NBR Complete Transcript: 06-30-2006
Friday, June 30, 2006Analysis of a Possible GM, Nissan, & Renault Alliance
SUSIE GHARIB: General Motors` shares were in overdrive today, up $2.35 or almost 9 percent to $29.79. Behind the rise, word that the company`s largest shareholder, billionaire investor Kirk Kerkorian`s Tracinda Corp., is urging GM to join a three-way alliance with Japan`s Nissan Motor and France`s Renault. In exchange, those auto makers would each buy a minority stake in GM. Nissan and Renault confirm they were approached by Kerkorian and Tracinda and say they are open to the idea, but that GM will have to make the next move. GM would only say its board will take the matter under advisement. A Detroit trade magazine says GM called an emergency meeting of its board today to weigh the Nissan-Renault partnership. GM would not comment on that report. Joining us now for more analysis of this possible partnership, John Casesa, president of Casesa Strategic Advisors, a New York consulting firm. Hi, John.
JOHN CASESA, PRESIDENT, CASESA STRATEGIC ADVISORS: Hi, Susie.
GHARIB: Does a GM-Nissan-Renault alliance make sense to you?
CASESA: I think there is some long-term investor logic. Nissan is a company that would like to be bigger in North America. Nissan in turn could offer General Motors access to Japan, which is impossible without a Japanese partner. And collectively this could be a very big force in the global auto industry.
GHARIB: Do you think that Nissan and Renault can really bring additional quality and technology to General Motors as well as cost savings?
CASESA: Well, look, I think that`s looking very far ahead. I think in the long run the answer is yes. But I think right now there`s two or three things that are interesting about this development. One is that, you know, it`s a serious development. I think Tracinda released this letter because it is for real; it is not a bluff. Secondly I think it is just too early to tell what form the operational partnership would take. And then thirdly, even if there is no deal, at the very least what this development does is increase the pressure on GM management to accelerate the change at the company. It is -- it is in a way a sign of impatience of the company`s largest shareholder.
GHARIB: And it also increases the pressure on CEO Rick Wagoner. As you know there has been a lot of talk and rumors about his tenure at the company. And there has been speculation that it is going to take an outsider who can really overhaul General Motors. Is Carlos Ghosn of Nissan the man for the job, if this deal goes through?
CASESA: This is an extremely difficult job. And I think despite Wagoner`s considerable accomplishments in recent months, the development tells that you there is not unanimity on the board for this to be public. Now even if a deal is done, it doesn`t mean that Gone would run this alliance. I think for some time Gone and Wagoner would be partners in this. Eventually one CEO is going to have to run the whole group. And I would say in the long run, which could be quite a ways from now, Gone would be very well positioned to do it. He`s got a great track record at Nissan. And I think he would get a lot of support from investors.
GHARIB: Is GM stock a buy at $30 a share? CASESA: I`m not in the stock business any more. I used to be, but I think if you look at what some analysts are saying like my successor at Merrill Lynch, John Murphy, this company right now is exceeding what had been very low expectations. It`s downsizing rapidly. It`s taking heads out. And I think today`s development is quite positive for shareholders. This is something that tells there is an activist shareholder pushing an aggressive agenda for restructuring.
GHARIB: How do you think this whole thing is going to play out with or without the alliance?
CASESA: Well, I --
GHARIB: What is the future for GM? Is it going to be able to reinvigorate itself?
CASESA: I think one certainty is that GM won`t have to undergo a much more radical restructuring than it has already even begun. What it has done so far is just resize itself. The next thing it has to do is restructure, change the company, streamline the brand portfolio, consolidate the dealer network and then finally step three is reinvest in what`s left. And so I think we are only at step one. Step two and three are ahead. My guess is that this will happen outside of Chapter 11 because I think the union will cooperate. But you never know. And whether Renault is in the picture or not, these things have to happen in GM in North America for it to be competitive.
GHARIB: All right. We will have to check in with you again and see how things play out. Thank you so much, John, hope you have a nice weekend.
CASESA: Thanks, Susie.
GHARIB: We`ve been speaking with John Casesa, president of Casesa Strategic Advisors.
Experts Express Optimism About The 2nd Half Despite A Disappointing 2nd Quarter
PAUL KANGAS: On Wall Street today, investors bid good riddance to the second quarter. All the major indexes ended the quarter on a down note today, reflecting the uncertainty of the markets over the past three months. Suzanne Pratt looks at how the markets fared for the first six months of 2006.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks investors can breathe a sigh of relief now that the first half of 2006 is over. While the Dow and Standard & Poor`s 500 ultimately ended the first six months of trading in positive territory, the path to that achievement was a rough one. ART HOGAN, CHIEF MARKET ANALYST, JEFFERIES & CO.: Certainly the last six weeks have been the most volatile we`ve seen in years. I think that some of the volatility comes from the fact that there`s a great deal of uncertainty as to what it is that we should be concerned about in the marketplace.
PRATT: 2006 got off to a nice start as double-digit profit growth throughout corporate America helped push stocks higher in the first four months. But the Federal Reserve brought the party to an abrupt end in early May when it raised interest rates for the 16th straight time and also raised uncertainty about the outlook for monetary policy. As a result, stocks took a major tumble in May and June. By mid-June, the Dow had lost about 1,000 points, trading as low as 10,700.
MICHAEL METZ, CHIEF INVESTMENT STRATEGIST, OPPENHEIMER & CO.: When you had that big decline in May and June, almost every asset class was hit, stocks in America, foreign stocks, emerging markets, commodities, currencies. It really was sort of a margin call among big, hot hedge fund money managers.
PRATT: But in the last few weeks, things have been looking up, and the blue chip average is now comfortably above 11,000. Thanks to dovish statements from the Fed yesterday, which accompanied its 17th straight rate hike, investors are beginning to feel more positive about the stock market.
HOGAN: I don`t know if we can work our way into the second half and say, yeah, the mood has shifted, but I would say we`re getting pretty darn close. And I say that because even the language of the Fed has gotten more dovish, much less hawkish on interest rates.
PRATT: Most experts believe the market`s recent volatility will continue into the second half of 2006. Nevertheless, they expect stocks will have a better second half and end the year on an up note. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
The 4th of July Is A Good Time To Jump Start Election Campaigns
SUSIE GHARIB: The Fourth of July means cookouts and fireworks for American families. For members of Congress, it`s a chance to work the hometown crowd in an election year. As lawmakers head home to campaign, our Washington bureau chief Darren Gersh reports that investors may also want to keep a closer eye than usual on the political landscape.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Congressional Republicans spent much of this month talking up what they call a values agenda, everything from protecting the flag to banning gay marriage. Political analyst Charles Gabriel calls it red meat for the conservative base.
CHARLES GABRIEL, SR. WASHINGTON STRATEGIST, PRUDENTIAL EQUITY GROUP: And it is exactly that Republican base that the president has suffered with in the last few months and has probably led to the erosion that led his polls really to drop below that mid-40s level down to the 30s level.
GERSH: Following the death of terrorist Abu Musab al-Zarqawi, Republicans believe they have finally gotten some momentum on their side. Former Majority Leader Dick Armey says his party would gain even more by getting back to issues Republican voters care about most, things like tax reform, immigration and Social Security.
DICK ARMEY, CHAIRMAN, FREEDOM WORKS: They`re not entertained by, they`re not amused by and they don`t appreciate the Congress being involved on the floor of the House and Senate with what`s in fact clearly and obviously political activity.
GERSH: Democrats head into the Fourth of July with polls showing their voters are more energized than Republicans, but they are still struggling to craft a message, this week replacing the slogan together we can do better, with one promising quote, a new direction for America.
REP. NANCY PELOSI, MINORITY LEADER: Putting the common good of all Americans first for a change.
GERSH: Democrats think issues like healthcare, gas prices and the minimum wage will help them retake Congress in November. Armey argues this election will not reverse the Republican revolution of `94.
ARMEY: My belief is right now that the Republicans will hold the House and the Senate largely because the Democrats can`t find a message that has standing and resonance with the American people. GERSH: But there is no denying Democrats are riding a wave. The question is, how big will it be?
GABRIEL: I think you could have an early starting gun to the focus on the elections, and it could have some important investment implications for pharma, health care, energy.
GERSH: One key measure for investors to watch, the number of close House races. The influential Cook political report now counts 35 competitive House Republican races, almost double the number a year ago. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Market Monitor"-Sam Stovall, Chief Investment Strategist at Standard & Poor's
PAUL KANGAS: As we close out this year`s second quarter, it`s time to review how the major stock averages performed over the past three months and to find out which stocks were the big winners and losers. To guide us through the results is tonight`s "market monitor" guest Sam Stovall, chief investment strategist at Standard & Poor`s. Sam, welcome back to NIGHTLY BUSINESS REPORT.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR`S: Happy to be here, Paul.
KANGAS: How would you describe the stock market`s performance during the second quarter as we look at how the major averages did and we put them up on the board here in a moment. What did it look like you to?
STOVALL: I think it was a play in two acts. The beginning of it was the situation in which you saw some continued positive notions that the Fed was close to an ending of its rate-tightening program and that earnings were going to be on a continued uptrend. But then all of a sudden, investors started to worry about inflation again, worry about the Fed`s hawkish stance. And we had a very sharp correction that seemed to resolve itself by the end of the quarter.
KANGAS: It did for the blue chip Dow anyway, up nearly 41 points. But the others still on the downside.
STOVALL: That`s right. But it seems as if we might be experiencing a retracement of the quick correction that we saw from May 5th on the S&P 500 through June 13th, certainly now with the Fed possibly taking more of a dovish stance.
KANGAS: OK now. Let`s look at the individual winners and losers starting with the Dow`s best gainer, which as we see on the board was General Motors up 40 percent. Of course it came from a very depressed level, didn`t it?
STOVALL: Absolutely. Gm certainly got the checkered flag this quarter. We saw very good turn around because of good second quarter earnings prospects, better than expected acceptance of the buyout program and also the Tracinda announcement that possibly it would be a beneficiary if it entered into a strategic alliance with Renault as well as Nissan. KANGAS: Right, then United Tech did all right, up 9.4 percent.
STOVALL: That`s right. Good earnings trends and also a favorable article in "Barron`s."
KANGAS: And Walt Disney slipped in there with better than a two point overall gain.
STOVALL: Good movie releases such as "Cars", expectations for "Pirates 2" and also a share buyback program.
KANGAS: Let`s look at the Dow`s three worst performers. And that was led on the way down by of all things Home Depot.
STOVALL: Well, that`s right. Increased competition from Lowe`s and also investors might be skeptical about current management effectiveness.
KANGAS: Microsoft.
STOVALL: Well, Microsoft, here is the situation in which they have to delay once again the release of the 2007 Office and also Bill Gates announcing that soon he will be stepping down from day-to-day activities.
KANGAS: Right. And American International Group just can`t seem to get out of trouble.
STOVALL: That`s right. Well, with the investigations and also with the competition, it seems as if some investors worry that that is impairing their ability to right (ph) business.
KANGAS: Let`s move on to the Standard & Poor`s 500 index and look at the best performer there by far, Kerr-McGee up 45 percent. That`s an Anadarko takeover.
STOVALL: That`s right and in one day, we saw share prices jump by $20 per share, so a beneficiary there.
KANGAS: And General Motors doing an encore, this time in the Standard & Poor`s 500. Let`s look at the two worst Standard & Poor`s 500 performers. Jabil Circuit, that is down sharply.
STOVALL: That`s right. They did come in with earnings that were in line with lowered expectations, but then they said that they had even lower expectations for the full year.
KANGAS: And JDS Uniphase. STOVALL: Well, they are having challenges integrating an acquisition from last year as well as undergoing a restructuring.
KANGAS: Let`s go over and take a look at the NASDAQ performances lead by Garmin on the upside.
STOVALL: Better-than-expected earnings results because of increased penetration into the navigational device category.
KANGAS: And Expeditors International, up $12 and change for the quarter.
STOVALL: Well, that`s right, a possible coattail beneficiary of the strong results reported by Federal Express.
KANGAS: And the worst performers on the NASDAQ 100 lead by JDS again. We know the reason. And XM Satellite Radio didn`t fare too well either.
STOVALL: Well, company management indicated they thought that 2006 results would be fairly weak on retail softness and product delays.
KANGAS: Now Sam, we just have a minute left. We`ve seen where we have been. Where do you see the markets going in the second half and why?
STOVALL: Well I think again it could be another story in two parts. Where the third quarter seasonally is fairly weak and during all types of periods we see it being a flat performance versus two to four percent gains in the other quarters. But if you add in the weakness typically seen in the midterm election year, on average we see declines of about two and a half percent. So I think that after a nice little rally because of second quarter earnings results, investors might get worried once again about inflationary prospects and the Feds taking a more hawkish stance. But wait until the fourth quarter. Historically it is the best of all 16 in a presidential cycle.
KANGAS: We shall be patient, thanks very much, Sam.
STOVALL: OK, Paul, good to see you again.
KANGAS: My guest Sam Stovall of Standard & Poor`s.
Last Word: A Political Gathering At Graceland
SUSIE GHARIB: And finally tonight, President Bush and the Japanese prime minister have left the building -- in this case, the building is Graceland, singer Elvis Presley`s estate in Memphis. Koizumi and the Bushes toured the landmark today, wrapping up two days of consultation between the U.S. and Japan. Koizumi is a huge Elvis fan and was thrilled by today`s whirlwind visit. It was hosted by two special tour guides, Elvis` daughter Lisa Marie and ex-wife Priscilla Presley. At the end of the visit, Koizumi donned a pair of gold-rimmed sunglasses and did his best impression of the famed singer. Paul, the festivities started on the way to Memphis. The music on "Air Force One" was Elvis hits, and the in-flight meal was his favorite: fried peanut butter and banana sandwiches.
KANGAS: Well, food fit for a king, ought to be good enough for a prime minister.
Paul Kangas' Stocks In The News
PAUL KANGAS: Wall Street`s blue chips opened higher on that General Motors news. The Dow jumped 45 points at the outset of trading, while the NASDAQ Composite gained 10 points. But the early upturn soon faded as profit takers moved in to cash in on some of yesterday`s big gains. By noon, the Dow was off 12 points and the NASDAQ down three. The market turned very choppy this afternoon amid end of quarter portfolio shuffling, which resulted in a lower close. The Dow Industrial Average ended down 40.58 at 11,150.22. This week, it fell twice, rose three times, did have a net gain of 161.13. The NASDAQ Composite was down 2.29 to 2,172.09 today. It also fell twice and rose three times this week and gained 50.62 points overall. Standard & Poor`s 500 Index was down 2.67 at 1,270.20 today. In the bond market, the 10-year note rose 14/32 to 99 27/32, putting the yield down to 5.15 percent.
Big board volume leader on a very active 41.6 million shares, EMC Corp. (EMC) down $0.28. After the close yesterday as we reported, the company said it`s going to acquire RSA Security for $2.1 billion and some analysts say that price is a bit expensive.
Ford Motor (F) in there with a $0.53 gain.
General Electric (GE) dropped $0.31.
General Motors (GM), the star of the Dow, up $2.35, traded as high as $30.42 on news that Tracinda wants a partnership alliance with Renault and Nissan.
ExxonMobil (XOM) down $1.02. That was fifth in big board volume.
Lucent Tech (LU) lost $0.03.
Pfizer (PFE) moved up $0.23
Procter & Gamble (PG) off $1.39. I saw no specific news there.
Home Depot (HD) down $0.67. And Hewlett-Packard (HPQ) off $0.35, tenth in volume.
Wal-Mart Stores (WMT) edged down $0.54 after Merrill Lynch cut its price target from $59 to $57 a share. But Merrill maintained a "buy" rating on Wal-Mart stock.
Computer Sciences (CSC) plunging $7.44. The SEC is requesting more information on the company`s stock option grant practices. Separately, the company said its $1 billion stock buyback, that effectively ends its efforts of exploring strategic alternatives, including the sale of the company. Down went the stock on that news.
Michaels Stores (MIK) up $3.24. Last March as you might recall, the company put itself on the auction block. Now it says it has two bidders from private equity groups and those bids are worth over $44 a share, all of this according to the "New York Times."
Rogers Corp (ROG) up $3.66. After the close yesterday, the company boosted its second quarter earnings guidance from the range of $0.63 to $0.67 a share, up to $0.69 to $0.72 a share.
Intl Securities Exchange (ISE), the biggest U.S. equity options market, downgraded by Keefe Bruyette, which cut its second quarter earnings estimate from $0.33 to $0.31 on lagging June trading volume at the exchange.
Azz Inc (AZZ), which makes electrical equipment, up $1.71. First quarter earnings $0.71 versus $0.38 last year, 17 percent rise in sales and the company boosted its fiscal 2007 earnings forecast.
Google (GOOG) topped the active list with a gain of $1.52.
Followed by Apple Computer (AAPL) down $1.70. Apple reported potential problems with its stock option granting program.
Microsoft (MSFT) $0.17 loss.
RSA Security (RSAS) up $4.22. As I mentioned, EMC is going to acquire it for $28 a share cash.
Intel (INTC) was down $0.32, fifth in volume on NASDAQ.
Cisco Systems (CSCO) $0.38 loss.
Research in Motion (RIMM) up $3.79. First quarter earnings $0.68, a penny better than last year and revenues better than expected at $613 million, $11 million above the Street estimate.
$0.25 loss in Oracle (ORCL).
Amgen (AMGN) up $0.13.
And Yahoo! (YHOO) a $0.03 gain.
Palm (PALM) down $2.56. Fourth quarter earnings higher, $0.25, versus $0.17, but the company sees first quarter earnings falling to $0.18 to $0.19. The Street estimate is $0.22.
Finally over on the American Exchange, Mexco Energy (MXC) up $2.21. Fiscal 2006 full year earnings, $0.43, up from $0.32 a year ago. Revenues up 25 percent.
Those are the stocks in the news tonight.
