NBR Complete Transcripts: 11-13-2007
Tuesday, November 13, 2007Wal-Mart & Oil Prices Send Wall Street Into Rally Mode
SUSIE GHARIB: An explosive rally on Wall Street today, thanks to a big jump in Wal-Mart shares and a big drop in oil prices. The Dow surged 319 points, its second biggest daily gain this year. And the NASDAQ soared almost 90 points or 3.5 percent. Investors went on a buying spree after Wal-Mart reported better than expected quarterly earnings and hinted that consumer spending will be stronger than anticipated this holiday shopping season. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Americans spend nearly one out of every 10 retail dollars at Wal-Mart, which is why the quarterly earnings report of the giant discounter draws as much attention as many of the government's reports on the economy. And today's report was surprisingly good. Wal-Mart posted earnings per share of $0.70 compared to $0.63 in the third quarter of last year. Analysts surveyed by Thomson Financial were expecting $0.67 a share. The company also raised its full year outlook, which Wall Street took to be an encouraging sign going into the critical holiday sales period. Wal-Mart has already begun holiday price-cuts, earlier than in previous years. Christine Augustine of Bear Stearns believes that is a good move. Wal-Mart is a non-investment banking client of Bear Stearns.
CHRISTINE AUGUSTINE, RETAIL ANALYST, BEAR STEARNS: The consumer is slowing. But in that sort of an environment, Wal-Mart is better positioned than some of the peers because of their prices. Because they've been very focused this year on offering the lowest possible price and they're advertising that quite a bit and I think they're getting some traffic back to the stores as a result.
GURVEY: This year Wal-Mart increased its selections of food products and electronics, adding well-known brand names to its stocks of flat screen televisions and laptops. Analysts say that will let it better compete on price with smaller rivals. Retail analyst Mark Husson of HSBC says in many ways as Wal-Mart goes, so goes the entire retail sector. HSBC provides non-investment banking services to Wal-Mart.
MARK HUSSON, RETAIL ANALYST, HSBC: Wal-Mart is so big these days that it is the trend. If you look at Wal-Mart's sales growth in the U.S., it's something like 1.5 percent comparable store sales, but probably more like 4 or 5 percent in total sales growth. So it's outperforming the market. It's gaining market share and its sales in the fourth quarter of this year is going to be $100 billion. So it's a massive, massive business.
GURVEY: Wal-Mart shares closed up today more than 6 percent, a clear indication, Husson says, that analysts were pleasantly surprised. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
One on One with Alan Skrainka, Chief Market Strategist at Edward Jones
SUSIE GHARIB: More analysis now on today's stock market surge. Joining us, Alan Skrainka, chief market strategist at Edward Hones. Hi Alan.
ALAN SKRAINKA, CHIEF MARKET STRATEGIST, EDWARD JONES: Hi, Susie.
GHARIB: For days now, all the talk in the markets has been gloom and doom and now today we see this big surge in the Dow and the NASDAQ. What do you make of this turn around?
SKRAINKA: I think the lesson for investors is the mood on Wall Street can change very quickly. But people should only make changes to their portfolio very slowly. Right now investors have a lot of questions. They want to know who is holding the bad loans, how much do they have and what the impact is going to be on the rest of the economy. It's going to take time to get answers to those questions.
GHARIB: So what is your view then on the markets? The Dow is, for example, 800 points away from its all-time high. Does it go higher from there or could it just as easily spiral down?
SKRAINKA: Well, in the short term we don't know. And there's so much uncertainty right now related to the housing problems, but as we saw today, when the turn does come, it will come very quickly without warning and so an investor should be fully invested, properly balanced and make sure you have quality investments in your portfolio. Yes, this could take time to work out these problems, but no one can say for sure.
GHARIB: It's been also surprising watching the action over in the NASDAQ stock market where we've seen dramatic -- today it was up 90 points. Last week it was down 100. We don't see this much volatility in the NASDAQ. What's going on with technology stocks? What's your view there?
SKRAINKA: Well, people were pouring into technology stocks with the view that technology stocks don't have sub-prime loans, so that's really the place to be. But as we know, technology stocks are very sensitive to even small changes in the economy. It's clear that the problems are not just related to the housing sector. It could spill over to the rest of the economy, so technology stocks are moving dramatically up and down based on whether you think this problem is going to be over soon or whether it's going to be long lasting. So have just a little bit of technology in your portfolio, but don't have too much.
GHARIB: Is that what you're doing with the portfolios at Edward Jones? You are still buying technology stocks?
SKRAINKA: We're building portfolios that have proper balance. Technology should be about 15 percent of some portfolios, maybe less in some others for some more conservative investors and realize that if you own mutual funds, you also own technology stocks. So you don't have to guess which stocks or which sectors to be in.
GHARIB: Let's talk a little bit about your investment strategy now that you've sort of brought up this subject. Your asset allocation is still pretty bullish, 65 percent stocks, 35 percent bonds for I guess for an average portfolio, whatever that is, for a long-term investor. What is your strategy? What are you put in portfolios?
SKRAINKA: We don't make dramatics changes to that mix. That's a benchmark. It should be adjusted for each individual's risk tolerance and what their goals are. Generally speaking we think the market trades at about 14 and a half times earnings. So we know about all this bad news and everybody else does, too. That's reflected in stock prices. We have really cautioned investors to go lightly at small cap, emerging markets and junk bonds. They should instead favor large cap stocks, quality bonds and international developed markets because investors are not being properly compensated for taking large risks right now.
GHARIB: Is this a good time to put money in any of these beaten down financial stocks we saw today the Goldman Sachs, Bear Stearns, all of them were rallying. What is your view on that?
SKRAINKA: Our view is financials are a very critically important part of the U.S. economy. You can't be all the way in or all the way out. You should have about 15 to 18 percent in financials and if you have new money to invest, you can nibble carefully, but only in the best quality names, those companies that don't simply do mortgage lending, for example. You don't need to stick your head in the lion's mouth to reach your long-term goals. Buy the quality companies, companies like JPMorgan Chase for example, as opposed to a company that just does mortgage lending.
GHARIB: Outside of the financial sector, name one or two of your favorite stocks to put new money in and that's good for a long-term investor.
SKRAINKA: We like large companies that pay good dividends, that tend to do well in good times and bad, companies like Procter & Gamble for instance, Pepsico, even a 3M, for example, which has been beaten down a bit. These are companies that you can put in the portfolio, that you can watch grow over a long period of time and you're not taking a lot of risk just in case the sub-prime problem gets worse.
GHARIB: Alan, does do you own any of these stocks or does your firm have any relationship with them?
SKRAINKA: No, I don't own the stock but JPMorgan Chase is an investment banking client of Edwards Jones.
GHARIB: All right, Alan, thanks a lot, appreciate it.
SKRAINKA: My pleasure.
GHARIB: My guest tonight, Alan Skrainka, chief market strategist at Edward Jones.
"The Business of College Football" Part 2 - Small Time Ball
SUSIE GHARIB: Think college football and you probably think big: Ohio State, Florida, Texas. With their big stadiums and big television deals, those schools hog the publicity spotlight. But small schools also have successful football programs. In part two of his series "The Business of College Football" Jeff Yastine visits one school where the sport is taking root, despite an unlikely track record.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Drive onto the campus of Seton Hill University and you can feel the weight of nearly 90 years of history. For nearly all that time, it was a Catholic, all-women's college, turning out generations of graduates schooled in the liberal arts. That all-women policy changed in 2002, when Seton Hill became a co- educational institution. But just because you let men become students doesn't mean they'll enroll unless, you have a football team. Now in its third season, the Seton Hill Griffins play in a rented high school stadium. The crowds number in the hundreds, not tens of thousands. And the team faces off against other small universities in the region. But school President Dr. Joanne Boyle, who has led the institution for the past 20 years, says it was a business decision to build a football program.
JOANNE BOYLE, PRESIDENT, SETON HILL UNIVERSITY: How do we get the word out that we are fully co-educational? We were offering sports programs in tennis and golf for men, but they are not programs that attract large numbers of men. Programs that really attract men to your campus is football. They can come in large quantities, 40s and 50s and 60s of them at a time.
YASTINE: Since football came to Seton Hill, enrollment has nearly doubled to almost 2,000, and about one third of the students are men. Seton Hill has found an additional benefit to fielding a football team: alumni contributions. While schools stand or fall on their academic reputations, there's nothing like a football team, even for one from a formerly all-women's school like Seton Hill to generate excitement and convince alumni to open their wallets. Chief fundraiser, Christine Mueseler, says the football program raised its profile with donors.
CHRISTINE MUESELER, VP INSTITUTIONAL ADV. & MKT., SETON HILL UNIV.: We've raised almost $70 million, and some of that goes into athletics, but it's really a minor portion of it, so I would say it's the visibility aspect that makes people want to support us.
YASTINE: That support and public recognition are key reasons why schools often feel pressure to develop a football team. The start-up costs are considerable, several hundred thousand to several million dollars just for coaching salaries, equipment and stadium rental. Student fees are usually raised as well. Yet sports business analysts like Rick Horrow say the idea of starting a football program is alluring to university boards.
RICK HORROW, CEO, HORROW SPORTS VENTURES: The point is that college football is dynamic and evolving. You help build stadiums. You help with alumni donations. You help with applications. You help with this ephemeral notion of college sports as it relates to a positive benefit of a university. Harrow points to schools like this year's Cinderella story, the University of South Florida. It is ranked among the top teams with a football program started just a decade ago. Seton Hill has no such ambitions for its football team. But administrators and head coach Chris Snyder, say the school's investment.
CHRIS SNYDER, HEAD COACH, SETON HILL UNIVERSITY: Football certainly brings the university some notoriety in our area.
YASTINE: . is already paying big dividends.
SYNDER: Football is so popular in western Pennsylvania. And Seton Hill has football and you have people talking about Seton Hill every week. Hey, did you see the Seton Hill score? How did Seton Hill do? And that only helps the institution, attract students, whether they're athlete or non-athlete.
YASTINE: Jeff Yastine, NIGHTLY BUSINESS REPORT, Greensburg, Pennsylvania.
"Kevin McCormally's Tax Tips"-Mutual Fund Distributions
SUSIE GHARIB: The calendar may say November, but we're thinking April, as in the mid-April deadline to file your Federal income taxes. Now is the time to look over your finances and find ways to keep more of your own cash. And we're here to help all week long with our year end tax tips. Tonight, our tax expert, Kevin McCormally, editorial director of "Kiplinger's Personal Finance" says beware the coming tsunami of mutual fund distributions.
KEVIN MCCORMALLY, EDITORIAL DIR., KIPLINGER'S PERSONAL FINANCE: Mutual fund investors brace yourselves. Funds are about to begin doling out billions of dollars in year-end distributions. By one estimate this year's largesse will surpass last year's record of $481 billion. We could even break the half-a- trillion dollar mark. That's sweet. And it can also bring both tax headaches and opportunities.
First the headaches: it threatens investors who buy a fund just before a payout. That might seem pretty smart - after all, you get a full-year's income even if you've owned the fund for just a few days. But it's really a blunder. When the distribution is paid, the share value falls by the same amount, a $10 pay out knocks $10 off the share price. Recent buyers effectively get a rebate of part of the purchase price. The bad news is you have to pay tax on that refund. You're better off buying just after the ex-dividend date rather than just before.
Now, for the opportunity: if you're planning to sell a fund soon, you're probably better off doing it before rather than after the distribution. Remember, what's being paid out may be a combination of long-term gains realized by the fund this year, short-term gains, interest and dividends. Before the payout, it's all built into the share price. So if you've owned the fund for more than a year, all of the profit on the sale will be treated as a long-term capital gain, taxed at a maximum rate of 15 percent. If you sell after the payout, you'll have less gain to report since the share price falls. But part of the distribution - the part that represents short-term gains, non-qualifying dividends and interest -- will be taxed as high as 35 percent. Selling sooner rather than later lets you dodge that inflated tax bill. I'm Kevin McCormally.
Paul Kangas' Stocks in the News
PAUL KANGAS: Those better than expected results from Wal-Mart and the sharp drop in oil prices set the stage on Wall Street for a strong comeback from four straight sessions of losses. Word from Goldman Sachs and JPMorgan that they would not have big sub-prime debt write downs also helped the Dow surge 173 points by noontime with the NASDAQ Composite up 50 points. The rally got a further boost this afternoon on news that September pending home sales actually rose 0.2 percent when a drop was expected. That helped stocks end at their best levels of the day. Dow Jones Industrial Average vaulted 319.54 points to 13,307.09. NASDAQ Composite soared 89.52 to 2673.65. Standard & Poor's 500 Index jumped 41.87 points ending at 1481.05. Over in the bond market, the 10-year note fell 16/32 to 99 27/32, putting the yield at 4.27 percent.
For the ninth consecutive trading session, Citigroup (C) topped the active list today on 31 1/2 million shares, moving up $2.33. The company as you might expect is reorganizing an investment banking unit.
Then General Electric (GE) $0.96 gain.
EMC Corp (EMC) up $0.89.
Wal-Mart Stores (WMT) had a very good day, up $2.65. As you heard, those third quarter earnings $0.03 ahead of the Street estimates.
JPMorgan Chase (JPM) up $2.66. The CEO of JPMorgan sees just a modest $300 million mark down in collateralized debt obligations.
Bank of America (BAC) up $2.29. The company will write down $3 billion in bad sub-prime debt, but it also said it has a $30 billion gain from its investment in China construction bank.
Pfizer (PFE) a $0.53 advance.
Ford Motor Co (F) moved up $0.13.
AT&T (T) gained $1.20.
Then Mylan (MYL) down $0.68, was number 10 in volume.
Goldman Sachs Group (GS) up $18.33. The CEO there says the company's maintaining a short position in the sub-prime mortgage market and will not be taking any significant write offs.
Then we have Corning (GLW) $2.09 gain. The company says its October results were strong and it's boosting its fourth quarter earnings guidance from $0.38 a share at best to $0.40 a share at best.
Diana Shipping (DSX) up nicely, $5.22. The dry bulk carrier took delivery of a new ship which is already under a four-year charter to BHP Billiton (ph). That whole sector was strong today.
Dryships (DRY) also has chartered several of his ships as has Eagle Bulk Shipping (EGLE) and Excel Maritime (FXM) and Navios Maritime (NM), all nice gainers today, very strong group.
Rio Tinto plc (RTP) up $11.38. Standard & Poor's upgraded it from "sell" to "hold" in the belief BHP Billiton will sweeten its buyout bid.
Then we Encore Energy (ENP) which just went public in September at $21, gaining $3.24 on news the company will boost its annual distribution from $1.40 to $1.55 per unit.
Vmware (VMW) up $10.32. The company unveiled its next generation of the easy to use virtualization software, nice reaction to that.
Aeropostale (ARO) up $2.66. The teen apparel marketer is boosting its stock buyback plan by $250 million. Then we see WABTEC (WAB), which I believe is the acronym for Westinghouse Airbrake and it's going to be added to the Standard & Poor's mid-cap 400 index after the close Friday, replacing Florida Rock Industries, which is being acquired.
And Wendy's Intl (WEN) edged up a nickel on the close. After the close, Triarc said it's still willing to make a buyout offer but said it will be below the one it made in July, at $37 to $41 a share, but it didn't say how much. After the close, Wendy's moved up about $0.50 a share.
Apple (AAPL) topped the active list on $16.20, reportedly in talks with the CEO of China Mobile about bringing the iPhone to China. Google (GOOG) did well, up $28.48.
Research in Motion (RIMM) up nearly $10.
Microsoft (MSFT) gained $1.19.
Baidu.com (BIDU) almost a $40 rebound today.
Cisco Systems (CSCO) up $1.03.
$0.85 gain in Intel (INTC).
Adobe Systems (ADBE) down $1.33. Its CEO, Bruce Chisen (ph), is planning on retiring.
First Solar (FSLR) rebounding $10.37. Broadpoint brokerage began coverage with a "buy" and a price target of $225.
E*Trade Financial (ETFC) bouncing back $1.45 after tumbling $5 yesterday on bankruptcy concerns. BMO Capital today said bankruptcy is not probable for E*Trade.
And over on the American Exchange, a loss of $6.59, the company reported a third quarter loss of $1.56 versus earnings of $1.84 a year ago. Travel Centers (TA)
And those are the stocks in the news tonight.
