U.S. stocks little changed as Heinz deal tempers economy concern

February 14, 2013 10:11 AM

U.S. stocks were little changed, after erasing earlier losses, as a drop in jobless claims and Warren Buffett’s deal for H.J. Heinz Co. tempered concern over shrinking economies in Europe and Japan.

Heinz surged 20 percent after Buffett’s Berkshire Hathaway Inc. and 3G Capital agreed to buy the company in a deal valued at about $23 billion. Constellation Brands Inc. soared 38% after Anheuser-Busch InBev NV offered to cede full control of U.S. distribution for Corona beer in a bid to salvage its deal for Grupo Modelo. US Airways Group Inc. dropped 8.5% after agreeing to an $11 billion merger with AMR Corp.’s American Airlines.

The S&P 500 rose 0.1 percent to 1,521.95 at 2:59 p.m. in New York, after slumping as much as 0.4% earlier. The Dow Jones Industrial Average dropped 3.17 points, or less than 0.1%, to 13,979.74. Trading in S&P 500 companies was 14% above the 30-day average at this time of day.

“There is global economic weakness and we’re still constrained growth-wise,” Scott Armiger, a money manager at Christiana Trust in Greenville, Delaware, said in a telephone interview. His firm has $15 billion in client assets. “It’s an environment where it’s easier to buy growth than trying to grow organically.”

Data today showed the recession in the euro area deepened, with the worst performance in almost four years. In Japan, gross domestic product shrank an annualized 0.4%, amid falling exports and a business-investment slump.

U.S. jobless claims decreased by 27,000, the most in a month, to 341,000 in the week ended Feb. 9, Labor Department figures showed. The level of filings trailed any projection in a Bloomberg survey in which the median forecast was 360,000.

Approaching Record

The S&P 500 has climbed 6.7% in 2013 as U.S. lawmakers reached a budget compromise. It has more than doubled since bottoming in March 2009 as the Federal Reserve conducted three rounds of bond buying to lower interest rates and boost economic growth. The gauge is about 3 percent below its record of 1,565.15 reached in October 2007.

Six out of the 10 industry groups advanced in the S&P 500 as energy companies gained the most, rising 0.7%. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, fell 2.1% to 12.71.

Consumer Bets

Heinz rallied $11.90 to $72.38 and Berkshire Hathaway’s Class A shares jumped 1.3% to $149,676, heading for a record closing high.

Buffett’s Berkshire and 3G Capital agreed to buy Heinz as the billionaire chairman increases his bets on consumer products. The buyers will pay $72.50 a share, compared with yesterday’s closing price of $60.48, according to a statement. The deal is valued at about $28 billion including debt.

Other consumer stocks gained. Campbell Soup Co., the world’s largest soup maker, climbed 1.9% to $38.91 while General Mills Inc., the maker of Cheerios cereal, advanced 3.2% to $44.34.

Constellation surged $11.99 to $43.87. InBev, the world’s biggest brewer, offered to cede full control of Corona distribution in the U.S. to Constellation for $2.9 billion after U.S. regulators sued to block its purchase of Grupo Modelo. Constellation will gain Modelo’s brewery in Piedras Negras, which is located in Mexico near the Texas border, and perpetual rights for the Corona and Modelo brands in the U.S., Leuven, Belgium-based AB InBev said.

US Airways slipped $1.25 to $13.41 after the company said it will combine with AMR’s American Airlines to create the world’s largest carrier. AMR’s bankruptcy creditors will own 72% of the new company, and US Airways stockholders will get 28%.

‘Gear Aggressively’

About $145.8 billion of deals have been announced in the U.S. this year, according to data compiled by Bloomberg. That already surpassed the total of $99.6 billion during the first two months of 2012.

“Corporate America is a little more optimistic,” Ted Harper, who helps manage about $8 billion for Frost Investment Advisors LLC in Houston, said by phone. “Companies have repositioned, they have become far leaner and are looking for opportunities to deploy capital incrementally for growth. They’re looking to gear a little more aggressively.”

About 74% of the 386 companies in the S&P 500 that have released results so far in the quarter exceeded profit projections. Sixty-seven percent have surpassed sales estimates, according to data compiled by Bloomberg.

Phone stocks fell the most among S&P 500 groups, sinking 2.2%. CenturyLink Inc. plunged 22% to $32.42 after cutting its dividend by 26% to 54 cents a share and forecasting first-quarter sales that missed analysts’ estimates.

Cisco Systems

Cisco Systems Inc. slipped 1.1% to $20.91. The world’s largest maker of computer-networking gear forecast third-quarter revenue will increase 4% to 6% from a year earlier, indicating revenue of $12.1 billion to $12.3 billion. Analysts on average predicted sales of $12.2 billion, according to data compiled by Bloomberg.

MetLife Inc. retreated 1.9% to $36.81. The largest U.S. life insurer said fourth-quarter profit declined 87% on costs tied to lower interest rates and annuities.

General Motors Co. fell 2.7% to $27.90. The automaker’s fourth-quarter profit trailed analysts’ forecasts as Europe losses weighed down the results.

Whole Foods

Whole Foods Market Inc. dropped 10% to $87.20. The largest natural-foods store in the U.S. lowered its sales forecast for fiscal 2013. Sales may increase as much as 11% in fiscal 2013, compared with a previous estimate for growth of as much as 12%, Whole Foods said.

TripAdvisor Inc. fell 7.1% to $43.57. The online travel-recommendation service spun off from Expedia Inc. said it expects earnings before interest, taxes, depreciation and amortization to grow at a percentage rate of “high single digit” in 2013. The forecast “came in lower than expected,” Anthony DiClemente, an analyst at Barclays Plc, wrote in a note.

Weight Watchers International Inc. tumbled 17% to $44.70. The company forecast annual earnings of $3.50 to $4 a share, compared with the $4.75 average estimate in a Bloomberg survey of analysts.

Stock Options

Bearish U.S. stock options have fallen to the cheapest level in more than two years on signs the American economic recovery is gaining momentum.

Puts protecting against a 10% decline in the S&P 500 cost 7.88 points more than calls betting on a 10% gain, according to three-month options data compiled by Bloomberg. The price relationship known as skew fell to 7.49 on Feb. 1, the lowest since November 2010.

Record corporate profits, the lowest unemployment in four years and a rebound in property prices are adding to evidence that the U.S. economy is strengthening. The drop in the cost of options shows reduced demand by equity investors to hedge their holdings as the S&P 500 approaches a record high.

“The housing world will continue to be strong and with that will be a wealth effect and a sense of security that will keep investors returning in increasing numbers to the equity market,” Tom Russo, a partner at Lancaster, Pennsylvania-based Gardner Russo & Gardner, which oversees more than $5 billion, said in a phone interview yesterday. “The Fed insurance is going to stay its course.”

Bloomberg News

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