Caterpillar Builds an Earnings Bounce to Lead the Dow Into the Green

Merck and United Technologies join Caterpillar as leading blue-chip gainers on a mixed day for the Dow Jones.

Jan 27, 2014 at 2:30PM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The markets have avoided a repeat performance of the run of big losses that ended last week, but so far today the Dow Jones Industrial Average (DJINDICES:^DJI) has failed to gain much momentum. As of 2:30 p.m. EST, the Dow's gained about 21 points after rebounding from losses earlier in the day, and most of the index's blue-chip member stocks have pulled into the green. Caterpillar's (NYSE:CAT) the latest Dow member to report earnings results, and the manufacturing leader is now sporting an index-leading 4.9% gain. Let's catch up on what you need to know.

Is Caterpillar building to a rebound?
Caterpillar's stock has picked up steam after the heavy-equipment maker's fourth-quarter earnings topped expectations today. The company announced before the opening bell that its net profit jumped to $1.54 per share, up from $1.04 per share a year ago. Continuing a recent trend, however, Caterpillar's revenue plunged around 10% year over year behind its diving mining business.

The mining industry's been in free fall in the aftermath of the recession, and it cost Caterpillar again in the fourth quarter. The company's not particularly optimistic about mining's future, either, projecting its resource segment, which includes mining, to see revenue fall 10% in 2014. However, Caterpillar is still projecting earnings and revenue in 2014 that top average analyst estimates, with gaining world economic growth helping to fuel its results. That was enough for Wall Street to give the stock a much-needed boost after it floundered around the bottom of the Dow during the market's recent rally.

Caterpillar is joined at the top of the Dow by Merck (NYSE:MRK), as the Big Pharma stock has gained 2.3% so far today. The move comes after Morgan Stanley upgraded Merck from underweight to Overweight today, citing an improved look at the company's management and growing optimism over Merck's pipeline, particularly its oncology division, which boasts the hyped potential blockbuster cancer-fighter MK-3475. The company filed for approval earlier in January, and analysts project the drug could score peak sales of up to $3 billion if it's approved to treat multiple cancer indications.

Finally, United Technologies (NYSE:UTX) has gained 2.2% after rumors emerged that the company's considering a possible divestment of its Sikorsky helicopter-making subsidiary. Sources first told Defense News that United Technologies is looking at driving higher growth by getting rid of the unit rather than by beefing up with acquisitions, particularly as Sikorsky's sales have fallen lately. Sikorsky's sales fell 9% in United Technologies's recently released earnings report.

The top stock that could make you rich in 2014
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Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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