Dow 30 Stock Roundup: UnitedHealth Arm to Buy Chile Company, FDA OKs Merck Diabetes Drugs
The Dow experienced a holiday-shortened but eventful week, notching up gains on two successive days. Markets were closed on Monday for the Christmas Day holiday. A decline in the shares of a key tech component pushed the Dow downward on Tuesday. Tech stocks snapped a five-day losing streak on Wednesday to boost the index upward. These gains continued into Thursday with the index closing at yet another record high.
Last Week’s Performance
The Dow declined by 0.1% last Friday as investors were reluctant to participate in intraday trading ahead of the Christmas holidays. This led to unusually low volumes for the day as a whole. Meanwhile, Trump signed the Tax Bill as well as the legislation passed by Senate to keep the government funded through Jan 19.
Coming to economic data, new home sales for November came in at 733,000 units, more than the consensus estimate of 655,000 units. Orders for durable goods for November came in at 1.3%, below the consensus estimate of an increase of 2.3%. Meanwhile, personal savings rate for November declined to a decade low of 2.9%.
The index gained 0.4% last week, posting its fifth straight week of gains. Senate Republicans finally passed the tax overhaul Bill. This development permanently slashes the corporate tax rate to 21% from 35%.
Following tax cuts, major banks and telecom companies pledged to provide better pay to their employees, which in turn boosted investor sentiment. Moreover, U.S. GDP increased in the third quarter, posting its best growth pace in more than two years.
The Dow This Week
Markets were closed for the Christmas Day holiday on Monday. The index decreased by 0.03% or 7.9 points following a decline in shares of Apple Inc. AAPL. Shares of the iPhone-maker plummeted 2.5% — its worst decline since August, after Taiwan’s Economic Daily reported that the tech-giant is planning to cut its current quarter sales forecast for the new iPhone X by 40% to 30 million units, down from the initial 50 million units.
Meanwhile, retail holiday sales in the United States surged to a six-year high, pushing the sector’s stocks higher. Further, energy shares rallied after U.S. crude futures surged on Tuesday. However, benchmarks ended in negative territory as losses incurred due to Apple could not be offset by these encouraging developments.
The index increased by 0.1% as advances in major tech players offset declines in energy stocks. The technology sector snapped a five straight session losing streak to end in the green, buoyed by gains in Facebook, Inc. FB and Microsoft Corporation MSFT. But, the broader market largely continued its winning run after the Republicans passed the first U.S. tax reforms in 30 years.
Overall, investors found few catalysts in one of the lowest-volume weeks of the year. Trading volumes in the U.S., in fact, remained at its lowest level in three years in 2017. Only on an average 6.43 billion shares were traded each day this year. Last year, about 7.22 billion shares were traded each day.
The index gained 0.3% on Thursday, registering its 71st record close for the year. The Dow failed to register an intraday high, failing to achieve this milestone by only 0.2%. The index advanced by around 63 points with the largest contributions coming from UnitedHealth Group Incorporated UNH and International Business Machines Corp. IBM.
Financials emerged as the strongest gainers for the day with the Technology Select Sector SPDR (XLK) adding 0.2% on its second successive day of gains. Shares of Apple gained 0.3%. Meanwhile, the Materials Select Sector SPDR (XLB) gained 0.5% following a 0.6% increase in prices of copper.
Components Moving the Index
The Boeing Company’s BA business division, Defense, Space & Security, recently secured a foreign military sales (FMS) contract worth $6.2 billion. Per the terms of the deal, the company will procure 36 new F-15QA aircraft that will be provided to the Qatar Emiri Air Force.
The contract was awarded by the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, OH and is scheduled to be over by Dec 30, 2022. FMS funds will be utilized to partially finance the work, which will be executed in St.Louis, MI. (Read: Boeing Wins $6B Deal to Supply F-15 Jets to Qatar Air Force)
In a separate development, Zacks Rank #3 (Hold) Boeing recently secured a modification contract for the manufacture and delivery of 10 full-rate production P-8A aircraft from the 9th Lot. Of the 10 jets, seven will be provided to the U.S. Navy and three to the U.K. government. The contract will also offer Lot 9 segregable efforts, which include unknown obsolescence, class I change assessments and obsolescence monitoring.
Valued at $1.2 billion, the contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Majority of the work will be carried out in Seattle, WA, while the rest will be executed at various other locations across the United States and Cambridge, U.K.
Boeing will utilize fiscal 2018 aircraft procurement (Navy) and foreign military sales (FMS) funds to complete the task. Work related to the deal is scheduled to be over by December 2020. (Read: Boeing Secures $1.2B Deal for Manufacturing P-8A Aircraft)
Merck & Co., Inc. MRK along with Pfizer Inc. PFE announced that the FDA has approved its investigational oral SGLT-2 inhibitor, Steglatro (ertugliflozin) tablets, and Steglujan (ertugliflozin + sitagliptin) as an adjunct to diet and exercise for improving glycemic control in patients with type 2 diabetes mellitus. Merck has a Zacks Rank #3.
Steglujan is a fixed combination of Steglatro and Januvia (sitagliptin), which is approved in patients who are eligible for treatment with the combination.
Apart from these two drugs, the FDA also approved Segluromet (ertugliflozin + metformin) for the same indication in patients already treated with Steglatro or Glucophage (metformin) with inadequately controlled type 2 diabetes mellitus and patients who are already treated with combination of ertugliflozin and metformin. (Read: Merck’s Diabetes Drugs Get FDA Nod as Adjunct Therapies)
UnitedHealth recently announced that one of its wholly owned subsidiaries has signed a definitive purchase agreement and is set to launch a tender offer for Empresas Banmédica — an initial step toward acquiring the Chilean company.
The deal, valued at nearly $2.8 billion, will enhance UnitedHealth’s footprint in South America. The transaction is expected to close in the first quarter of 2018, subject to customary terms and conditions.
Zacks Rank #3 UnitedHealth already has a presence in South America, backed by its acquisition of Amil Participacoes SA in 2012, which made the former an operator of hospitals and clinics in Brazil.
The deal will likely be beneficial for UnitedHealth, given Banmedica’s 25-year expertise in Latin America with the largest private health groups in Chile, Colombia and Peru. Further, this acquisition will boost UnitedHealth’s international operations. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Verizon Communications Inc. VZ, Ericsson ERIC and Qualcomm Technologies, Inc., a subsidiary of Qualcomm Inc. QCOM, have recently completed the first successful FDD (Frequency Division Duplexing) Massive MIMO (Multiple Input-Multiple Output) trial with a fully-compatible customer device. Verizon has a Zacks Rank #3.
The trial was completed using Ericsson’s latest Massive MIMO software and hardware and Verizon’s wireless network on a mobile test device. The test device was powered by Qualcomm Snapdragon 845 chipset (which is equipped with the X20 LTE modem). The modem supports the Transmission Mode 9 (TM9) technology which is compatible with Massive MIMO. The tests were conducted in Irvine, CA. (Read: Verizon, Qualcomm & Ericsson Complete Massive MIMO Trial)
General Electric Company GE recently landed a locomotive manufacturing order with Canadian National Railway Company CNI for an undisclosed amount. The Class I railroad will buy 200 new locomotives manufactured by GE transportation — one of the operating segments of GE.
Zacks Rank #5 (Strong Sell) GE will manufacture Tier 4 ET44ACs and Tier 3 ES44ACs (Tier 4 certified) locomotives of its Evolution Series as part of the order. The Evolution Series are some of the best-selling and most successful freight locomotives in the U.S. history.
Most Class I railroads of North America have ordered the Tier 4 locomotives from the company. These are well known for producing significantly less particulate matter and oxides of nitrogen, and meet the stringent U.S. Environmental Protection Agency emission standards.
The manufacturing of the locomotives will be done at the Fort Worth, TX facility — GE Manufacturing Solutions. The production and delivery of these locomotives are expected to be done over the next three years beginning 2018. (Read: GE Secures Locomotives Deal From Canadian National Railway)
Performance of the Top 10 Dow Companies
The table given below shows the price movements of the 10 largest components of the Dow, which is a price weighted index, over the last five days and during the last six months. Over the last five trading days, the Dow has gained 0.3%.
Next Week’s Outlook
This has been a year to remember for the bourses, with the S&P 500 and the Dow up nearly 20% and 25%, respectively, year to date. Even at the close on Thursday, the Dow was on course for weekly gains. If this does indeed occur, the index will have posted weekly gains for the last six weeks of a year for the first time since 1954.
There is little to suggest that these gains will not continue to occur going forward. Projections for fourth quarter earnings remain strong, fueled mainly by recently concluded tax reforms. Further, the economy continues to remain robust and international pressures are mostly absent. Given this backdrop, the Dow is likely to go from strength to strength even as we herald in 2018.
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Canadian National Railway Company (CNI): Free Stock Analysis Report
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Facebook, Inc. (FB): Free Stock Analysis Report
Pfizer, Inc. (PFE): Free Stock Analysis Report
Merck & Company, Inc. (MRK): Free Stock Analysis Report
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UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report
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