Replies to post #124663 on Biotech Values

[BTH]

Thanks for posting something rationale. The majority of Americans didnt even know the US had a debt rating prior to this weekend. I wonder how many of those same people will call their broker and tell them to sell on Monday a.m.

Last weeks selloff, is way overdone IMO.

[DewDiligence]

Stocks Recoup Partial Losses in Broad-Based Rally

[The text highlighted in red below is the most consequential, IMO.]

http://online.wsj.com/article/SB10001424053111904007304576497671820563698.html

›AUGUST 9, 2011, 4:37 P.M. ET
By STEVEN RUSSOLILLO

NEW YORK—U.S. stocks soared in turbulent trading Tuesday, coming off the worst three-day selloff since the financial crisis, as investors took in stride the Federal Reserve's pledge to keep interest rates near zero at least through mid-2013.

The Dow Jones Industrial Average finished near session highs, up 429.92 points, or 3.98%, to 11239.77. The index, which gained as much as 243 points at its morning high, saw its rally fade ahead of the Fed decision and then turned negative after the statement was released. It fell as much as 206 points before it turned positive again and marched sharply higher in the final trading hour.

The volatile trading came as the Fed signaled it will keep its benchmark short-term interest rate close to zero for at least another two years. The central bank also sharply downgraded its view of the U.S. economy.

In a statement after a one-day policy meeting, Fed officials said they expect the weak economy to warrant exceptionally low levels for the federal funds rate "at least through mid-2013." Seven voted in favor of this action, with three voting against. Fed officials also downgraded their assessment of the U.S. economy for the third time this year, saying that economic growth so far this year has been "considerably slower than … expected."

"We're still in a place of extreme fear and emotional trading," said Ron Florance, managing director of investing strategy and asset allocation for Wells Fargo Private Bank. "We're not even close to where fundamentals and valuations are driving market performance."

The Dow's sharp gains came after it fell 635 points on Monday, the sixth-biggest point drop in its history. Jittery investors have fretted in the wake of Standard & Poor's downgrade of the U.S. government's credit rating and the possibility that the economy could slide into another recession.

The Standard & Poor's 500-stock index rose 53.07 points, or 4.74%, to 1172.53, led higher by the financials and material sectors. The S&P 500's financial sector, which was hit the hardest in Monday's drubbing, finished up 8.2%.

The technology-oriented Nasdaq Composite gained 124.83 points, or 5.29%, to 2482.52.

"It's normal to have a bounceback after the downward moves we've had," said John Carey, portfolio manager at Pioneer Investments. "The key is whether this is a sustained recovery or just a sign of bargain hunters coming in and picking up beaten-down stocks."

Investors were looking for clues pertaining to any options the Fed may have to boost the economy and combat the market's recent slide. While the Fed didn't announce a bold step of buying more bonds that some in the markets were hoping for, the move to keep the benchmark short-term interest rate near zero may help keep borrowing rates low and drive investors into riskier assets, like stocks [no kidding].

"We're still so painfully oversold from the previous few sessions," said Keith Bliss, senior vice president at Cuttone & Co., a brokerage on the New York Stock Exchange floor. "But the downdraft following the Fed statement shows you how temperamental the market is. There's a lot of emotion in the market. when there's emotion, you'll get a lot of big intraday swings."

Gold futures reflected continued extreme investor anxiety. The most-actively traded contract, for December delivery, settled $29.80, or 1.7%, higher at a record $1,743.00 a troy ounce on the Comex division of the New York Mercantile Exchange.

Crude-oil futures settled below $80 a barrel for the first time in nearly 10 months. The U.S. dollar lost ground against both the euro and the yen.

"Yesterday was a fear-and-panic and hysteria-driven trade. Today we're seeing that unwind a little bit. But there's a lot of nervous energy in the air. The word recession is being thrown around and it's making people anxious," said Joseph Tanious, market strategist at J.P. Morgan Asset Management, referring to Monday's slide and Tuesday's rebound.‹

[DewDiligence]

Stocks Finish Almost Even for the Week

[Monday through Thursday was the first time in history that the S&P 500 had four consecutive days of alternating 4% gains and losses. In many calendar years, there is not even a single day where the S&P 500 moves as much as 4%, so what happened this week was truly a statistical outlier. The S&P 500 was down “only” 1.7% for the week and some sectors finished in the plus column.]

http://online.wsj.com/article/SB10001424053111903918104576503872258304388.html

›AUGUST 12, 2011, 4:59 P.M. ET
By STEVEN RUSSOLILLO

NEW YORK—The Dow Jones Industrial Average had its first back-to-back gain in more than a month.

As one of the most volatile weeks in Wall Street history ended, the blue-chip index closed up 125.71 points, or 1.1%, to 11269.02. Stocks remained solidly in positive territory throughout Friday as an upbeat retail sales report trumped a weak reading on consumer confidence.

Boeing helped lead the way, rising 4.4%. Hewlett-Packard gained 3.6% and Caterpillar rose 3.5%.

The Standard & Poor's 500-stock index gained 6.17, or 0.5%, to 1178.81, led by industrial and consumer discretionary stocks. The index hasn't had two consecutive sessions of gains since July 22.

The technology-oriented Nasdaq Composite rose 15.30 points, or 0.6%, to 2507.98.

The market's recent moves this week are the wildest since the depths of the financial crisis in late 2008. Investors this time are worried about a possible double-dip recession in the U.S. and the euro zone's debt crisis spreading to bigger members of the 17-nation bloc.

The Dow surged 423 points on Thursday, marking the first time in the index's 115-year history that it has moved by more than 400 points in one direction or another for four consecutive trading days. For the week, the Dow was down 1.5%.

"Traders and investors are at a point of absolute exhaustion. The back and forth action is draining," said Gary Flam, portfolio manager at Los Angeles-based Bel Air Investment Advisors. "Investors are just waiting now to see what the market has in store for next week."

The Dow's gains on Friday overshadowed that of the Russell 2000 index of small-capitalization stocks. The results highlight how investors are flocking to some of the larger, more stable companies as they move back into stocks and steering clear of some of the smaller and more riskier companies [see #msg-65939556].

"When people get worried, they fly over to well-known names," said Daniel Morgan, portfolio manager at Synovus Securities. "It falls into this economic theme where people are questioning growth prospects for the second half of this year and 2012."

The Russell 2000 in late trading gained 4.63 points, or 0.7%, to 700.52.

Investors turned their attention Friday to a positive reading on consumer spending. Retail sales, an important indicator of consumer spending and typically a major driver of economic growth, rose 0.5% in July. Consumers spent more on gasoline, electronics and other merchandise, potentially easing concerns that Americans are pulling back.

The data overshadowed an indicator of consumer sentiment that showed a sharp fall in August. The consumer sentiment index from Reuters/University of Michigan tumbled to 54.9 in mid-August, the lowest level since 1980 and down sharply from 63.7 in late July. Economists had expected the reading to ease only to 62.

"The market's doing reasonably well considering how bad that number was," said Paul Zemsky, head of asset allocation at ING Investment Management. "But we still think there's more to go on the downside as the effects of confidence start showing up in the economic data."

European markets were broadly higher Friday, with the Stoxx Europe 600 staging its first two-day win streak in three weeks. European officials announced short-selling bans on some financial stocks in an effort to curb traders' abilities to profit when they decline.

Gold futures fell to $1,739 an ounce. The futures reached an all-time high of $1,817.60 an ounce in intraday trading Thursday before reversing ground to settle at $1,751.50 on the New York Mercantile Exchange, after the CME Group said it would raise margin requirements on gold contracts.

Crude-oil futures rose but held below $87 a barrel. The U.S. dollar lost ground against both the euro and the yen.

In corporate news, J.C. Penney's fiscal second-quarter earnings were flat as the department-store operator posted lower sales on the exit of its catalog business. Shares inched down 0.5%.

Nvidia reversed earlier gains and recently fell 3.1% after the graphics-chip maker reported second-quarter results and a third-quarter sales outlook that surpassed expectations.

Bally Technologies slumped 14% following a disappointing outlook for the current fiscal year, while MannKind shot up 21% after the company confirmed with the U.S. Food and Drug Administration the design of two clinical studies.

Nordstrom rose 6.6% as second-quarter earnings rose 20% from a year ago. The upscale retailer also boosted its full-year earnings guidance.

DeVry's fourth-quarter earnings rose, but the operator of for-profit schools said new student enrollment dropped sharply. The rollout of new regulations likely distracted employees in the latest quarter and hurt performance, according to the company. The stock plummeted 17%.

Shares of fellow for-profit educators also fell. ITT Educational Services slid 3.3%, Strayer Education dropped 2.5% and Corinthian Colleges fell 4.3%.‹

[DewDiligence]

Abbey Joseph Cohen’s comments in today’s Barron’s:

http://online.barrons.com/article/SB50001424052702303960104576498613736669414.html

›At current prices, the market already has factored in significant [future] weakness in economic activity and corporate profits. In the U.S., P/E ratios are down to about 12 times S&P 500 earnings for the next 12 months. This is notably below the historic average of about 17 to 18 times earnings. That shows a risk aversion, an uncertainty that isn't dissimilar to what we saw in the spring of 2009 [which proved to be a great buying opportunity for stocks (#msg-35980601)]. But the U.S. banking sector is in much more solid condition now than then.

In the view of our U.S. portfolio-strategy team, the S&P 500 should be at about 1400 by year end [i.e. 19% above the current level]. This number had been at 1450, but we revised our economic forecasts around the world last week in light of growth and earnings expectations for 2012. Even with these changes, global growth will be well in excess of 4% next year, so we aren't expecting a global recession. Our 2012 U.S. GDP forecast is at 2.1%, and for Europe, 1.4%.

We maintain a constructive view of China and the other so-called BRIC nations [Brazil, Russia, India and China]. The decline of commodity prices in the past several weeks may be helpful for these nations. China will benefit from the decline in oil and metals prices. India will be benefiting from a decline in food prices.

Goldman Sachs analysts expect crude prices to rise due to supply constraints. They like ExxonMobil [XOM], which has been under pressure. The stock has a 2.8% dividend yield and trades for 7.3 times 2011 earnings. Return on equity exceeds 25%.

Wells Fargo [WFC] exceeded expectations in the second quarter, reflecting its progress in reducing costs and deploying capital. Nonperforming assets are shrinking. The company repurchased shares, yet still is likely to increase its excess capital. The current P/E is 7.8, and dividend yield is 2.1%.

Pfizer [PFE] has performed poorly, yet there have been few new fundamental concerns. Pfizer has significant and rising cash balances, and a management team committed to spinoffs, dividend increases and share repurchases, and improving R&D [research and development]. The stock yields 4.7% and the P/E ratio is 7.5.‹

[DewDiligence]

MRK’s CEO and CFO bought a combined $1.5M worth of stock today on the open market at roughly $32/sh:

http://www.sec.gov/Archives/edgar/data/310158/000122520811019890/xslF345X03/doc4.xml
http://www.sec.gov/Archives/edgar/data/310158/000122520811019891/xslF345X03/doc4.xml

The CEO increased his total shares owned by ~20% and the CFO by ~40%.

[DewDiligence]

Insiders have been unusually heavy buyers at many companies:

http://www.cnbc.com/id/44161947

Among the companies I follow, there was a recent insider buy at HES (#msg-66113344).

[DewDiligence]

Four Myths About the Current Global Economy

http://www.forbes.com/sites/kenkam/2011/09/01/the-oracle-of-manitoba-is-buying

First is the idea that the global economy is fragile. In 2007, at the last economic peak, global GDP came in at $65.4 trillion. Four years later, in 2011, global GDP is forecasted to be around $78 trillion. The world economy has grown 19.2%; slightly better than 4.5% a year, which is typical of a traditional global expansionary period. This is not indicative of an impending global economic collapse.

The second disconnect is that corporations are hurting. The media is extrapolating weakness in the banking industry to the rest of Corporate America. That fact is that corporate profits are growing nicely. In 2007, S&P 500 earnings were $82.54. In 2011, S&P 500 earnings are forecasted to touch $97.20, which is an increase of 17.8% from 2007. Looking forward, 2012 earnings are forecasted to grow more than 17% to $114.35 per share.

[The third disconnect is] that corporate balance sheets are strained. A key current indicator of balance sheet health is insider buying of stock with actual cash at market prices as opposed to stock option exercises. Just last week, insiders bought more company stock than was bought during the 2009 market low—which was the largest spate of insider buying in twelve years—according to Bloomberg [#msg-66293676]. Right now, corporate insiders are buying their own stock with their own dollars—a strong sign of corporate health.

[The fourth disconnect is] that government deficit issues will derail a tenuous recovery and push us into a double dip recession. We will not experience a double dip recession, because, for the most part, we have not experienced an economic collapse, particularly not on a global scale. Economies outside of the United States are still growing. As corporations continue to advance their profitability, even while governments cut back, there will be a natural reallocation of capital towards more productive and hence more valuable uses. It is entirely possible that government cutbacks will occur but that global economic health will continue to improve.

The above comments are from Randy McDuff, a portfolio manger who has outperformed the S&P 500 by 10%, 13%, 19% and 64%, respectively, during the past 1-, 2-, 3-, and 5-year periods.

[DewDiligence]

The Sunny Side of Doom and Gloom

http://www.nytimes.com/2011/10/23/your-money/pessimism-can-be-the-stock-markets-best-friend.html

›October 22, 2011
By PAUL J. LIM

Since the market ran into serious trouble during the summer, the Standard & Poor’s 500-stock index has clawed its way back to the 1,200 level on four separate occasions. On the first three runs, the rallies quickly lost steam amid fresh sets of worries about the global economy.

No wonder that investors have shown little confidence in the staying power of the latest rebound, which since Oct. 3 has lifted stock prices by 13 percent [+15% since the intraday low on Oct 4], leaving the S.& P. at 1,238. Last week, the Investors Intelligence adviser survey, a widely followed gauge that tracks the opinions of more than 100 independent investment newsletters, showed that bears continued to outnumber bulls even though the index had climbed almost half the way back.

But sentiment can be a funny thing. The best thing that Wall Street may have going for it right now is that so many investors are pessimistic. That’s because the mood in the market is often regarded as a contrarian indicator of future activity.

In late April, for example, the number of bullish newsletter advisers outnumbered bears by a ratio of three to one — with 54.3 percent of advisers expressing optimism at the time and 18.5 percent being bearish. That sense of hope was registered just as the market peaked and started its worst slide since the financial crisis, dropping 19.4 percent by early October in what some strategists have considered to be a bear market. (In recent years, a bear market has often been defined as a 20 percent drop in prices, based on daily closing values.)

Conversely, in the logic of contrarian thinking, negativity can be a very good thing. “When you see high levels of pessimism, it can be a sign of a market bottom and signal that there’s lower risk to buy,” said John Gray, co-editor of Investors Intelligence.

Sentiment indicators for consumers are often regarded as a good way to capture the emotional state of households — yet they’re often wrong when it comes to predicting how families will really behave.

Here’s a case in point: The most recent Reuters/University of Michigan consumer sentiment survey, released on Oct. 14 showed that the mood of households continued to worsen in mid-October, even as the stock market showed new signs of life.

“Consumer confidence is inching itself deeper into the recession zone,” said Chris G. Christopher Jr., senior principal economist at IHS Global Insight. Yet the most recent government data show that retail sales jumped a larger-than-expected 1.1 percent in September. In short, actual consumer spending would seem to point to a much rosier economic outlook, which in turn should help support hopes for a more stable stock market.

Jeffrey Kleintop, chief market strategist at LPL Financial, says the recent mood of households doesn’t seem to reflect some of the positive economic numbers that have been released lately.

“The data on earnings, the economy, and the news out of Europe is not great,” he says. “But it is great relative to sentiment.”

He adds that “the only time the gap between economic data and economic sentiment was as wide as it was in the past couple of months was in late 1999 and early 2000 when the opposite of the current situation was the case: sentiment was much more positive than the data.”

It’s not just retail spending that market strategists are watching.

Despite concerns about the outlook of consumers, the S.& P. 1500 retail index has showed surprising strength this year — it is up more than 7 percent. In fact, this group of stocks is only around 2 percent below its record high.

Similarly, the S.& P. consumer discretionary index — which tracks shares of S.& P. 500 consumer companies that make goods that households want, not need — has soared 16 percent since the market bottomed on Oct. 3, outpacing the broad market.

“This does point to the expectation now, at least from investors, that we are going to avoid a new recession,” said Doug Ramsey, chief investment officer at the Leuthold Group, an investment management and advisory firm.

To be sure, this doesn’t necessarily mean that the stock market has regained its footing. Historically, Mr. Ramsey notes, the severity of bear markets that are associated with recessions is actually quite similar to downturns that occur during times of economic growth.

Nor does it mean that the recent bout of market volatility will be over soon.

But it does mean that the gloomy mood among many investors could turn out to be good for the market in the short term.

In the long run, will that be enough to counteract the real economic worries that are weighing down the market, particularly the continuing fiscal mess in Europe? That’s a discussion for another day.‹

[DewDiligence]

Stocks Fall But Log Best Month in 20 Years

http://www.thestreet.com/_yahoo/story/11293781/1/stock-market-story-oct-31.html

›10/31/11 - 04:59 PM EDT
By Melinda Peer

NEW YORK (TheStreet) -- Stocks saw heavy selling Monday but still managed to log one of the strongest overall monthly gains in recent years.

Stocks sunk to session lows in the last hour of trading on Monday, the final trading day of October. The Dow Jones Industrial Average delivered the third best monthly percentage gain in its history despite losing 276 points, or 2.3%, on Monday to close at 11,955. For the month, the index gained 9.5%.

The S&P 500 saw its best month in roughly 20 years, gaining 11%, even though it gave back 32 points, or 2.5%, to finish Monday at 1253, and the Nasdaq fell 53 points, or 1.9%, to settle Monday at 2684. The Nasdaq also gained 11% in October.

Stocks were stuck in negative territory all day but accelerated losses late in the session. The weakness may have stemmed from Greek Prime Minister George Papandreou's call for a referendum on the recent plan to contain Greece's sovereign debt crisis.

All 30 components on the Dow index finished in the red. Bank of America (BAC), which shed 7.1%, led the losses, while Cisco Systems (CSCO), McDonald's (MCD) and Kraft Foods (KFT) saw the mildest losses.

"We've had a tremendous run the last couple of weeks so investors are getting a little vertigo and taking money off the table," said Paul Nolte, managing director at investment firm Dearborn Partners.

Of the 2.6 billion shares that traded on the New York Stock Exchange, only 18% rose while 80% declined. On the Nasdaq, some 1.8 billion shares changed hands.

News that trading firm MF Global (MF) has filed for Chapter 11 Bankruptcy protection cast a pall over the banking sector. JP Morgan Chase (JPM) and Deutsche Bank (DB) fell 5.3% and 11.5%, respectively. The Financial Select Sector SPDR ETF (XLF) was down 4%.‹

[DewDiligence]

Stocks Finish Ahead for Second Straight Week

[Perspective: The S&P 500 is +8% during the past two weeks and +17% from its Oct 2011 low; it is -8% from its May 2011 high and +88% from its Mar 2009 low.]

http://online.wsj.com/article/SB10001424052970203501304577088013559435288.html

›DECEMBER 9, 2011, 6:00 P.M. ET
By JONATHAN CHENG

Stocks wrapped up their second straight week of gains as the euro zone's latest plan to fix its debt crisis overshadowed some disappointing forecasts from big U.S. companies.

The Dow Jones Industrial Average advanced 186.56 points, or 1.6%, to 12184.26, undoing most of the previous day's losses. The Standard & Poor's 500-stock index climbed 20.84 points, or 1.7%, to 1255.19, and the Nasdaq Composite advanced 50.47 points, or 1.9%, to 2646.85.

The advance was led by financial stocks. J.P. Morgan Chase gained 3%, Bank of America added 2.3% and Morgan Stanley climbed 3.2 %. Holding back some of the Dow's gains was DuPont, which fell 3.2% after the chemical company revised its full-year 2011 earnings outlook to a range that was below analyst expectations.

With Friday's gains, the Dow logged a weekly gain of 1.4%, adding to the previous week's 7% rally. The Dow is up 1.2% this month and 5.2% for the year.

Friday's move came after the 17 countries of the euro zone, overriding opposition from the U.K., formally agreed to run only minimal budget deficits in the future and allowed the European Court of Justice the right to strike down national laws that don't enforce such discipline, a major transfer of national sovereignty over budget policy.

While details of the agreement were scarce, leaders agreed to cap the European Stability Mechanism at €500 billion ($667.05 billion), and that EU nations would provide up to €200 billion in loans to the International Monetary Fund to increase its funding ability.

In Europe, the Stoxx Europe 600 reversed losses to gain 1.2%, while France's CAC-40 index rose 2.5%. In the U.K., which didn't agree to the new fiscal rules, the FTSE 100 advanced 1.2%.

Ten-year bond yields for Italy, Spain and Greece fell across the board, with the yield spread narrowing with German bonds, according to Tradeweb.

Gold rose 0.2%, to $1,712.80 a troy ounce, while crude-oil prices rose 1.1%, to $99.41 a barrel. The U.S. dollar was weaker against the euro and the yen. Treasurys fell, sending the yield on the 10-year note to 2.056%.

In U.S. economic data, the trade deficit narrowed in October for the fourth month in a row, as oil exports helped to offset record imports from China. The October deficit was smaller than Wall Street expectations. Separately, an early reading on consumer sentiment in December topped expectations.

In corporate news, General Electric gained 3.3%. The conglomerate raised its quarterly dividend for the fourth time in two years by two cents, to 17 cents a share, citing continued strengthening in its financial performance. [However, GE’s dividend remains 45% below its early 2009 level.]

Texas Instruments reversed losses to edge up 0.1% after the chip maker lowered its fiscal fourth-quarter earnings and revenue outlook, citing lower demand across a wide range of markets, customers and products. Fellow chip maker Altera also managed to gain, climbing 1.2% after cutting its forecast for fourth-quarter revenue, citing a deteriorating outlook across all major markets, including both large and small clients. Lattice Semiconductor fell 3.8% after the company cut its projections, citing softening demand.

Comverse Technology gained 6% after the customer management software company reported better-than-expected fiscal third-quarter earnings and revenue.

Blue Coat Systems soared 44% after the network optimization software company said it agreed to be acquired by private-equity firm Thoma Bravo in a deal valuing the company at about $1.3 billion.‹

[DewDiligence]

Stocks Close at 4-Year High

[Actually, not quite. Although the DJIA closed at the highest level since 2008 and the Nasdaq closed at the highest level since late 2000, the S&P 500 remains about 2% below its May 2011 high. (Including reinvested dividends, the S&P 500 is very nearly even with its May 2011 high.)]

http://online.wsj.com/article/SB10001424052970203711104577200541043672370.html

›FEBRUARY 3, 2012, 4:22 P.M. ET
By CHRIS DIETERICH And CHRISTIAN BERTHELSEN

Stocks rose after the U.S. economy added more jobs than expected last month, driving the Nasdaq Composite to an 11-year high and pushing the Dow to its highest reading in almost four years.

The Dow Jones Industrial Average advanced 154 points, or 1.2%, to 12859, its highest close since May 2008. The Standard & Poor's 500-stock index tacked on 19 points, or 1.5%, to 1345, for its fifth straight weekly gain.

The technology-oriented Nasdaq Composite Index gained 46 points, or 1.6%, to 2906, its highest level since December 2000. The Nasdaq is off to its best start to the year since 1991, up 12%.

All 10 of the S&P 500's sectors rose Friday, with financials and consumer-discretionary stocks leading the way. Among blue chips, Bank of America rose 5.2% and Caterpillar added 3.3% [see #msg-71486409, #msg-71610153].

Friday's gains followed a strong employment report from the U.S. Labor Department. January data showed nonfarm payrolls rose 243,000 last month, marking the biggest gain since April. The jobless rate fell from 8.5% to 8.3%, the lowest it has been since February 2009.

Stocks popped higher at the open and cruised along in positive territory all day.

"The data seem to show the economy is mending a bit faster than it was a year or two years ago," said David Resler, chief economic adviser for Nomura Securities.

The Stoxx Europe 600 rose 1.7%, closing at a six-month high. Asian bourses were mixed, with Japan's Nikkei Stock Average down 0.5% and China's Shanghai Composite up 0.8%.

Gold futures dropped 1.1% to $1,737.90 a troy ounce, while crude-oil prices rose 1.5% to $97.84 a barrel. The dollar gained against the euro and yen. The yield on the 10-year Treasury rose to 1.936%.

In corporate news, Genworth Financial swung to a fourth-quarter profit as the insurer enjoyed net investment gains rather than losses and reported lower policy benefits. Shares climbed 14%.

Gilead Sciences' fourth-quarter earnings rose 5.7% as the biopharmaceutical company's product sales continued to rise and it no longer booked deep reductions in royalties. Shares gained 11%. [LOL—they missed the HCV impetus for today’s move.]

Wynn Resorts' fourth-quarter profit climbed 67% on a tax benefit and as the casino operator's Macau operations continued to post revenue growth, yet a battle between Chief Executive Steve Wynn and a shareholder overshadowed the results. Shares fell 4.8%.‹

[DewDiligence]

U.S. Companies Strike Prophets

[A clever play on words by the WSJ!]

http://online.wsj.com/article/SB10001424052702303990604577368403618790154.html

›April 26, 2012, 5:53 p.m. ET
By JUSTIN LAHART

The first quarter hasn't provided the comeuppance for corporate results it was supposed to.

With companies topping analyst estimates by an unusually wide margin, profits look far healthier now than was expected earlier. For S&P 500 companies, first-quarter earnings now look set to rise 6.3% from a year earlier, according to Standard & Poor's Capital IQ. That is up from a projected increase of just 0.9% as expected at the end of last month.

Concern that companies might beat estimates, but then signal future weakness, also appears to have been misplaced. With around half of S&P 500 companies having reported, analysts have instead been nudging up estimates for the remainder of the year.

The first quarter's unanticipated vigor owes something to unexpectedly strong results from Apple : Take it out of the equation, and first-quarter earnings growth would be a slimmer 4.2%. Still, an unusually large number of companies have been topping estimates: 70% versus a 10-year average of 62%.

Another reason to cheer: The stronger earnings appear to have resulted not from more cost cutting but better sales.

Revenue growth for S&P 500 companies looks set to reach 6.2%, rather than the 5.5% analysts expected in March. That is a smaller shift than what's happened with earnings, but it's important to remember how sensitive earnings are to even slightly better sales.

All this suggests that a better outlook for the U.S. economy has so far trumped a worse one abroad [that’s only half right—many US companies are benefiting from strong growth in emerging markets]. The new refrain from companies has been that despite challenges in Europe and Asia, their U.S. business shone.

Weakness overseas hurt UPS, for example, which reported results Thursday that fell short of expectations. But it raised estimates for its package business at home. "We feel that the momentum in the domestic business continues unabated, so we feel good about the U.S. economy," said CFO Kurt Kuehn on the company's earnings call.

In and of itself, such optimism may bode well for the U.S. economy, since companies tend to hire and spend where things are getting better. It also suggests that companies conducting a large portion of their business within the U.S. are good investments—a lesson surely not lost on Italian automaker Fiat, which Thursday posted a first-quarter profit that would not have existed but for its majority stake in Chrysler Group.

Meanwhile, although earnings have beaten expectations from the end of March, the S&P 500 has fallen since then and now trades at 13.2 times expected 2012 earnings. One can't run a counterfactual analysis on where stocks would be if the European crisis hadn't flared up again, but better earnings plus lower prices mean a cheaper stock market.‹