Program summary
Earnings season has started on Wall Street, and so far it has been a yawner, co-anchor Geoff Colvin said to start the program.
Among the scant news this week: Microsoft, which has $40 billion in the bank, announced it would pay a dividend for the first time in its history; and K-Mart, fighting to get out of Chapter 11, announced it would close 326 stores and cut 37,000 jobs.
Karen's market insight
Stocks fell this week as worries over corporate earnings and rising tensions with Iraq weighed on prices, leaving skid marks on the best start to a new trading year since 1987, co-anchor Karen Gibbs said.
The week started benignly with chip giant Intel easily beating Wall Street earnings expectations, but that rosy earnings picture was clouded by a mediocre sales outlook and disappointing capital spending plans. Microsoft's plans for a stock split and the aforementioned dividend payout wasn't enough to offset a gloomy profit outlook, which was echoed IBM and Advanced Micro Devices.
The S&P 500 fell almost 26 points. The Dow Jones Industrial Average slid more than 198 points. And the Nasdaq Composite Index dropped more than 71 points.
Morningstar style boxes showed how tech stocks hurt the large cap growth index, which fell more than 4 percent. But small value sector got help from an unlikely source: The once mighty U.S. Steel saw its stock surge more than 17 percent with its $950 million dollar bid for National Steel. If successful, this now small-cap value company would become the world's fifth largest steelmaker.
And the January barometer - often the first month indicates the trend for the rest of the year -- lost a little pressure this week. The Dow up only 245 points for the month, with 2 trading weeks left.
Travel and leisure discussion
Tonight's main theme was travel and leisure, an industry that has been growing faster than the overall U.S. economy. Karen had a roundtable discussion with Mark Greenberg, manager of the INVESCO Leisure Fund, and David Anders, a highly-ranked gaming and lodging analyst for Merrill Lynch.
Anders and Greenberg agreed that travel and leisure has a strong future in the long run. "We've seen this for a long time, that everybody's taking more vacations than their parents did," Greenberg said. "They're buying more toys than their parents did, buying more jewelry. People like to spend money on themselves, and I think this is a worldwide trend that's going to continue."
There could be some near-term problems related to Iraqi war, Anders said.
"What we're finding is a lot of investors agree that the big-term trend is very positive for leisure, but they want to wait," Anders said. "They believe that we might have a little bit of a repeat of 1991, which was the leisure stocks sold off into the initiation of military action, and then ultimately started to appreciate almost immediately following the cessation of aggression. So investors are kind of on the sidelines right now. We think you need to do your homework, and if there is a dip, we'd be aggressive buyers."
Click here for the stock picks of Anders and Greenberg
Earlier this week, Geoff interviewed Hilton Hotels CEO Stephen Bollenbach. A war with Iraq shouldn't hurt the travel industry too much in the long run, Hilton's head honcho said. "In terms of the terrorist activity, I think it's unknowable," he said. "And therefore, I don't think as a business person, as it relates to our business, we really need deal with it."
Terrorist attacks on the World Trade Center and Pentagon did not leave a permanent mark on business travel, Bollenbach said. "The change that we see is a continuing trend to what we saw before 9/11, in the months before 9/11," he said. "We saw the economy slowing down. And business travel is something that companies always pull back on when their earnings are under pressure. But I don't think the fundamental of (business) travel, which is two people getting together to talk about a transaction, has changed."
The hottest destination city currently is New York City, Bollenbach told Geoff. Hilton is having a record years for the Waldorf-Astoria and New York Hilton, which are the companies two biggest hotels in New York.
According to one travel organization, the top vacation cities in the United States are Orlando, Fla., Las Vegas and New York, Karen said. Internationally, the most popular destinations for Americans are London, Cancun and Paris.
Anders and Greenberg both like Hilton's stock as an investment.
Click here for a transcript of the full discussion on travel and leisure
Health and Investor Spotlight
If you return from vacation to find you've gained a few pounds, join the club: Most Americans are now overweight, Geoff said. This week all three major weekly news magazines devoted their covers to health and medical topics, he noted.
Like every major trend, this one has an investing angle. A recent report from UBS Warburg warns that what it calls the "worldwide obesity epidemic" could hold risks for some major food marketers, Geoff said. Governments could impose new restrictions on advertising, restrictions on vending machines, and even new taxes on some foods. Then there's litigation. Some teenagers recently sued McDonalds for making them fat, and while many find that notion ludicrous, you never know what a jury will do. Companies most at risk, the firm says, include Hershey Foods, McDonalds, Pepsi, and Coke.
Even as Americans are getting tubbier, they're also feeding a "healthy lifestyles" industry, which RBC Capital Markets analyst Carole Buyers identified as natural and organic foods, dietary supplements, and natural personal care products, totaling $36 billion a year at retail and growing fast as baby boomers try to fend off the effects of aging. Buyers likes two companies in the sector: Whole Foods Market, a chain of natural foods supermarkets, and United Natural Foods, the leading natural products distributor in the United States.
Geoff interviewed Ned Riley, chief investment strategist for State Street Global Advisors, for this week's Investor Spotlight. Riley believes some big-name technology companies are attractive investments right now, despite the years-long downturn in the tech sector.
"This is probably one of the best industries, in general, on a secular growth basis," Riley said. "It's an also industry that (has a product that) needs replacement. … 3.7 years (is) the average obsolescence for the machinery. We're getting into the fourth year since Y2K. Companies are going to have to buy."
However, President George W. Bush's economic proposal does not do enough to encourage companies to buy new equipment, Riley said. "The president should have focused more on investment tax credits or liberalized appreciation," he said. "I hate to say it, but the Democrats' bill addresses that issue with a 50 percent write-off in 2003, and that's the jumpstart this technology industry needs."
Friday's market downturn, which was led by a tech stock decline, was "ludicrous," Riley said. Wall Street is focusing too much on the short term, he said.
"The companies are actually encouraging this," Riley said. "They don't talk much about their long-term prospects, their plans, their strategies, where they are going. … It's as much the company's fault, as it is the analysts that are following these companies, and the reason these stocks are weak -- because everybody is still staying short-term focused."
Riley also criticized Bush for his war propaganda. The administration shouldn't be so quick to talk about the United States' willingness to attack, Riley said.
"The president on one hand is trying to stimulate the economy, and on the other hand he's scaring the heck out of the American consumer with all of this talk of war," Riley said. "I did kind of facetiously write a letter to the president, and I said 'Give peace a chance.' Think about the peacful alternatives that we may come up with, as opposed to 'We're going to attack unilaterally (whether) or (not) if we have cooperation.' That's not helped."
The fact that the market fell to a multi-year low in October -- despite falling interest rates, expanding profits in the second half of the year and other improving economic factors - indicates that stocks are being held back by general nervousness, Riley believes. "Why isn't the market up? Bad sentiment."
Viewer mail
For this week's viewer mail segment, Karen answered a question from Philip Baker-Jones, of Dayton, Oregon, who asked:
Book value is what a company owns minus what it owes, Karen said. It's accounting jargon for what would be left over for shareholders if the company was sold and its debt retired.
With book value, it's important to think carefully about what kind of company you're looking at, Karen said. Book value is a useful measure for industrial companies such as Phelps-Dodge, but not for Coca-Cola whose most valuable asset - its brand- isn't counted. "So be wary of making investment decisions based on book value alone," Karen said.
Next week: A look at the retail battle of the century -- The Home Depot vs. Lowe's.
|
