The Dow Should Thank Merck, Caterpillar, and Johnson & Johnson for Its New Record

On Wednesday, the Dow Jones Industrials (DJINDICES: ^DJI  ) set a new all-time record high, with its gain of 45 points just barely poking up into uncharted territory by about four points. Although there weren't really any stocks that stood out among the Dow's 30 components as leading the average to its record, those with a slightly longer time horizon must acknowledge the success of Merck (NYSE: MRK  ) , Caterpillar (NYSE: CAT  ) , and Johnson & Johnson (NYSE: JNJ  ) in leading the Dow in 2014. All three stocks have risen more than 10% this year, offsetting weakness in several other areas of the Dow Jones Industrials.

The fact that these three companies are the Dow's big winners shouldn't come as a major surprise. Merck and Caterpillar have faced long-term struggles, and some positive news from both companies has helped lift their shares out of the doldrums and back into line with the performance of the overall Dow Jones Industrials over the past five years. Moreover, Johnson & Johnson has had its share of crises to handle in its past, yet it has always emerged from those trials stronger than before, and it looks as though J&J might be headed in the same direction this time around as well.

Source: Caterpillar.

In addition, the two industries these stocks belong to have shown signs of recovery. Caterpillar's 16% gain comes largely on hopes that the heavy-equipment maker will be able to capitalize on what many see as an inevitable restoration of China's growth trajectory, as investors sent the stock to rock-bottom levels when the mining industry tanked last year in light of a plunge in commodities prices. Signs of strength in the U.S. economy have helped Caterpillar stock -- notwithstanding the tiny growth in GDP in the weather-stricken first quarter -- but more important to Caterpillar's ultimate success is having better growth prospects worldwide. If emerging markets recover, then the resulting boom will be positive for both construction and mining activity, and that should send Caterpillar even higher.

Meanwhile, the pharmaceutical industry has come a long way, with Merck in the process of overcoming patent-cliff issues with new and intriguing pipeline candidates with blockbuster potential. Johnson & Johnson has also embraced the pharma world, and even though its health-care empire encompasses medical devices and consumer products as well, Johnson & Johnson will increasingly depend on pharmaceutical revenue and profits growth to drive its overall success. Merck's 17% rise so far in 2014 reflects the magnitude of its turnaround, while Johnson & Johnson's more modest 10.6% jump nevertheless indicates that the company's strategy has been sound.

Stock-market bulls would obviously like to see the Dow Jones Industrials climb a lot further than four points in 2014. But for those who've been nervous about the Dow's failure to set any new record, today's news will go a long way toward boosting morale and setting the stage for further possible advances.

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