Why Merck, Caterpillar, and UnitedHealth Helped Limit the Dow's 1st-Quarter Losses

The Dow Jones Industrials (DJINDICES: ^DJI  ) have had a tough first quarter in 2014, losing about 1.5% from the all-time record high that the average set on Dec. 31. Yet even though calls for stock market corrections and concerns on the global economic and geopolitical fronts have led some investors to believe that the five-year-old bull market is at an end, several Dow components have played a major role in making sure that the Dow's losses haven't been more extreme. Let's look at how Merck (NYSE: MRK  ) , Caterpillar (NYSE: CAT  ) , and UnitedHealth (NYSE: UNH  ) have put in the best performance among Dow stocks during the first quarter.

Merck's gain of nearly 13% has come from a series of positive developments in its pipeline, as well as from more general macroeconomic factors that have pushed its stock higher. In terms of its candidate drugs, Merck has had good news on its combination MK-5172 and MK-8742 treatment for patients suffering from both HIV and hepatitis C, as well as its MK-8237 oral treatment for dust mites. Moreover, its MK-3475 candidate arguably has even greater potential as the PD-1 therapy prompted partnerships between Merck and three other major companies to test various combinations of MK-3475 with other candidate drugs. In addition, another positive factor for Merck has been an unexpected drop in long-term interest rates, which has lifted high-yielding dividend stocks like Merck because of their income-producing ability.

Image courtesy www.marketsandcompanies.com.

Caterpillar's 10% gain is all the more surprising given the headwinds that the company has faced on multiple fronts. Although gold prices have risen so far this year, giving greater hope that Caterpillar's mining-equipment operations might recover from the hit they took early last year, concerns about China's slowdown in economic growth have weighed heavily on the construction and infrastructure industry in the emerging-market nation. That has many investors expecting that Caterpillar's share-price gains so far this year are merely a short-lived bounce after the poor performance from the heavy-equipment maker in past years, and it'll take improved sales from dealers that are replenishing their inventories in order to sustain the gains in the stock.

Finally, UnitedHealth has risen almost 9% on a couple of major news items helping the health-insurance provider. Last month, indications from the federal government suggested that expected cuts in reimbursement rates might be smaller than many had feared, helping to drive shares up substantially. Then just a week ago, a report from the Kaiser Family Foundation suggested that the Affordable Care Act had had only a negligible impact on market share across the health-insurance industry. Given that UnitedHealth already had a strong position within the industry, these favorable pieces of news should help cement UnitedHealth's leadership role in health care, and that in turn puts the stock in good position to take advantage of favorable demographics for the next decade or so.

Without the gains that UnitedHealth, Caterpillar, and Merck have posted in the first quarter, the Dow would be down a lot more than just 1.5%. As 2014 progresses, it'll be interesting to see whether these three stocks continue to post bigger gains for the Dow or give way to other new leaders among the average's 30 components.

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