With the market closed for business last Friday, the Dow Jones industrial average ended the first quarter Thursday at its highest point in 15 years. Meanwhile, the S&P 500 closed at a record high of 1,569.19, inching above the old high of 1,565, set in October 2007.
Despite the milestones, investors continue to weigh the ongoing crisis in Cyprus and new economic data at home. Many analysts are optimistic that the country’s economic fundamentals will continue to encourage investors as long as the Federal Reserve doesn’t raise interest rates.
Astute investors are not as excited about the new highs, because the Dow Jones transportation average plays a vital role in determining the market’s health. Its recent decline could put the brakes on current rallies. Airlines, railroads and truckers are sensitive to the business cycle. When the industrial and transportation averages move in different directions, they could represent a yellow flag.
Two local companies made headlines last week.
• Varian Medical Systems Inc. (VAR; $71.86) should be included in the Town Crier “50,” but in 1999 Varian Associates split into three divisions and was dropped from the list. Today, the remaining company is positioned for steady growth and will be watched closely.
The Palo Alto-based company has become the leading manufacturer of medical devices for treating cancer with radiotherapy and supplies software for managing for cancer clinics and radiotherapy centers.
For fiscal year 2013, which ends in September, Varian’s per-share earnings are expected to climb 10 percent, with a 5 percent gain in sales. The company can draw on a substantial operating cash flow, which over the past 12 months has surged 32 percent to $511 million. At the end of December, the company had $600 million in net cash on its balance sheet, approximately $5.40 per share.
Varian has a debt-to-market cap ratio of only 2 percent and falling. The debt is tethered to fixed interest rates, shielding it from rising interest rates.
Some analysts recommend moving Varian stock from a hold to a buy, while others promote a strong buy. The high price target is $88 and the median $79.
• Oracle Corp. (ORCL; $32.36) reported disappointing quarter results, prompting the stock to decline. The company’s year-to-year sales growth has been less than 4 percent for six consecutive quarters.
While Oracle executives blamed the poor performance on its sales force, the real reason is that smaller rivals with advanced database technology are undercutting the company’s competitive position.
Oracle is trying to match those small firms, which deliver data services via the Internet rather than running Oracle software on customers’ computers.