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Why Caterpillar and 3M Will Move the Dow Tomorrow

By Dan Caplinger – Jul 23, 2014 at 6:30AM

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Two industrial giants take center stage on Thursday. Find out what they'll say.

The busiest week of earnings season for the Dow Jones Industrials (^DJI 1.26%) is finally starting to wind down, but it's not over just yet. Tomorrow, industrial giants Caterpillar (CAT 1.92%) and 3M (MMM 2.27%) will issue their latest quarterly reports to investors, and shareholders will look closely to see whether the companies have made progress in getting through their recent struggles and finding new ways to grow. What they say could have a dramatic impact on industrial stocks across the market.

Both Caterpillar and 3M will issue earnings reports before the beginning of trading on Thursday morning. 3M's conference call to discuss the results is scheduled to start at 9 a.m. EDT, before the market opens. Caterpillar will follow up with a conference call scheduled to begin at 11 a.m. EDT.

Source: Caterpillar.

Investors have mixed opinions regarding 3M's and Caterpillar's likely performance. Shareholders expect 3M to post strong earnings growth on modest gains in sales, while Caterpillar is seen still struggling from poor conditions in its mining-equipment segment. Nevertheless, these stocks have performed extremely well, suggesting that investors are ready for signs of turnarounds at both companies.

With Caterpillar, investors will likely focus on the disparities between the company's primary business segments. No one expects marked improvement from the mining-equipment division, as conditions in most commodity markets remain poor at best. A few signs of possible bottoming in commodities have finally started to appear, and that could signal an end to the plunge in revenue that Caterpillar and its peers in the industry have faced in mining equipment. But much more important for investors is continued recovery for the company's construction-equipment business, which has benefited from strength in the residential construction market and has also seen signs of improving conditions in commercial construction.

For 3M, investors are more focused on whether the company can restart its growth engines through innovation. The conglomerate has lately used acquisitions in an effort generate growth; some key businesses have emerged from buyouts, such as the ceramics products that the Ceradyne acquisition added to 3M's lineup. 3M has dedicated $5 billion to $10 billion toward possible additional acquisition targets in the next three years. But more important, 3M has boosted its internal research and development budget, and any success in developing blockbuster products that can make 3M a household name again would be welcome news for impatient investors.

3M and Caterpillar will move the Dow tomorrow because of the importance of their results both domestically and internationally to the manufacturing industry. Even if their numbers don't give shareholders everything they're hoping to see, signs of progress for either company could help boost sentiment throughout the industrial sector. That in turn could send the Dow on a new leg upward in its long bull market.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends 3M. 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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