Earnings awaited this week Disappointments could mire stocks

July 05, 1998|By BLOOMBERG NEWS

NEW YORK -- The patter of second-quarter earnings reports begins this week, and probably will determine whether the rally that sent the Standard & Poor's 500 index up 18 percent this year will resume or get stuck in a summer rut, money managers say.

Motorola Inc., Aluminum Co. of America, Yahoo! Inc. and Advanced Micro Devices Inc. are scheduled to report amid signs that the Asian economic crisis is causing U.S. growth to slow and hurting profits. At the same time, low interest rates have fueled the 1990s stock rally and there's no sign that borrowing costs are headed higher.

Franklin Morton, director of research at Ariel Capital Management Inc. in Chicago, which oversees about $2.4 billion, sees "more surprises to come, especially for those companies that do a lot of business in the Far East." As a result, he likes stocks such as bond insurer MBIA Inc. that deliver predictable earnings growth of about 12 percent a year.

The outlook for earnings isn't as bad as some investors suspect, said Ed Miska, a money manager at Evergreen Asset Management Corp., which oversees about $40 billion. "The trend is still for higher profits," he said.

That should benefit smaller companies the most because they lagged behind big companies in the past few years, said Miska, JTC whose picks include Kenneth Cole Productions Inc., a designer and retailer of footwear and accessories, and Craftmade International Inc., a maker of ceiling fans and lighting kits.

Analysts expect second-quarter profits for companies in the S&P 500 to rise 2.3 percent from a year ago, according to First Call Corp., which tracks earnings estimates. In the first quarter, the growth rate was 3.8 percent.

"We see problems in Asia continuing to pressure corporate profits, but as long as rates and inflation stay muted, we're going to be OK," said Andy Pilara, head of research and portfolio management at Robertson Stephens Funds.

Pub Date: 7/05/98

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