumped 13.9% from the year-ago quarter and beat the Zacks Consensus Estimate of $1.96.

With this, the company retained its four-year long trend of beating earnings estimates. Not only this, the company reached a key milestone in the quarter, recording the highest quarterly sales and net earnings.

Net sales advanced 6.6% to $26,472 million from $24,829 million in the year-ago quarter. The top line also marginally beat the Zacks Consensus Estimate of $26,437.2 million.

Following the robust fiscal second quarter, Home Depot reiterated its sales and comps guidance, while it raised its earnings forecasts for fiscal 2016. The company continues to project sales growth of 6.3%, with about 4.9% improvement in comps. Home Depot now envisions diluted earnings per share to grow about 15.6% year over year to $6.31. (Read: Home Depot Retains Trend: Beats Q2 Earnings, View Up)

Wal-Mart Stores Inc.’s (WMT - Free Report) second-quarter fiscal 2017 adjusted earnings (excluding non-cash gain from the sale of Yihaodian in China) of $1.07 per share beat the Zacks Consensus Estimate of $1.02 by 4.9%. Earnings were within management’s guided range of 95 cents to $1.08 per share.

However, the figure declined 0.9% from the year-ago earnings from continuing operations of $1.08 per share. Total revenue of the retailer was $120.9 billion. Revenues beat the Zacks Consensus Estimate of $120.1 billion by 0.7% and increased 0.5% year over year.

The company has updated its fiscal 2017 guidance to reflect the sale of Yihaodian. Wal-Mart now expects its earnings in the range of $4.15−$4.35 per share, up from $4.00−$4.30 per share expected previously. Earnings are, however, anticipated to be lower from $4.57 per share posted in fiscal 2016. (Read: Wal-Mart Q2 Earnings and Sales Beat on Comps Gain)

Apple Inc.’s (AAPL - Free Report) shares rose 1.23% in Aug 15’s trading session after a regulatory filing revealed that Warren Buffett is betting big on the tech giant. Buffett’s Berkshire Hathaway (BRK.B - Free Report) has increased its stake by 55% in Apple.

This news is a positive for investors as people are familiar with Warren Buffett’s style of long-term and value investment. Berkshire Hathaway now holds 15.2 million of Apple shares, up from 9.8 million shares held earlier.

Berkshire Hathaway’s stake in Apple was initially revealed in May 2016 when it disclosed that it had bought 9.81 million shares of Apple worth over $900 million then. (Read: Apple Shares Up as Warren Buffett Increases Stake by 55%)

The Boeing Co. (BA - Free Report) is set to clinch an order from South Korea's Jeju Air for its B737-800 planes. South Korea's largest low-cost carrier, Jeju Air, plans to buy three B737-800 planes from Boeing for $291 million (317 billion won) by Oct 2018, to guarantee stable supplies.

The carrier is set to diversify its portfolio by entering into the hotel business and have its own aircraft to generate a new revenue stream in the wake of intense competition among local budget airlines. (Read: Boeing Set to Gain a B737-800 Order from Jeju Air)

Johnson & Johnson's (JNJ - Free Report) Janssen Research & Development, LLC announced that the FDA has granted Breakthrough Therapy Designation (BTD) to esketamine, an experimental antidepressant treatment. The designation was granted for major depressive disorder with imminent risk for suicide.

This is the second indication for which esketamine got BTD in the U.S. Esketamine had previously got this designation in Nov 2013 for treatment-resistant depression. Esketamine is currently in phase III development for treatment-resistant depression. (Read: J&J's Depression Treatment Esketamine Gets BTD)

United Technologies Corp.’s unit Otis Elevator was recently awarded a contract to provide its elevator and escalator services for a luxurious new Marriott International, Inc. (MAR - Free Report) hotel being built in Xiamen, southeast China.

The new Marriott hotel will require 30 Otis elevators and escalators, including seven of Otis’s SkyRise elevators which are used for high-rises and move at a speed of up to 6 meters per second. (Read: United Technologies' Otis Wins Marriott Contract in China)

ExxonMobil Corporation (XOM - Free Report) is reportedly chalking out a plan to export Qua Iboe crude oil through an alternate pipeline while repairing the main export line that was damaged in July.

Notably, the above mentioned crude oil is Nigeria's largest export stream. However, the crude oil grade has been under force majeure since mid-July, when the company detected an irregularity in the subsea pipeline system.

In fact, the company discovered significant damage later and estimated repair works spanning over a period of about one to two months. However, both ExxonMobil and the Qua Iboe terminal refused to divulge specific details about these developments. (Read: ExxonMobil to Export Qua Iboe Crude Via Alternate Pipeline)

Performance of the Top 10 Dow Companies

The table given below shows the price movements of the 10 largest components of the Dow, which is a price weighted index, over the last five days and during the last six months. Over the last five trading days, the Dow has gained 0.1%.

Ticker

Last 5 Day’s Performance

6-Month Performance

MMM

-0.7%

+14.3%

GS

+2.2%

+12.4%

IBM

-1.3%

+21.8%

HD

-1.8%

+12.4%

BA

+1.3%

+14.8%

UNH

+0.4%

+21.1%

MCD

-2%

NA

TRV

-0.6%

+8.2%

JNJ

-2.5%

+15.8%

AAPL

+1.2%

+13.3%

Next Week’s Outlook

With oil prices entering a bull market toward the end of the week, investors have been rid of an impediment which has been dampening their enthusiasm for some time now. At the same time, uncertainty over the path of rate hikes continues. However, it is clear that policymakers remain divided on this issue, which means market may not have to deal with a rate hike in the near future.  

This is why the focus is shifting toward economic data once again. Data on housing, durable orders and GDP are scheduled for release next week. If the majority of these reports are positive in nature, stocks could consolidate their gains over the next few trading sessions. 

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