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时间:2024-09-29 12:22:39 来源:网络整理 编辑:Encyclopedia
TheDow Jones Industrials(DJINDICES: ^DJI)had its worst performance in a decade during 2018. The aver new water pump leaking from weep hole
Thenew water pump leaking from weep hole
Dow Jones Industrials
(DJINDICES: ^DJI)
had its worst performance in a decade during 2018. The average fell almost 1,400 points, or nearly 6%.
Yet even though the Dow lost ground for the first time in a long while, some of its components posted solid gains. Below, we'll take a look at
Merck
(NYSE: MRK)
,
Pfizer
(NYSE: PFE)
, and
Microsoft
(NASDAQ: MSFT)
to see why they were the best stocks in the Dow in 2018.
MRK Chart
MRK
data by
YCharts
.
Good times for healthcare
Merck's and Pfizer's big gains show that healthcare was a key sector for the stock market during 2018. Even though the returns from the two pharmaceutical giants weren't enough to keep the Dow from losing ground for the year, their gains of 36% and 21%, respectively, played their part in minimizing the average's overall losses.
For Merck, the big success lately has been Keytruda, a cancer drug that has demonstrated an ability to reduce risks of death when combined with chemotherapy treatments. Sales of the drug doubled during the first three quarters of 2018, and some analysts believe that
Keytruda's annual revenue could clear the $10 billion mark
within the next few years. Even with potential competition, Merck is optimistic that the drug's future is bright. Moreover, with other key treatments like its Januvia type 2 diabetes drug still generating plenty of sales, Merck has the cash flow to sustain a dividend yielding nearly 3% while also growing its business organically.
Person looking at a pill held in a glove, with dozens of other pills on a glass table.
Image source: Getty Images.
Meanwhile, Pfizer has seen gains stemming largely from decisions to restructure itself internally. The drug giant said in July that it expects to create three business segments, one for innovative medicines, one for established medicines, and the last for consumer healthcare products. Moreover, with Pfizer deciding within the last couple of weeks to work with rival
GlaxoSmithKline
to
combine their consumer healthcare units into a single joint venture
, it's possible that shareholders will receive shares of that business in a spinoff transaction. That would make Pfizer's stock a purer play on pharmaceuticals, which has been the higher-growth business for quite a while. A 3.4% dividend yield has also been a positive for Pfizer, especially among defensive investors looking for income to offset the risks of capital losses from their investments.
Microsoft keeps moving higher
Microsoft comes in third in this year's list of Dow stocks, but what's particularly impressive about the software giant's appearance on the list is that it also did extremely well in 2017, rising 38%. That puts this year's 19% gain into a different perspective, and the extent to which the stock has held onto its positive returns despite recent market turbulence is encouraging for shareholders.
Moreover,
Microsoft has been vying for the leadership position
in terms of overall market capitalization, upending some of its tech rivals in the process and finishing the year in the top spot for the first time since 2002. The way it's achieved those heights is by reinventing itself as a subscription-based software provider, offering key platforms like its Office productivity software suite to users on a monthly basis rather than solely selling one-time licenses that required users to upgrade at later dates in order to get updated features. Millions of customers have decided that having the latest access to the newest software features is worth what turns out to be higher costs than simply buying a one-time license and hanging onto the software for a long time, and that's sent Microsoft profits soaring. Moreover, by offering key software to users of operating systems other than Windows -- especially iOS -- Microsoft has tapped into a much larger customer base and reaped the rewards accordingly.
What's ahead for the Dow in 2019?
Among these three stocks, Microsoft has the greatest potential for fast future growth in 2019. Even as some positive trends in the technology industry start to slow down and reverse course, Microsoft has the benefit of providing needed services to enterprise customers and individual consumers. Efforts to move into high-growth areas like cloud computing have also borne fruit and should continue to gain importance for the company.
For Merck and Pfizer, a lot depends on regulatory threats that could have a significant impact on the pharmaceutical industry. Many defensive investors turn to healthcare as a stalwart industry during economically troubled times, but these two stocks could give up ground if they can't find new and innovative treatments to keep their pipelines full of candidates likely to become tomorrow's blockbusters.
Investors want the Dow to rebound in 2019, and these stocks have a role to play. If the market bounces back, it might well be because these leaders continue to move higher over the next year.
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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors.
Dan Caplinger
has no position in any of the stocks mentioned. The Motley Fool owns shares of Microsoft. The Motley Fool has a
disclosure policy
.
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As shown below, the results in the quarter materially changed the trend in two-year stacked comps for each of the banners, along with a significant acceleration for consolidated comps.
The increase in consolidated comps was the primary driver of an 8% increase in revenues to $6.3 billion. The company ended the quarter with 15,370 locations, up less than 1% year-over-year. This reflects a 7% increase in Dollar Tree units, offset by a 4% decline in Family Dollar units.
The top-line results at each banner flowed through to their respective income statements, with Dollar Tree gross margins and operating margins declining year-over-year while Family Dollar gross margins and operating margins expanded year-over-year. On a consolidated basis, gross margins contracted by 120 basis points in the quarter to 28.5%, reflective of a shift to lower-margin consumables, tariff costs and the impact of markdowns from the Easter headwinds at the Dollar Tree banner. The company saw slight operating leverage on SG&A from higher comps, with the net result being an 80 basis point contraction in operating margins to 5.8%, with operating income declining 5% to $366 million. This is not adjusted for $73 million of pandemic-related costs, such as PPE supplies.
In the first quarter, the company opened 85 stores (net of closures) and completed 220 Family Dollar renovations to the H2 format. Importantly, comps at renovated Family Dollar stores continue to outpace the chain average by more than 10%. On the call, management indicated that they plan on reducing both the number of new store openings (from 550 to 500) and the number of H2 renovations (from 1,250 to 750) in 2020.
Personally, given the fact that Family Dollar is seeing material benefits to its business from the pandemic with new or lapsed customers coming into its stores, I think the company should try to get more aggressive with its renovation plans, not less. On the other hand, you could argue that renovations cause short-term disruptions and limit their ability to fully capitalize on the business momentum they are currently experiencing.
As a result of fewer new stores and remodels, management now expects 2020 capital expenditures to total $1.0 billion compared to previous guidance of $1.2 billion. In addition, the company has temporarily suspended share repurchases. At quarter's end, the company had $1.8 billion in cash on its balance sheet compared to $4.3 billion in total debt.
Conclusion
In recent years, Dollar Tree has been a tale of two cities. While its namesake banner has generally delivered impressive financial results, Family Dollar has been a persistent underperformer. This quarter, those results flipped, and given what we've seen in the weeks since quarter's end, there's a decent possibility that we will see something similar in the coming months. As the CEO noted, the second quarter is off to a very good start at Family Dollar.
Here's the important question: how useful is that information is in terms of making future predictions about the business? Will recent success at Family Dollar translate into long-term success for the banner? The optimistic take is that new or lapsed customers, especially those visiting the renovated stores, could become recurring business for the banner. The pessimistic take is that they have experienced short-term success out of necessity as people went to any store that was open to try and find essentials like toilet paper and hand sanitizer that were largely out of stock throughout the retail landscape. From that view, many of these customers could abandon the retailer when life returns to normal. As Philbin noted on the conference call, early on [during the pandemic], folks needed us. Will people still shop as much at Family Dollar when it's no longer a necessity?
Personally, I do not place too much weight on the recent results. I will need to see incremental data points that indicate that Family Dollar has truly won sustained business from these new customers. While I still believe that the Dollar Tree banner is a well-positioned retailer with attractive unit returns, I'm not yet willing to say the same thing for Family Dollar. For that reason, along with the recent run-up in the stock price, I plan on staying on the sidelines for now.
Disclosure: None
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