The Dow Jones (^DJI +0.24%) has soared 27% higher in 2013. Boeing (BA 2.08%) can take credit for pumping the blue-chip index across the 16,000 mark, as the Dow's strongest performer jumped 87% higher. Boeing's 787 Dreamliner jumbo jet looked mighty risky 52 weeks ago but is now turning into a golden goose. Boeing has added 424 points to the Dow index all by itself this year. Take this star performance away, and the Dow wouldn't have hit 16,000 quite yet.
But a few Dow stocks missed the rally. These are the Dow's three worst performers in 2013:
|
% Change Year-To-Date |
Dow Points Moved YTD | |
|---|---|---|
|
Boeing |
76.5% |
424 |
|
AT&T (T +3.69%) |
5.2% |
4 |
|
Caterpillar (CAT +0.27%) |
-5.6% |
-67 |
|
IBM (IBM +2.42%) |
-6.7% |
-129 |
Data from Yahoo! Finance.
It's obviously impossible for every (or indeed any) other stock on the index to keep up with top performer Boeing. But these three stocks missed the Dow rally by a country mile; Caterpillar and IBM even broke Warren Buffett's first law of investing: "Don't lose money."
So what's wrong with these supposed blue-chip stocks?
AT&T started the year in fine form, but dropped away from its Dow-tracking habits in April. The company met Wall Street's earnings estimates in that month's first-quarter report, but smaller and hungrier telecoms started digging into AT&T's traditionally enormous new contract sign-ups. That troubling trend never really let up, and AT&T is facing a difficult year in 2014. That's plenty of reason to keep Ma Bell's investors off of the Dow's general gravy train.
Caterpillar's troubles started even earlier. The builder of construction machinery has missed analyst targets in each of its last four earnings reports, driven by a soft market for mining equipment. Caterpillar spent $8.6 billion on mining specialist Bucyrus in 2010, only to see the bottom fall out of a seemingly solid market. This poorly timed deal is holding Caterpillar back three years later, helping this stock take 67 points off the Dow in 2013.
And the bigger they are, the harder they fall. IBM has combined the Dow's worst performance with one of the index's heaviest weights to slash 129 points off the index.
Big Blue changed hands at the helm at the start of 2013 as longtime CEO Sam Palmisano handed the rudder to current chief Ginni Rometty. Rometty is taking IBM in a slightly different direction, moving away from Palmisano's ideal of selling everything any information technology customer could need. The new focus on software and services, with a heavy dose of cloud computing, is poised to drive healthy growth for the long term. But these big changes often hurt in the short run, and IBM investors have panicked accordingly.
Of these three Dow Jones underperformers, I think AT&T faces the greatest challenges moving forward. Caterpillar's future will depend on squeezing blood from the mining assets, while hoping for a solid turnaround in the global economy.
IBM is more in the driver's seat than the other two Dow laggards. I believe Ginni Rometty's long-term vision is just about correct, and IBM could very well pull a Boeing-style turnaround in 2014 as the plan gains traction.
