NBR Transcripts - February 25, 2005
Friday, February 25, 2005PAUL KANGAS, NIGHTLY BUSINESS REPORT ANCHOR: KANGAS: It's a Trifecta for the Dow. The blue chips rally for the third day in a row in the biggest three-peat point gain since November. Today's rally tacks on more than 90 points onto the Dow, which closes at a new high for 2005.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: It's still a sellers market for houses these days. Reasonably low mortgage rates are keeping home sales brisk. We'll find out just how brisk from the CEO of Century 21.
KANGAS: Coming to a neighborhood near you, a nuclear power plant? We'll tell you about one utility's plans to expand its nuclear capacity as Americans expand their need for electricity. But there are a lot of hurdles that must be jumped before ground can be broken.
GHARIB: And tonight's "market monitor" says caution is the watchword when it comes to Wall Street these days. He's Derwood Chase, president of Chase Investment Counsel.
KANGAS: I'm Paul Kangas.
GHARIB: And I'm Susie Gharib. This is NIGHTLY BUSINESS REPORT for Friday, February 25.
Good evening, everyone. Stocks end the week on a winning note as the major averages close higher for the third straight session. The Dow gained 92 points and is now back in positive territory for 2005. The NASDAQ rose 13. Helping stocks today, good news about the strength of the U.S. economy. The Commerce Department said the economy grew 3.8 percent in the final quarter of last year. That's better than the original estimate of 3.1 percent. For the whole year, the economy grew at 4.4 percent, the strongest pace in five years.
ELISABETH DENISON, ECONOMIST, DRESDNER KLEINWORT WASSERSTEIN: We've had GDP growth above trend for two years. We're going into 2005 now on a quite a healthy note. Looking at it from the Fed's perspective, this is the Goldilocks economy with strong growth and low inflation.
GHARIB: Today's report also showed a pickup in spending by American businesses which economists hope will compensate for a possible slowdown in consumer spending this year.
KANGAS: As we said, stocks did well on Wall Street today. Also doing well over the last two months, new stock issues. The money raised through initial public offerings this year is the most in five years. But as Erika Miller reports, this new IPO boom is quite different from the last one.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The new issues market is roaring ahead at a record setting pace this year. Initial public offerings have raised over $9 billion since January. That's up from $6 billion at the same time last year. It's also the highest level since 2000, when the tech IPO boom was in full swing. That strength has surprised analysts, because seasonally, this tends to be a slow time for IPOs.
DAVID MENLOW, PRESIDENT, IPO FINANCIAL NETWORK: This year, we have seen that investors want these IPOs and they want them earlier. We've had actually a very large amount of deals, a great number of deals, come into the marketplace in a very short period of time, which we expect to continue.
MILLER: Experts see major differences in the current IPO boom compared to the go-go days of the late '90s and 2000. The most obvious is the types of companies going public.
LINDA KILLIAN, PORTFOLIO MANAGER, THE IPO PLUS AFTERMARKET FUND: Back in the boom times, 60 to 70 percent of the IPO market was made up of technology companies and now it's more like 15 percent. So I think that's a very telling statistic.
MILLER: Killian says there are also fewer foreign companies listing on U.S. exchanges because of the cost of complying with the Sarbanes-Oxley act.
KILLIAN: Sarbanes-Oxley definitely is a deterrent. Sarbanes-Oxley, according to some estimates, adds $5 million to the costs of going public in annual compliance. It certainly has absolutely choked off foreign issuance of IPOs.
MILLER: Among the big names slated to go public this year are mutual fund research company Morningstar and financial services firm Lazard. The year may be young, but some experts are already confident 2005 will be a banner year for the IPO market.
MENLOW: The IPO market for 2005 is going to continue to show strength. And it is basically a strength that comes from a valuation where investors feel they are buying something with strong intrinsic value.
MILLER: Experts say the biggest risk to the IPO market is volatility in the stock market. If it increases, they predict many companies will postpone or cancel their plans to go public. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
KANGAS: Stocks opened narrowly mixed showing little reaction to that upward GDP revision. But the energy sector spearheaded a late morning rally which included the homebuilders and steels. So at noontime, the Dow was up 64 points, NASDAQ up ten. As market breadth turned 3 to 1 positive, buyers were attracted from the sidelines and that trend ended in an impressive broad-based rally. The Dow Industrial Average closed up 92.81 points at 10,841.60, a new high for 2005. It fell only once and rose three times in the shortened week for a net gain of 56.38 points. The NASDAQ Composite rose 13 3/4 points ending at 2065.40. It also fell just once and rose three times this week for an overall gain of 6 3/4 points. The Standard & Poor's 500 gained 11.17, ending at 1211.37 today. Treasury prices rose slightly. The 10-year note ended up 5/32 at 97 27/32, putting the yield at 4.27 percent.
GHARIB: Existing home sales slipped a bit in January, but the National Association of Realtors says demand for homes is still strong. Home sales last month edged down just 0.1 percent thanks in part to mortgage rates that are still attractive. The median price for a home sold was $189,000 in January. That's more than 10 percent higher than the median price a year ago. The realtor group says sales were strongest in the south, weakest in the Midwest. Joining us now to talk more about the housing outlook, Thomas Kunz, president and CEO of Century 21 Real Estate, the largest real estate sales organization in the world. Mr. Kunz, nice to have you on the program.
THOMAS KUNZ, PRESIDENT & CEO, CENTURY 21 REAL ESTATE: Thank you. It's nice to be here.
GHARIB: So give us your analysis of today's home sales report. Do you think that the housing market is beginning to lose some steam?
KUNZ: No, I don't think so. I think that it was just a 1/10 of a percent. So I think that we're doing well and if you look January to January, you actually see that '05 was about 13.7 percent ahead of last year at this time. So I think we still have a very strong market.
GHARIB: Do you have a different outlook whether you are talking about existing home sales versus brand-new homes versus condos?
KUNZ: We primarily, Century 21, deals with resell marketplace, although some of our offices do work in the new marketplace. So condos are strong and single family residence of strong. It depends on where you are at in the country, but things are really looking good.
GHARIB: We've begun to see mortgage rates creeping higher and we hear more and more that the Federal Reserve will be raising short-term interest rates. Where do you see the 30-year fixed rate mortgage by the end of this year? How high is it going to get?
KUNZ: I think it is going to pop up into the sixes. I don't know that it might go any higher than that. Even at a 6 percent rate, that's still a very good rate for a homeowner.
GHARIB: Do you see it piercing through 7 percent? There have been some economists who are predicting that.
KUNZ: I don't see it doing that. But, you know, I think it is going to... You know, we've seen the short-term rate move up, and yet the long- term rate has not moved with it. In fact, towards the latter part of last year, it actually went down. We are still in the 5s, 5.7, somewhere in that marketplace. So I think it is still a very strong marketplace in terms of interest rates. You just heard the economy is doing well, jobs are there and that all makes for a great home buying process.
GHARIB: So is it still a sellers market? What do you see in the direction of home prices?
KUNZ: Yes, it's still a sellers market in most of the marketplaces. Inventory is, you know, I think the report showed today that we had 3.7 months on average in terms of an inventory. It is still a seller's market. They're still being able to demand prices for their homes.
GHARIB: You said that there are strong markets and there are weak markets. Where are the weak markets?
KUNZ: Well, you know, as you said when you opened up here, you saw the Midwest that slowed a little bit. But you still look at the west and the south is strong. And so I think you'll continue to see those markets still move up. The Midwest will probably still plod along and do very well.
GHARIB: We did a report last night on our program showing that there's been an increase in foreign buyers in the real estate market. Do you see that trend continuing?
KUNZ: I think so. You look at where the dollar is at and so I think there's some great buys here at Century 21. We're represented in 43 countries around the world. So I think that that will bode well for us.
GHARIB: And the other trend that we hear, sort of anecdotally is that a lot of people buy a house, flip it and then sell it for a profit. Do you see that continuing?
KUNZ: Well, you know, there are always investors that are going to come into the marketplace and buy homes and try to flip them. Most of that, I think, takes place with new homes. The marketplace that we primarily go after, the resell marketplace, most of our buyers are really looking for a place, shelter.
GHARIB: All right. We'll have to leave it there. Mr. Kunz, thank you so much for sharing your thoughts with us.
KUNZ: Well, thank you. GHARIB: We appreciate it. We have been speaking with Thomas Kunz of Century 21.
Workers at a Wal-Mart in Loveland, Colorado, have rejected a proposal that would have put the first union inside the retailer's American stores. The vote was 17-to-1 against representation by the United Food and Commercial Workers Union. It's a big victory for Wal-Mart, which is vigilant in trying to keep its stores non-union. But the food union wants the results thrown out, claiming no union member was allowed to watch the voting. Earlier this month, the company decided to close a store in Canada rather than give in to demands by workers trying to unionize, Paul.
KANGAS: Quebec labor relations officials today told Wal-Mart to stop intimidating workers who tried to unionize a second store there Susie. Now let's take a look at how our stocks in the news did today.
Big board volume leader on 28 million shares, ExxonMobil (XOM) up $2.13, helping the Dow. Prudential upgraded it from "neutral" to "over weight" as it did with the whole energy group and in the case of Exxon, it boosted its price target to $70 a share. Let's have a look at some other issues in the energy sector and how they did. Nothing but gains and some very nice ones like Conoco and Marathon Oil, very nice indeed. Getting back to active list, Time Warner (TWX) down $0.24. Adelphia Communications told Time Warner and Comcast it would accept an all-cash buy out bid of $17.6 billion instead of a cash stock combination offer on that much.
Pfizer (PFE) $0.46 gain.
Qwest Communications (Q) down $0.38. Yesterday, the company revised its buyout bid for MCI by including a collar to hedge against a drop in Qwest stock price.
Citigroup (C), tenth in volume, was down $0.02.
NorTel Networks (NT) a $0.03 loss.
Lucent Technologies (LU) dropped a nickel.
Then General Electric (GE) moving up $0.07.
Texas Instruments (TXN) $0.74 gain.
Tenth in volume was Nokia (NOK) with a $0.13 gain.
Anadarko Petroleum (APC) jumped $5.73. The latest "BusinessWeek" magazine quotes an Oppenheimer analyst who sees this company as a top potential takeover candidate and the stock was acting like it today.
McAfee.com (MFE) $1.16 loss. Fourth quarter earnings $0.26, down from $0.43 last year. Revenues dropped 10 percent. Also the company has delayed its 10K filing and meanwhile, RBC Capital Brokerage downgraded the stock from "outperform" to just "sector perform."
H&R Block (HRB) moved up $4.46. Third quarter earnings fell to $0.55 from $0.59 a year ago, but that was $0.05 better than the Street was expecting and also the company says its income tax business so far this year is running 10.6 percent of a year ago, better than a year ago.
Kohl's (KSS), the big department store chain, up $1.90. Fourth quarter earnings $0.94, penny above the Street estimate. The William Blair brokerage upgraded it from "market perform" to "out perform."
JLG Industries (JLG) jumping $5.81. That's almost a 35 percent gain. The company makes aerial work platforms. Second quarter earnings more than tripled to $0.17 versus only a nickel last year and revenues soared 49 percent. That's operating earnings that I quoted.
Esterline Technologies (ESL) $4.20 gain there. The company's in the avionics business and its first quarter earnings jumped to $0.70 versus only $0.09 a year ago and sales were up 47 percent.
Westwood One (WON) in the radio and TV programming business, had flat fourth quarter earnings, $0.31, same as a year ago and $0.02 below the Street estimate. The company predicting a rather flat 2005 revenue growth.
Google (GOOG) down $3.02. Yesterday it was off over 5 when RBC Capital issued some negative comments.
Intel (INTC) $0.39 gain.
$0.12 loss in Microsoft (MSFT).
Apple Computer (AAPL) edging $0.06 higher.
Research In Motion (RIMM) down $4.13, fifth in dollar volume.
Qualcomm (QCOM) was up $1.49.
MCI (MCIP) down $0.21. Company in with a fourth quarter loss of $0.10 a share versus a profit last year. Not much reaction in the stock for that revised bid from Qwest.
Cisco Systems (CSCO) $0.02 gain.
$0.25 rise in Yahoo! (YHOO).
Applied Materials (AMAT) up $0.34.
And Synaptics (SYNA) a $3.32 gain. Company confirmed Apple's iPod does contain its interface solution, but Bear Stearns thinks that Apple will eventually discontinue its use.
And those are the stocks in the news tonight, Susie.
GHARIB: Paul, The U.S. hasn't built a new nuclear power plant in more than three decades. But some utilities say the growing demand for electricity and the high price of natural gas to generate it from could pave the way for new plants. As Diane Eastabrook reports, Exelon Corporation is already looking at plans for those plants.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Exelon Corporation has the largest fleet of nuclear power plants in the U.S. Its 17 facilities generate about 60 percent of the electricity the utility produces. Upgrades to reactors in recent years have helped increase output, but Exelon fears further upgrades won't increase output enough to keep pace with the growing demand for power. So Marilyn Craig, Exelon's vice president for project development, is looking for the next generation of reactors. She says designs developed being developed by Westinghouse and General Electric look promising.
MARILYN KRAY, V.P. PROJECT DEVELOPMENT, EXELON CORPORATION: They actually have left equipment and components that are required to meet the same safety standards. So if you have a less amount of equipment, that's less that you have to buy initially and that you have to maintain throughout the course of the plant's life, and therefore, the economics of that plant would be more attractive.
EASTABROOK: But bringing a new plant online could take another decade. Exelon said it won't commit to any reactor designs that aren't first approved by the Nuclear Regulatory Commission and that could take a few years. It also doesn't want to build any new plants until the government opens a repository for nuclear waste now stored on site. And analysts say Federal regulations for the construction of nuclear power plants need to be streamlined and let utilities recover potential cost overruns.
MARK SADEGHIAN, UTILITY ANALYST, MORNNINGSTAR: One of the things that is being bandied about right now is a production tax credit which was written into the last version of the energy bill. This credit would have created a strong tax incentive for the first few nuclear power plants built.
EASTABROOK: Finally, despite safety improvements at nuclear plants, analysts say there are still a lot of communities that don't want new reactors built in their backyards, but Exelon says that shouldn't be a problem since any new reactors are likely to be built at existing sites. Diana Eastabrook, NIGHTLY BUSINESS REPORT, Morris, Illinois.
KANGAS: Monday, the Federal Reserve as an investment hero? That's one view.
GHARIB: A fresh round of costs cuts at U.S. Airways. The airline plans to return 11 Boeing 737's to its leasing agent, resulting in a net reduction of 14 flights system- wide beginning in May. It will also discontinue service to Panama City, Panama and San Salvador, El Salvador. U.S. Air blames the moves on sustained high fuel costs and the industry's weak revenue environment.
KANGAS: More problems for Choicepoint in the wake of an identity theft scandal. Now, experts are questioning the timing of stock trades made by two company execs which made them nearly $17 million. The trades were made after Choicepoint learned of fraud involving identity theft from its database, but before the problem was made public. Choicepoint's stock has fallen 10 percent since that announcement, closing at $40.27 a share, down $0.73 today.
GHARIB: Here's a look now at what's happening for next week. Our Friday "market monitor" is Jeffrey Everett, chief investment officer at Templeton Global Advisors. On the economic calendar: Monday, January's new home sales and personal income and spending reports; Tuesday, construction spending and the Institute of Supply Management's February manufacturing index; Thursday, weekly jobless claims; and then on Friday, it's February's employment report.
KANGAS: My guest "market monitor" this week is Derwood Chase, president of Chase Investment Counsel, a money management firm based in Charlottesville, Virginia. Welcome back to NIGHTLY BUSINESS REPORT, Derwood. Great to see you. DERWOOD CHASE, PESIDENT, CHASE INVESTMENT COUNSEL: Glad to be here.
KANGAS: From the standpoint of your conservative investment strategy, how do you rate the stock market at this level? Undervalued, fairly valued or overvalued?
CHASE: I'd say you have to say it's at least moderately overvalued, multiple wise, yield wise, yields are too low for the risk involved.
KANGAS: What kind of risks are we talking about here?
CHASE: I think the risk is partly reversion to the main on the P/E multiple side and partly from interest rates. If interest rates creep up, then we're going to see a lot more competition for stocks.
KANGAS: You say if and yet the Federal Reserve is saying measured increases. There is no if, is there?
CHASE: I think they're going to, by later in the year, especially if earnings growth rates slow down, that's going to take its toll.
KANGAS: Well today, we got the latest quarterly growth rate of GDP and it was better than anybody expected really.
CHASE: I know. And we think it's going to decelerate later in the year in terms of earnings per share.
KANGAS: You think one of the risks might be continuing strength in oil and gas prices.
CHASE: We happen to like the energy sector as an investment opportunity. And certainly that's a drag on the economy. But I think interest rates, because we're so heavily in debt is the biggest risk.
KANGAS: OK. So you think oil and gas can go higher in price though. And that's why you still like this group, which you have for sometime.
CHASE: Most of the analysts are looking for lower earnings this year than last year, many of these energy companies, even though oil is probably 40, 45 percent higher than it was a year ago, gas maybe 6 or 8 percent higher. We think the earnings are going to come through better than expected for them and the multiples are not too high.
KANGAS: During your last visit with us this past July 23rd, you had three buy recommendations. Let's see how they faired. We see Avon Products, which has been higher, got up a little over 46, but it's 1.1 percent below where you recommended it on the program. But look at Burlington Resources, which in the energy sector up nearly 34 percent. That was a great call. Do you still own Burlington or Avon?
CHASE: Yes, it's still one of our largest holdings. We have sold Avon but we still own Burlington.
KANGAS: Would you buy Burlington here?
CHASE: On a little bit of a pull back we would probably add to it.
KANGAS: We saw a lot of spikes in the prices on the energy stocks today. But let's have a look at the other recommendations, Harley-Davidson which is up 4 percent. Not bad. You still with that?
CHASE: Yes. We are still holding it.
KANGAS: All right. Despite your cautious stance, do you have any new buy recommendations for stocks?
CHASE: In the energy area, one of the smaller companies, Newfield. The symbol there is NFX. We think that's very attractive.
KANGAS: On the New York Exchange. OK. It just had a spike today, too, you will see, up $1.94.
CHASE: You might not want to buy your position tomorrow. It's about 83 percent natural gas. We are still quite bullish on natural gas.
KANGAS: OK. All right. Let's have another suggestion.
CHASE: Waters Corp, WAT, testing equipment instruments, mostly for the pharmaceutical industry and some biotech. We think that's quite attractive.
KANGAS: It's had a pretty good rise but there's nothing wrong with buying a stock that's in an uptrend, I guess.
CHASE: We are looking for another 22 percent gain in the earnings this year. I think it deserves the multiple it is selling at.
KANGAS: OK. We have a minute left, Derwood. How about another suggestion?
CHASE: Fortune Brands, symbol FO. That's a combination of home products, Moen faucets and golf products, Titleist, Master Lock. It's a conglomerate and we think it is pretty reasonable relative to its growth rate.
KANGAS: How about your personal ownership? Do you own any of these three stocks, the new recommendations?
CHASE: I'm one of the largest individual owners of both our large cap growth and our midcap growth. So I own all of them indirectly.
KANGAS: Through your funds, of course.
CHASE: That's right. Yes.
KANGAS: How are your funds faring, incidentally? We have 30 seconds, just a quick...
CHASE: Lipper said our fund, the large cap growth fund CHASX was the fourth I think best, fourth or fifth best for the five years ending January 31 and both of them were recently in the "Wall Street Journal" category (INAUDIBLE), so we're doing something right.
KANGAS: Very good. Well, that's right. You're conservative but you seem to be a good stock picker and I hope these three that you gave us today do well. Thanks for being with us again, Derwood.
CHASE: My pleasure.
KANGAS: My guest "market monitor," Derwood Chase, president of Chase Investment Counsel.
GHARIB: Recapping today's market action, a strong rally sends the Dow to its highest close so far this year. The blue chips gain 92 points. The NASDAQ climbs 13. To learn more about the stories in tonight's broadcast, go to nbr.com.
And finally on Sunday night, the film industry gives out the Academy Awards for the 77th time. Things have changed a bit since that first ceremony. Back then on May 16, 1929, only 300 people attended the awards and there was no suspense since the winners had been announced two months before. This Sunday, 3,300 people will attend and it's a closely guarded secret on who the winners are. In 1929, it took only 10 minutes to hand out the statuettes. In 1999 the show ran a record four hours and five minutes. And one other interesting note, Paul, in 1929 there was virtually no press coverage. This year of course, hundreds of journalists are covering the event and it'll be telecast all around the globe.
KANGAS: You know, I've never made it to the end of one of those telecasts.
GHARIB: Who do you think is going to get best picture? Any bets on that?
KANGAS: They say "The Aviator" might do it.
GHARIB: I think you might be right about that. We'll see. That's NIGHTLY BUSINESS REPORT for Friday, February 25. I'm Susie Gharib. Have a good weekend everyone. Same to you Paul.
KANGAS: And you as well, Susie. I'm Paul Kangas wishing all of you the best of good buys.
