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U.S. Stocks Rise Amid Improving Data as Buffett Eyes Takeovers

Updated on
Billionaire Investor Warren Buffett
Billionaire investor Warren Buffett said his trigger finger is itchy for takeovers after cash holdings at his Berkshire Hathaway climbed to $38.2 billion. Photographer: Joshua Roberts/Bloomberg

U.S. stocks advanced, extending a third straight monthly gain for benchmark indexes, amid improving economic data and billionaire investor Warren Buffett’s desire to make more acquisitions.

Berkshire Hathaway Inc.’s Class B shares rose 2.8 percent as Buffett’s company said profit jumped 43 percent to the highest since 2007. Stocks of phone and utilities companies led the gains in the Standard & Poor’s 500 Index, adding at least 1 percent. Walgreen Co. climbed 3.3 percent after Morgan Stanley raised its share-price estimate for the largest U.S. drugstore chain. Intel Corp. fell 1.8 percent as JPMorgan Chase & Co. said the largest chipmaker may miss revenue estimates.

The S&P 500 advanced 0.6 percent to 1,327.22 at 4 p.m. in New York, rallying for a second straight day. The Dow Jones Industrial Average gained 95.89 points, or 0.8 percent, to 12,226.34. Crude oil fell the most in two weeks as Saudi Arabia offered to make up for supplies lost because of unrest in Libya.

“Warren Buffett is always out there to buy companies at the right price,” said E. William Stone, who oversees about $105 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “He has enough cash to do what he wants to do. On top of that, the economy continues to recover and earnings will not be affected by the situation in oil prices. We see pressure coming off the oil market.”

Corporate Profits

The S&P 500 rose 3.2 percent this month, extending this year’s gain to 5.5 percent, amid government measures to stimulate the economy and higher-than-estimated corporate earnings. Per-share profit topped estimates at 71 percent of the 460 companies in the S&P 500 that have reported results since Jan. 10, according to data compiled by Bloomberg.

The first trading day of the month is historically better than average for the U.S. stock market and it has been profitable in recent months. The three biggest gains in the past seven months -- and 5 of the 25 biggest rallies in 2010 -- occurred on the first trading day of the month and followed higher-than-estimated readings from the Institute for Supply Management’s monthly manufacturing gauge.

Factories remain a bulwark to the expansion. The Tempe, Arizona-based Institute for Supply Management’s manufacturing index, due tomorrow, rose to 61 in February, the highest level since May 2004, economists forecast in the Bloomberg survey. Readings greater than 50 signal growth.

Personal Incomes

Stock-index futures maintained gains before the open of exchanges as government data showed personal incomes climbed 1 percent, more than the 0.4 percent median estimate in a Bloomberg News survey of economists, reflecting the tax-cut compromise reached by President Barack Obama and Congressional Republicans in December.

Stocks also rose after the Institute for Supply Management-Chicago Inc. said today its business barometer increased to 71.2 this month, the highest level since July 1988, from 68.8 in January. Figures greater than 50 signal expansion. The gauge was projected to fall to 67.5, according to the median estimate of 52 economists surveyed by Bloomberg News.

Federal Reserve Bank of New York President William Dudley said the “considerably brighter” economic outlook isn’t yet reason for the central bank to withdraw its record monetary stimulus. Dudley spoke today in a speech in New York.

Berkshire Hathaway Class B shares increased 2.8 percent to $87.28 and Class A shares rose 2.9 percent to $131,300. Fourth-quarter net income advanced to $4.38 billion, or $2,656 per share, from $3.06 billion, or $1,969, a year earlier, Omaha, Nebraska-based Berkshire said on its website.

‘Trigger Finger’

Buffett said his “trigger finger is itchy” for takeovers after cash holdings at his Berkshire Hathaway climbed to $38.2 billion. “Our elephant gun has been reloaded,” Buffett said on Feb. 26 in his annual letter to shareholders.

“It’s another positive influence for confidence,” said Liam Dalton, New York-based president of Axiom Capital Management Inc., which oversees $1.4 billion. “It supports a lot of what we’re dealing with right now -- improving data in the real economy. A Buffett remark perpetuates that trend.”

Announced takeovers of U.S. companies have totaled $164.68 billion so far in 2011, 66 percent more than the $97.4 billion announced through this date last year, according to data compiled by Bloomberg.

Buffett has shifted his takeover strategy as Berkshire has grown to focus more on “capital intensive businesses,” such as power producers and railroads, which require consistent investment in infrastructure and equipment.

Failing Textile Mill

Buffett, who built Berkshire over four decades from a failing textile mill to a $210 billion seller of energy, insurance and consumer goods, told investors in his annual letter on Feb. 26 that the firm spent $6 billion on property and equipment last year, demonstrating “our enthusiasm for capital investment.”

“Can we put it to work intelligently, if not brilliantly?” Buffett said at Berkshire’s annual meeting in May. “We think it makes sense to go into the capital-intensive businesses we have. And it’s worked quite well.”

Gains in the S&P 500 were driven by companies that are least-dependent on economic growth. Phone companies had the biggest gain in the S&P 500, rising 1.5 percent, followed by gains in a gauge of utility companies, which added 1 percent.

Walgreen rose 3.3 percent to $43.34. Morgan Stanley boosted its share-price estimate to $50 from $44, while raising its second-quarter profit forecast citing stronger-than-estimated sales stemming from flu trends. Morgan Stanley also said it expects Walgreen stock to rise over the next 30 days.

Humana, Nationwide Health

Humana Inc. rose 3.9 percent to $65.01. The biggest provider of U.S.-backed health benefits boosted its full-year per-share profit forecast to $5.95 to $6.15. The shares were raised to “buy” from “hold” at Stifel Nicolaus.

Nationwide Health Properties Inc. jumped 9.7 percent, the most in the Russell 1000 Index, to $42.74. Ventas Inc., the second-biggest U.S. health-care real estate investment trust by market value, agreed to buy Nationwide Health for about $5.7 billion. Ventas slid 3.1 percent to $55.42.

A gauge of chipmakers in the S&P 500 declined the most among 24 industries, dropping 1.3 percent. Intel fell 1.8 percent, the most in the Dow, to $21.47. JPMorgan said the company is at risk of missing revenue estimates. Separately, JPMorgan cut its forecast for growth in the personal computer industry, citing softening demand in China. Slumps Inc. lost 2.2 percent to $173.29. UBS AG downgraded the stock to “neutral” from “buy,” citing potential margin pressures because of a more prolonged investment period and free subscription streaming. UBS also reduced its 12-month share-price estimate to $180 from $195.

Barclays Plc forecast the S&P 500 will advance to 1,450 in 2011, up from a previous prediction of 1,420. Barry Knapp, the New York-based chief equity strategist for the firm, lifted his 2011 profit estimate for the benchmark gauge to $93 a share from $91, citing better-than-estimated fourth-quarter earnings and increased confidence in the financial sector.

Kenneth Cole Productions Inc. and Timberline Resources Corp. were among the first stocks to have short selling restricted today under a regulation aimed at preventing bearish bets from snowballing.

By forcing speculators who want to bet on declines to wait, regulators are seeking to keep the market from being overwhelmed with sell orders that may feed on each other. When the 10 percent threshold is triggered, traders can only execute short sales at a price above the market’s best bid. The curb lasts through the following day.

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