Why the Dow's Manufacturing Stocks Aren't Buying Today's Bounce

Even though the market is rebounding a bit, many important stocks aren't following suit. Find out why.

Feb 4, 2014 at 11:00AM

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.

Yesterday's loss of more than 325 points for the Dow Jones Industrials (DJINDICES:^DJI) has raised concerns among investors about the stock market's future. The Dow has rebounded somewhat today, rising about 64 points as of 10:45 a.m. EST. But you can still see the worries about a possible slowdown in the U.S. manufacturing sector in the continuing declines in shares of United Technologies (NYSE:UTX), Boeing (NYSE:BA), Intel (NASDAQ:INTC), and Caterpillar (NYSE:CAT), all of which were still falling between 0.5% and 1% at mid-morning.

At least for Boeing and United Technologies, part of the reason for the sluggishness is probably just that they posted such strong gains last year. As investors try to assess their risk levels and rebalance their portfolios, the highflying aerospace-related stocks are a natural place to start. Moreover, both Boeing and United Tech have exposure to a global slowdown, especially if government austerity measures around the world rein in defense budgets and lead to a loss of military revenue.

Intel isn't usually seen as a manufacturing stock. But increasingly, the chipmaker has seen the value of offering its in-house production capabilities to third-party customers. As a result, it could well become suspect to the same crosscurrents that affect traditional industrial manufacturers.

Yet the U.S. manufacturing industry is at a crossroads right now. On one hand, the boom in domestic energy-production has raised the possibility of bringing low-cost manufacturing back into the U.S., especially if other countries with cheaper labor are slower in capitalizing on any unconventional energy sources they might have available in the long run. On the other hand, though, after five years of recovery, many aren't sure whether the strength in the overall global economy can last. Pressures on the fringes of small emerging markets could grow to have a much larger impact on world economic conditions, and that in turn would likely hit manufacturing first.

What these companies all have in common is that they're taking steps to try to boost their operational efficiency. Just yesterday, Intel said it would change its guidelines for compensation, starting at CEO Brian Krzanich and applying what it called a "cultural shift" that it hopes will make workers more accountable for meeting operational goals. Removing guaranteed minimum equity grants will cut costs, but it also signals an unwillingness to accept subpar results. Caterpillar has done its best to minimize costs in light of plunging revenue, and Boeing and United Tech are both aware of the importance of making the most of the opportunities they have right now, especially in the booming commercial aerospace business.

Looking forward, industrial stocks need to keep doing well if the Dow and broader markets are going to sustain a recovery. Without their support, a correction could well come sooner rather than later.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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