Dow Jones Rises as Caterpillar Stock Is Boosted, Nike Stock Slumps

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Optimism for a strong economic recovery may be growing as COVID-19 vaccines continue to roll out, and as larger stimulus checks remain a possibility. President Donald Trump, congressional Democrats, and some Republicans support boosting the $600 direct payments included in the latest stimulus bill to $2,000, although the measure may be a long shot.

The Dow Jones Industrial Average (DJINDICES:^DJI) was up 0.53% at 12:10 p.m. EST Wednesday as investors weighed the current state of the pandemic against the coming relief from vaccines and the stimulus bill. Shares of Caterpillar (NYSE:CAT) jumped after an analyst argued for buying the heavy-machinery stock, while shares of Nike (NYSE:NKE) were down slightly despite positive analyst commentary.

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Caterpillar praised by analyst

Heavy-machinery manufacturer Caterpillar has been hit hard by the pandemic. Sales plunged 23% in the third quarter as demand dried up, and profit per share tumbled by 54%. Not only was demand weak from end users, but dealers were also more aggressive about reducing their inventories compared to the same period last year.

Baird analyst Mircea Dobre thinks better days are ahead for Caterpillar. Barron’s reported on Wednesday that the analyst had reiterated an outperform rating on the stock and raised his price target from $206 to $220.

Dobre sees demand for construction equipment already starting to improve, with the potential for U.S. infrastructure spending to provide another boost. The analyst also expects higher commodity prices and an aging mining fleet to drive demand for replacement equipment.

Dobre compares the current environment to 2010 and 2017, saying that the stock does well early on in demand recoveries as dealers restock inventory and comparisons become favorable. One thing to note, though, is that Caterpillar stock has surged 23% this year despite the company’s troubles. A demand recovery may already be accounted for in the stock price.

Shares of Caterpillar were up about 2.1% by early Wednesday afternoon following the optimistic analyst commentary.

Pent-up demand could help Nike

Footwear and apparel giant Nike has largely recovered from the pandemic-driven sales slump earlier this year by pivoting hard toward direct-to-consumer and digital sales. Overall sales surged 9% in the quarter ending in November, driven by a 32% jump in direct sales and an 84% rise in digital sales.

Guggenheim Securities analyst Robert Drbul thinks things can get even better for Nike as pent-up demand for apparel drives sales once the pandemic is over. Drbul is optimistic on various apparel companies and department stores, and he reiterated a buy rating and a $165 price target on Nike stock, according to The Fly.

While the coming widespread availability of COVID-19 vaccines will certainly change consumer behavior, the economy may remain weak for quite some time after the pandemic has run its course. Only time will tell how Nike and other apparel companies fare in whatever economic environment emerges in 2021.

Shares of Nike were down around 0.4% by early Wednesday afternoon despite the reiterated buy rating. The stock has surged nearly 40% in 2020.