NBR Transcripts-April 23, 2008
Wednesday, April 23, 2008Macs & iPods Help Apple Beat The Street
SUSIE GHARIB: It's been a busy day of earnings reports with some big hits and misses. First, Apple, the tech bellwether said late this afternoon that quarterly profits surged 36 percent, but Apple shares tumbled in after hours trading on concerns about its outlook. Apple earned $1.16 a share in its fiscal second quarter, $0.07 better than analyst estimates. Revenue also came in better than expected, up 43 percent to $7.5 billion. Apple credits the performance to strong sales of Mac computers, iPhones and iPods. Looking ahead, Apple disappointed investors saying it sees fiscal third quarter earnings of $1, $0.10 less than Wall Street expectations. Rick Hanna, equity analyst at Morningstar says it's possible Apple is merely managing Wall Street's expectations as the company's sales mix changes.
RICK HANNA, EQUITY ANALYST, MORNINGSTAR: In this most recent quarter, their operating margins actually declined. I think a lot of that has to do with the changing mix of their business being much more Mac-based and less on the iPod base. So that may be changing the relative, you know, profitability of the business.
GHARIB: Hanna also says Apple sales will continue to grow even through an economic slowdown. He says Mac sales have increased more than 40 percent year over year while the overall PC market has only grown in the low teens.
Now May Not Be The Time To Buy Into Oil Stocks
PAUL KANGAS: Oil prices rose slightly today adding $0.23 to $118.30 a barrel in New York trading. The move came on fears gasoline supplies are falling ahead of the summer driving season. The Energy Department says gasoline inventories fell by over three million barrels last week while crude supplies rose unexpectedly. As Erika Miller reports, some analysts think rising crude prices will continue to support oil company shares.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: With crude at record levels, it's no wonder oil stocks have been gushing higher. The American Exchange oil index has rallied 16 percent in the past three months, compared to a 3 percent gain in the S&P 500. Despite the lofty levels of many oil industry stocks, some analysts still see good investment opportunities. Mark Urness of Calyon Securities recommends looking beyond giants like ExxonMobil and Chevron.
MARK URNESS, HEAD OF ENERGY RESEARCH, CALYON SECURITIES: Our top pick is Cameron International, CAM, which is a leading provider of subsidy equipment valves and compressors. They are very much a play on the secular trend of increased drilling in deep water.
MILLER: Calyon Securities has done business with Cameron International over the past year. Part of the reason investors are bullish about the energy sector is the expectation for strong earnings growth this year. Energy is likely to be the top earnings gainer in the first quarter. Wall Street is also forecasting double digit profit growth for the rest of the year. But analysts say those strong earnings depend on a continued rally in energy prices.
URNESS: We think we're in a secular bull market for energy based on very strong demand, but as importantly very limited incremental supplies globally. Places like Russia are seeing production level off. We're seeing Mexico experience declines, et cetera.
MILLER: But others believe crude prices are in a speculative bubble and it would be a mistake to buy most oil stocks now. Among them is Mark Gilman, oil analyst at the Benchmark Company, who thinks crude futures are headed back to $50 a barrel.
MARK GILMAN, OIL AND GAS ANALYST, THE BENCHMARK COMPANY: We still think that there's noticeable risk almost across the entire sector, if in fact our price expectations prove to be valid, namely that prices are unlikely to be sustained at levels above $50.
MILLER: But Gilman does like one company, which does oil exportation and production.
GILMAN: I would have to say our top pick right now is Encana, ticker ECA, which we consider to be a company with talented management and extremely attractive and diversified resource base and a valuation in the context of what's going on right now, it's almost even reasonable.
MILLER: Experts say the biggest risk to investing in oil stocks is a global recession. If economic growth slows sharply, it would likely crimp demand for energy and energy stocks. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Uncle SAM May Soon Be Offering Student Loans
SUSIE GHARIB: Moving on now to the news, in Washington today, the Bush administration asked Congress for permission to act as a lender of last resort in the student loan market. The move is designed to make sure students have the money they need to go to college this fall. As Darren Gersh reports, the decision may be good news for those looking to finance their education, but it's not a good sign for the economy.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: As lender of last resort, the Federal government would buy up student loans that banks and finance companies can't bundle into securities and sell to investors. But there's a catch. KBW analyst Sameer Gokhale says the government plans to buy loans at the lender's cost.
SAMEER GOKHALE, SR. VP, KEEFE, BRUYETTE & WOODS: Which is better than making the loans and keeping them on the books at negative spread and losing money on them. So in that sense it's better to sell to the government at par, but it is clearly not a viable solution longer term and the government does seem to be trying to take a bigger role at least in the near term.
GERSH: With college planning in full swing for the fall semester, the Education Department urged Congress to pass legislation by the end of May authorizing it to buy a large number of loans. Congressman Paul Kanjorski says lawmakers will move quickly.
REP. PAUL KANJORSKI, (D) PENNSYLVANIA: We're going to lose 25 to 30 percent of our lenders in just the next several weeks if we don't solve this problem and possibly half a million to a million students will not go to school next year because there won't be funds available for them. That is unconscionable, unacceptable.
GERSH: Gokhale says the stress in the market for loans that are already guaranteed by the Federal government is a sign the credit crunch may be getting worse not better.
GOKHALE: I think what this suggests is for assets that are probably the next best thing to U.S. Treasuries, seeing the spreads widen out so much indicates that maybe there's a fear in the marketplace.
GERSH: That fear may be driven in part by concerns U.S. consumers are headed for more trouble. Morgan Stanley estimates the default rate for private student loans will rise from 1.5 percent in 2007 to between 3 and 4 percent in 2009. While the need is there, Tom Stanton, an expert in government finance, says the Federal government has to make sure it does not end up bailing out lenders.
TOM STANTON, FELLOW, JOHNS HOPKINS UNIVERSITY: They have to be careful they are not adversely selected, that people don't sell them their worst loans, the ones from trade schools with high default rates, the small loans and keep the best loans in their portfolio.
GERSH: Even with the government backstop, financial aid web site finaid.org projects an additional 100,000 to 200,000 families will not qualify for Federal loans this year because they have poor credit or have suffered through a recent foreclosure. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique"-Patrick O'Hare, Chief Market Analyst at briefing.com
PAUL KANGAS: Tonight's "Street Critique" guest looks at stocks and the markets from a contrarian's point of view. He's Patrick O'Hare, chief market analyst at briefing.com and author of the site's "Bargain Hunting" column. And Pat, welcome back to NIGHTLY BUSINESS REPORT.
PATRICK O'HARE, CHIEF MARKET ANALYST, BRIEFING.COM: Thank you, Paul. Nice to be back with you.
KANGAS: Tell me a little bit more about how you pick stocks and what you're seeing in the current market environment.
O'HARE: I think we're emphasizing two approaches. One is value oriented and the other the contrarian minded. The price to earnings growth ratio, a peg (ph) ratio as it's called, is one of my favorite value oriented metrics and it helps identify stocks whose P/E multiples are trading below the company's projected earnings growth rate which is often a sign that there's a value opportunity there. In terms of the contrarian selection, simply look at stocks that have fallen out of favor with the market for one reason or another but whose business remains fundamentally sound and suggests that there will be better returns down the road.
KANGAS: Very good. The last time you were with us on February 27, you liked General Electric (GE) because you thought it was undervalued. The conglomerate had a big earnings miss as you know. Do you still see value here? GE is down a little less than 5 percent since you were last with us.
O'HARE: We do. GE got caught up with the credit market dislocation but really it's a victim to its own fault. The company over promised and under delivered and got hit hard as there was a credibility issue that arose there. But that's not in GE's nature and we think that its conservative forecasting now should help rectify that situation in short order. And we remind investors that GE is just one of a handful of companies with a triple-A credit rating that pays secure and steadily rising dividends and has a strong presence in a number of growth markets.
KANGAS: All right. Now you also liked retailer Kohl's (KSS) back in February. That was a recovery (INAUDIBLE) and do you still like it? It's actually up 1.6 percent.
O'HARE: We like it and it would appear that the market likes it too. Despite all of the gloom and doom reports surrounding the consumer, Kohl's is actually up 4 percent for the year. So it's handily outperforming the market, so we think investors are catching on to this recovery idea.
KANGAS: Now you've brought our viewers one new recommendation. It's the other Cisco, Sysco Corporation (SYY), the big food distributor. What caught your eye on this one?
O'HARE: That's right. Sysco, stock symbol is SYY. It's headquartered out of Houston and because it is the largest food distributor in North America, we like its industry-leading position. It's in a fragmented industry and it really has some great scale there. Yet it's still only owns about 15 percent of a $225 billion market, so there's still a lot of room for growth there. The stock has been knocked down on concerns that relate to discretionary spending and the slowdown in the U.S. economy as well as rising food and fuel costs, but at its current price it trades at a 40 percent discount to its 10-year historical P/E multiple and we think given how well managed this company is, the secure dividend it pays and its industry-leading position, we think it really offers a nice opportunity here for the patient-minded investor.
KANGAS: Patient-minded meaning long-term investment.
O'HARE: Right. I mean you have to have about a three- to five-year outlook here, but we think it will be worth your while if you can wait that long.
KANGAS: Very good. Do you own any of the stocks we've talked about or have any other disclosures to make, Patrick?
O'HARE: No, I do not, Paul.
KANGAS: OK, want to thank you for being with us once again, very interesting.
O'HARE: Thank you.
KANGAS: My guest, Pat O'Hare of briefing.com.
"Money File"-401k's Hidden Costs
SUSIE GHARIB: In the money file tonight, finding hidden fees in your 401(k). Here's Harriet Johnson Brackey, personal finance columnist at south Florida's "Sun Sentinel."
HARRIET JOHNSON BRACKEY, PERSONAL FINANCE REPORTER, SO. FLORIDA SUN- SENTINEL: What do you pay in fees for your 401(k) account? Right now you can't answer that because 401(k) accounts are loaded with hidden fees that don't have to be disclosed. This situation is wrong. The thing is, most 401(k) account owners don't even know they're paying the overhead costs of running their plan. That's because those expenses are subtracted from the accounts from your savings, but not reported to you in a line item on your statement.
Sometimes your company may not even know the true costs of the plan that it sponsors. If you think it's 1 percent, but it's really 5 percent, that heavy load will wear down your retirement to a nub. The Labor Department is proposing better disclosure rules. The House is working on a bill and there's a handful of lawsuits keeping the hidden-fee issue in the spotlight. So what can you do? Get as much information as possible from your 401(k) plan administrator. Use the Labor Department's online tool to learn what fees might be hidden in your plan and organize your coworkers to go to human resources and ask your company to get a full disclosure of fees. Only when you know what you're paying for your 401(k) account, can you decide if it's worth it. I'm Harriet Johnson Brackey.
"Last Word"-Up in Smoke
SUSIE GHARIB: And finally tonight, smoking could be hazardous to your job. A Whirlpool factory in Indiana has suspended 39 workers without pay for lying about whether they smoke. The workers signed paperwork saying they did not use tobacco so they could save $500 in insurance premiums. They were later seen smoking or chewing tobacco on Whirlpool property. The workers will have a chance to defend themselves before management decides whether they stay or go. And Paul, Federal law lets an employer charge more for insurance premiums because of unhealthy habits, but it doesn't say what to do if a worker lies about it.
KANGAS: Lying is a bad habit too. So they ought to jack those premiums still higher.
Paul Kangas' Stocks in the News
PAUL KANGAS: After a narrowly mixed opening, stocks on Wall Street improved partly on Boeing's better-than-expected earnings which overshadowed that big loss from Ambac. At 11:00 a.m., the Dow was up 88 points and solid buying in the tech sector lifted the NASDAQ Composite to a good 31-point gain. Then computer sell programs sent the Dow to a two-point loss at 1:00 p.m., but continuing firmness in the tech sector helped get the blue chips back on the plus side by the final bell. The Dow Industrial Average closed up 42.99 points at 12,763.22. The NASDAQ Composite gained 28.27 to 2405.21. Standard & Poor's 500 Index rose 3.99 ending at 1379.93. Over in the bond market, the 10-year note fell 10/32 to 98 2/32, putting the yield at 3.74 percent.
New York Exchange volume leader on 23.1 million shares, Pfizer (PFE) moving up $0.09. Followed by Ford Motor Co (F) a $0.13 drop.
Citigroup (C) fell $0.49.
And American Water Works (AWK) was a new issue, it came public today on 58 million shares offered at $21.50, never got to that offering price. It opened at $20.60. The high of the day was $21.14, not a very good debut.
General Electric (GE) a $0.03 gainer.
Then we move to SprintNextel (S), $0.62 advance.
Ambac Financial (ABK) plunging $2.57. You heard about that massive loss.
Then came EMC Corp (EMC) with a $0.30 gain.
While National City (NCC) dropped $0.30.
Bank of America (BAC) a $0.14 loss there.
Philip Morris (PM), the recent spin off from Altria, up $1.93 today. First quarter earnings out, $0.89 versus $0.69 last year and $0.12 above the Wall Street estimate. Revenues were up 18 percent. That chart looks kind of funny because it's such a new issue.
Safeco (SAF), look at that gain, $20.71. The property and casualty insurance company will be acquired by privately held Liberty Mutual for a price of $68.25 a share, huge gain today.
VMware (VMW) up $2.82. First quarter earnings out, $0.22, versus $0.16 last year. The company sees 2008 revenue growth of 50 percent.
Rockwell Automation (ROK) down $5.56. Sharp drop in second quarter earnings to $0.96 versus last year's $4.45 a share.
Norfolk Southern (NSC), the big rail, down $2.40. First quarter earnings, $0.76, up from $0.71 last year, but $0.02 below the Wall Street estimate, no room for disappointment in this market.
Delphi Financial Group (DFG) plunging $6.88. First quarter operating earnings, $0.51, way down from $0.79 last year and the company cut its 2008 operating earnings guidance down to about $3 to $3.30 at best.
Monaco Coach (MNC) down $1.36, first quarter loss of $0.28 versus earnings of a nickel last year. Sales plunged 22 percent. The company sees a second quarter loss of $0.15 to $0.20 a share.
Teledyne Technologies (TDY), there's a nice gain of $9.25. First quarter earnings, $0.77. That was $0.10 above the Wall Street estimate. That is excluding one-time items.
Edwards Lifesciences (EW) up $6.38. First quarter earnings $0.56, up from $0.54 last year on a 12 percent rise in sales. The company boosted its 2008 sales guidance by $50 million.
Tupperware Brands (TUP) sealed up a gain of $4.81 today. First quarter earnings, $0.55, well above $0.32 last year. Revenues up 19 percent and the company boosted its 2008 earnings guidance by $0.07, up $2.54 a share.
Apple (AAPL) topped the active list on NASDAQ, closing up $2.69. As you heard, second quarter earnings, $0.07 above the Street estimate, but the outlook rather downbeat. In after hours, I saw the stock around $161 a share.
Microsoft (MSFT) up $1.20.
Google (GOOG) fell $8.51.
Baidu.com (BIDU) $0.44 drop there.
Research in Motion (RIMM) lost a half a dollar a share.
Broadcom (BRCM) up $3.82. First quarter earnings out, $0.14, well above last year's $0.10 on a 50 percent increase in revenues, all better than expected. Standard & Poor's repeated a "buy" on Broadcom.
Intel (INTC) $0.57 gain.
Cisco Systems (CSCO) $0.52 rise there.
Amazon.com (AMZN) down $1.40. After the close, first quarter earnings out, $0.34, versus $0.26 and it boosted its 2008 forecast, but nevertheless, there's some worry (INAUDIBLE) analysts about profit margins and the stock dropped almost $5 a share in after hours trading.
Yahoo! (YHOO) down $0.46. Earnings out yesterday as we reported.
Anadigics (ANAD) up $2.76. First quarter earnings out, $0.15, almost double last year's $0.08 and that was a nickel above the Wall Street estimate.
And finally, look at this gain, Sirtris Pharmaceuticals (SIRT) soared $10.02 on news it will be acquired by Glaxosmithkline for $22.50 per share cash.
