Stocks Rise in Fourth Quarter

Investors in the fourth quarter seem to have finally decided the economic recovery may be under way. Perhaps persuaded by increased consumer spending, increased manufacturing activity, or the government's November announcement of 8.2% growth in gross domestic product in the third quarter, investors forced all major stock indexes, including the Dow Jones industrial average and the NASDAQ, upward in the fourth quarter of 2003--with the indexes all hitting yearly highs.

Chemical, biotechnology, and pharmaceutical stocks followed suit, generally turning in good to very good performances in the fourth quarter, with C&EN's indexes for the industry groups all advancing over the third-quarter closing numbers to their highest levels of the year.

The chemical index scored, by far, the largest gain over the Sept. 30 closing number, rising 19.3% to 167.7 and beating the gain of 12.7% in the Dow Jones industrial average. The chemical index was building through most of the quarter, hitting its low of 141.7 on Oct. 23, then making its high of 168.4 on Dec. 29.

Performance of the other two indexes lagged that of chemicals by a wide margin. The C&EN index of nine pharmaceutical companies ended the fourth quarter at 378.6, up 5.9% from the end of September. This was also the high for the index in the quarter.

The biotechnology index rose just 4.6% from the September close to finish the year at 433.3. Unlike the other two, the biotech index made its high of 437.5 early--just two weeks into the quarter on Oct. 14.

For the chemical and biotechnology indexes, the end of the year looked very good when compared with the 2002 close. The chemical index rose 20.3% from 12 months earlier--but almost all of that rise came about because of the 19.3% jump in the fourth quarter.

The biotech index finished the year a huge 48.1% higher than at the end of December 2002, but like the chemical increase, most of the rise in biotechnology came in one quarter, in this case a 34.5% jump during the second quarter.

The pharmaceutical index, which finished 2003 just 3.3% higher than the final trading day of the year before, had an up and down year. Its strongest quarter-to-quarter growth of 10.9% came at the end of June. It had finished the first quarter down 5.0%; then it ended the third quarter down 7.4%, recovering 5.9% in the fourth quarter.

Every company stock within the chemical index rose in the fourth quarter with the exception of bankrupt W.R. Grace, which fell 17.1% to finish December at $2.57 per share. It was still up 31.1% for the full year, however.

Solutia, had it still been one of the index companies, would also have been down for the quarter as a result of its precipitous fall after it declared bankruptcy in December and was kicked off the New York Stock Exchange. However, C&EN replaced it with Lyondell Chemical, which rose 35.3% between September and December to close the year at $16.95 per share.

Industry leader Dow Chemical posted a 27.8% rise for the quarter to $41.57 per share, but number two DuPont managed only a 14.7% increase to $45.89 per share.

The largest quarterly percentage gain was IMC Global's 54.9% increase to $9.93 per share.

There were some significant advances among the chemical companies during the full year, the largest being Monsanto's 69.3% gain to $28.78 per year. This was followed by Cytec Industries, up 40.7% to $38.39 per share; Arch Chemicals, up 40.6% to $25.66; and Dow, up 40.0%.

Within the companies that make up the pharmaceutical index, only Merck and Wyeth had stock declines in the fourth quarter. Merck, which missed analysts' earning expectations in the third quarter and which issued a warning about fourth-quarter results, saw its share price decline 8.7% in the quarter to $46.20.

ON THE OTHER HAND, Wyeth had good earnings results in the third quarter but had increased litigation charges that caused a net loss of $426 million. Wyeth's stock price declined 7.9% in the fourth quarter to $42.45 per share.

Four of the pharmaceutical companies had double-digit stock price growth for the quarter. Pfizer, the world's largest drug company, was up 16.3% to $35.33 per share, Eli Lilly rose 18.4% to $70.33 per share, Schering-Plough increased 14.1% to $17.39, and Bristol-Myers Squibb improved 11.5% to $28.60.

Among the 15 biopharmaceutical companies tracked by C&EN, fourth-quarter share price growth was led by Protein Design Laboratories, up 27.4% to $17.90. Other companies with double-digit growth include Millennium Pharmaceuticals, up 20.7% to $18.65 per share; Celera Genomics, with an increase of 19.0% to $13.91; Genentech, up 16.8% to $93.57; and Chiron, up 10.0% to $56.98.

For the year, there was some spectacular share appreciation among the biotech firms. Cytogen saw its stock price rise 235% to $10.88 per share, Genentech was up 182%, Millennium Pharmaceuticals increased 135%, and Protein Design Laboratories rose 111%.

As the stock market moved into the new year, share prices, in the first few days, appreciated nicely. Then they began to settle back as investors, according to analysts, waited for companies to begin to report fourth-quarter earnings, giving a better indication as to what direction 2004 may take.

In the first seven trading days of the new year, C&EN's chemical stock index rose 0.7% from the last day of 2003 to 168.8 and the biotechnology index rose the same percentage to 436.6. The pharmaceutical index, however, was down 0.1% to 378.1.