With the first half of 2021 quickly nearing its end, we've learned much about which Dow Jones Industrial Average (DJIA) stocks have taken the leadership reins—and which are hanging out in the back of the pack.
This time last year the Dow was down 17% amid the early gloom of the pandemic. So far this year, it is up nearly 12% with all but six of its thirty constituents in the green.
Walgreens Boots Alliance is the runaway leader followed by Intel and Caterpillar. Speaking of slow crawlers, bringing up the rear are Nike, Merck, and Procter & Gamble. But as we know, the Dow derby is a marathon rather than a sprint, so the laggards could very well turn into leaders after the second-half kickoff.
Is the Nike Dip a Buy Opportunity?
Nike (NYSE:NKE) finds itself in unfamiliar territory as the Dow's caboose down 8% year-to-date. But it's certainly not cause for alarm given the stock's remarkable run from 2017 to 2020. Last year, despite many retail outlets closed for much of the year, Nike shares climbed 40% on the strength of its direct-to-consumer (DTC) business.
The stock has struggled to get past the $145 area getting pushed down on multiple occasions this year. It is now back to the $130 level where it jumped to in September 2020 after reporting blowout fiscal 2021 first quarter earnings. Based on the huge volume spike that occurred on that day, $130 should be a sturdy level of support.
Shareholders waiting for another earnings day boost will have to wait until July 1st when Nike is expected to report fourth quarter results. It wouldn't be surprising to another big earnings beat as we’ve seen in each of the last three quarters. And those beats have been despite a bevy of challenges around shipping delays, increasing freight costs, and higher labor expenses.
It's hard to argue with Nike's brand strength which gives it the ability to raise prices when costs increase. This along with an improving retail environment and ongoing strength in digital channels, should put Nike on the comeback trail
What is Holding Merck Stock Back?
Merck & Co. (NYSE:MRK) is down 3% this year but unlike Nike is not coming off a big year. Shares of the pharmaceutical giant slipped 10% last year and they haven't been able to get off the ground in 2021.
Things may be looking up, however, after the huge volume spike of March 19th. On this day Merck announced strong results from its phase 3 study of Keytruda in patients with advanced endometrial cancer. The blockbuster drug in combination with Lenmiva was found to significantly improve survival rates and reduce the risk of death compared to chemotherapy treatment.
Since then, Merck has trended higher and is up in each of the last five days. The company will report first quarter earnings next week which could be the catalyst that finally gets the stock heading back to its December 2019 record high of $92.64. The Street will be looking for EPS of $1.68 but more importantly, signs of strength in its key oncology franchise.
Much of the holding pattern in Merck's stock performance has related to the leadership and organization changes underway at the company. CEO Kenneth Frazier is set to retire as of June 30th and will be replaced by Merck's current CFO Robert Davis. The company is also spinning off its Organon women's health division later this quarter. This follows similar moves by competitors that have spun off older, low growth products to focus on their higher growth, core portfolios.
Once both of these major events are in the rear-view mirror, there should be greater visibility into where Merck is headed. This should make investors happier and provide Merck's stock price some much needed relief.
Is Procter & Gamble a Good Buy and Hold Stock?
Procter & Gamble (NYSE:PG) is down 2% this year, a non-concerning pause given that the stock has finished higher in each of the last five years. It is 8% off its November 2020 peak and could be a good buy opportunity for a stock that seldom has meaningful pullbacks.
The pandemic-driven consumer shopping environment has been very kind to Procter & Gamble as people have stocked up on cleansers, laundry detergents, and other household essentials. But as economic conditions begin to normalize, the market is re-calibrating Procter & Gamble's value as it returns to slower growth.
This week the company reported better than expected fiscal third-quarter earnings that increased 8% on 4% organic sales growth. These were a far cry from the figures we got used to seeing in previous quarters when people were buying paper products like they were going out of style.
But a single-digit growth Procter & Gamble should be acceptable to investors because that is what the company has always been. Since it began trading on the public exchange, Procter & Gamble has been and will continue to be one of the best defensive stocks to own.
A week prior to the third-quarter earnings report, Procter & Gamble announced a 10% dividend increase marking the 65th straight year it has raised its annual dividend. Although consumer behavior will change in the post-pandemic world, people will still have an elevated sensitivity to cleanliness and health—and therefore, continue to buy Procter & Gamble products. In the meantime, investors can sit back and collect the 2.5% dividend knowing P&G stock will keep doing what it has been doing for the last 65 years.
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