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Dow Jones News: Microsoft Top Cloud Pick; Caterpillar Could Suffer From Oil Market Chaos

By Timothy Green - Mar 10, 2020 at 1:00PM

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An analyst reiterated a bullish view on Microsoft, and trouble in the oil industry could hurt Caterpillar's earnings.

The Dow Jones Industrial Average (^DJI 1.05%) rallied hard Tuesday morning, attempting to stage a recovery after a brutal decline on Monday. That rally faded quickly, and at one point the Dow was in the red. At 12:35 p.m. EDT, the Dow had bounced back a bit, up about 0.1%. That number is changing rapidly, and it's anyone's guess where it will end up by the end of the day.

Solidly higher was Microsoft (MSFT 1.07%). While shares of the tech giant have been hit by the novel coronavirus outbreak over the past couple weeks, some analyst optimism helped boost shares on Tuesday. Shares of Caterpillar (CAT -0.26%) weren't so lucky, dropping as turmoil in the oil market threatened to derail the company's results.

Analyst remains bullish on Microsoft

Shares of Microsoft were up 3.1% early Tuesday afternoon, gaining back a small piece of the ground lost during Monday's brutal sell-off. An analyst at Wedbush reiterated his optimistic view, even as Microsoft's growth may be impacted by the novel coronavirus outbreak.

A digital cloud on a black background.

Image source: Getty Images.

The cloud is the main reason Wedbush analyst Daniel Ives is bullish on Microsoft. Ives values the cloud business at $900 billion to $1 trillion, even factoring in a potential hit to growth drivers due to the outbreak. Ives views Microsoft as the best way to bet on the shift to the cloud. Wedbush maintained its outperform rating on Microsoft stock, as well as its $210 price target.

Late last month, Microsoft joined the long list of companies warning about the impact of the coronavirus outbreak. Microsoft said results for its "more personal computing" segment, which includes Windows, devices, and gaming, would fall short of previously issued guidance for the fiscal third quarter.

The rest of Microsoft was still meeting expectations at the time, although that may change as the coronavirus outbreak escalates. Microsoft's cloud business includes Azure, which is the No. 2 provider of cloud infrastructure services behind Amazon Web Services, as well as subscription software like Office 365.

While Microsoft stock has been surging over the past few years, the coronavirus outbreak has taken a toll. Shares are down about 18% from their 52-week high.

Caterpillar exposed to oil rout

Shares of heavy machinery company Caterpillar were down 3.7% in the afternoon as the stock continued to reel from developments in the oil market. The stock tumbled on Monday amid a stock market plunge and a collapse in oil prices.

Over the weekend, Russia refused to cut oil production despite demand being pressured by the coronavirus outbreak. Saudi Arabia retaliated, boosting its production and initiating a price war. Oil prices tumbled as a result.

Caterpillar is heavily exposed to tumbling oil prices, according to analysts at Morgan Stanley. The analysts believe Caterpillar's earnings are the most at-risk in the sector.

Analysts were already expecting a rough year for Caterpillar. Revenue is expected to decline 7.5% from 2019, and adjusted earnings per share is expected to tumble 15% to $9.36. The company guided for adjusted EPS between $8.50 and $11 for 2020, reflecting continued global economic uncertainty. The coronavirus outbreak and the steep decline in oil prices have only added to that uncertainty.

Shares of Caterpillar are now down about 32% from their 52-week high.

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Stocks Mentioned

Caterpillar Inc. Stock Quote
Caterpillar Inc.
$178.29 (-0.26%) $0.47
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