Industrial Stocks Regain Momentum on Earnings
The momentum is back with “old-economy” stocks. But how long will it last?
Shares of International Paper (ticker symbol: IP) helped fuel a broad rally in industrial names on Tuesday after the paper and lumber giant said earnings jumped in the second quarter, boosted by improved paper prices and by cost cutting.
IP said operating earnings were $315 million, or 75 cents a share, in the quarter, a penny higher than the 74 cents predicted by analysts surveyed by First Call/Thomson Financial. A year earlier, operating earnings were 24 cents a share.
Sales in the quarter were $6.78 billion, up 13% from a year earlier.
IP’s shares jumped $2.25 to $34.50, lifting other paper stocks, including Weyerhaeuser (WY), up $2.81 to $46.88, and Kimberly-Clark (KMB), up $1.38 to $58.31.
Aluminum titan Alcoa (AA) also continued to soar, gaining $2.50 to $32.50 after rising $2.38 on Monday after the firm said second-quarter earnings rose 57% as some production costs fell.
Other old-economy stocks rising Tuesday included Illinois Tool Works (ITW), up $2.56 to $58.44; Dow Chemical (DOW), up $2.44 to $33.41, and copper miner Phelps Dodge (PD), up $1.75 to $39.75.
After trading ended, motorcycle maker Harley-Davidson (HDI) said it earned $90.6 million, or 29 cents a share in the quarter, up 32% from $68.6 million, or 22 cents, a year ago. Results topped the 27-cent average estimate of analysts. Sales rose 24% to $755 million.
Harley said it got a boost from its new Buell model and increased shipments overall. Its shares rose $1.06 to $40.44 in regular trading.
Many industrial stocks crashed in January and February as many investors dumped them in favor of technology shares. With the tech sector’s collapse in March and April, industrial issues rallied briskly for about a month, only to dive again in June.
Indeed, Alcoa last Friday fell to its lowest level since the spring of 1999. IP stock recently traded under $30, its lowest since 1994.
Some money managers believe that battered industrial issues are bargains, assuming the economy slows enough to keep the Federal Reserve from raising interest rates further, but not enough to threaten recession.
Alcoa, for example, is priced at about 16 times the $2.09 a share that it’s expected to earn this year, according to analysts’ consensus estimates. IP is priced at about 11 times expected 2000 earnings.
Still, the speed with which the spring rally in industrial issues gave way to renewed selling has naturally left many investors wary.
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Turning Up?
Stocks sensitive to the economy’s swings, especially industrial issues, suddenly are in demand again. Weekly closes and latest for the Morgan Stanley index of 30 “cyclical” stocks:
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Tuesday: 492.16
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Source: Bloomberg News
