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Chevron's Stock Bubbles Higher as the Dow Sheds Early Gains

By Dan Carroll - Feb 19, 2014 at 2:30PM

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Merck falls to lead a cadre of Dow losers on an up-and-down market day.

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

After a strong start to the day the markets have cooled off, and the Dow Jones Industrial Average (^DJI 0.00%) has shed a significant gain to land just under breakeven as of 2:30 p.m. EST. Stocks are pretty evenly split between risers and losers on the blue-chip index, despite a big day from Chevron (CVX 1.75%) helping to buoy the Dow's performance. While Big Oil has done well, Merck's (MRK 0.40%) stock has tumbled to weigh down the index. Let's catch up on what you need to know.

Can Chevron turn around its stock?
Chevron's was up 1.5% today with little big news shaking the stock, but this oil giant hasn't had a great run for investors lately. It's been one of the worst performers on the Dow over the past year, shedding more than 2%. Production troubles and waning oil prices have hampered Chevron and other oil giants, hurting company finances. But with Chevron committed to spending $40 billion on oil and gas projects to boost production, is the stock's recent dip a great opportunity for long-term investors?

Don't expect it this year, as Chevron sees production growth of less than 1% in 2014, although the company does project better performance in 2015 and 2016. With new oil fields ready to open up in locales such as Australia and the Gulf of Mexico in the next few years, Chevron should see a boost in production that will pump up its growth aims. Still, for investors, this stock's best aspect might be its tempting 3.5% dividend. Chevron is still flush with cash, and with only a 35% dividend ratio, that payout is among the most reliable around the market.

Meanwhile, shares of Big Pharma Merck are down 0.8% to rank among the Dow's leading laggards. Merck investors still are riding hopes that the company can find a buyer for its consumer health business, and early indicators are optimistic. Sources told The Wall Street Journal that bids across the health care sector could reach $10 billion for the unit, a huge prize for a company looking to focus on its core pharmaceuticals business.

It'll be on Merck's drugs to keep the stock moving if a sale is reached, but while some top pharmaceuticals such as diabetes therapies Januvia and Janumet have slowed lately, Merck hopies its pipeline can deliver success in the near future. All eyes are on developmental melanoma and cancer treatment MK-3475 and osteoporosis therapy odanacatib, the two potential blockbusters facing off with the FDA soon. The company also boasted 11 more therapies in phase 3 studies as of its most recent pipeline update in late October. Merck's research and development division has been hammered for its high spending lately, but if some of these developing drugs pan out, investors will be cheering all the way to the bank.

Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$33,980.32 (0.00%) $0.00
Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
$91.40 (0.40%) $0.36
Chevron Corporation Stock Quote
Chevron Corporation
$159.02 (1.75%) $2.74

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

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