NBR Complete Transcripts: 10-22-2007
Monday, October 22, 2007Investors are Sweet on Apple
SUZANNE PRATT: sweet earnings late today from Apple. After the bell, the company reported a 62 percent jump in its fiscal fourth quarter profits, sending its shares soaring over 5 percent in after-hours trading. The company earned $1.01 a share, clobbering analysts' expectations of $0.86. Revenue jumped 29 percent to $6.2 billion, up from $4.8 billion in the year ago period. Apple's success comes from sales of its Macintosh computers and iPod music players, not just from its much- hyped iPhone. Rod Bare, equity analyst at Morningstar says Apple benefits from having such a diverse product line.
ROD BARE, EQUITY ANALYST, MORNINGSTAR: It's nice to see that the legacy products continue to do well. The Macintosh line continues to be quite profitable. The iPod line has been very exciting to watch for the past three or four years. Competition, you know in that space is increasing. So if that matures, that's expected. But what's nice is Apple has the iPhone family to pick up the slack and run, you know, for the next few years.
PRATT: Apple also said late today it plans to open its first store in China within the next year. Analyst Rob Bare says Apple's retail expansion is a good thing. But anemic sales in Japan show moving into Asia will not be easy for the company.
The Markets' Mixed Messages & Movements Continue to Baffle
PAUL KANGAS: The expectation of good news out of Apple today helped drive stocks higher on Wall Street. After Friday's 367-point slide, the Dow closed with a gain of nearly 45 points. But as Scott Gurvey reports, the market's direction in the near term is far from clear.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks bounced back from five straight losing days as buyers turned bullish on technology shares ahead of several tech sector earnings reports. Jim Awad of WP Stewart Asset Management says with expectations low, earnings reports are showing strength.
JAMES AWAD, CHAIRMAN, W.P. STEWART ASSET MANAGEMENT: I think stocks ought to be OK here because on balance the economy continues to grow. Overseas economies continue to grow at a faster rate than ours and U.S. corporations are in terrific shape. A little bit of revenue growth leads to respectful profit growth. So I think the profit picture is going to be fine. The valuation picture is fine. The risks are credit events or a sustained and dramatic decline in the dollar from current levels.
GURVEY: Investors also did some bargain hunting among the badly beaten financials today. Reacting to comments by Fed Governor Randal Kroszner, which were taken to mean more help may be on the way, Kroszner saying the central bank will quote act as needed to encourage growth. Wall Street has been calling for the Fed to do more to help the banking sector recover from the sub-prime mortgage collapse. Many analysts think there will be a testing of lows before the market makes a significant move up again. Michael Metz of Oppenheimer says investors need to be selective.
MICHAEL METZ, CHIEF INVESTMENT STRATEGIST, OPPENHEIMER & CO.: I think it's still a very fragmented market. I don't see much chance for a strong recovery by either the financial area or discretionary consumption spending area. But I do think that the big blue chips that are really dependent on foreign growth will do relatively well and frankly I'd buy the energy stocks on this dip.
GURVEY: The Federal Reserve meets next Tuesday and Wednesday to review interest rate policy. The bond market currently indicates a probability of 86 percent that the central bank will cut rates by a quarter of a point. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Jeff Saut, Chief Investment Strategist at Raymond James Offers His Market Outlook
SUZANNE PRATT: Joining me now with more about today's market activity and his outlook for U.S. stocks is Jeff Saut, chief investment strategist at Raymond James. Jeff, welcome back to NIGHTLY BUSINESS REPORT.
JEFFREY SAUT, CHIEF INVESTMENT STRATEGIST, RAYMOND JAMES: Good evening Suzanne.
PRATT: Excuse the noise behind me. Let me start by asking, why do you think the stock market was so resilient today?
SAUT: It probably got overdone on Friday. Wall Street is to some degree a superstitious place. It was the 20th anniversary. Also, I think the sense was that the sub-prime situation was not behind us. And this morning, those fears were allayed to some degree out of comments out of the Federal Reserve and it pretty much anticipated better than expected earnings report out of a couple tech stocks.
PRATT: But you're still concerned about the economy, aren't you? You're concerned that the credit crunch is going to deepen further. Why is that?
SAUT: Well I hadn't really called it a credit crunch yet. I thing we're moving that way and I think the risk is that we do go into a honest to gosh credit crunch. And then you have the potential of morphing into a recession. And I think that's what's got the Federal Reserve and the central banks of the world worried and that's why they've injected liquidity at a pretty astounding rate over the past I guess couple months and why they've cut interest rates.
PRATT: And you're also worried about the consumer. You're worried -- where are we do you think in terms of the credit cycle and the consumer?
SAUT: We've noticed a pretty big up tick in credit card debt over the past couple of months. If you've levered most of your assets, your first house, your second house, your 401(k) and are still in need of cash, the lender of last resorts becomes the credit card. And if that's the case, then it suggests that we could, could be at the peak of a credit cycle until a financial economy that is dependent on ever-increasing amounts of credit. It does suggest a slowdown.
PRATT: So given all these question marks, particularly with respect to a recession, a possible recession, what do you think an investor should be doing in this environment?
SAUT: I think you can either focus on themes that should do well irrespective of an economic slowdown or you can focus on individual stocks that are just plain cheap.
PRATT: So what are you doing?
SAUT: We have been recommending large cap pharma because they're cheap on their own merits, on historic look. They're cheap relative to the stock market in general and they're cheap relative to the risk free rate of return. They have decent dividend yields and they have the highest free cash flow yields in years. We're using "strong buy" rated Pfizer and "strong buy" rated Johnson & Johnson.
PRATT: OK. Any other areas that you're particularly keen on right now?
SAUT: I've said for the past four months, if I had one stock to own, it would be General Electric. It's still 30 percent below where it was in the spring of 2000. It has a decent dividend yield. It's cheap relative to itself, cheap relative to the market and it plays to a lot of themes that we think do well irrespective of an economic slowdown.
PRATT: Do you have disclosures to make about any of the stocks you just mentioned?
SAUT: Yeah, I own 'em all.
PRATT: OK. What about the financial services sector? What are your feelings about that? It's gotten beat up lately.
SAUT: I avoided the large cap banks because I quite frankly can't figure out their accounting. JPMorgan has notionally (ph) $60 trillion worth of derivatives on its books and I just can't figure it out. I do like some of the smaller community banks. I don't think they have the same issues as a lot of the large cap banks.
PRATT: Other than the economy, what else worries you do you think potentially about the market right here?
SAUT: I lived in and around the beltway for years. I'm quite concerned about the traction that protectionism is gaining inside the DC Beltway as well as the increasing movement towards intervention and overregulation.
PRATT: Ok, Jeff, let's leave it there Thank you so much for joining us this evening.
SAUT: My pleasure.
PRATT: My guest this evening, Jeff Saut of Raymond James.
"Energy Options: Coal" - Coal's Battle (Part 1)
SUZANNE PRATT: The U.S. economy is dependent on energy. As prices for some energy sources like oil head higher, industries look for less expensive options, like coal. Coal is considered cheap and abundant and last year electric utilities bought $27 billion worth of the fossil fuel. Increasing demand for power is expected to fuel coal's growth. Tonight we begin a series of reports looking at coal and the challenges facing the industry. In part one of "Energy Options: Coal" Stephanie Dhue looks at how politics and the environment could darken coal's future.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The U.S. is considered the Saudi Arabia of coal. At the current rate of usage, there is about a 230-year supply. Coal now fuels half of the nation's power plants. With oil prices high and concerns about natural gas becoming scarce, utilities are considering coal for future power supply. But coal can be a dirty fuel. The Department of Energy says coal fired power plants account for a third of the nation's carbon dioxide emissions. David Hawkins of the Natural Resources Defense Council says the coal industry hasn't seriously addressed its environmental issues.
DAVID HAWKINS, CLIMATE CENTER DIR., NATURAL RESOURCES DEFENSE COUNCIL: The industry has grand dreams of a big expansion, but I think they are waking up to the fact that they can't survive as an industry if they don't get a handle on global warming pollution.
DHUE: Citing environmental concerns, power companies in North Carolina, Texas and Florida have shelved plans to build coal-fired power plants. Political pressure against coal is building. The energy bill passed by the House this summer requires that private utilities generate 15 percent of their electricity through wind, solar and other renewable sources by 2020. The mining industry recognizes the problem, but National Mining Association President Kraig Naasz says coal is critical to the U.S.
KRAIG NAASZ, PRESIDENT & CEO, NATIONAL MINING ASSOCIATION: You can't simply turn the light out on coal without having a devastating impact on the quality of life and the economy of this country.
DHUE: So the industry is lobbying for more taxpayer money to fund clean coal technology. It's also launching a $30 million ad campaign to build political support for coal.
NAASZ: It's a nationwide communications campaign, but with special weight toward some of the early primary, presidential primary states and probably will be weighted again in key battleground states as we move into the election cycle of 2008.
DHUE: The coal lobby is influential. It draws power from mining communities in 26 states, including important presidential battleground states like Ohio, Pennsylvania and West Virginia. And it has strong ties to the railroads, which earn $11 billion a year moving coal. U.S. utilities also add political muscle. Coal is credited with getting out the mine vote in 2000, in traditionally Democratic-voting West Virginia. That swung the presidential election against Al Gore and his global warming policies. NRDC's Hawkins says coal's political strength is hard to match.
HAWKINS: They have a very broad reach of political clout and what it means is that a policy that is seen as anti-coal has a very difficult job passing in the Congress.
DHUE: The coal mining industry gave more than $12 million to political candidates between 2000 and 2006. Nearly 90 percent went to Republicans. In comparison, over the same time period, solar, wind and geothermal companies gave $1.6 million, 65 percent to Democrats. Senate Majority Leader Harry Reid recently blasted plans to build coal fired power plants, particularly in his home state of Nevada. He says his decision was made because of the impact on the environment, not politics.
SEN. HARRY REID (D) NEVADA/SENATE MAJORITY LEADER: These utility companies have big shots on their boards of directors. They are able to, with their highly paid public relations people, go around to these communities and say, we have to have this. This is going to help your economy. So I'd probably been better off politically not saying anything, but my conscience says I got to say something because this is wrong, because this is not only a short term issue, it's a long-term issue.
DHUE: The role coal plays in the 2008 election is taking shape. The coal lobby wants a candidate who will emphasizes coal's importance now and help it fund cleaner coal technologies. The environmental lobby wants a candidate who will dig in against coal. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Commentary"-How Financial Crisis Can Pay Off
SUZANNE PRATT: In tonight's commentary, when a financial crisis is actually an economic safety valve. Here's Michael Mandel, chief economist at "BusinessWeek."
MICHAEL MANDEL, CHIEF ECONOMIST, BUSINESSWEEK: Five: that's the number of major financial crises we've seen since 1987. Almost like clockwork, the bottom falls out of some market every few years. First, of course, was the October 1987 crash, then the credit crunch of the early 1990s, the emerging market crisis of '97, '98 and the tech bust of 2001, 2002. Now, of course, we're grappling with the sub-prime mess, which is number five. Each event, at the time, seemed like a potential disaster. The credit crunch of the early 1990s, for example, was called the worst banking crisis since the great depression.
But guess what? The horrible predictions did not happen. Central banks and regulators responded vigorously. The banking industry did not collapse and borrowers had little trouble raising money. In fact, despite five financial crises, the past 20 years have been remarkable for the smoothness of growth. The U.S. has had only two minor recessions and the global economy has not experienced a single down year. The sub-prime mess is probably not going to make much of a dent in global growth either.
Here's a thought: perhaps-- just perhaps-- these financial disruptions are not a sign of instability. Perhaps the so-called crises are really safety valves for the global economy. The periods of volatility scare investors and borrowers out of excess risk-taking, without causing any lasting damage to the real economy. The implication is simple. If the global economy is functioning well, we should expect a financial crisis every five years or so. In today's world, crisis may be the new normal. I'm Mike Mandel.
Paul Kangas' Stocks in the News
PAUL KANGAS: Sharp downturns in most overseas markets had Wall Street extending Friday's huge sell off in the early going today. The Dow fell about 105 points at the outset of trading while the NASDAQ moved up 5 points. The blue chips improved on solid earnings from Merck and continuing firmness in the tech sector. At 1:30 p.m., the Dow posted a 61- point gain while the NASDAQ was up 30 points. The market moved erratically for the next two hours and then it rallied again in the final half hour. The Dow closed up 44.95 points at 13,566.97. The NASDAQ Composite gained 28.77 ending at 2753.93 while the Standard & Poor's 500 Index rose 5.70 at 1506.33. Over in the bond market, the 10-year note fell 5/32 to 102 22/32, putting the yield at 4.42 percent.
Most active New York exchange issue on 18.2 million shares was Citigroup (C) moving up $0.25.
Followed by Pfizer (PFE) with a nickel loss.
Schering-Plough (SGP) was down $4.37. Third quarter operating earnings nicely higher, $0.28 versus $0.19 a year ago, but $0.02 below the average Wall Street estimate. Standard & Poor's however did repeat a "strong buy" on Schering.
General Electric (GE) moved up $0.13.
And then Ford Motor Co (F) a $0.03 drop.
Co vale do Rio (RIO), the big Brazilian mining firm, down $0.53.
Wells Fargo & Co (WFC) moved up $0.96.
ExxonMobil (XOM) losing $1.23.
Bank of America (BAC) edged up $0.21.
And Wal-Mart Stores (WMT) was up $0.27.
American Express (AXP) closed down $0.24. After the close, the company reported third quarter earnings of $0.90. That's up from $0.79 last year and a nickel better than the Street was expecting. In after hours trading, I saw the stock just above $58 a share, so it moved up rather nicely.
Merck & Co (MRK) a $1.53 advance. Third quarter earnings excluding one-time items, $0.75, up from $0.51 a year ago and $0.06 better than the Street expected.
Dupont Co (DD), that's another Dow stock, off $0.30 today. Citigroup cut its 2008 earnings estimate from $3.44 down to $3.32, also downgraded the stock from "buy" to just a "hold" rating on Dupont.
Texas Instruments (TXN) closed up $0.35. After the close, the company reported third quarter profits of $0.54. That's up from $0.47 last year and $0.04 above the Street consensus. In after hours trading, however, the stock fell to $33 on the company's cautious outlook about fourth quarter revenues apparently.
Then Kimberly-Clark (KMB) had a good day, up $3.05. Third quarter earnings came in at $1.07, up from $0.99 last year. Sales up 9.7 percent. Bank of America repeated a "buy" recommendation.
LDK Solar Co (LDK) up $4.57. The company has signed a three-year contract to supply crystalline solar wafers to a company called Canadian Solar, so a nice contract for that one.
Goodman Global (GGL), this is a company that makes air conditioning equipment and it's going to be acquired for $25.60 a share cash plus debt by a private equity firm, Hellman & Friedman.
Look at this, housing stocks, pretty firm today. Could this be a little bottom fishing in anticipation of a bottom in the market? Centex (CTX) has earnings due out tomorrow and Pulte Homes due out on Wednesday. Maybe that's in anticipation of some better than expected results.
KB Home (KBH)
Lennar (LEN)
Pulte Homes (PHM)
Ryland Group (RYL)
Target (TGT) up $0.07. After the close, the company cut its October same store sales growth estimate from plus 3 to 5 percent, down to 2 to 4 percent.
Apple (AAPL) topped the NASDAQ active up $3.94. Caris & Company before earnings came out boosted its price estimate from $175 to $200 a share and of course, you heard about the big after the close earnings. The stock jumped to $187. And incidentally, Apple said it ended the fiscal year with $15.4 billion in cash and no debt.
Google (GOOG) up $6.04.
Research in Motion (RIMM) down $1.59.
Microsoft (MSFT) gained $0.34.
And so did Intel (INTC).
Then we move along to Baidu.com (BIDU) up $0.15.
$0.13 drop in Cisco Systems (CSCO).
Sandisk (SNDK) gained $1.40.
Amazon.com (AMZN) up $1.53. Earnings due out tomorrow from Amazon.
And then Yahoo! (YHOO) an $0.82 gain, tenth in volume.
Radiation Therapy (RTSX) jumping $9.40. Vestar Capital will acquire it for $32.50 a share.
And Astec Industries (ASTE), which makes road construction equipment, hit a pothole today, tumbling $12.55. Third quarter earnings came in at $0.51, $0.18 below the Street estimate.
And those are the stocks in the news tonight.
