Dow 30 Stock Roundup: Chevron Starts Production at Jack/St. Malo Project, UnitedHealth Provides Guidance

The Dow had a mixed week, swinging between gains and losses. The blue-chip index moved lower on Monday as discouraging domestic as well as overseas economic data dented investor sentiment. However, the Dow rebounded on Tuesday as healthcare and energy shares rallied to post solid gains.

The blue-chip index gained again on Wednesday boosted by strong service sector numbers and modestly impressive job data. However, the Dow again took losses on Thursday after the European Central Bank failed to provide solid clues about further monetary stimulus. The Dow has gained 0.4% during the first four trading days.

Last Week’s Performance

Stocks ended Friday’s holiday-shortened session on a mixed note following decline in oil prices that dragged down energy shares. However, slide in oil prices boosted airlines and retail shares on Black Friday. Moreover, major benchmarks registered weekly gains for the sixth consecutive week and also managed to finish in positive territory in November. The blue-chip index ended the day nearly unchanged.

Over the week, the Dow gained 0.1%. Markets ended in the green last week as upbeat earnings results and some positive economic data offset the slide in oil prices over the week. Moreover, encouraging efforts by China and Europe to improve their economic health also boosted investor confidence.

Moreover, the People’s Bank of China’s decision to lower its key interest rates and European Central Bank’s (:ECB) declaration that it had started purchasing asset-backed securities positively impacted markets. Also, encouraging economic data including the second estimate of third quarter GDP, durable orders and new home sales numbers boosted benchmarks.

However, certain dismal economic reports such as consumer confidence, pending home sales index and initial claims dented investor sentiment.

In November, the Dow gained 2.5%. Benchmarks finished in positive territory in November as upbeat earnings results from retailers and US midterm election results improved investor confidence. Moreover, encouraging deal news and easing global growth worries also boosted benchmarks. However, decline in oil prices throughout the month affected energy shares.

The Republicans notched a strong win in the midterm elections over the Democrats, securing a majority in both chambers of Congress for the first time since 2006. Investors cheered the results.

The Dow This Week

The Dow lost 0.3% on Monday, beginning December on a dismal note as discouraging domestic as well as overseas economic data dented investor sentiment. Moreover, decline in sales during Thanksgiving weekend also dragged down retail shares on Monday. However, rebound in oil prices boosted energy shares.

ISM Manufacturing Index declined slightly in November to 58.7, compared to 59 in October. Moreover, financial data company Markit reported that its U.S. Manufacturing Purchasing Managers Index (PMI.V) declined to 54.8 in November from 55.9 in October.

Separately, it was reported that official purchasing managers' index (PMI.V) in China declined 0.5 point to 50.3 in November from 50.8 in October. Also, the final HSBC/Markit manufacturing PMI decreased to 50 in November from 50.4 in October, reaching its lowest level in the last six months.

Moreover, final reading of Markit's November manufacturing PMI for the Eurozone was disappointing. Markit reported that the index declined to 50.1 in November, its lowest level since Jun 2013. Additionally, the National Retail Federation (NRF) reported on Monday that retail sales declined at an annual pace of 11% to $50.9 billion during the Thanksgiving weekend, registering its second consecutive annual decline.

Stocks ended in the green as healthcare and energy shares rallied on Tuesday to post solid gains. Moreover, merger and acquisition news involving Japan based Otsuka Pharmaceuticals and Avanir Pharmaceuticals, Inc. (AVNR), and Cypress Semiconductor Corp. (CY) and Spansion Inc. (CODE) also boosted investor confidence. The blue-chip index gained 0.6%.

Additionally, encouraging reports of domestic vehicle sales and construction spending had positive impact on benchmarks. Autodata Corp. reported on Tuesday that domestic sales increased at 4.6% rate in November from the year ago level to 1.3 million. It was also reported that annualized sales rate in November increased to around 17.2 million vehicles from October’s sales figure of 16.5 million. This was also the strongest rate in this month since 2003.

Meanwhile, construction spending rose 1.1% in October to $971.0 billion from September’s tally of $960.3 billion, significantly beating the consensus estimate of 0.6% gain. This was also the highest pace since May.

The Dow gained 0.2% on Wednesday, boosted by strong service sector numbers and modestly impressive job data. Moreover, rally in energy shares following rebound in oil prices and solid gains in materials stocks also boosted investor confidence. The blue-chip index reached its 33rd record high this year.

ISM Services Index increased to 59.3 in November from October’s reading of 57.1, beating the consensus estimate of 57.5. Separately, Automatic Data Processing, Inc. (ADP) reported that private sector added 208,000 jobs in November, registering the eighth straight month of job gains in excess of 200,000. However, the tally came in below October’s and September’s numbers of 233,000 and 213,000, respectively.

Stocks ended slightly lower on Thursday after the European Central Bank failed to provide solid clues about further monetary stimulus. Investors were also cautious ahead of Friday’s nonfarm employment report. However, encouraging jobless claims report limited some of the losses. The Dow declined nearly 0.1%.

ECB President Mario Draghi indicated that the ECB may consider additional monetary stimulus in the Eurozone to revive the economy. However, he also added that monetary expansion may be provided by early 2015.

However, positive initial claims data helped benchmarks avoid further losses on Thursday. Jobless claims for the week ending Nov 29 came in at 297,000, declining from earlier week’s number of 314,000. But the tally remained above the consensus estimate of 288,000.

Components Moving the Index

The Boeing Company (BA) has received a $59 million modification contract from the U.S. Department of Defense (“DoD”). Per the contract, Boeing will continue to provide sustainment, programmed depot maintenance, modification and other related support services for the E-4B platform.

The contract work, which is expected to be over by May 2015, will be done in Oklahoma. The contracting activity is the Air Force Life Cycle Management Center, Tinker Air Force Base, OK.

Boeing has received a confirmation from Ryanair, (RYAAY) the European low-cost carrier to supply 100 units of 737 MAX 200 for $11 billion at list prices. The order was first announced in Sep 2014. It includes options for another 100 737 MAX 200 jets. With this order, Ryanair will become the launch customer for Boeing’s 737 MAX 200.

Chevron Corp. (CVX) declared the commencement of first oil and natural gas production from the Jack/St. Malo project located in deepwater U.S. Gulf of Mexico (GoM).

This follows the company’s Nov 17 announcement of first oil from its Tubular Bells Project, also located in the GoM. The Jack and St. Malo fields – among the largest in the region – are located at a water depth of roughly 7,000 feet in the Walker Ridge area, south of New Orleans, LA. The fields have the potential to reach production levels of 94,000 barrels of crude oil (bbl) and 21 million cubic feet of natural gas (Mmcfe) per day in due course.

The fields have an estimated production life of over 30 years and are likely to yield over 500 million oil-equivalent barrels with the available technology. Chevron added that with the production from this project, it has moved a few steps ahead in achieving its target of 3.1 million barrels per day output by 2017.

UnitedHealth Group Inc. (UNH) gave a detailed guidance on Dec 2 for 2014 and 2015.

For 2014, the insurer expects revenues of $130.0 billion which is 6.1% higher than the actual revenue of $122.5 billion reported in 2013. Top-line growth is expected to come primarily from the Optum segment, with a likely 24% revenue growth compared with 5% revenue growth in UnitedHealthcare segment.

Bottom line for the UnitedHealthcare segment is expected to decline by 14%, compared to an increase of 30% at Optum, which will lead to overall earning increase of just 2-3% year over year, to 5.60–$5.65 per share from reported earnings of $5.50 per share in 2013.

For 2015, the company expects to generate revenues in the range of $140.5 billion to $141.5 billion and earnings per share of $6.00–$6.25. The Zacks Consensus Estimate for 2015 is $6.14 per share. The adverse impact of ACA will subdue to some extent and will not hamper earnings growth. However, ACA-related costs will increase operating cost ratio. The company expects operating cash flow in the range of $8.0–$8.4 billion.

IBM Corp. (IBM) recently entered into a seven-year deal with the world’s largest advertising firm, WPP, for a whopping $1.25 billion.

Per the deal, WPP will offer new digital services that will be run and managed within a global hybrid cloud infrastructure provided by IBM. It is expected that this outsourcing deal will lead to a recurring revenue stream for IBM for the next several years.

Intel Corp. (INTC) has acquired a Montreal-based password management startup called PasswordBox to strengthen its security division. PasswordBox will be integrated with Intel Security. Financial terms of the deal were not disclosed.

Intel acquired McAfee in 2011 and since then security software has become a vital component of its business. Recently, it rebranded its security division as Intel Security. Intel Security intends to use PasswordBox’s one-click login system for mobile devices and browsers to lessen what it refers to as “password fatigue.”

Intel's acquisition of PasswordBox is effective right away and all 48 employees of the start-up will join the Intel Security Group.

In another development, according to a report in the Wall Street Journal, Intel’s chips will replace the ones from Texas Instruments (TXN) in the new version of Google (GOOGL) Glass to launch in 2015. Intel will sell the device to hospitals and other workplaces, according to the WSJ.

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 0.4%.

Ticker	Last 5 Day’s Performance	6-Month Performance
V	+2.7%	+23.5%
IBM	+1.9%	-11.1%
GS	+1.8%	+18.2%
MMM	+1.3%	+14.1%
BA	-1.1%	-3%
CVX	-5.4%	-8.2%
UTX	+0.8%	-5.1%
XOM	-2.5%	-5.7%
MCD	-0.6%	-6.6%
CAT	-5.8%	-4.4%

Next Week’s Outlook

Stocks have experienced a mixed week, guided by both domestic and foreign economic data. While domestic data has been somewhat positive in nature, the foreign economic situation has been a cause for concern. Data from both the Eurozone and China has been dismal. Meanwhile, the ECB has failed to provide a clear indication about further monetary stimulus.

However, oil prices have moved upward, leading to resurgence in energy shares. Next week features data on retail sales, wholesale and business inventories and PPI. Given the current bullish mood of the markets, any positive indications on this front will help stocks move upward.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Read the Full Research Report on CVX
Read the Full Research Report on ADP
Read the Full Research Report on BA
Read the Full Research Report on RYAAY
Read the Full Research Report on INTC
Read the Full Research Report on TXN
Read the Full Research Report on UNH
Read the Full Research Report on IBM
Read the Full Research Report on CY
Read the Full Research Report on AVNR
Read the Full Research Report on CODE
Read the Full Research Report on GOOGL


Zacks Investment Research