Bargain-Hunting Boosts Stocks

The Dow and Nasdaq end up 1.9%, as investors find some bargains amid a busy earnings week.
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Updated from 4:07 p.m. EST

The major averages climbed sharply Tuesday and ended at their best levels of the day. Not-so-negative earnings and encouraging profit forecasts helped ignite speculation the economy could be turning.

The

Dow Jones Industrial Average

gained 156 points, or 1.9%, to 8485, while the

Nasdaq

climbed almost 27 points, or 1.9%, to 1451. The

S&P 500

finished the day up 19 points, or 2.2%, at 911.

"This is a very exciting development. The index is back to the upper part of the trading range that began in November, with resistance at around 950," said Bernadette Murphy, technical analyst at Kimelman & Baird. "But volume, albeit higher, was not extraordinary, so we could run into some profit taking here."

On the

NYSE

, 1.6 billion shares traded hands, with winners outpacing losers by almost 3 to 1. Some 1.6 billion shares changed hands on the Nasdaq, with advancers outpacing decliners by a margin of 2 to 1.

Almost 40 companies in the S&P 500 reported results Tuesday, making it the heaviest earnings session so far this quarter. Some 200 companies have already released results this season. Earnings have risen an average 9.2%, according to Thomson First Call, below the 10.8% average analysts are still predicting for the whole season.

"It seems we might be going into the growth phase of the economic cycle," said Ozan Akcin, chief market strategist at EKN. "With fewer accounting worries, and no terrorism or war weighing on the market, it is a matter of confidence returning to businesses, so that spending can pick up again." He noted U.S. companies have beaten estimates by 2.5% on a historical average since 1994, and that this quarter, that figure has jumped to 6%.

Among companies,

Verizon

(VZ) - Get Report

said its profit rose in the first quarter, with the help of a one-time gain, but revenue fell slightly. The company affirmed its earnings and sales guidance for 2003. Verizon shares gained 2.3% to $33.94.

Viacom

(VIA) - Get Report

said it swung to a profit in the first quarter, and announced plans to buy

AOL Time Warner's

(AOL)

Comedy Central for $1.23 billion. The company earned $443 million, or 25 cents a share, compared with a loss of $1.11 billion, or 63 cents a share, last year. Viacom shares climbed 6% at $43.32.

Everest Re Group

(RE) - Get Report

moved up almost 17% to end at $71.60 after the reinsurer said earnings this year will be higher than initial estimates. The company also reported a sharp rise in first-quarter profit. Meanwhile, shares of

American International Group

(AIG) - Get Report

, the largest player in the industry, also finished higher, up 4% at $56.92.

Real-estate and travel company

Cendant

(CD)

reported a drop in its first-quarter profit and cut its full-year outlook. The company blamed the outbreak of severe acute respiratory syndrome, or SARS, and the war in Iraq for weakness in the travel market. Shares of the company rose 5% to $13.64.

Another company with a lackluster forecast was long-distance telephone provider

Sprint

(FON)

. The company lowered its annual profit outlook at its main phone-services unit, citing weak demand. Sprint managed to post a higher first-quarter profit, but revenue fell. Sprint FON shares lost 5% to $10.70. The shares that track its wireless outfit, PCS, fell 17% to $3.71.

Elsewhere,

Pfizer

(PFE) - Get Report

said earnings more than doubled, helped by strong drug sales. The company beat analysts' estimates by a penny. Pfizer shares gained 0.7% to $31.82.

Rival

Merck

(MRK) - Get Report

rallied for a second day after its sales beat estimates. Merck shares rose 3.4% to $58.89.

"Investors are being more selective instead of following a uniform activity as we saw during the Iraq war. Strength could form within specific areas, such drugs today, stemming from Pfizer's earnings," said Douglas Altabef, market analyst at Matrix Asset Advisors.

Also in the drug sector,

Eli Lilly

(LLY) - Get Report

reported a 35% drop in earnings because of costs related to layoffs, disappointing clinical trials and a write-off of certain assets. But the company topped analysts' estimates and reiterated its profit outlook for the year. Eli Lilly shares gained 3% to $61.29.

Diaper maker

Kimberly-Clark

(KMB) - Get Report

beat analysts' estimates, but profit fell in the first quarter amid tough competition. The consumer-products company also reiterated its outlook for second-quarter and full-year earnings. Shares of the company jumped 6% to $49.90.

United Parcel Service

(UPS) - Get Report

said first-quarter profit rose almost 6%, and the company also increased its estimate for second-quarter results. UPS shares climbed 4% to $60.06.

Defense contractor

Lockheed Martin

(LMT) - Get Report

raised its 2003 earnings forecast because of lower expenses related to its pension plan. First-quarter sales also beat analysts' estimates. Lockheed Martin shares surged 7% to $48.55.

Charles Schwab

(SCH)

posted results in line with estimates, but profit and revenue fell amid a slowdown in trading. Chairman and co-chief executive officer Charles R. Schwab said: "Our first quarter 2003 results remained significantly below our long-term objectives." Schwab shares rose 6% to $9.12.

Treasuries were slightly lower, with the yield on the 10-year note up 2 basis points at 3.98%. Crude oil prices were lower, while the dollar was weaker against the yen and euro.

Overseas markets were mixed, with London's FTSE 100 up 0.7% at 3917 and Germany's Xetra DAX up 1.8% at 2951. In Asia, Japan's Nikkei closed 2.2% lower at 7790, while Hong Kong's Hang Seng lost 0.1% to 8571.

On Monday, the Dow ended down almost 9 points, or 0.1%, at 8328. The S&P 500 lost 1 point, or 0.1%, to 892, while the Nasdaq fell 1 point, or 0.1%, to 1424.