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Dow 30 Stock Roundup: Exxon to Invest $20B on US Gulf Coast Facilities, IBM, Salesforce Partner to Bolster A.I. Presence

Swarup Gupta

The Dow slipped lower over the week due to multiple factors, including comments made by the incumbent President. The index slipped lower on Monday after geopolitical tensions heightened. The Dow continued to decline on Tuesday after Trump said he was working on a way to reduce drug prices. Slump in crude oil prices sent stocks lower on Wednesday even as dismal news about a key component acted as drag on the index. Ultimately, the Dow managed to inch up on Thursday, which marked the eight anniversary of the current Bull Run.

Last Week’s Performance

The Dow gained a meagre 0.01% last Friday after comments from Fed Chair Janet Yellen and other officials hinted at a rate hike in March. Financial shares gained the most, with banks taking an upward trajectory since the banking sector’s profitability increases with interest rate hikes. Optimism about President Donald Trump’s plan to slash taxes and regulations had already provided an impetus to the sector to scale higher.

All the major indexes ended the week in the green, with the Dow posting a fourth consecutive weekly gain of 0.9%. The indexes moved north as investors continued to bid up stocks prices even as the Fed aims to hike rates based on a higher pace of growth and fiscal stimulus.

The Dow This Week

The index declined 0.2% on Monday amid concerns over growing geopolitical tensions in Asia. North Korea tested four ballistic missiles off its east coast, three of which landed in Japan’s exclusive economic zone. Meanwhile, President Trump claimed that Barack Obama had instructed a wiretap of Trump Tower in October ahead of November’s election.

Inventors were nervous as such allegations may distract Trump from his pro-growth agenda including tax cuts and deregulations. Optimism about Trump’s policies had powered a record setting rally in Wall Street since the election.

The index lost 0.1% on Tuesday dragged down by declines in drug shares. Shares of large US pharmaceutical and biotechnology companies came under pressure after Trump tweeted that he was working on a “new system” to reduce drug prices in the industry. However, Trump didn’t provide much detail. Also, the President backed a draft bill unveiled by Republicans to repeal and replace the Obamacare healthcare law but said that it was still open to negotiation.

The U.S. dollar, in the meantime, strengthened against most of its currency rivals on looming rate hike expectations. The ICE Dollar Index rose as much as 0.4% to settle at 100.28 late on Mar 7. On the data front, U.S. trade deficit jumped in January to the highest level in nearly five years to $48.5 billion.

The index declined 0.3% on Wednesday due to decline in energy shares. Slump in crude oil prices on a spike in U.S. oil stockpiles dragged energy shares down. U.S. crude supplies added 8.2 million barrel last week, pushing total commercial inventories to a new record weekly level of 528.4 million, according to the U.S. Energy Information Administration (EIA). This marked the ninth straight weekly gains.

Meanwhile, the Dow suffered after shares of manufacturing giant Caterpillar Inc. CAT declined 2.8% after a new report, commissioned by the government, accused the company of tax and accounting fraud, according to The New York Times. In economic news, Paycheck-processing firm Automatic Data Processing (ADP) reported that the private sector added 298,000 jobs in February, a full 100,000 higher than the 188,000 expected by analysts.

The index gained a meagre 0.01% on Thursday due to a late rebound in energy shares.  The sector’s shares successfully fended off another sharp decline in oil prices. For the first time this year, oil prices sank below $50 a barrel, its lowest finish since late November. Growing concerns that U.S. crude producers may undermine efforts to rebalance global supply and demand disparity, dragged oil prices lower.

Nonetheless, U.S. stocks meandered as the eighth anniversary for the current bull market turned out to be a quiet one. On the economic front, initial claims increased by 20,000 during the latest week.

Components Moving the Index

Chevron Corporation CVX recently issued a statement on its annual analyst day, maintaining its guidance related to production, margins and other details along with emphasizing on its growing free cash flows.

The company intends to reduce its capital expenditure in the coming years. The capex budget for 2017 is set at $19.8 billion, down almost 12% from the year-ago figure. The capex for 2018–2020 is estimated to be around $17–$22 billion. 75% of Chevron’s capex is estimated to generate cash within the next two years.

The company also plans to lower its operating costs that includes selling and administration expenses for 2017. It also plans to divest assets worth $5–$10 billion in 2016–2017. Declining oil reserves have become a major concern for energy companies. However, Zacks Rank #3 (Hold) rated Chevron stands strong with its high reserve replacement ratio of 95%.

Net production is expected to witness 4–9% growth in 2017. Various projects like Gorgon and Wheatstone are shaping up well and the company aims to accelerate growth and development in the Permian Basin, projecting a production of 700,000 barrels per day within a decade. (Read: Chevron (CVX) Declares Growth Plans, Issues 2017 Guidance)

Exxon Mobil Corporation XOM recently announced its intention to make planned investments of $20 billion through 2022 to expand its chemical and oil refining plants on the U.S. Gulf Coast. The stock has a Zacks Rank #3 (Hold).

The investments, which will be made over a 10-year period, will involve major chemical, refining, lubricant and liquefied natural gas projects at 11 proposed and existing sites. These investments are anticipated to create thousands of new high-paying jobs and generate $20 billion in increased economic activity in Texas and Louisiana. To be precise, the investments are expected to create 35,000 temporary construction jobs and 12,000 permanent jobs. (Read: Exxon Mobil to Invest $20 Billion on US Gulf Coast Facilities)

IBM Corporation IBM and salesforce.com (CRM) are partnering to solidify their footprint in the rapidly growing artificial intelligence (AI) market. The collaboration will bring together the capabilities of IBM Watson and Einstein AI that will make the decision making process smooth for clients.

The integration of Watson-Einstein will provide an insight on huge amount of data specifically related to the fields of health care, financial services and retail. This will result in improved industry-specific predictions, recommendations and valuable insights that could be used for meaningful customer interactions by the companies. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DuPont DD recently announced plans to deliver new genetics, biotech traits and crop protection products and certain strategic priorities for the company's agriculture business segment at the Bank of America Merrill Lynch 2017 Global Agriculture and Chemicals Conference.

The company provided an update on its agriculture research pipeline. These include the launches of the Pioneer brand A-Series soybeans and DuPont Vessarya disease control as well as the regional expansions of products such as Pioneer brand hybrids with Leptra insect protection and DuPont Zorvec fungicide.

Zacks Rank #3 rated DuPont also highlighted the Qrome products that bring out the full potential of Pioneer's elite corn germplasm which provides yield protection against pests. The company recently announced the limited commercial introduction of Qrome.

DuPont Zorvec disease control which is expected to be launched in additional countries this year provides long-term control against oomycete diseases. DuPont Pyraxalt insecticide, which has been developed to protect rice crops in Asia, is nearing its launch in 2018. (Read: DuPont (DD) Outlines FY17 Strategies for Agriculture Unit)

The Walt Disney Company DIS is preparing to lay off workers at ESPN, in an attempt to reduce cost, according to media reports. Per sources, the layoffs are likely to be completed by June and will be limited to only on-air commentators and content creators. Notably, the previous retrenchment by the company was announced in 2015.

For some time now, declining subscriber count and higher programming costs have been a cause of concern for investors. Zacks Rank #3 rated Disney’s primary cash cow, ESPN, has been under immense pressure as the Pay-TV landscape continues to change owing to migration of subscribers to online TV. Falling subscriptions will have a telling effect on the network’s ad revenues. (Read: Disney's ESPN Likely to Cut Jobs; Subscriber Woes Remain)

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 lost 0.8%.

Ticker

Last 5 Day’s Performance

6-Month Performance

MMM

NA

+6.6%

GS

-0.1%

+46.3%

IBM

-1.7%

+11.9%

HD

-1.2%

+14%

BA

-1.7%

+38.8%

UNH

+0.1%

+24%

MCD

-0.1%

+10.5%

TRV

-2.1%

+5.5%

JNJ

+2.3%

+5.7%

AAPL

-0.2%

+31.5%

Next Week’s Outlook

This has been a quite week for the Dow after its recent record breaking run. During this period, the index had set multiple landmarks and breached by the psychological level of 21,000. Now hovering marginally lower, the index has been troubled by a series of factors, both economic political in nature. The most notable feature of this week’s events is the detrimental impact of the President’s comments on stocks.

Meanwhile, all eyes will on the Fed policy statement scheduled for release next week. The spotlight will now be firmly on interest rates and the Fed’s final call is likely to guide stocks for most of next week.  

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International Business Machines Corporation (IBM): Free Stock Analysis Report
 
Walt Disney Company (The) (DIS): Free Stock Analysis Report
 
E.I. du Pont de Nemours and Company (DD): Free Stock Analysis Report
 
Caterpillar, Inc. (CAT): Free Stock Analysis Report
 
Chevron Corporation (CVX): Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM): Free Stock Analysis Report
 
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