Saturday, January 30, 1999
Fourth-quarter reports pleasing, surprising
Analysts: Stock prices could go higher in coming weeks
BY NICK OLIVARI
Bloomberg News
Halfway through the fourth-quarter earnings reporting season, analysts and investors say they are pleasantly surprised by most company reports — and that might push stock prices higher in coming weeks.
With 333 of the companies whose shares make up the Standard & Poor's 500 Index having reported so far, 53 percent surpassed analysts' expectations, according to First Call Corp. That tops the 49 percent that had surpassed forecasts at this time last year.
And after a dismal third quarter, where profit from operations declined by 3 percent on a year-over-year basis, the first contraction in eight years, First Call is expecting earnings to grow as much as 5 percent for the final quarter of 1998.
“Earnings bombed out in the third quarter and actually reaccelerated in the fourth quarter,” said Louis Navellier, president of Navellier & Associates, which oversees about $2 billion. “It looks awfully good” for stocks this year.
The Dow average rose 2.6 percent this week, its first gain in three weeks, while the Standard & Poor's 500 Index gained 4.4 percent. The Nasdaq Composite Index soared 7.1 percent, its biggest jump in 16 weeks. The Russell 2000 Index of small stocks continued to lag, rising 1.1 percent.
Earnings from computer-related companies in particular increased investor optimism and bolstered the outlook for stocks. Those reporting unexpectedly strong profit included Intel Corp., the world's top computer-chip maker; Broadcom Corp., the leading maker of cable-modem chips; and America Online Inc., the No. 1 Internet service.
America Online Inc., the No. 1 online service, raised investor confidence in Internet stocks by reporting that fiscal second-quarter profit almost quadrupled, beating estimates.
Earlier this month, Microsoft Corp. became the first U.S. company with a market value exceeding $400 billion after it reported higher-than-expected second-quarter earnings on increased sales to companies.
“Technology is continuing to tear the world apart,” said Art Bonnel, a portfolio manager with the Bonnel Growth Fund, which oversees $110 million. “Profit margins are high, and it's an area you have to be in.”
Companies with good news for investors easily outpaced the 20 percent whose earnings lagged estimates.
“The assumption was that fourth-quarter earnings would be weak, but we are seeing growth,” said David Mead, chief investment officer at Harris Bank in Chicago, which oversees $25 billion. “Analysts had knocked them down too much.”
Fourth-quarter profit growth expectations for the companies making up the S&P 500 went to 2.7 percent Dec. 29 from 16 percent July 1. Jan. 11, as earnings reports began, they rose to 3.4 percent.
Because forecasts had been reduced so much, some investors said they weren't impressed.
“Expectations were brought down, and this gives them room to surprise,” said Tim Ghriskey, senior portfolio manager at Dreyfus Corp.
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Fourth-quarter reports pleasing, surprising
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