U.S. Stocks Gain as Hewlett-Packard, Home Depot Profits Beat
Nov. 18 (Bloomberg) — U.S. stocks gained for the first time in three days as better-than-estimated earnings at Hewlett- Packard Co. and Home Depot Inc. spurred optimism that some companies’ earnings will hold up amid the recession.
Hewlett-Packard, the biggest personal-computer maker, jumped as much as 15 percent to lead a rally in technology shares. Home Depot Inc., the largest home-improvement retailer, added 5.7 percent. Citigroup Inc. dropped 5.4 percent after Deutsche Bank AG analyst Mike Mayo said the bank may report a 2009 loss as revenue declines and credit costs rise.
The Standard & Poor’s 500 Index increased 7.01 points, or 0.8 percent, to 857.76 at 10:26 a.m. in New York. The Dow Jones Industrial Average climbed 88.41 points, or 1.1 percent, to 8,361.99 and the Nasdaq Composite Index added 0.2 percent to 1,485.11. About four stocks rose for every three that fell on the New York Stock Exchange.
“A number of industries and sectors’ stocks have fallen by huge percentages over the past year and appear to be at pretty attractive valuations based on historical measures,” said Dean Gulis, part of a group that manages about $2.5 billion for Loomis Sayles & Co. in Bloomfield Hills, Michigan. “There can be some small-scale buying done in this market environment.”
Today’s gain in the S&P 500 Information Technology Index came after the group’s valuation slid to less than 12 times earnings, the cheapest since Bloomberg began tracking the data in 1995. The index of computer-related companies is down 47 percent in 2008, the third worst performance among 10 industry groups in the S&P 500.
Hewlett-Packard added $3.50 to $32.84 after reporting earnings of $1.03 a share, excluding reorganizing expenses and other costs, exceeding the $1 average analyst estimate.
Home Depot Inc., the world’s largest home-improvement retailer, added $1.13 to $21.13 after profit declined less than analysts estimated and the company repeated its earnings forecast for the year.
Yahoo! Inc. jumped 12 percent to $11.95 after Chief Executive Officer Jerry Yang agreed to step down, opening the door for a fresh bid from Microsoft Corp.
The company’s market value has dropped by more than $20 billion since Yang took over as CEO in June 2007 as discussions with Microsoft ended in failure, an ad partnership with Google Inc. was derailed and talks with Time Warner Inc.’s AOL stalled. Yahoo “might be worth $21” a share to an acquirer, Goldman Sachs Group Inc. said.
Kellogg Co. slid 1.8 percent to $45.51. The shares were downgraded to “neutral” from “buy” at UBS, which cited consumer weakness “combined with local currency weakness against the U.S. dollar.”
In Search of Bottom
The S&P 500 is down more than 41 percent in 2008, poised for its worst year since 1931. Profits slumped 17 percent on average at companies in the index that have reported third- quarter results, according to Bloomberg data. Analysts expect an 8.5 percent drop in full-year earnings, based on estimates compiled by Bloomberg.
The benchmark index for U.S. equities may extend this year’s drop after a rally from last week’s five-year low lasted just one day, say analysts who study charts of trading patterns and prices to forecast changes in stocks.
After rebounding 11 percent from its low of the day on Nov. 13, the S&P 500 slipped 6.6 percent during the next two days and will probably keep falling past 818.69, its lowest level since 2003, according to three top-ranked technical analysts. The S&P 500 declined below its Oct. 10 low of 839.8 before rallying last week, making it a “retest” to chart readers.