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Stocks Gain as Caterpillar Forecasts China Growth

NEW YORK (TheStreet) -- U.S. stocks rose Monday after Caterpillar (CAT) forecast growth in China and a hedge fund's interest in Microsoft (MSFT) drove the software maker's shares higher offsetting an unexpected decline in sales of previously-owned homes.

The S&P 500 gained 0.47% to 1,562.50. The Dow Jones Industrial Average added 0.14% to 14,567.17, while the Nasdaq closed up 0.86% to 3,233.55.

"Since we have had that modest downward guidance through the last part of last year and into the first part of this year, I think that's helped investors feel more comfortable that if we do have a correction, it's going to be fairly shallow," said Paul Mangus, head of equity research and strategy at Wells Fargo Private Bank.

Caterpillar added 2.8% to $82.71 as the world's largest maker of construction and mining equipment said it expects increased orders from China in the second-quarter despite lowering its full-year profit outlook to $7 per share on revenue of $57 billion to $61 billion.

"People have pretty much come to the realization that Caterpillar is cheap with its single-digit p/e and modest yield," Chris Bertelsen, chief investment officer of Global Financial Private Capital in Sarasota, Florida, said in a phone interview. "It's probably cyclically close to a bottom and you're probably seeing the lowest level this quarter and next quarter that you're going see for a while."

Cyclical stocks such as Caterpillar will turn higher after this quarter of stabilization as China maintains a relatively impressive growth rate, Bertelsen said. Caterpillar trades at 11.1 times earnings, according to Google News, a discount to the S&P 500 Industrial Sector Index, which trades at 14.7 times earnings.

"When you see growth in Asia it's been pretty robust," said Bertelsen. "I'm seeing things which all together should lead to a better economy worldwide particularly in the third and fourth quarters." Bertelsen prefers "rust-belt" technology stocks like Intel (INTC), Microsoft and Western Digital (WDC), where yields and cash holdings have been better-than-expected, he said.

Existing-home sales in March unexpectedly fell Monday to 4.92 million annual units from 4.95 million in February, according to the National Association of Realtors. Economists in a Thomson Reuters poll predicted a rise to 5.01 million annualized units.

"Overall, the disappointing pace of home sales provides some evidence that positive momentum in the housing sector is beginning to leak lower," noted Millan Mulraine, U.S. director of research and strategy at TD Securities in New York.

Microsoft, the world's largest software maker, surged 3.6% to $30.83 after Jeff Ubben revealed that his activist hedge fund ValueAct Capital has built up about a $2 billion stake in the software behemoth.

General Electric (GE) lost 1.8% to $21.35 after the industrial conglomerate was cut to "neutral" by J.P. Morgan analyst C. Stephen Tusa Jr., who wrote that it's becoming more difficult to defend GE as a safety stock after the company said Friday that its results will continue to suffer from Europe's weak economy. It was the bank's first downgrade of the stock from "buy" since Sept. 2009.

Netflix (NFLX) leapt 6.7% to $174.37 to become the top gainer in the S&P 500 ahead of the video-streaming service's first-quarter report following the close of U.S. trading Monday. The company reported net income of 31 cents a share, excluding items, on revenue of $1.02 billion in the first quarter. Analysts polled by Thomson Reuters were expecting 18 cents a share in the first quarter on revenue of $1.02 billion. Shares were popping more than 19% in the after-hours session.

Apple (AAPL) popped 2.1% to $398.67 ahead of its scheduled fiscal second-quarter results on Tuesday.

Sterne Agee analyst Shaw Wu cut his estimates for the March quarter, but noted that expectations for the June quarter have come down "to reflect an inventory drawdown and pause ahead of 2H refreshes. The good news is that data points appear to be hitting a bottom." Wu still rates Apple "buy" but lowered his price target to $610.

The dollar was sliding 0.12% to $82.65 according to the U.S. dollar index. The benchmark 10-year Treasury was rising 3/32, diluting the yield to 1.701%.

Written by Andrea Tse and Joe Deaux in New York

>To contact the writer of this article, click here: Andrea Tse.

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