STAN CHOE AP Business Writer
11:28 AM PDT, May 10, 2011
NEW YORK — Corporate deals and strong earnings have propelled stocks higher in recent months, and more of each came on Tuesday.
Microsoft Inc. said it would buy Internet telephone service Skype for $8.5 billion in cash. Companies have built up a record amount of cash since the recession, and they have begun to use it to purchase rivals, pay dividends and buy back their own stock. Microsoft had $50.15 billion in cash and short-term investments at the end of March.
Large companies want to put their cash stockpiles to work because they're getting minimal returns on them, said Oliver Pursche, president of Gary Goldberg Financial Services. "The crisis is behind us, where we don't need this much cash anymore."
The Skype purchase is Microsoft's largest in its 36-year history. It follows AT&T Inc.'s announcement in March that it would buy T-Mobile USA for $39 billion and Johnson & Johnson's $21.3 billion deal announced last month to acquire Synthes, a maker of medical instruments and implants.
CKx Inc., which owns the rights to the names and images of Muhammad Ali and Elvis Presley, jumped 22.8 percent after it agreed to be bought by private equity investors. The buyout group will pay about $511 million for the company, which also owns the "American Idol" television show.
Dairy producer Dean Foods Co. jumped 12.9 percent after its earnings came in above analysts' expectations. Dean had a stronger start to the year than it expected and raised its forecast for full-year earnings.
Medifast Inc. rose 14.7 percent. The weight-loss program operator reported earnings late Monday that came in above analysts' expectations.
International Flavors & Fragrances Inc., whose flavorings and scents go into candies, air fresheners and other products, said its income rose more than expected. The stock rose 2.3 percent.
Boston Scientific Corp. sank 10.2 percent after the medical device company said its president and CEO, Ray Elliott, will retire at the end of the year. The company is looking for his replacement.
The Dow Jones industrial average rose 49 points, or 0.4 percent, to 12,733 in afternoon trading. The Standard & Poor's 500 index rose 7 points, or 0.5 percent, to 1,353. The Nasdaq composite index gained 17 points, or 0.6 percent, to 2,860.
Stocks have risen sharply in 2011, driven by strong earnings reports from major U.S. companies such as heavy equipment maker Caterpillar Inc. and Apple Inc. The S&P 500 is up 7.5 percent, more than it gained in five of the last 10 full calendar years.
Companies in the S&P 500 are on track to report first-quarter earnings growth of 19 percent, according to FactSet. That's far ahead of the 11 percent that analysts were forecasting at the end of 2010. Nearly 90 percent of companies in the index have reported results already.
Crude oil bounced up and down, and at one point was back above $103 per barrel. High fuel costs drove prices for imports into the United States up 2.2 percent last month, according to the Bureau of Labor Statistics. It's the first time import prices have topped 2 percent in consecutive months since June 2008. Import prices rose 2.6 percent in March.
Metals futures recovered more of their losses from last week's sell-off. Silver rose $1.28 to $38.40 per ounce. Silver has more than doubled over the last year, but is still about $10 below where it was at the end of April.