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Dow 30 Stock Roundup: GE's Transportation Unit to Merge With Wabtec, J&J & Glaxo's HIV Drug Gets EU Approval

Swarup Gupta
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The Dow endured another volatile week marked by key geopolitical developments. At the beginning of the week, the U.S. Treasury Secretary made encouraging remarks about the progress of trade negotiations with China. However, later in the week, President Trump expressed dissatisfaction with the progress of trade talks. He also cancelled his much awaited summit with North Korea’s leader Kim Jong Un. As a result, stocks gained and lost on alternate sessions.

Last Week’s Performance

The Dow gained 1.1 points on last Friday, closing the session nearly unchanged. Trade negotiations between the United States and China continued to weigh on investor sentiment after President Donald Trump said that he doubted that negotiations would have a positive outcome. Also, bond yields reached their highest level since 2011 last week.

The index declined 0.5% over last week.  Trade talks between the United States and China remained in focus this week, which continued to weigh on investor sentiment. Moreover, high interest rates too pushed stocks lower this week.

The 10-year note yield crossed the 3.1% mark for the first time since 2011, denting investors’ confidence. This saw investors panicking, as yield hitting the psychological 3% level triggered fears that equities could become less appealing.

The Dow This Week

The index gained 1.2% or nearly 300 points on Monday. The Dow also closed above the 25,000 mark for the first time since March 12. Trade tensions between the United States and China declined after Treasury Secretary Steve Mnuchin on Sunday said: “We are putting the trade war on hold.”

Industrials were the biggest gainers as they would stand to benefit the most if a trade war is averted. Shares of Boeing BA, Caterpillar CAT and United Technologies UTX jumped 3.6%, 2.6% and 2.3%, respectively.

The index declined 0.7% on Tuesday, erasing early gains, after President Trump said that he wasn’t satisfied with the progress of United States-China trade talks. Moreover, Trump also said that the highly awaited summit between the United States and North Korea might not happen at all.

Meanwhile, the White House said that in order to get into any fresh nuclear deal with the United States, Iran needs to stop enriching uranium and withdraw support to militant groups in the Middle East. This statement caused stocks to plummet further.

The index gained 0.2% on Wednesday, led by led by a rally in shares of Boeing, which gained 1.2%. Shares of McDonald’s MCD surged 1.4%. Stocks gained after minutes of Fed’s meeting concluded earlier this month hinted that policy makers aren’t worried about inflation briefly running above the target level.

Further, such an occurrence would not result in faster interest rate hikes. Rate sensitive stocks rallied on the news. The broader market was able to pare earlier losses resulting from geopolitical tensions and close in the black.

The index declined 0.3% on Thursday after President Trump scrapped his summit with North Korea’s leader Kim Jong Un scheduled for next month. This would have been the maiden face-to-face encounter between a North Korean Leader and a sitting U.S. President.

Energy stocks emerged as the biggest losers of the day after U.S. oil prices declined following an unexpected increase in domestic crude inventories. Share of Exxon Mobil XOM and Chevron CVX declined 0.8% and 1.6%, respectively, leading the blue-chip index to finish in the red.

Components Moving the Index

General Electric Company GE recently entered into a definitive agreement with Wabtec Corporation WAB — a leading manufacturer of rail equipment — for $11.1 billion. Per the agreement, the company will merge its operating segment, GE Transportation, with Wabtec.

On completion of the synergistic deal, Zacks Rank #3 (Hold) General Electric will obtain $2.9 billion in cash, whereas the company and its shareholders will own a 50.1% ownership interest in the combined company. The remaining 49.9% of stake of the combined company will be retained by Wabtec shareholders. Notably, the deal is likely to close in early 2019.

The latest move will combine GE Transportation’s digital solutions for railroad, marine, drilling, wind and mining industries with Wabtec’s extensive range electronic solutions. As a result, their market capabilities will be stronger, adding a momentum to the development and implementation of innovative solutions in key markets. This will help to improve the safety, efficiency and productivity of their offerings.

Notably, the combined company will have a large global installed base, with more than 23,000 locomotives that would create significant opportunities for aftermarket services growth. (Read: General Electric's Transportation Unit to Merge With Wabtec)

Johnson and Johnson, Inc. JNJ and partner GlaxoSmithKline plc GSK announced that the European Commission (EC) has granted marketing approval to Juluca, making it Europe’s first two-drug HIV treatment. Johnson and Johnson has a Zacks Rank #3.

Juluca combines two approved HIV drugs — Tivicay (50 mg) and Edurant (25 mg) — into a single, once-daily pill for the treatment of virologically suppressed HIV-1 infection. Juluca gained approval in the United States in November last year and generated sales £10 million in the first quarter of 2018. (Read: Glaxo and J&J's Two-Drug HIV Regimen Juluca Gets EU Approval)

Merck & Co., Inc. MRK announced that its pivotal study – KEYNOTE-407 – evaluating Keytruda-chemotherapy combination in first-line metastatic squamous non-small cell lung cancer (“NSCLC”) met its dual primary endpoint of overall survival (“OS”) and progression free survival (“PFS”). The drug in combination with chemotherapy demonstrated significantly longer OS and PFS versus chemotherapy alone.

Merck’s supplemental Biologics License Application (“sBLA”) seeking continued approval of Keytruda combined with Eli Lilly’s LLY Alimta and platinum chemotherapy for treating metastatic non-squamous NSCLC is under review in the United States. The sBLA was filed based on encouraging data from another phase III study, KEYNOTE-189.

The company plans to share data from the KEYNOTE-407 study with FDA and may expand the sBLA to include patients with squamous histology. The company will present detailed data from the KEYNOTE-407 study at the upcoming annual meeting of the American Society of Clinical Oncology next month. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Pfizer Inc. PFE announced that the FDA has granted Breakthrough Therapy designation to its rare disease candidate, tafamidis. The candidate is being developed for the treatment of transthyretin cardiomyopathy (TTR-CM).

The designation from the FDA is intended to expedite the development and review of drugs with early evidence of substantial potential clinical benefit to patients, or benefit patients without current treatment options.

The designation for tafamadis was primarily based on encouraging top-line data from the phase III ATTR-ACT study, which demonstrated significant reduction in the combination of all-cause mortality and frequency of cardiovascular-related hospitalizations in TTR-CM patients. (Read: Pfizer's Tafamadis Gets Breakthrough Therapy Designation)

In a separate development, Zacks Rank #3 Pfizer announced that a phase III study evaluating its epilepsy drug Lyrica (pregabalin) in pediatric patients met the primary endpoint. (Read: Pfizer's Epilepsy Drug Lyrica Succeeds in Pediatric Study)

Microsoft Corporation MSFT recently unveiled a new gamepad, Xbox Adaptive Controller, which is aimed to ensure “gaming for everyone”. The controller, priced at $99.99, can be personalized as per the requirements of the gamer.

The controller comprises two big programmable buttons and 19 3.5 mm ports round the back connecting to blow tubes, pedals, and other accessories.

Per Zacks Rank #3 Microsoft’s blog, development story dates back to almost 2014. The feature, Copilot (released in 2017) for Xbox One witnessed creative use beyond the company’s imagination and inspired the developers.

Bringing inclusivity will boost engagement, consequently bolstering its user base going forward. (Read: Microsoft Unveils Xbox Controller for Specially-Abled Gamers)

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 declined 0.7%.

Next Week’s Outlook

Comments from President Trump have guided markets lower on more than one occasion this week. Only the nature of the Fed minutes has proved to be encouraging to investors. Otherwise, in the absence of major earnings reports, geopolitical events have weighed heavily on investor sentiment.

Given this backdrop, it would only be natural for investors to turn to economic reports for encouragement. Several key pieces of data are lined up for released next week including the all-important GDP report. If most of these are encouraging in nature, stocks could soon return to their winning ways.

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Westinghouse Air Brake Technologies Corporation (WAB) : Free Stock Analysis Report
Pfizer Inc. (PFE) : Free Stock Analysis Report
Eli Lilly and Company (LLY) : Free Stock Analysis Report
Johnson & Johnson (JNJ) : Free Stock Analysis Report
GlaxoSmithKline plc (GSK) : Free Stock Analysis Report
Merck & Co., Inc. (MRK) : Free Stock Analysis Report
The Boeing Company (BA) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
United Technologies Corporation (UTX) : Free Stock Analysis Report
General Electric Company (GE) : 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
McDonald's Corporation (MCD) : Free Stock Analysis Report
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