Today’s Market

I didn’t think the S&P 500 could stay below 1200 for long. Today, it rallied to 1199.38. The S&P 500 added 1.68% today and our Buy List trailed it slightly, rising 1.55%. Every one of our stocks went up except for Dell (DELL). The NYSE had its broadest rally in 14 months. Advancers led decliners by more than 6-to-1.
After the close, AFLAC (AFL) reported earnings of 66 cents a share, two cents ahead of estimates. The stock broke out to a new all-time high today. Despite Rita and Katrina, the insurance sector looks great. Brown & Brown (BRO) made a new high as well.
Also after the close, Lincare Holdings (LNCR) reported earnings of 52 cents a share, also two cents above estimates. Lincare’s profits are down due to the loss of Medicare reimbursements. The company said that Medicare price reductions hurt sales by about 14%. I still think the company is delivering very strong numbers. This continues to be one of my favorites in the health care sector.
I’m still venting about Merrill Lynch’s downgrade of Frontier Airlines (FRNT). The analyst, Michael Linenberg, downgraded the airline from a “buy” to a “sell.” You don’t many downgrades go straight from “buy” to “sell.” They prefer to downgrade a stock to a “medium near-term weak-hold,” or something along those lings. But he hurt his case by stressing the severity of the Southwest’s (LUV) entry into Denver’s market. Did it never occur to him that this could happen? Frontier’s management said that they knew it was coming, they just didn’t know when. I really liked the letter that Frontier’s CEO wrote. He laid out the issue very well. This is a difficult obstacle for Frontier, but it’s not a killer.
Outside the Buy List, Merck (MRK) reported earnings today. The company’s profits rose, but the most telling fact is that sales fell. If someone told me a few years ago that Merck would report a quarter of declining sales, I don’t think I would have believed them. The Journal looks at Merck’s business:

Vioxx-related lawsuits against Merck continued to pile up. As the second Vioxx trial begins to wrap up this week in New Jersey, the company announced that as of September, there were about 6,400 lawsuits filed against it, up from fewer than 5,000 a few weeks earlier. Merck lost its first Vioxx trial when a Texas jury returned with a $253 million verdict against the company. That verdict will be reduced to $26 million under Texas state caps, and Merck said it intends to appeal the decision. The company’s general counsel, Kenneth Frazier, reiterated on a conference call with analysts that the company plans to defend itself against each case individually in a long process. Mr. Frazier said the company faces six trials in the next six months.
In addition to the loss of Vioxx, which at its peak contributed $2.5 billion in annual sales to Merck, the company is dealing with precipitously declining sales of its biggest blockbuster, Zocor. The cholesterol medicine has lost patent protection overseas and will lose patent protection in the U.S. next year. As a result, world-wide sales of Zocor in the third quarter fell 14% to $1.05 billion.

Posted by on October 24th, 2005 at 6:10 pm


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