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Avoid These 2 Dow Jones Stocks That Fell More Than 10% in Q3

The major stock market indexes are expected to remain volatile for at least the near term, given inflation concerns and a continuing rise in COVID-19 cases that threatens the economy’s recovery. Furthermore, a proposed infrastructure spending bill in Congress is being delayed. So, given current market volatility, we think Dow Jones stocks Caterpillar (CAT) and 3M Company (MMM), which retreated more than 10% in price in the third quarter, are best avoided now. Read on.

The Dow Jones Industrial Average ended a volatile week last Friday, ending the week close to flat on October 8. The benchmark slipped 8.69 points, or less than 0.1%, to 34746.25. The market volatility is being driven primarily by rising inflation concerns and Congressional negotiations on the U.S. debt ceiling. In addition, U.S. consumer confidence fell to a seven-month low in September, owing to  rising COVID-19 cases that threaten the global economic recovery.

A much-awaited infrastructure bill is expected to boost the U.S economy and benefit the industrial sector. However, the U.S. House of Representative delayed its planned vote on the bipartisan bill as democrats failed to come to an agreement.

Given the market volatility and delays in eagerly anticipated government spending, we think fundamentally weak Dow Jones stocks Caterpillar Inc. (CAT) and 3M Company (MMM), which declined by more than 10% in price in the third quarter, are best avoided now.

Caterpillar Inc. (CAT)

CAT manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. The company is headquartered in Peoria, Ill.

On September 10, CAT acquired Enhanced Energy Group, Inc., a U.S.-based carbon capture technology company. Also, earlier, a subsidiary of Chevron Corporation (CVX) and CAT formed a collaboration to develop hydrogen demonstration projects in transportation and stationary power applications, including prime power. However, these initiatives might take a while to contribute significantly to the CAT’s sustainability targets.

CAT’s total sales and revenues increased 28.9% year-over-year to $12.89 billion in its fiscal second quarter, ended June 30. However, its total operating costs stood at $11.10 billion, up 20.5% from the same period last year. Its cost of goods sold increased 24.9% year-over-year to $8.88 billion. Also, for the six months ended June 30, its net cash used for investing activities increased 131.1% from its year-ago value to $1.72 billion. CAT slumped 10.8% in price in the third quarter. 

3M Company (MMM)

MMM develops, manufactures, and markets various products worldwide. The St. Paul, Minn.-based company operates through four business segments: Safety and Industrial; Transportation and Electronics; and Health Care, and Consumer.

MMM’s net sales increased 24.7% year-over-year to $8.95 billion in its fiscal second quarter ended June 30. However, its cost of sales grew 24% from its year-ago value to $4.72 billion, while its total operating expenses increased 28.4% year-over-year to $6.98 billion. In addition, for the six months ended June 30, its net cash used in financing activities and net cash used in investing activities increased substantially to come in at $2.43 billion and $1.04 billion, respectively.

Analysts expect MMM’s revenues to increase 1% year-over-year to $8.67 billion in the current quarter, ending December 2021. A $2.22 consensus EPS estimate for the current quarter indicates a 6.7% decline from the same period last year. Shares of MMM have slumped 10.5% in price in the third quarter.

CAT shares were trading at $193.93 per share on Thursday morning, up $4.99 (+2.64%). Year-to-date, CAT has gained 8.17%, versus a 18.94% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.


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