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These 3 Stocks Powered the Dow Higher in the Third Quarter

By Dan Caplinger - Oct 7, 2017 at 11:30AM

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Find out which stocks are responsible for the stock market's big gains over the past three months.

The Dow Jones Industrials (^DJI 1.05%) have done exceedingly well so far this year, and the third quarter was another strong period for the average. The Dow finished the quarter within 8 points of its all-time high, picking up more than 1,050 points and posting a gain of nearly 5%. The price-weighted average particularly benefits when its higher-priced stocks do well, and that was definitely the case with some of its best-performing components during the summer months. Boeing continued its ascent, while Caterpillar and Chevron also enjoyed strong returns to help lift the Dow to new heights. Now, smart investors are curious whether these three winners can keep up the pace.


Third-Quarter Return

Boeing (BA 2.28%)


Caterpillar (CAT -0.26%)


Chevron (CVX 1.20%)


Data source: Yahoo! Finance.

Boeing hits the stratosphere

Boeing has put in a phenomenal performance recently, seeing its stock nearly double in just the past 12 months. The aerospace giant continued its winning ways during the third quarter, and a lot of those gains came in the wake of its second-quarter financial report in late July. Boeing said that despite a year-over-year drop in revenue of 8% stemming from reduced numbers of commercial aircraft deliveries, free cash flow jumped almost 80%. That helped Boeing reverse a year-earlier loss and post much better core earnings per share than investors had expected.

The popularity of Boeing's aircraft is one reason for the boom in the stock, but it's not the only one. Efforts to rein in costs and improve efficiency have helped Boeing boost its bottom line, especially in connection with the 787 Dreamliner model. With rising deliveries of the 737 MAX line and potential contributions from the defense side of the business, Boeing shows few signs of leveling off anytime soon.

787 Dreamliner in flight over a hilly coastline.

Image source: Boeing.

Caterpillar builds up momentum

Caterpillar went through tough times in recent years, but 2017 has been an incredibly positive period for the heavy equipment manufacturer. Optimism following the 2016 U.S. presidential election rose as investors anticipated greater spending on construction and infrastructure, and even though the federal government hasn't yet followed through with legislation, market participants are still optimistic that Caterpillar will get its share of a growing pie. More importantly, after a long period of falling sales, Caterpillar has finally started to see its key divisions rebound. The recovery in the oil and gas industry has been good news for the company, and double-digit construction-related sales growth has also been a significant contributor to overall performance. During the quarter, Caterpillar boosted its sales growth guidance, expecting 10% to 15% gains in construction and a whopping 20% to 25% boost to resource-related industry sales.

Some worry that Caterpillar's stock might have gotten ahead of itself, as company fundamentals are only now starting to reflect the upward trajectory that investors have hoped to see for some time. Going forward, shareholders will need Caterpillar to make good on growth opportunities in the industry, irrespective of whether they come from the government or from the private sector. The stock price now implies considerable growth, and any shortfall would be disappointing for Caterpillar.

Chevron powers up

To a major extent, Chevron has seen its fortune linked to the price of crude oil, and so one can easily explain the recent gains in the stock by looking at the oil market. Yet Chevron in particular has been able to see solid results in large part because of its herculean efforts to boost production rates. During the second quarter, Chevron posted 10% growth in production, and that helped raise investor confidence in the stock even as crude oil prices have remained mired in a range between $45 and $55 per barrel.

Key liquefied natural gas projects such as the Gorgon and Wheatstone plants in Australia are poised to give Chevron solid results for years to come, but their completion will also free up capital for deployment elsewhere. A combination of greater spending on asset development and more favorable conditions in the energy markets would give Chevron the ability to post much larger gains going forward.

Chevron, Caterpillar, and Boeing have done extremely well lately, and they might have more room to climb. Even with their reliance on strong economic conditions in their respective industries, the three Dow stocks have already played a key role in lifting the overall market, and their fundamental prospects are strong enough to warrant continued optimism.

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Stocks Mentioned

The Boeing Company Stock Quote
The Boeing Company
$139.84 (2.28%) $3.12
Caterpillar Inc. Stock Quote
Caterpillar Inc.
$178.29 (-0.26%) $0.47
Chevron Corporation Stock Quote
Chevron Corporation
$146.51 (1.20%) $1.73
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$31,097.26 (1.05%) $321.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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