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Caterpillar Inc. (CAT), Alcoa Inc (AA): If You Owned These Dow Stocks, You’re Not Happy About 2013

Half of 2013 is in the books, and the Dow Jones Industrials are up 14% on the year thus far. But several stocks haven’t managed to do nearly as well as that, and a couple have lost ground despite the overall average’s strong performance. Let’s look at these two losing stocks and some of the other laggards in the Dow try to figure out why they’ve trailed behind in a strong market.

CAT Total Return Price Chart

Dow Total Return Price data by YCharts.

The commodities connection
The preceding graph shows that Caterpillar Inc. (NYSE:CAT) and Alcoa Inc (NYSE:AA) are the two stocks that have given shareholders losses so far in 2013, despite the Dow’s general strength. It’s no coincidence that these two stocks also happen to be the most exposed of the 30 Dow components to the construction and commodities industries. Alcoa Inc (NYSE:AA) supplies aluminum that’s essential for a wide variety of industrial, construction, and infrastructure uses. Meanwhile, Caterpillar Inc. (NYSE:CAT) makes heavy equipment that construction companies use in building projects, and mining companies are also big buyers of Caterpillar Inc. (NYSE:CAT)’s products.

Caterpillar Inc. (NYSE:CAT)

For years, both Alcoa and Caterpillar benefited from intense activity in the construction and infrastructure areas, especially within fast-growing emerging-market economies. China in particular was a big source of strength for Caterpillar Inc. (NYSE:CAT), as it represented a huge new market for the equipment maker. Lately, though, slowdowns in Chinese growth have curtailed construction activity within that nation, and even worse, the slowdown has hurt the economies of the countries that provided raw materials for China’s boom. Emerging markets around the globe are feeling the pressure, and that has sent commodities prices falling, which in turn has hurt the profits of the companies that mine and refine those commodities. Caterpillar Inc. (NYSE:CAT) and Alcoa Inc (NYSE:AA) now face the specter of a downward spiral, where the vicious circle of falling prices could continue until economic activity picks back up again.

The smallest winners
Meanwhile, International Business Machines Corp. (NYSE:IBM) and Exxon Mobil Corporation (NYSE:XOM) are also toward the bottom of the pack in the Dow, although they’ve both at least managed to eke out small gains. International Business Machines Corp. (NYSE:IBM)’s long-term strategy of emphasizing high-margin information-technology consulting and services has helped it avoid the profit crunch that many of its hardware-focused peers have suffered. But lately, IT spending hasn’t been as robust as it was earlier in the recovery, and recent news from rival Accenture Plc (NYSE:ACN) of a further slowdown hit International Business Machines Corp. (NYSE:IBM)’s shares hard on the last day of the second quarter.

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