Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Textron Are Higher Today

By Lou Whiteman – May 26, 2020 at 5:28PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Signs are emerging that the worst of the macroeconomic slump could be over.

What happened

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.

So what

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.

Textron's Bell 525 helicopter.

Image source: Textron.

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.

Now what

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.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Textron. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Textron Inc. Stock Quote
Textron Inc.
TXT
$59.05 (-2.43%) $-1.47

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
104%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.