NBR Transcripts-February 11, 2005
Friday, February 11, 2005PAUL KANGAS, ANCHOR, NIGHTLY BUSINESS REPORT: Shares of Apple are "juiced" up today, after it announces a two-for-one split. And Apple is ripe for the move. The computer and electronics company's stock has risen 275 percent in just the last year.
SUSIE GHARIB, ANCHOR, NIGHTLY BUSINESS REPORT: Our "Market Monitor" guest says forget about triple-digit gains. It's double-digit losses that are on the way. He's Randall Eley, president of the Edgar Lomax Company.
KANGAS: Also tonight, this may look like a thrill ride at a theme park, but it's not. It's the newest way to test-drive a car. We'll tell you how Chrysler is going off road to get its car and truck sales back on track.
GHARIB: Then talk about a body of work. This work of art in chocolate can be a sweet treat for your Valentine's Day sweetheart or, if you prefer, how about investing in chocolate?
KANGAS: I'm Paul Kangas.
GHARIB: And I'm Susie Gharib. This is NIGHTLY BUSINESS REPORT for Friday, February 11.
GHARIB: Good evening, everyone. Apple Computer was the top banana on Wall Street today. It declared a two-for-one stock split, and its shares surged more than 3.5 percent, up $2.85 to $81.21. Apple has been shining ever since it introduced its popular iPod three years ago. Scott Gurvey reports.
SCOTT GURVEY, CORRESPONDENT, NIGHTLY BUSINESS REPORT: Apple's stock split is the first since June of 2000 and only the third since the company went public in 1980. It comes at a time when the stock price has been soaring. Apple shares set a 52-week high on Wednesday just under $82, up 275 percent since last February. Its stellar performance has been based mainly on the success of the iPod, Apple's digital music player. This was a "must have" product for many this past holiday season. Apple sold more than four and half million iPods in the quarter, in spite of competition from a wide range of similar products.
MICHAEL MILLER, EDITOR IN CHIEF, "PC MAGAZINE": Apple faces a risk that the Windows guys will catch up, that the Windows media players with streaming services or whatever will get as cool as an iPod. And that's something they clearly need to work against. They've done a great job in innovating with the mini, with the shuffle, these kinds of devices. Obviously, that's got to continue.
GURVEY: The iPod now accounts for more than 35 percent of Apple's total revenue and continues its reputation as the maker of elegantly designed products that are both reliable and easy to use. Similar reviews are earned for its line of personal computers. But in this segment, Apple's market share is only about three percent. Apple is a particular favorite of creative types like graphic designers and video editors and also by students and teachers. Analysts say the success of the iPod may help the Macintosh computer line.
STEVE LIDBERG, COMPUTER ANALYST, PACIFIC COAST SECURITIES: We tend to be a little skeptical on how great of an impact a halo effect will be in terms of iPod users buying iMacs, but certainly in terms of market share, we've seen a stabilization. And we do think we're seeing a slight increase. Hard to tell whether they're necessarily going to double their market share, but it is heading in the right direction.
GURVEY: The two-for-one stock split will be paid on February 28 to Apple shareholders of record on February 18. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York. KANGAS: News of Apple's fruitful stock split cushioned losses on Wall Street early today, as traders digested Bell's disappointing revenue outlook after the close yesterday. A Smith Barney downgrade of six homebuilders was another negative. So the Dow fell just a modest 30 points at the outset, and the NASDAQ lost 10 points. Some strong buying in the semiconductors enlivened the tech sector, and the strength spilled over into the blue chips for the rest of the session. So the Dow Industrial Average rebounded to close up 46.60, at 10,796.01, its highest level so far this year. This week the blue chips fell twice and rose three times for a net gain of about 80 points. The NASDAQ composite ended with a 23.5 point gain at 2,076.66 today. It also fell twice and rose three times this week for an overall loss of 10 points. The Standard & Poor's 500 index gained 8.29 points to 1,205.30 today. In the bond market, the 10-year note fell seven 32nds to 99.04, putting the yield at 4.09 percent.
The Standard & Poor's 500 index gained 8.29 points to 1,205.30 today.
In the bond market, the 10-year note fell seven 32nds to 99.04, putting the yield at 4.09 percent.
GHARIB: Our ballooning trade deficit with China is having some unexpected fallout. Last year, that deficit hit a record $162 billion, driven by an influx of cheap consumer products. For shoppers, trade with China brings lower prices. But it also means more unsafe products are now being made in the People's Republic. Darren Gersh reports.
DARREN GERSH, CORRESPONDENT, NIGHTLY BUSINESS REPORT: This is the Consumer Product Safety Commission's table of shame: toys recalled and considered unsafe because of sharp edges or loose bolts. The dangers may differ, but not the country of origin. Nine out of the ten toys recalled here were made in China. The safety concerns are a logical consequence of our growing trade deficit and a reflection of China's manufacturing clout.
HAL STRATTON, CHAIRMAN, CONSUMER PRODUCT SAFETY COMMISSION: So although we're doing similar efforts in Mexico, even in the European community and other places, China is just the 800-pound gorilla when it comes to consumer product manufacturing.
GERSH: In recent years, China has topped the list of consumer product recalls by country of origin. Forty percent were from China in 2003 and 36 percent in 2004. Sometimes the products are counterfeit, or Chinese manufacturers are skimping to save money or simply don't understand U.S. safety standards. Whatever the reason, U.S. safety regulators have recently started working with their Chinese counterparts, sharing information and training.
STRATTON: What we're trying to do here is project our safety values to those people in China.
GERSH: U.S. regulators have no evidence Chinese products are less safe than those imported from other countries. There are just more of them, which is why consumer activists argue Chinese regulators need to stop the export of unsafe products before they hit shelves in the U.S. Critics also say U.S. retailers share the blame for pushing manufacturers in China to cut costs above all else.
RACHEL WEINTRAUB, ASSISTANT GENERAL COUNSEL, CONSUMER FEDERATION OF AMERICA: And when they are making those decisions based on price, consumers are suffering in terms of safety.
GERSH: Some trade analysts say it's unfair to blame retailers, since they are ultimately held responsible for selling unsafe products.
DANIEL GRISWOLD, TRADE ANALYST, CATO INSTITUTE: Retailers want to offer products that people are happy buying and if it's an unsafe product or an unsatisfactory product, that's going to turn off customers, regardless of the price.
GERSH: While it can be more difficult to police safety in a global economy, there is some good news: Consumer Product Safety Commission statistics show product-related injuries have remained stable over the last decade, despite a surge of cheap imports. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
GHARIB: Chrysler is setting a different course in a new push to sell its cars, literally a different course. For the next 10 days visitors to the Chicago Auto Show can get into a Chrysler vehicle and be driven through potholes and ponds. As Diane Eastabrook reports, it's an unusual way to turn shoppers into buyers.
DIANE EASTABROOK, CORRESPONDENT, NIGHTLY BUSINESS REPORT: Have no fear. On this bridge what goes up, most assuredly comes back down.
UNIDENTIFIED MALE: Look at that. It looks like you're going to hit the ground, but you don't.
EASTABROOK: While most people don't drive through ponds or over rocks, Chrysler wants to show potential buyers that they could if they buy a Jeep. The company has built a half-mile test track inside the Chicago Auto Show.
UNIDENTIFIED MALE: Now here's our pothole.
EASTABROOK: Here professional drivers can show potential buyers how Chrysler vehicles perform on road and how some perform off.
GEORGE MURPHY, SENIOR VICE PRESIDENT, CHRYSLER: When you're in a dealership, there's lots of pressure to get into a vehicle even if it's not the one you want. Sometimes I think you feel like they're pushing me this way or whatever. Here it's you do whatever you want to do. You can ride it five times if you want.
EASTABROOK: U.S. auto companies are looking for any edge in their fight to regain market share lost to foreign competitors. Chrysler is having some success with vehicles like the 300. And it's hoping for even more success with new products like the Dodge Ram Mega Cab. The company thinks a combination of new products and savvy marketing will help it sell more vehicles without help from incentives.
DIETER ZETSCHE, PRESIDENT/CEO, CHRYSLER GROUP: I'm actually optimistic based on the great reactions we are getting from our ‘05 new vehicles, as well, that we will be able to accomplish that.
EASTABROOK: Last year, Chrysler provided a test track for Jeeps at the New York Auto Show, and more than 30,000 people went on test drives. The company says after the show about eight percent of those people ended up buying a Jeep. Chrysler hopes to more than triple that number of test drives here. And if eight percent of those people buy a vehicle, it could be a very profitable spring selling season. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
KANGAS: Now let's take a look at some stocks in the news tonight.
New York Exchange volume leader on 24.2 million shares, Huntsman, the big chemical company, went public today. Sixty point two million shares offered at $23 a share. Opened at $24.50. The high today, $24.82. Back down just a little bit, but a pretty successful debut.
Pfizer, up a dime. "Wall Street Journal" reports the company plans to cut costs by $2 billion and overhaul its marketing methods to doctors. But no big layoffs are planned by Pfizer.
Lucent, an eight-cent gain; Hewlett-Packard down 18 cents. Sprint moved up a dime a share. That was fifth in big board volume.
DirecTV no change. An FCC inquiry into the company accounting practices is over, and no action has been recommended.
Texas Instruments, in that strong semiconductor group, up 95 cents.
Time Warner, a three-cent gain. GE up 18 cents. And ExxonMobil, 10th and volume was down 23 cents.
Citigroup, a 42-cent rise. The company plans to merge its two banking companies, namely Citigroup Holdings and Citicorps, into the parent, Citigroup. Little change there.
Disney, a one-cent loss, although the company's board of directors, including Michael Eisner, was easily reelected at today's annual meeting.
Beazer Homes among many week homebuilding stocks after Smith Barney today downgraded them from buy to hold in the belief that new highs for the group are very unlikely.
Let's have a look at some others in that group. Hovnanian down 2.85; 3.64 loss in KB Homes; Pulte Homes off $1.25 and Ryland off $1.62. Toll Brothers tumbled $2.30. Rough group to be in today.
Watson Pharmaceuticals was up $2.54. Fourth quarter earnings a bit higher, 46 cents versus 45 last year, but three cents above the street estimate. Company plans to buy back up to $300 million of its own stock.
Goodrich up 83 cents. The company won a contract worth $6 billion over the next 20 years to supply engine covers and reverse thrusters for Airbus's new A350 aircraft.
Cadbury Schweppes up $1.31. There's speculation that perhaps Kraft or Nestle might attempt a takeover bid of Cadbury.
Perini Corp, the big construction firm, down $2.10. Sharply lower fourth quarter earnings. Only 23 cents versus 92 cents a year ago, and revenues tumbled 20 percent.
Volume leader on Nasdaq, the Q's, moving up 55 cents. Google down 58 cents. Lockups on 177 million shares will expire next Monday. That means that stock can be sold. Could be a little overhang.
Intel, 67-cent gain. Microsoft, a nine-cent loss. Dell Incorporated, off $1.58, despite those higher earnings yesterday. Of course, a lot of analysts disappointed in the revenue outlook from the company.
Cisco Systems moved up 12 cents, and Apple Computer up $2.85 on that two-for-one split move.
EBay, 85-cent gain there. Applied Materials moved up 48 cents. And tenth in dollar volume on NASDAQ was Yahoo! with a gain of 71 cents a share.
Taser International down 94 cents. Traded as low as $13.05. The news: the Chicago Police Department has delayed the distribution of 100 Taser guns to its force after a 54-year-old man died when officers used the stun gun on him.
And those are the stocks in the news tonight, Susie.
GHARIB: Well, it just wouldn't be Valentine's Day without chocolate. Americans are expected to spend over a billion dollars on the creamy confection for Valentine's Day on Monday. As we continue our look at the "Business of Love", Erika Miller looks at the sweet treat that has become a sweet investment, too.
UNIDENTIFIED MALE: Let me have another love potion.
UNIDENTIFIED MALE: OK, another love potion.
ERIKA MILLER, CORRESPONDENT, NIGHTLY BUSINESS REPORT: Few things say romance better than chocolate. Artisanal chocolatiers like Jacques Torres are spreading love this Valentine's Day with mouthwatering truffles and heart-shaped boxes. But the real showstopper is a female torso for $400.
JACQUES TORRES, CHOCOLATIER: What's more beautiful than a lady's body? So I make it in chocolate, and I do an imitation of marble when I do that, so it really looks like a statue. And I stick some leaves and some lollipops, I mean, some sensual things around it.
MILLER: All of Jacques' chocolates are handcrafted in his store under his supervision. Over the years, he has noticed major differences in the way men and women select gifts for their Valentines.
TORRES: Ladies usually come 10 days, a week before, go to the counter, pick chocolates one by one. They know what they want and they really pick for their loved one. Guys are very funny. They come the last minute on the last day, and they have a price in mind. Give me something for $50, give me something for $75, and if they're really in trouble, give me something for $150.
MILLER: Godiva is offering special "passion truffles" for $39 a pound. Made with cardamom, ginger, and other spices, they are specially formulated to seduce.
GENE DUNKIN, PRESIDENT, GODIVA NORTH AMERICA: Our chef chocolatiers tell me that they are using ingredients that are purported to have certain aphrodisiac qualities about them. And they've whipped up a special recipe for the guys and for the gals.
MILLER: because of their high profit margins, Jacques Torres and Godiva have not been hit hard by rising cocoa prices. Cocoa futures soared to a five-year high in November, due to civil unrest in the Ivory Coast, the world's largest cocoa producer. Although prices have backed off recently, analysts expect them to climb back to record levels.
ANN PRENDERGAST, COCOA ANALYST, REFCO: This crop is going to be smaller than the crop -- last year's record crop of 1.5 million tons. So there's a sense that the cocoa -- there will be less cocoa around. Demand is steady to increasing.
MILLER: Middle and lower end chocolate makers are already feeling the pinch. Hershey's, the largest U.S. chocolate manufacturer, raised prices for most of its chocolate bars by about six percent in December to cover higher costs. Others, like this Rocky Mountain chocolate factory store, have opted to raise prices of other items instead.
MICHAEL LUONGO, FRANCHISEE, ROCKY MOUNTAIN CHOCOLATE FACTORY: There comes a time when you have to look at where your store is, the kind of clientele you have, and it's more prudent to keep your prices pretty much the same and absorb some of that. And you can pick it up someplace else. You can pick it up maybe with your food prices. MILLER: And it's clear that investors' appetite for chocolate stocks remains strong. Shares of Rocky Mountain are hovering at an all time high. So are shares of Hershey. Analysts say sales are soaring, especially of new products.
LEONARD TEITELBAUM, CONSUMER PRODUCTS ANALYST, MERRILL LYNCH: We like the idea of the consistency of the earnings growth and the quality of earnings growth. If we stack Hershey's growth up against-- I follow 30 different companies -- and if I stack Hershey's growth rate up against all of those companies, Hershey comes out on top.
MILLER: Hershey is an investment banking client of Merrill Lynch. According to the Chocolate Manufacturers Association, over 36 million boxes of chocolate are expected to be sold this Valentine's Day. And that should leave a sweet taste in the mouth of chocolate lovers and chocolate investors. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
KANGAS: Monday, "The Business of Love" looks at finding love and profits online.
GHARIB: The Securities and Exchange Commission and the National Association of Securities Dealers are taking a closer look at investment banker Lazard Limited. At issue: whether Lazard used gifts and special perks to lure the business of mutual fund advisors.
Lazard filed an amended prospectus for its upcoming $850 million IPO today, including notice it had received inquiries from both agencies. The regulators are taking an industry-wide look at gifts and gratuities.
KANGAS: General Motors is taking a pre-emptive strike against Walgreen. The automaker is dropping the drug store chain from its prescription drug providers on March 1. G.M. had feared Walgreen would sever ties with its plan over new policies requiring employees to mail-order some drugs. Walgreen says it has no plans to cut ties with G.M. and welcomes its business.
GHARIB: Here's a look now at what's happening for next week. Our Friday "Market Monitor" guest is James Stack, president of InvesTech Research. On the economic calendar: Tuesday, January retail sales and December business inventories. Wednesday, industrial production and capacity utilization. Thursday, weekly jobless claims and January import prices. And then on Friday, January producer prices and the University of Michigan's February consumer sentiment reading.
KANGAS: My guest "Market Monitor" this week is Randall Eley, president of the Edgar Lomax Company, an investment advisory firm based in Springfield, Virginia. Welcome back to NIGHTLY BUSINESS REPORT, Randall. RANDALL ELEY, PRESIDENT, EDGARD LOMAX COMPANY: Good to see you, Paul, and thank you.
KANGAS: For some time now, you've been saying the stock market is overvalued, and yet it has been moving nicely higher. Do you think the rather impressive corporate earnings reports we've been seeing over the last few weeks have justified the market's advance?
ELEY: Not at all. In fact I think the market has become more overvalued. I also think that the rising earnings we've seen in the last quarter are simply signs of the monetary policy of the Federal Reserve having been very accommodating. And they've already told us they will not continue in that vein.
KANGAS: Do you think that they're going to get that much more aggressive, maybe rather than quarter point boost, maybe a half a point, near term?
ELEY: Well, I think the Federal Reserve would love to continue raising rates at a measured pace, but the fact is, at this point, the dollar slide has to be reduced. It's got to maintain some base for the next year or two, and if the Federal Reserve has to move faster, I think at some point they will. KANGAS: And you think corporate earnings are not going to keep up the pace on the upside that they have been?
ELEY: No. If you look at the last 100 or so years of American history, something in the neighborhood of six to seven percent earnings growth is normal. Last year we grew at a 20 percent rate. That's not likely to continue. And the last time earnings slid was in 2001, and they fell by 16 percent-plus.
KANGAS: And what is the downside on the market as far as the Dow or the Standard & Poor's. What percentage drop do you see?
ELEY: I think we're talking a minimum of 20 percent. But the fact is in the 2000 to 2002 bear market, the S&P 500 was down more than 40 percent at one point. We could see that again.
KANGAS: OK. Well, nevertheless, you're always invested. That's the strategy of your advisory service, and on the last visit with us, July 2, you had did have three buy recommendations, even though you were guarded about the market. Let's see how they performed. Look at Dow Chemical up 31 percent, AT&T, up 34. Two good calls there. Are you still with those two?
ELEY: No, we're selling those two.
KANGAS: OK.
ELEY: You're right. They were good calls, but we're going to take profits off the table.
KANGAS: And unfortunately you had a third one that didn't fare so well, Merck down 37.7 percent. Are you out of that, too, or staying with it?
ELEY: Oh, no, we continue to like Merck. In fact, because with equal weight in this portfolio we would buy more. My response, though, to what happened, Paul, is thank God for portfolios, because the average of those three stocks was up almost 11 percent.
KANGAS: And so...
ELEY: That's a good return any time.
KANGAS: So there you have the advantage of diversification.
ELEY: That's right.
KANGAS: OK. How about some new recommendations, Randall?
ELEY: First, we go with Altria. That's another high-dividend yielding stock, about 4.5 percent.
KANGAS: Right.
ELEY: And remember, Merck is at about five percent. So we're going to be paid, you know, while we wait to see this company's profits develop.
KANGAS: And, of course, this is the parent company of the Philip Morris cigarette firm.
ELEY: That's right. As well as owning a huge amount of Kraft Foods.
KANGAS: That's true. OK. Another recommendation on the buy side. Even though you're bearish, you think these are undervalued, apparently.
ELEY: Oh, yes. We will go to ChevronTexaco. KANGAS: OK.
ELEY: And here you're in the energy area that even in a recession, people are going to buy this product. Again, we're looking at an undervaluation of low P. of nine. That's unbelievable. So we're projecting more than a 10 percent yield over the foreseeable future.
KANGAS: We have time for one more buy recommendation.
ELEY: And that would be Eastman Kodak. A little higher but still 15, low with the S&P's being at 20 -- at 21 is a business that most are not excited about, but they have a very strong balance sheet.
KANGAS: OK. And then a little dividend, too, almost two percent. That's not bad.
ELEY: Not bad under the circumstances.
KANGAS: All right. So even though you're bearish on the market overall, you do find some undervalued stock, namely, the three we just went through?
ELEY: Definitely.
KANGAS: And do you own these stocks personally?
ELEY: Yes. With the exception of ChevronTexaco, which we have not yet bought. We own all of the others, and may buy ChevronTexaco at any time.
KANGAS: All right. Thank you very much for being with us again, Randall. We'll look forward to your next visit.
ELEY: Thanks for having me back.
KANGAS: My guest market monitor, Randall Eley, president of the Edgar Lomax Company.
GHARIB: And recapping today's market action, the blue chips close at their highest level of 2005, the Dow gains 46 points and the NASDAQ climbs 23.
And finally, a Philadelphia landmark is about to be back in business. The Old Original Bookbinders restaurant closed its doors three years ago in a slumping economy after the September 11 attacks. Now, it's set to reopen February 21 after a major face-lift. Bookbinders is one of Philly's best-known landmarks. It began serving diners on the banks of the Delaware River back in the 1890s and has been a "must see" stop for locals and tourists alike. And Bookbinders has also been a magnet for big names, Paul. Its patrons have included Babe Ruth, Teddy Roosevelt, Frank Sinatra and our very own Paul Kangas.
KANGAS: I've been there. And I'm looking forward to the new and improved Bookbinders.
GHARIB: So it was good? You liked it.
KANGAS: Yes, I did. I did.
GHARIB: OK, great.
That's NIGHTLY BUSINESS REPORT for Friday, February 11. I'm Susie Gharib. Have a good weekend everyone. And the same to you, Paul.
KANGAS: And you, too, Susie. I'm Paul Kangas, wishing all of you the best of good buys.
