SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Inside Intel (NASDAQ:INTC). And the view today isn`t pretty. Wall Street questions its mobile strategies, causing shares of the world`s largest semiconductor maker to drop by the most in 10 months.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: All that glitters isn`t gold. The medal down sharply this year and one big Wall Street firm sees the slide continuing into 2014. Gold — safe haven or bad bet? We`ll explore.
GHARIB: And, market monitor. Our guest has a list of stocks that may grow their dividends and increase their buybacks in the New Year.
We have all that and more tonight on NIGHTLY BUSINESS REPORT for this Friday, November 22nd.
MATHISEN: Good evening, everybody, and welcome.
Investors poured more money into stocks, driving both the Dow and S&P 500 to new all-time closing highs. For the S&P 500, it was a milestone kind of day. It settled above 1,800 for the first time ever. It is now up seven weeks in a row and now stands 27 percent, the S&P, above where it started the year. And if the index stays at that level through year end, the annual gain will be the greatest in 15 years.
The favorable reading on Midwest manufacturing helped stocks today, so did a report on job openings.
Here is how the market closed out this very busy Friday. The Dow up 54 points, good for its 41st record close of the year. The NASDAQ added 22 points and is now less than nine points away from the 4,000 milestone. And the S&P was up nearly nine to close at 1,804.
GHARIB: But one Dow component didn`t benefit from today`s rally.
We`re talking about Intel (NASDAQ:INTC). Shares tumbled more than 5 percent. Now, just yesterday, Intel (NASDAQ:INTC) was the best performer in the Dow.
So what happened? The company disappointed investors, forecasting sells of computer chips that will be flat next year, as it makes a stronger push into mobile devices. Investors are questioning Intel (NASDAQ:INTC)`s mobile strategy.
Dominic Chu has more.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Intel (NASDAQ:INTC) is in for some big changes. The PC business, Intel (NASDAQ:INTC)`s life blood for decades, continues to shrink while consumers around the world buy up tablets and smartphones.
Worldwide, about 80 million PCs shipped in the third quarter this year, including laptops. That`s down about 8 percent from a year earlier.
Now, Intel (NASDAQ:INTC) is playing catch up in the model chip market where the architecture of British rival ARM Holdings (NASDAQ:ARMH) dominates.
ALEX GAUNA, JMP SECURITIES: It`s an enormous threat. It`s caused them to actually fundamentally shake up their business model.
CHU: Intel (NASDAQ:INTC) executives acknowledged Thursday that they had underestimated the impact of the mobile revolution. In fact, Chairman Andy Bryant said, “We are paying the price for that now” and that he was personally embarrassed.
CEO Brian Krzanich said Intel (NASDAQ:INTC) will make high margin chips for tablets and smartphones and try to target top tier smart phone makers with its new chips. But some analysts warned Intel (NASDAQ:INTC) has no technology to dominate newer 4G smartphones.
GAUNA: In a mobile world, we care about the connectivity portion of the equation than to compute. So, it still sounds like they are caught in backward-looking thinking and haven`t yet found out the vision or the answer that`s going to allow them to succeed in the future. That`s the problem.
So, basically capital intensity is on the rise and as a result, the guidance, at least from gross margin perspective wasn`t very encouraging.
CHU: Those concerns have investors worried.
The road will be especially tough for Intel (NASDAQ:INTC) considering Apple (NASDAQ:AAPL) and Samsung dominate the high end of the market.
Samsung already buys chips from Qualcomm (NASDAQ:QCOM) which won`t surrender that business easily, and Apple (NASDAQ:AAPL) designs its own chips.
So, Intel (NASDAQ:INTC)`s best bet there might be the lower margin business of building from Apple (NASDAQ:AAPL)`s blueprints.
The forecast now for this Dow component and an icon of the industry has suddenly become cloudy.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
MATHISEN: Well, stocks may have rallied this week but gold sure didn`t. Today, it did add 31 cents to finish at $1,244 an ounce. But its weekly decline was 3.7 percent, worst in two months. And on Wednesday, it touched its lowest level since summer. All this comes amid a flourishing debate now about whether investors should continue to invest in the precious metal at all.
Just this week, analysts at Goldman Sachs (NYSE:GS) predicted a significant decline in gold prices next year, but David Einhorn, founder of the hedge fund Greenlight Capital, says it`s still a good idea to keep gold in your portfolio.
(BEGIN VIDEO CLIP)
DAVID EINHORN, GREENLIGHT CAPITAL: What we really own gold for is just in case something goes really, really haywire. And what I`m thinking about is in terms of mostly the monetary policies but also the fiscal policies that are being run by the big economies.
(END VIDEO CLIP)
MATHISEN: Well, gold prices have fallen around 26 percent so far this year.
GHARIB: So, should you follow David Einhorn and buy gold for your portfolio? Our two guests have different answers to that question.
Suki Cooper says no. She`s precious metal analyst at Barclays. And Axel Merk is more bullish, predicting gold prices will get up to $1,500 an ounce over the next year. He`s president and chief investment officer of Merk Investments.
Welcome to both of you.
Suki, let me begin with you. Make the case why you think investors shouldn`t put gold in their portfolios.
SUKI COOPER, BARCLAYS PRECIOUS METALS ANALYST: If we look at the two key factors driving gold so far this year. On the one hand, it`s been investment demand and we`ve seen sizable disinvestment, whether it`s exchange traded products or in the futures market, and that`s been because investors have been attracted to other assets.
And on the second factor, it`s the physical markets. And although we saw the strong buy from China or India, when we saw the price correction in April and June, now in the middle of an essentially (ph) strong period for demand and we haven`t seen that same level of activity coming through from India or from China which could start to pick up before the Chinese New Year.
So, there`s two key factors here are lending very little support to gold. And further more, gold had a number of positive factors to push prices higher so far this year and prices have sidelined those factors entirely.
MATHISEN: All right.
COOPER: So we think the risks to gold are actually skewed to the downside.
MATHISEN: All right. Suki says the risks are to the downside, which doesn`t mean you shouldn`t hold some gold for the long term. Make the case for it. We got lots of debt all around the world. We`ve got currencies that people question, but there is no inflation right now.
AXEL MERK, MERK INVESTMENTS PRESIDENT & CIO: Well, the biggest risk I think that`s out there if you look at market sensitivity is economic growth. And the reason I say that is that bonds are bound to plunge if we get economic growth.
We cannot afford positive real interest rates. We could pay a trillion dollars more a year ten years down the road on serving government debt if we go back to historic levels interest rates. We can`t afford that, so we have to err on the side of inflation. The Fed has said they`re going to err on the side of inflation, when to have full employment.
And so, I think gold is a very good hedge and diversifier. You want something that goes down in an up market and you want to have something that everybody is hating. So, yes, the trend has been downward but when the S&P goes up in a straight line, I think I would want to take some chips off the table and gold is much cheaper than it has been.
GHARIB: Well, Axel, you`re basically making the case gold is a safe haven investment.
So, Suki, let me ask you that. I mean, David Einhorn saying that he`s owning it because just in case things really go haywire. So, are you saying that gold doesn`t really serve the safe haven status anymore?
COOPER: Previously, we saw gold with quite a good hedge for the financial uncertainty, whether it was credit market uncertainty or whether it was counter-party risk. That environment where gold actually flourished. But right now this year, we`ve seen geopolitical tensions rise and gold rallies a little bit.
But we had so many other factors where gold should have done well like during the U.S. government shutdown, yet prices actually fell.
Some investors are actually looking elsewhere to perhaps their currencies for a safe haven bet rather than looking to gold as a save haven hedge.
MATHISEN: You know, Axel, let me — let`s say I`m persuaded by your argument here. If so, how much gold should I hold in my portfolio? How much do you have in your own portfolio, that might be a different way of asking it, and in what form should I buy it?
MERK: Gold is a risky asset. So, any asset one has to think what one can stomach. In the hot currency fund, we have about 13 percent. I personally have substantially more and simply because I like the diversification. I am scared when there is complacency, a low VIX index.
The S&P goes to new highs when bonds are expensive.
And so, yes, by all means, gold has come down but it`s just making a better and better volume. So, I have a substantial portion of my own net worth in gold and others, they have to decide for themselves.
But clearly, if you just think you`re going to chase the market because it`s doing well and you`re selling gold because it`s been doing poorly, I think that`s the very wrong way to look at it.
GHARIB: Before we say goodbye to both of you — so, Axel, would you own the metal or the stock or, you know, how would you fill your portfolio?
MERK: I prefer the reduced volatility of the metal but clearly, if you think gold is going to go higher, odds are the mining companies with all the focus of nonprofits might doing better. But still, I think we`re gong to have volatile periods and as such, the low volatility for me personally, I prefer in the metal.
GHARIB: OK. All right. Thank you both very, very much. Suki Cooper, precious metals analyst at Barclays, and Axel Merk, he`s resident and chief investment officer of Merk Investments.
MATHISEN: Well, Axel was talking about low interest rates and a cable operator Charter Communications (NASDAQ:CHTR) likes those rates. It`s exploring now a possible bid for its larger rival Time Warner (NYSE:TWX) Cable. In the meantime, Comcast (NASDAQ:CMCSA) (NYSE:CCS), the nation`s biggest cable company and the parent of NIGHTLY BUSINESS REPORT`s producer CNBC, has reportedly emerged as another potential bidder for Time Warner
(NYSE:TWX) Cable or maybe parts of it.
But there are antitrust concerns as the combined company would have about 1/3 of the nation`s cable homes. Shares of Time Warner (NYSE:TWX) Cable, the nation`s second largest cable TV provider up 10 percent in heavy, heavy trading today. Charter and Comcast (NASDAQ:CMCSA) (NYSE:CCS) were also higher.
GHARIB: Television viewers are always looking for something new to watch but lately, a lot of the hottest shows can`t be found on TV. They are on Web sites and streaming video services like Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) Prime. That`s why there is a big rush to develop new online content from some of the old guard studios and also from some startups you probably never heard of.
Julia Boorstin has more.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
You may never have heard of Maker Studios, but its viewer numbers dwarf the most popular networks, by a long shot. Its 50,000 channels on YouTube, with low cost but professional content, have 340 million subscribers with 5 billion monthly views.
YNON KREIZ, MAKER STUDIOS CEO: This is now becoming mainstream medium, a mainstream medium. And if you`re an advertiser, it`s actually a very effective way to reach consumers, because you want to target the rich (ph), engagement and measurement, all of which actually not very effective in television. With online, you can really optimize those opportunities.
BOORSTIN: The majority of Makers revenue comes from advertising. But its also built its own internal ad agency to help advertisers create branded content and it`s building a retail business, selling everything from music to products related to its YouTube stars.
Despite the fact that Maker Studios has to share 45 percent of the ad revenue with YouTube, big names still see massive potential. Media giant Time Warner (NYSE:TWX) investing $25 million, in part to understand the fast-growing YouTube ecosystem.
(on camera): Startups aren`t the only ones creating streaming video content. With Netflix (NASDAQ:NFLX)` successful originals like “House of Cards,” now, Microsoft (NASDAQ:MSFT) is investing in this space, hiring former CBS (NYSE:CBS) Television President Nancy Tellem to create original content to distribute through its Xbox platform and potentially transform the way people interact with content.
NANCY TELLEM, MICROSOFT DIGITAL MEDIA: We are changing it and certainly through Xbox, you can voice control. So, that`s also — you know, you can create — you know, you can actually tell what you want to watch, and they will curate it for you. Every aspect of our business is changing.
BOORSTIN (voice-over): The question is whether new options like those in the works from Microsoft (NASDAQ:MSFT) will threaten the media status quo.
RICH GREENFIELD, BTIG RESEARCH: There is a new world of competition that we know is going to have an impact, how big and how much it impacts when did ad dollars shift? We don`t know the exact timing, but there`s certainly fear starting to creep in.
BOORSTIN: For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin.
MATHISEN: Still ahead, Microsoft (NASDAQ:MSFT) not only launched its new gaming console today, the Xbox One, but also the ambitious plan to become the entertainment hub in your family room.
GHARIB: A big day at Microsoft (NASDAQ:MSFT). The Xbox One hit store shelves today, but it comes just one week after Sony (NYSE:SNE) released its own all-new game player, raising concerns about how strong sales of the Xbox will be and what this new generation gaming console means to Microsoft (NASDAQ:MSFT).
Josh Lipton reports.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Microsoft (NASDAQ:MSFT) says this will be the biggest Xbox launch ever, twice as big as its last console launch eight years ago. Gamers lined up from coast-to-coast waiting for the new device.
UNIDENTIFIED MALE: The line is not so fine. It`s pretty cold, but, you know, it`s going to be worth it, probably six more hours, I think.
UNIDENTIFIED MALE: The games, the games are — they look amazing.
The frame rate, 60 frames per second, and 1080p, they look amazing.
LIPTON: Microsoft (NASDAQ:MSFT) does have to deal with serious competition. Sony (NYSE:SNE) says it sold 1 million of its new consoles, the PlayStation 4, in just the first 24 hours after it launched last Friday.
The two consoles do have their differences. One is price. The Xbox One costs $499 dollars, which is $100 more than the PS4, and there are different functions. Both consoles, in addition to gaming, give you the ability to stream movies and music. The Xbox One also boosts its Connect feature, which offers voice-based commands.
But not everybody on Wall Street is as excited as the gamers.
Rick Sherlund of Nomura recently wrote a very tough note about the Xbox calling it a distraction and costly side show that he estimates loses
$2 billion for Microsoft (NASDAQ:MSFT) a year.
But Yusuf Mehdi, the chief strategy officer for the Xbox disagrees.
He sees great potential for the Xbox One.
YUSUF MEHDI, SR. VP MICROSOFT: Yes, so we`ve been profitable with Xbox for a number of years, and the opportunity now is to go console gaming today, 300 million people, a billion people play games. The opportunity just to grow in the gaming sector is huge. Gaming, as you know, is the fastest growing entertainment sector of all, whether you`re talking about movies or TV.
LIPTON: Analysts I spoke to say Microsoft (NASDAQ:MSFT) is trying to do what it`s rivals like Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Samsung are doing, controlling your living room. In the long term, that could be the real potential strategic opportunity for the company.
Josh Lipton, NIGHTLY BUSINESS REPORT, San Jose, California.
MATHISEN: Well, despite a decline in profit, shares of Foot Locker rallied in today`s session, and that`s where we begin tonight`s “Market Focus”.
Higher expenses cost the athletic apparel retailer`s third quarter net income to slip about 2 percent, but Foot Locker still beat estimates and say same store sales rise. That sent shares on a 4 percent run up to $38.27.
PetSmart (NASDAQ:PETM)`s pets services business helped the company grow profit by 12 percent in the third quarter. The pet-centric retailer –
– never heard that word before, pet-centric — beat earnings estimates.
Revenue matched forecasts. The company lowered its guidance for the year, which disappointed investors. And that sent shares almost 2 percent lower on this otherwise up day, $73.53, the close there.
GHARIB: Ann Inc., this is the parent of Ann Taylor and Loft Stores, got a lift from stronger sales. The retailer posted quarterly earnings that beat analyst estimates but margins were down because of a competitive promotional retail environment.
Also, Ann trimmed its forecast ahead of the holiday shopping season.
So, that worried investors and the stock fell slightly to $36.20.
Wall Street went on a shopping spree, buying up shares of Vince on its trading debut at the New York Stock Exchange. This high-end retailer is the first apparel IPO since Michael Kors. Shares were priced above the expected range at $20 and it closed well above that at $28.66. That`s up 43 percent.
And shares of Biogen Idec (NASDAQ:BIIB) soared to an all-time high today after the drug maker`s multiple sclerosis treatment got the OK from regulators in Europe. Biogen now has 10 years of market exclusivity for the drugs in the European Union. The stock jumped 13 percent to $285 and change.
MATHISEN: And our market monitor guest tonight predicts that in the New Year, many Americans will start spending their cash troughs, and many of them will use the money to pay bigger dividends and to buy back their stock. He`s Ed Perks, portfolio manager for the $80 billion Franklin Income Fund, a unit of Franklin Templeton Investments.
Why are you convinced Americans will do something they haven`t been doing that much so far?
ED PERKS, FRANKLIN INCOME FUND PORTFOLIO MANAGER: Yes, good to be with you, Tyler.
You know, the last several years, as I think can be expected coming out of the financial crisis, companies were really more focused on their balance sheets. So, we did see a lot of attention, not just building up cash balances but also extending debt maturities, creating a nice runway of liquidity.
And now, I think we`ve really seen companies start to shift that focus, and to some extent go completely the other direction with a feeling that look, these are still, even though rates have moved up somewhat, these are still near-record low, all time debt financing cost. Let`s take advantage of that. Let`s lock these rates in for a longer term, and let`s pay dividends and let`s buy back stock as a way to enhance shareholder values.
So, you know, we do think we have seen a transition and we expect that to continue into 2014.
GHARIB: So, Ed, you have a couple stocks to tell us about that fit that description. At the top of your list, you have BP, it has a very rich dividend, 4.5 percent.
But it`s a controversial company. Tell us why you like its still.
PERKS: Yes, you know, we have BP actually recently increased their dividend and, as you`ve said, they`ve been very focused on dealing with the tragedy from 2010, in the Gulf of Mexico, and through this entire process, it`s led the company to, in many respects, kind of rationalize their asset base and refocus around their core assets.
And as we know are at a stage where the company is really focused on moving forward, we think we`re going to see better returns from many of their new projects that have been developed these last couple years and really starting to make an impact in 2014 and beyond.
So, you know, we expect good cash flow from BP and continued dividend growth.
MATHISEN: Another one you like is Dow Chemical (NYSE:DOW). Why Dow and not say DuPont or any other big chemical company?
PERKS: Yes. Well, you know, I`d say first that there are many other companies in the sector that we do like and there are some themes that I think are important. You know, one things that certainly has been positive about this overall, the economy in 2013, is that we finally have an important end market, the housing and construction-related markets starting to contribute to economic growth, starting to contribute to job growth.
So, Dow Chemical (NYSE:DOW) in many aspects is a play on that important end market, as well as the automotive end market, which has continued to show some nice strength. The thing I like about Dow is that you do have kind of self-help measures, if you will, a company that does have a portfolio that they can look at and look for opportunities to divest maybe non-core areas and we think they`re going to use that capital that`s generated from that divestiture of certain businesses to refocus the company and to reward shareholders through dividends and share buybacks.
GHARIB: So, let`s move away from industrials. You have Coca-Cola
(NYSE:KO) as another one of your stocks on the recommended list. Now, here is a company that`s been struggling lately. Make a case why this is a buy at $40 a share.
PERKS: Well, I think it`s a good example of our focus, even though we have the market as a whole hitting all time record highs for the Dow and the S&P. I think you can look more specifically at the individual companies and find opportunities by good companies that add more attractive evaluations.
And, you know, Coke, until recently, it has popped up a little bit over the last month, but investors were, I think, a little disappointed with recent results, particularly some of the weakness in Brazil and Mexico. When you look past that, actually, the U.S. market in many other developed markets were performing a little better for the company.
So, we see better press prospects and better comparisons going forward for Coke. That`s one of the things that really interest us. It does have attractive dividend yield.
And this is probably one of the better examples of just a very high quality company. They have an outstanding share repurchase program with more than 10 percent shares outstanding target for repurchase.
We have to leave it there. Or last, Ed, do you have any disclosures, personally or for your funds, with respect to these stocks?
PERKS: No, you know, I own all these stocks through my holdings in the fund.
MATHISEN: All right. Ed, thank you very much. Ed is the portfolio manager for the Franklin Income Fund.
GHARIB: And coming up on the program, we`ll take you to Trenton, New Jersey, where balancing the budget means cutting the police force even in the face of rising crime. It`s the last stop in our series “Mission
Critical: Fixing America`s Cities”.
MATHISEN: Another sign the Affordable Care Act`s online marketplace isn`t where it should be yet. Consumers still looking to sign up for health insurance through the federal Healthcare.gov Web site will get an extra week to choose a plan and qualify for coverage beginning on the 1st of January. Officials are extending the deadline for enrolling in a plan from December 15th to December 23rd. Call it a Christmas gift.
GHARIB: In tonight`s final installment of our series “Mission
Critical: Fixing America`s Cities”, we look at Trenton, Missouri, where the thin blue line keeps getting thinner and the challenges for residents and city leaders keep getting worse.
Scott Cohn has the story.
SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Trenton is New Jersey`s state capital, a city rich in history, and Darren Green says it is rotten to the core.
(on camera): You say rotten to the core?
DARREN GREEN, COMMUNITY ACTIVIST: Right.
COHN: I mean, I guess this is what we`re talking about, right?
GREEN: This is it. And it is much more than just the physical phenomenon.
COHN (voice-over): Green, a community activist who goes by the nickname “Freedom” says it`s the mindset that`s really rotten. Drugs are epidemic and so is violence. This city of just eight square miles, population 84,000, has 43 murders this year and counting.
GREEN: It`s New Jack City. There is open air drug trade. There`s prostitution. It`s craziness.
COHN: But it`s not just the mindset or the fact that Trenton`s mayor is under federal indictment for corruption. Two years ago, to balance the city budget in the face of deep cuts and state aid, Trenton laid off 105 police officers, a third of the force.
New Jersey Governor Chris Christie has said the capital city should do away with the police force all together and turn law enforcement over to the county.
But State Senator Shirley Turner says that`s a bad idea.
SHIRLEY TURNER, NEW JERSEY STATE SENATOR: In the city in particular, you need to have people who are familiar with the neighborhoods, familiar with the people. You need local policing.
GREEN: Officers need to be on the post, walking the beat, connecting with citizens, saying, hey, you need to move on or you go to jail. You have to create environments where it`s safe.
COHN (on camera): The mayor`s office in Trenton did not respond to our request for a comment. But Trenton is not alone. Nationwide, according to the FBI, there are about 20,000 fewer police officers on city streets than there were five years ago, and even now one survey says that about half of U.S. police departments are bracing for even more cuts.
Scott Cohn, NIGHTLY BUSINESS REPORT, Trenton, New Jersey.
MATHISEN: And finally, 50 years ago today, President John F. Kennedy was assassinated in Dallas. There were multiple commemorations today, including at NASDAQ.
On that day 50 years ago, another Friday as it happened, investors received news of the fatal shooting the old-fashioned ways by wire service, word of mouth, land line, phone and television. Stocks did what they so often do when faced with shock. They sold off. The Dow ended down 21 points, a twitch today but back then, it meant a nearly 3 percent decline. The market remain closed the following Monday. November 22nd, 1963, the day post-war America, bright and young, lost its innocence.
GHARIB: Sure did and we talk about the old-fashioned way of getting news, with social media today, something like that would be just explosive.
MATHISEN: It would be instantaneous and there wouldn`t just been not one Zapruder film, there would have been hundreds of cell phone images.
GHARIB: Instagram images, right?
GHARIB: OK. Well, we`re going to have to leave it there. That`s NIGHTLY BUSINESS REPORT for tonight.
I`m Susie Gharib. Thanks so much for watching. Have a great weekend.
MATHISEN: And thanks from me, as well. I`m Tyler Mathisen. Do have a great weekend, everybody. We`ll hope to see you back here next week, on Monday.
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 CNBC, Inc.