Shares of Textron (TXT -2.43%) rallied on Tuesday along with the broader markets, closing up 11%. Textron investors haven't had much to smile about so far in 2020, but the stock in recent sessions has started to gain back some of what was lost during the COVID-19 pandemic sell-off.
Textron had been an underperformer long before the pandemic, but COVID-19 and the outbreak's impact on the economy threatened to further delay the company's hopes for a turnaround. Textron is an industrial conglomerate involved in manufacturing a range of products from helicopters to golf carts to snowmobiles to business jets.
The helicopter business has some of the best potential in the portfolio, including involvement in a number of big-money defense competitions, but those competitions are going to take years to play out. Heading into 2020 the best chance for a rebound came from business jet sales, and with the economy at a standstill, demand for corporate jets is likely to be muted for the near future.
The best Textron shareholders can hope for is a quick end to the pandemic and a return to more normalized economic activity. Investors were treated with reasons for optimism on Tuesday as the U.S. economy seemed to rev up for the Memorial Day weekend, and positive headlines on the COVID-19 treatment and vaccine fronts.
Investors should be warned that while the news flow and market sentiment were optimistic on Tuesday, the pandemic is far from resolved and it is still possible a second wave is right around the corner. It's important not to get too excited about positive developments, just as it is important not to sell everything and hide your money under the mattress on down days.
Shares of Textron were down nearly 60% since early February as recently as mid-May but has been on the upswing over the past week. The stock is still down 32% year to date.
If a recovery is taking hold, I'm optimistic Textron has bottomed out and can slowly creep higher. But even if the macro issues are now in the past there is still not an obvious catalyst in the near term to get Textron rocketing higher. Investors should be cautious buying into this rally.