Stocks surged Tuesday as the third-quarter earnings season finally kicked off and several marquee names from the Dow Jones Industrial Average delivered results that were mostly cheered by Wall Street and investors.
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Earnings ebullience for the Dow Jones today was enough to lift the major domestic equity benchmarks to four-week highs. Fortunately, today’s earnings reports appeared to command more attention than another tepid global economic growth forecast from the International Monetary Fund (IMF).
“Investors are closely analyzing the earnings reports, given the global backdrop of slowing growth and a host of unpredictable macro risks,” according to Bloomberg. “The International Monetary Fund made a fifth-straight cut to its 2019 global growth forecast, citing a broad deceleration across the world’s largest economies as trade tensions undermine the expansion.”
The IMF report wasn’t enough to derail the Nasdaq Composite, which gained 1.24% while the S&P 500 added 1%. The Dow closed higher by 0.89% with 26 of its 30 components in the green in late trading.
The healthcare sector, the second-largest sector weight in the S&P 500 behind technology, has been a dog this year with managed care providers, such as Dow component UnitedHealth (NYSE:UNH) weighing on the group.
That tone shifted for the better today with UnitedHealth surging 8.25% after the company posted stellar third-quarter results.
“During the quarter, revenue grew 7% year over year to $60.4 billion, operating profits grew 9% to $5.0 billion, and adjusted earnings per share grew 13% to $3.88,” according to Morningstar. “UnitedHealthcare, the leading U.S. health insurer, grew 5% year over year to $48.1 billion in revenue while operating profits grew 4% during the same period to $2.7 billion. This business continues to benefit from the expansion of Medicare Advantage plans, and the recent executive order bolstering that program may reinforce those positive trends.”
Importantly, UnitedHealth lifted its 2019 earnings-per-share guidance to $14.90 to $15 from $14.40 to $14.70 a share. UnitedHealth holds its analyst day on Dec. 3 and is likely to unveil 2020 guidance at that event.
Johnson & Johnson (NYSE:JNJ) joined the healthcare rally, jumping 1.6% after delivering solid third-quarter results. Tuesday’s gain was enough to have JNJ stock just outside of the top five Dow performers on the day.
For the July through September quarter, JNJ earned $2.12 a share on revenue of $20.7 billion, beating analysts’ estimates of $2.01 in EPS on sales of $20.1 billion.
“As we look ahead, we remain confident in the strength of our broad-based business model, which is fueled by our disciplined portfolio management, focus on transformational innovation and dedicated employees around the world who position us for success today and well into the future,” said CEO Alan Gorsky in a statement.
JPMorgan Chase (NYSE:JPM), the largest U.S. bank by assets, was the second-best performer in the Dow today behind UnitedHealth on the back of its impressive earnings update. The company earned $2.68 a share in the third quarter, easily beating analyst estimates of $2.45. On the earnings call, CEO Jamie Dimon said banks continue seeing erosion in net interest margins due to low U.S. interest rates.
Although it missed on third-quarter numbers, Goldman Sachs (NYSE:GS) posted a modest gain today. Slack trading revenue and some bad bets in the “unicorn” world, including WeWork, weighed on Goldman’s results in the most recently completed quarter.
Alas, bank stocks, including Goldman Sachs and JPMorgan, are inexpensive on valuation.
“JPMorgan trades for two times tangible book value, while Goldman, which has the lowest valuation among its peers, trades at tangible book value,” according to Barron’s.
Following UnitedHealth and JPMorgan, Intel (NASDAQ:INTC) was the third-best performer in the Dow today, but it wasn’t earnings news boosting shares of the semiconductor giant. A modest $27 million acquisition of a 5G software business known as Smart Edge from Canada’s Pivot Technology Solutions appears to be one of the catalyst’s behind Intel’s Tuesday rally.
Not an earth-shattering deal relative to Intel’s size, but it does underscore the company’s commitment to entrenching itself in the fast-growing 5G market.
Bottom Line on the Dow Jones Today
For Dow components, Wednesday is a docile day on the earnings front with only International Business Machines (NYSE:IBM) reporting after the bell. As noted above, the companies reporting today got the ball moving in the right direction and it could prove encouraging that previously downtrodden UnitedHealth offered such bullish guidance and that Goldman Sachs traded higher despite a less-than-impressive report.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
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