Dow Jones Rises as Caterpillar Stock Rises, Nike Stock Crashes


Optimism for a strong economic recovery could grow as COVID-19 vaccines continue to roll out and larger stimulus checks remain a possibility. President Donald Trump, congressional Democrats and some Republicans support increasing direct payments from the $600 included in the latest stimulus bill to $2,000, though the measure may be lengthy.

the Dow Jones Industrial Average (DJINDICES: ^ DJI) was up 0.53% as of 12:10 a.m. EST Wednesday as investors weighed the current state of the pandemic against upcoming vaccine relief and the stimulus bill. Shares of caterpillar (NYSE: CAT) surged after an analyst made the case for buying the heavy machinery stock, while shares of Nike (NYSE: NKE) were down slightly despite positive analyst comments.

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Caterpillar hailed by an analyst

Heavy machinery maker Caterpillar has been hit hard by the pandemic. Sales fell 23% in the third quarter as demand dried up and earnings per share fell 54%. Not only was end-user demand weak, but dealers were also more aggressive in reducing inventory compared to the same time last year.

Baird analyst Mircea Dobre thinks better days are ahead for Caterpillar. Barrons reported Wednesday that the analyst reiterated an outperform rating on the stock and raised its price target from $206 to $220.

Dobre sees demand for construction equipment already starting to improve, with the potential for US infrastructure spending to provide another boost. The analyst also expects rising commodity prices and an aging mining fleet to drive demand for replacement equipment.

Dobre compares the current environment to 2010 and 2017, saying the stock is doing well at the start of the demand recovery as dealers replenish inventory and comparisons turn favourable. One thing to note, however, is that Caterpillar stock has jumped 23% this year despite the company’s struggles. A recovery in demand may already be priced into the stock price.

Caterpillar shares were up about 2.1% early Wednesday afternoon on the upbeat commentary from analysts.

Pent-up demand could help Nike

Footwear and apparel giant Nike has largely recovered from the pandemic-induced slump in sales earlier this year by shifting heavily to direct-to-consumer and digital sales. Overall sales jumped 9% in the quarter ending November, driven by a 32% increase in direct sales and an 84% increase in digital sales.

Guggenheim Securities analyst Robert Drbul thinks things can still improve for Nike as pent-up demand for apparel boosts sales once the pandemic is over. Drbul is bullish on various apparel companies and department stores, and he reiterated a buy rating and $165 price target on Nike shares, according to The Fly.

While the upcoming widespread availability of COVID-19 vaccines is certainly changing consumer behavior, the economy could remain weak for some time after the pandemic subsides. Only time will tell how Nike and other apparel companies fare in any emerging economic environment in 2021.

Shares of Nike were down about 0.4% early Wednesday afternoon despite the repeated buy rating. The stock jumped almost 40% in 2020.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.


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