Local stocks rise above tumult

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Amid rising investor nervousness, volatility and turmoil in debt markets stemming from defaults on subprime mortgages, Chicago-area stocks managed to largely hold their own over the last three months.

Perhaps surprisingly, there were only a dozen losers among the Tribune's Top 50 list of publicly traded companies.

In all, stocks managed to climb a wall of worry.

"Predictions of slowing profit growth or other portents of gloom once again failed to deter investors," said Chicago investment manager William Hummer.

While second-quarter earnings expansion undoubtedly fell below double digits, it likely grew by about 8 percent, after rising 10 percent in the first quarter, said Hummer, of Wayne Hummer Investments.

"Consistently, even if profits ease a bit, they remain resilient and exceed consensus forecasts," he said.

Bottom-line results continue to outpace the expansion of the economy, he said, "because productivity of workers keeps on improving."

As has been the trend for several years, global operations tended to insulate Midwestern giants from the vagaries of a domestic economy that slowed and is recovering in fits and starts.

The quarter's biggest winner was the stock of Navistar International Inc. The maker of trucks and diesel engines, based in Warrenville, saw its shares leap nearly 45 percent. The stock was up 168 percent, year over year.

Other huge advances were seen by companies involved in private-equity buyouts, notably CDW Corp. and Nuveen Investments Inc.

Vernon Hills-based CDW, a provider of computers and services to business and government, agreed to a $7.3 billion privatization deal. Chicago-based Nuveen, which is expanding its investment offerings, said it will be acquired for $5.75 billion. In each case, the investor group making the purchase is led by Chicago-based Madison Dearborn Partners.

Old-line industrial stocks that sell products worldwide continued their banner performance, notably Caterpillar Inc. and Deere & Co.

Among stocks that declined during the quarter were Abbott Laboratories, Walgreen Co., General Growth Properties Inc. and Equity Residential. The last two are real estate investment trusts that were caught up in a general decline for their category, blamed largely on rising long-term interest rates.

Archer Daniels Midland Co. also declined, as a scare over higher food prices prompted warnings that the conversion of corn into ethanol might hit an obstacle among consumers.

But companies in the later links of the food chain prospered, as Kraft Inc., newly independent from Altria Group, saw its stock make a solid advance, along with Corn Products International Inc. And McDonald's Corp., flush with fresh menu items and improved coffee, continued a three-year surge.

Analysts remain optimistic about the months ahead.

Although the recent choppy action of stocks indicates that problems with hedge funds and subprime-mortgage defaults could trigger a correction on Wall Street, "investors shouldn't panic," said Flossmoor-based investment adviser Richard Evans.

"What is important is that this would be a secondary correction, followed by a rapid rebound back to the highs," Evans said.

Although a drop in utility stocks indicates that they are in the midst of a correction, "we do not view them as being in a bear market," he is telling clients.

This year's first quarter, when economic activity grew by a paltry 0.7 percent, was probably the low point for growth, as the trade deficit narrows and businesses boost spending and rebuild inventories, economists said.

Although the snail's pace at the start of the year suggests that this country was nearly standing still while the rest of the world was roaring ahead, "U.S. gross domestic product growth, excluding the housing sector, is running at a 3 percent to 3.5 percent annual rate," economist Gail Fosler of The Conference Board said in a report for clients.

"That would put U.S. growth at or above most other industrialized economies," she added.

Such a reviving expansion would be good for corporate profits and might help explain optimism among investors.

Fosler said the temporary downturn for housing and manufacturing will prove to be a good thing in the long run because "necessary adjustments are being made now, rather than accumulating to have a much more severe impact in the future."

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Chicago stock review

How the stocks of the 50 largest publicly traded companies in Illinois and northwest Indiana fared over the second quarter and past 12 months.

   RANK  COMPANY                    CLOSE   3-MO.% CHG.   12-MO. % CHG.  1  Abbott Labs                $53.55       -4.03         22.79    2   Boeing                      96.16        8.15         17.40    3   McDonald's                  50.76       12.67         51.07    4   Kraft Foods                 35.25       11.34         14.08    5   Caterpillar                 78.30       16.81          5.13    6   Exelon                      72.60        5.66         27.75    7   Walgreen                    43.54       -5.12         -2.90    8   Motorola                    17.70        0.17        -12.16    9   Allstate                    61.51        2.41         12.39    10  Baxter Intl.                56.34        6.97         53.26    11  Illinois Tool Works         54.19        5.02         14.08    12  Deere                      120.74       11.14         44.62    13  Sears Holdings             169.50       -5.92          9.14    14  Archer Daniels Midland      33.09       -9.84        -19.84    15  Chicago Merc. Exch.        534.36        0.36          8.80    16  Wm. Wrigley Jr.             55.31        8.60         21.94    17  Northern Trust              64.24        6.82          6.17    18  Equity Residential          45.63       -5.39          2.01    19  General Growth Prop.        52.95       -18.00        17.51    20  CNA Financial               47.69        10.68        44.69    21  Sara Lee                    17.40         2.84        27.54    22  Fortune Brands              82.37         4.50        16.00    23  Aon                         42.61        12.25        22.37    24  CBOT Holdings              206.60        13.83        72.76    25  R.R. Donnelley              43.51        18.91        36.18    26  U.S. Cellular               90.60        23.35        49.50    27  W.W. Grainger               93.05        20.47        23.69    28  Tribune                     29.40        -8.44        -9.34    29  Telephone and Data Sys.     62.57         4.95        51.14    30  CDW                         84.97        38.32        55.48    31  Hospira                     39.04        -4.55        -9.08    32  NiSource                    20.71       -15.26        -5.17    33  Molex                       30.01         6.42       -10.60    34  Nuveen Investments          62.15        31.40        44.37    35  Old Republic Intl.          21.26        -3.89        -0.51    36  USG                         49.04         5.06       -13.15    37  Tellabs                     10.76         8.69       -19.16    38  UAL                         40.59         6.34        30.85    39  Navistar Intl.              66.00        44.26       168.18    40  Brookdale Senior Living     45.57         2.04         1.86    41  Dade Behring Holdings       53.12        21.14        27.57    42  Jones Lang Lasalle         113.50         8.84        29.64    43  Pactiv                      31.89        -5.48        28.85    44  Navteq                      42.34        22.72        -5.24    45  Nalco Holding               27.45        14.85        55.70    46  Stericycle                  44.46         9.10        36.59    47  Integrys Energy Group       50.73        -8.61         2.28    48  Hewitt Associates           32.00         9.48        42.35    49  Smurfit-Stone Container     13.31        18.21        21.66    50  Corn Products Intl.         45.45        27.70 48.53   
Sources: Bloomberg, Associated Press More Chicago listings: chicagotribune.com/stocks

wsluis@tribune.com

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