Now that we’ve gotten through five months of 2013, it’s a good time to review which stocks have performed well for the year, which haven’t, and whether you should own any of them. With the Dow Jones Industrial Average having increased by 15.35% year to date, there have clearly been more big winners than big losers this year. With Caterpillar Inc. (NYSE:CAT) being the biggest Dow loser and down only 4.25% in 2013, and Hewlett-Packard Company (NYSE:HPQ) being the biggest winner, up 71.37% in 2013, the difference is dramatic. But, let’s look at why these stocks have performed the way they have, and whether you should own either of them. My conclusion may shock you!
Losers go first
Following top index loser Caterpillar Inc. (NYSE:CAT) is aluminum giant Alcoa Inc (NYSE:AA) , whose shares have fallen 2.07% year to date. The most likely reasons both companies have fallen this year are a struggling economy in Europe and a slowing one in China. Both companies need strong construction and manufacturing in the major world markets, and with all the issues in Europe, construction and development are stuck in the concrete — which has lowered the need for Caterpillar Inc. (NYSE:CAT)’s heavy machinery and for massive amounts of aluminum building materials.
In China, GDP figures are still healthy at around 7.5%, but with the country growing at double-digit rates just a few years ago, today’s figures seem horrendously slow. The issue for Alcoa Inc (NYSE:AA) in China is that during the go-go days of high demand, a number of new companies came on the scene and started making aluminum. But now that demand has fallen, supply has remained the same and prices of the metal have declined over the past few years, which has put pressure on the stock price.
With Caterpillar Inc. (NYSE:CAT), we saw countries and companies going crazy a few years ago and buying lots of machinery for all the construction projects they were working on. But now those projects have ended, and not as many news ones have begun. So now we’re also seeing somewhat of an oversupply of dump trucks in some areas of the globe. Therefore, sales of Caterpillar Inc. (NYSE:CAT) have fallen over the past few months and the stock price followed suit.
Alcoa and Caterpillar Inc. (NYSE:CAT) are cyclical companies operating in industries that have massive ebbs and flows. Currently both are out of favor, but I believe Caterpillar is a good buy today if you plan on holding the company for the long term. Alcoa, on the other hand, may not recover from this downturn. Supply has been forever changed in the world aluminum market, and that will continue to put pressure on prices and Alcoa. While I don’t think the company will ever return to all-time highs, it will survive.
