NBR Complete Transcripts-01-19-2007
Friday, January 19, 2007Citigroup & GE Put The Markets In Neutral Territory
SUSIE GHARIB: Wall Street struggled today with mixed earnings from two leading blue chip companies: Citigroup and General Electric. Shares of Citigroup rose slightly, even though the company's quarterly earnings plunged, while GE posted strong quarterly results, but its shares tumbled almost 3 percent. The giant conglomerate earned $0.64 a share, right in line with estimates. Revenues rose 11 percent to $44.6 billion, also stronger than expected. The company is restating earnings for the past six years to fix an accounting issue. That will trim $343 million off past earnings. Wall Street is split on the outlook for GE, even though the company is forecasting growth this year of 10 to 12 percent. But Standard & Poor's analyst Richard Tortoriello upgraded GE stock today to a "strong buy."
RICHARD TORTORIELLO, EQUITY ANALYST, STANDARD & POOR'S: I think that GE has turned the corner. Where it had four years of basically flat profit growth, if you look at non-restated earnings, and now it's actually starting to show good internal growth, 9 percent internal growth this past year.
GHARIB: Meanwhile, Citigroup earned $1.03 a share in the fourth quarter, $0.03 above estimates, but down 33 percent from the same period a year ago, when it realized a big gain from the sale of its mutual fund business. Revenues rose 15 percent to almost $24 billion, but expenses rose even faster, up 23 percent. Citigroup CEO Chuck Prince said today that disconnect is quote not satisfactory and the firm is engaged in a quote, long-term rebuilding effort.
Old Man Winter Warms Up Crude Oil Prices
PAUL KANGAS: Colder temperatures in the northeast today sparked a slight recovery in energy prices. In New York trading, crude for February delivery surged 3 percent to close just shy of $52 a barrel. Still, oil prices are off sharply this year and the sell-off is pressuring oil stocks. Suzanne Pratt looks at the environment for big oil shares in 2007.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Since the start of the year, most oil shares have gotten clobbered. It's no wonder, considering crude oil prices are off nearly 15 percent in 2007 and 33 percent from last summer's high. An unusually warm winter has helped to dampen energy demand and now, supplies are likely to remain abundant, no matter what happens with Mother Nature. Amid that backdrop for oil prices, investors have been questioning whether major oil stocks are still a good bet. Oppenheimer analyst Fadel Gheit says he's currently neutral on the oil sector because he's concerned oil prices remain inflated.
FADEL GHEIT, OIL ANALYST, OPPENHEIMER & CO.: Despite the sharp drop, there's still more premium in oil prices and if we don't have any global crisis and demand slows down for any reason, I think there's more room for oil prices to go lower.
PRATT: Oil companies still make oodles of cash, even if oil prices are at $50 a barrel. But the movement in oil shares is strongly linked to the direction of energy prices. Monness Crespi oil analyst Sal Ilaqua says many oil shares may hold up better than you might expect, because not all oil stocks climbed as quickly as energy prices.
SAL ILACQUA, OIL ANALYST, MONNESS, CRESPI, HARDT & CO.: Now, with prices coming down, there will be an impairment to earnings, but I don't think that stocks will go down as much as you might see earnings go down, at least at this stage.
PRATT: In general, analysts say the larger oil companies can weather falling crude prices better because they can produce oil for less money. To that end, Oppenheimer's Gheit, who owns shares off ExxonMobil, says that company is in the best shape to cope with falling oil prices. On the other hand, he says ConocoPhillips stock will be hit hard if oil prices continue to fall. If prices rebound, Gheit, who also owns Conoco, likes its prospects.
GHEIT: If industry fundamentals improve, ConocoPhillips probably could gain the most. It is also the cheapest company in terms of valuation.
PRATT: Analysts say oil prices would have to fall to $40 a barrel before the outlook for big oil would get really worrisome. Even though oil companies still make money at that level, it would definitely spook investors. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
A Missile Threatens To Torpedo U.S./ China Relations
SUSIE GHARIB: A surprise today for military analysts, news that China successfully tested an anti-satellite missile to destroy one of its old weather satellites. The test not only raises concerns about a Chinese military presence in space, but also threatens to set back recent progress made in U.S.-Chinese relations. Washington bureau chief Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is not just that the Chinese tested a missile that could be used against U.S. military satellites. It is also how it was done -- without any notice or explanation from Beijing. Arms control expert Jeffrey Lewis calls the Chinese decision to launch short-sighted.
JEFFREY LEWIS, EXECUTIVE DIRECTOR, PROJECT ON MANAGING THE ATOM: This is a test that's reckless in the sense that it is a debris-creating event that threatens the peaceful use of outer space. And it's stupid in the sense that it is self-defeating and ultimately compromises the long-term interests of the Chinese nation.
GERSH: At the very least, analysts say the test set back by years, a promising move towards U.S.-Chinese cooperation on commercial and civilian space exploration. Washington State Democrat Rick Larsen co-founded a bipartisan group of 40 House members working for better understanding in U.S.-China relations. He says the test will increase concern on Capitol Hill over China's true intentions.
REP. RICK LARSEN, (D) WASHINGTON: China has destroyed this aging satellite with an anti-satellite weapon. I hope that that test doesn't result in destroying the strategic economic dialogue that we're starting to have with China.
GERSH: Treasury Secretary Henry Paulson launched that dialogue just last month, heading a high-level delegation to Beijing. A Treasury spokesperson tells NIGHTLY BUSINESS REPORT, while we're concerned about the recent action by China, we have a wide-ranging relationship with them that is active on many fronts. But critics are already using the anti-satellite test as a reason to take a tougher economic and military line with China. Dean Cheng is an expert on China's space program.
DEAN CHENG, PROJECT ASIA, CNA CORP.: Folks who are concerned about China as a military threat, economic threat -- outsourcing-- all of those folks are going to be using this test as an example of how economic relations do not lead to a more liberal, democratic, safer China.
GERSH: Cheng says China presents a unique challenge to the United States. It is both a major trading partner and the only country other than the United States that has shot down a satellite. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
SUSIE GHARIB: On Capitol Hill tonight, the big question is what now? House Democrats have wrapped up their big legislative push for the first 100 hours of the session, passing energy and minimum wage bills, among others. So where do they go from here? As Stephanie Dhue reports, it appears global warming and energy independence will now take center stage.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Speaking at the National Press Club, congressional leaders made a preemptive strike today ahead of the president's state of the union address next week. House Speaker Nancy Pelosi says she hopes the president will work with them on energy and environmental goals.
NANCY PELOSI, HOUSE SPEAKER: But we cannot afford to wait. Therefore, with openness and the participation of all parts of our democracy, we will pass groundbreaking legislation that addresses global warming and energy independence.
DHUE: There may be some common ground. President Bush is expected to propose renewable energy solutions to climate change in his speech Tuesday night. Senate Majority Leader Harry Reid says Congress is already focused on renewable power from sun, wind, and biofuels.
SEN. HARRY REID, MAJORITY LEADER: We are oil hogs here in America and we've got to lessen our dependence on foreign oil and it can only be done by recognizing we can't produce our way out of our problems and we have to move to alternative energy sources.
DHUE: But the goals of increasing energy security and reducing emissions can be at odds, says Jason Grumet, with the National Commission on Energy Policy.
JASON GRUMET, EXECUTIVE DIRECTOR, NATIONAL COMMISSION ON ENERGY: In fact, almost everything that's good for climate change is also good for energy security. The inverse is not always true. In particular, if we rely on our tremendous coal resources to make diesel fuel, that would be good for energy security but disastrous for climate change.
DHUE: Already in the works on Capitol Hill are several climate change bills that would cap industrial carbon dioxide emissions. That's an approach companies from GE to BP have already embraced. With several states and local governments imposing their own emissions limits, Grumet says many businesses are now endorsing Federal action.
GRUMET: They want to have a role in designing what happens, not be on the outside complaining and basically being handed a set of goods that they had nothing to do with.
DHUE: On Monday, some of the nation's biggest companies will weigh in on what happens, announcing their recommendations to quickly address global warming. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Market Monitor"-Robert Drach, Publisher of the "Drach Weekly Research Report"
PAUL KANGAS: My guest market monitor this week is Robert Drach, publisher of the "Drach Weekly Research Report" based in Tallahassee, Florida. Bob, welcome back to NIGHTLY BUSINESS REPORT.
ROBERT DRACH, PUBLISHER, DRACH WEEKLY RESEARCH REPORT: Good to see you again Paul.
KANGAS: Last July on your last visit with us, the Dow was struggling at the 11,000 level and you said it would head much higher as soon as the Federal Reserve stopped raising interest rates. Well, the Fed just did that and here we are above 12,500 and that was a good call. I compliment you.
DRACH: Well, thank you.
KANGAS: Now, however, a lot of economists are predicting a Federal Reserve rate cut, but the economy really isn't slowing down that much and inflation is of concern to the Fed. How do you see this scenario unfolding?
DRACH: The Fed data that was important in July with their August cut is not a factor anymore.
KANGAS: None?
DRACH: No, I would not be concerned about the Fed until next March or April. But right now, you want to be concerned about corporate insider selling. Fed data -- we got the elevation from the Fed. Now we have this corporate inside selling has come in. We have a little froth, so I wouldn't look for the Fed. I would look for a correction from those data sets.
KANGAS: How accurate is an increase in insider selling as far as predicting market movement?
DRACH: It depends on what else is going on, but it's usually a three or four month lead and that data got big in December. It's just a caution time. I'd love to be bullish like I was in -- last July, but it's time to take a little money off the table, I think.
KANGAS: How big a decline do you think that this might precipitate?
DRACH: Usually they're soft, but you don't know until they start. And the Fed might not be able to bail them out. You have a flat-yield curve. The Fed could lower rates and long-term rates could go up anyway. So don't count on (INAUDIBLE)
KANGAS: Anyway, it's a time for caution.
DRACH: It is a time statistically to be.
KANGAS: Many of our viewers know you manage NIGHTLY BUSINESS REPORT's model investment portfolio. Let's see how you did with that in 2006 overall. And there we see the Dow industrials actually beat you out last year. That's the first, I think.
DRACH: Every once in a while they'll get ahead of us, but overall, we get ahead of them more. We had a rough first half, actually.
KANGAS: Now let's see how the model has done since its inception under your management back in 1995 and there is a little different picture. Your portfolio is way up, 315 percent.
DRACH: We beat them more than they beat us.
KANGAS: Yes, you do. Anyway, I compliment you on a great job. We appreciate the time you spend on our model.
DRACH: Thank you.
KANGAS: Going back to July of last year, you had four stock recommendations. Let's see how they've done since then. Let's start with the first two. Dollar General up almost 21 percent. McCormack up nearly or 12 percent, good calls there. And let's have a look, I think there were two more. United Health Group up 17 percent-plus and William Wrigley, an 11.3 percent rise. All winners and are you still with them?
DRACH: Some of them I've gotten rid of and added different ones. But pretty much the same. The thesis is quality stocks that are discounted.
KANGAS: You're taking some money off the table on those four?
DRACH: I think you should do that until March or April. Why not? That's your risk period.
KANGAS: Bob, given your guarded market outlook, are there still some stocks you would be buying?
DRACH: You can look. I would be wanting high-quality depressed stocks like Walgreen's.
KANGAS: OK. There's a chart of it right there, kind of a bouncy time of it.
DRACH: Commerce bank shares.
KANGAS: Let's have a look at the chart on Commerce.
DRACH: They all kind of look kind of down. You can see they are off their highs.
KANGAS: Yeah, you like that.
DRACH: Yeah, I don't want anything high. Universal Forest Products, this will look better to you this one probably. See that really looks bad.
KANGAS: Oh, my goodness.
DRACH: The worse they look, the better we like it.
KANGAS: I know. Seems to work.
DRACH: And Expeditors International.
KANGAS: That's a NASDAQ issue as well.
DRACH: But I would like to make clear the caveat that this is not an entry point. If you watch the web and know, but it's dangerous here for the next month or so.
KANGAS: This is sort of like shopping and putting these in your cart but not going to the cashier yet.
DRACH: Well, it's run up a little bit too much. Your earnings have not kept pace with the rise (INAUDIBLE) price earnings ratios are going up. It's just a warning (ph) time.
KANGAS: Bob, do you personally own any of the stocks we've been discussing tonight?
DRACH: No, that's purely educational.
KANGAS: OK. I want to thank you for being with us once again. We'll look forward to your next visit.
DRACH: Thank you, Paul.
KANGAS: My guest, Robert Drach of the "Drach Weekly Research Report."
"Commentary"-Immigrant Entreprenuer Ingenuity
SUSIE GHARIB: Tonight's commentator says there's something missing from the debate over immigration. Here's Myron Kandel, president of the New Hampshire Initiative for Corporate Responsibility and Investor Protection.
MYRON KANDEL, PRESIDENT, NEW HAMPSHIRE INITIATIVE FOR CORPORATE RESPONSIBILITY: Immigrant is a fighting word in some quarters these days. To many people, it's a pejorative, as in those "blankety-blank illegals," who are threatening the foundation of our country. Sure, our immigration policies need fixing and the subject of illegal aliens is a hot-button issue, but I will leave that to others.
Tonight, I want to discuss one usually overlooked aspect of immigration. It's the contribution that legal immigrants to the U.S. are making to our country's leadership in an increasingly competitive world. A new study by researchers at Duke University's Pratt School of Engineering and the University of California, Berkeley, has found that immigrant entrepreneurs have become a driving force in the formation of new businesses in the nation.
The figures are startling. Of all the engineering and technology companies started in the U.S. from 1995 to 2005, one quarter had at least one foreign-born founder or co-founder. These companies employed 450,000 workers and had $52 billion in sales in 2005. The study also estimates that, last year, foreign nationals living in the U.S. were the inventors or co-inventors of nearly one quarter of all the U.S.-based patents filed internationally. That figure has more than tripled in eight years. So in the debate over immigration, let's not forget the contributions legal immigrants continue to make. I'm Myron Kandel.
Paul Kangas' Stocks in the News
PAUL KANGAS: The flow of corporate earnings, good or bad, had little impact on Wall Street this morning as the market waffled about what direction to take. At the outset, the Dow fell 18 points, NASDAQ slid five, but by late morning they were up 11 points and seven points, respectively. A mid-day sell-off was mostly wiped out by a late rebound in the recently weak oil and tech stocks. So the Dow Industrial Average closed off just 2.40 at 12,565.53 today. In this four-day trading week, it rose once and fell three times, still had a net gain of 9.45 points. The NASDAQ Composite was up 8.10 today at 2,451.31. It also gained once and fell three times this week, but it lost 51.51 points overall. The Standard & Poor's 500 index rose 4.13 ending at 1,430.50 today. Over in the bond market, the 10-year note fell 8/32 to 98 25/32, putting the yield at 4.78 percent.
Most active New York exchange issue on 31 million shares was Motorola (MOT) moving up $0.56 a share. Fourth quarter earnings out today, $0.26 per share. That was a penny above the Street consensus. Motorola also said it plans on cutting 3500 jobs.
General Electric (GE) down $1.05 despite that higher earnings statement.
And then came Ford Motor Co (F) with a $0.12 gain. Followed by Pfizer (PFE) gaining a nickel.
IBM (IBM) a real drag on the Dow today. It cost the Dow Industrial Average 26 points with that loss of $3.25. IBM's earnings were sharply higher yesterday, but a lot of analysts are concerned over the company's hardware sales.
ExxonMobil (XOM) reacting to that rise in oil prices, up $1.57.
Then Sprint Nextel (S) edged up $0.02.
Citigroup (C) despite the lower earnings, up $0.11.
Time Warner (TWX) $0.34 drop.
And AT&T (T), tenth in volume, was up one nickel a share.
Alcoa (AA) a Dow stock, gaining $1.10. The company's board of directors has approved the buyback of up to 10 percent of the company's common stock. That would be about 87 million shares. Alcoa will also boost its annual dividend from $0.60 to $0.68 a share.
DaimlerChrysler AG (DCX) gained $1.68. Morgan Stanley upgraded it from "equal weight" to "over weight" on the promising growth prospects of the company's truck division.
Then the big oil service company, Schlumberger Ltd (SLB) up $3.10. Fourth quarter earnings out, $0.92, $0.07 above the Street estimate, well above last year's $0.54 and revenues jumped 33 percent. The company gave an upbeat outlook on this year and Standard & Poor's repeated a "strong buy," a lot of good news there.
Stanley Works (SWK) down $0.97, traded as low as $52.44. JPMorgan downgraded it from "neutral" to "under weight."
And the golf company, Callaway Golf (ELY) up $1.67. The company sees better than expected 2006 sales coming in around $1.02 billion and earnings will be around $0.50 to $0.52, well above the Street estimate of $0.39 a share.
Lamson & Session (LMS) gained $1.35. The company's largest shareholder wants the firm to hire an investment banker to explore the sale of its PVC pipe business or perhaps the entire company.
ITC Holdings (ITC) up $3.38. Positive reaction on the company's plan to buy the transmission assets of Interstate Energy. The price, $750 million in cash.
Apple (AAPL) topped the NASDAQ active list, losing $0.57.
Google (GOOG) up $1.92.
Microsoft (MSFT) $0.11 gain there.
Cisco Systems (CSCO) up $0.25.
Research in Motion (RIMM) bouncing back with a gain of $2.61.
Intel (INTC) $0.17 rise there.
And EBay (EBAY) rose $0.15.
Yahoo! (YHOO) $0.48 drop.
Qualcomm (QCOM) gained $0.38.
And Applied Materials (AMAT) down $0.04 a share.
Coldwater Creek (CWTR), the women's apparel retailer, cut its fourth quarter earnings guidance from $0.26 to $0.27, all the way down to $0.16 to $0.07 a share. The Street was looking for $0.28 a share.
And then JDS Uniphase (JDSU) up $1.53. The company boosted its second quarter sales guidance from a low of $332 million to as high as $365 million.
And Wittier Energy (WHIT) up $1.98. Sterling Energy PLC, a British firm, will acquire it for $11 a share in cash.
Those are the stocks in the news tonight.
