TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Double play. The Dow and S&P end the month in record territory. What`s next for stocks and bonds? We`ll take a look.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Power portfolio. This week`s market monitor has three energy stocks he thinks can get you at least 20 percent. Break out your notebooks.
MATHISEN: And, back to school. Why Wal-Mart (NYSE:WMT) is offering classes to students about life after high school.
All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, May 30th, 2014.
GHARIB: Good evening, everyone.
Well, it looks like sell in May and go away didn`t quite work out this time. Both the S&P and Dow closed at new record levels today on this last trading day of the month. Stocks were lower for most of the day, following a disappointing surprise on the economic front, showing consumer spending in April fell for the first time in years as prices started to inch up.
But despite that, the bulls persevered. At the close, the Dow rose 18 points to 16,717. That`s an all-time high. The S&P 500 tacked on 3 1/2 points to 19,023, also a record. The outlier, though, was the NASDAQ, which fell five months. But for the month, the NASDAQ was the best performer, gaining 3 percent, the Dow was up almost 1 percent, the S&P rose more than 2 percent.
MATHISEN: Well, despite the strong gains this month, many smart investors are more than a little perplexed. Stocks are up, and so are bonds. And it`s not just because the Federal Reserve is buying them.
So, what`s going on?
Dominic Chu explains why this market has so many in the land of confusion.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The bulls and bears are both sitting around scratching their heads. They`re trying to figure out what to do in the current land of confusion.
The bad news, bears say, there is no reason for things to be as good as some would believe. If so, why are investors flooding into the safety of treasury bonds and there is no reason to be bullish on the economy.
Some of the data coming out has been pretty much mixed at best.
Then, if you`re on the bulls` side of the equation, you are also puzzled by what`s happening. After all, the S&P 500 is at record highs, the NASDAQ around 13 1/2 year highs, and stock market volatility is the lowest it`s been in over a year. That should mean that things are basically good.
We`ve got a market that everyone just loves to hate. That`s the real read. But no matter your position, next week could either lead to more clarity or more calamity in the markets, that`s because there is a slew of data coming out, including manufacturing data and services data, and, of course, the big monthly jobs report, and, of course, a big interest rate decision coming from the European Central Bank, the ECB.
So, buckle your seat belts. Things could get very interesting next week for the overall market.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
GHARIB: Well, those stocks don`t worry Art Hogan. He`s bullish on the economy and the stock market. And he`s calling for the S&P to end the year at 2,050. He is chief market strategist with Wunderlich Securities.
So, Art, this month of May, as Dominic was just talking about, there was a different story if you talked about the S&P 500, a different story for the bond market, a different story for the economy. How do things look for the rest of the year? Make your case.
ART HOGAN, WUNDERLICH SECURITIES CHIEF MARKETING STRATEGIST: Well, Susie, I think that`s a very good point. We`re at a very confusing time.
But as we look ahead, I think one of the things that we can count on is the second quarter is going to be much more robust in terms of GDP rates than the first quarter was, and by much more robust.
If we settle in where we are now, GDP in the first quarter is going to look like something like minus 1 percent. We expect that to increase to plus 3 1/2 percent to 4 percent. So, think about that. That`s 450 or 500 base points in an adjustment to the economy. I think that`s going to percolate to both equity markets and probably start cooling off the bond market a little bit.
So, I think that`s a big driver. And the things we`re looking at in the economy that have been increasing steadily, like sales of homes, like industrial production, capacity utilization, like car sales, all point to a stronger economy in the three quarters ahead of us versus the one quarter behind us.
MATHISEN: What`s going on with bonds, Art, and where do you expect the yields to end the year?
HOGAN: I think the bond market is reflecting something that`s more tactical than it is fundamental. I just don`t think there`s a supply and demand and balance. I don`t think we`re issuing as many quality bonds, the government certainly isn`t issuing as much. I think those pensions rotating, you know, into bonds and out of stocks after massive gains last year. I certainly think there is a short squeeze in a very crowded short trade.
So, I`m not as concerned about that. I expect the yield for the 10- year to be closer to three and change than 2 1/2 or less than 2 1/2 where we`ve been spending some time in the last couple of weeks. So, I think that as we normalize in the economy, I think bonds will probably normalize at rates that are above three or closer 3 1/2 by year end, versus where we stand at 2 1/2.
GHARIB: Art, you`ve given us eight stocks. That`s a lot. Eight stocks that you`re recommending to your clients. Four of them are in the energy area, oil and gas production companies and the other four are in regional banks. A lot of them are not household names.
Just tell us what is the theme here? Why do you like them generally?
HOGAN: Sure thing. So, in general, in the four regional banks, the simple one-liner here is that, in — all the regional banks we looked at, we looked at hundreds of them across the country. One thing that`s consistent. We`re seeing low growth. That`s very important. That`s new to the cycle and it`s higher than the average.
And we`re seeing stable margins. And that just basically means these guys are making money and there is demand for their product. It wouldn`t take much of an uptick in interest rates. You see net interest margins expand. There is a lot of M&A going on. There`s a lot of solid balance sheets. I think regional banks are in great play, the four that we gave you are some favorites.
On the E&P side, I think there is an energy revolution going on.
There`s no secret to that. It`s been on all the papers, and there`s some great shale plans across the country we pick for. E&P companies that are favorites there.
And the things that the four companies have in common that we pointed out to you is very similar. They`re in the right locations, so they`re in the right shale place. They`re terrific operators, and all four of them are currently trading at a discount to their fast growing peers, and most of them are growing production at a rate faster than their fast-growing peers.
So, you`re looking at bargains, and what we think is going to be the most important sector in 2014 and 2015.
MATHISEN: Art, I want to mention the names of those companies that are on your buy list: CenterState Bank, Resonant (ph), First Financial and Hancock Holding, also in the energy area, you say Gulfport, Resolute Energy (NYSE:REN), Matador Resources, and good old Bill Barrett (NYSE:BBG), whoever he is he is going to do just fine.
Let`s talk a little bit about one area that you do not like, and that is gold, very quickly, 20 seconds. Why?
HOGAN: Yes, you know, you have seen the collapse in gold. But I that part of that was a big play and a flight to safety. And, you know, this is not a new move. You know, from 19, you know, 12 and change. I think we`re going to see a thousand before we see 1,300 again.
I think that is the dynamics of that market place. I don`t think there is a flight to safety in the gold market much longer.
GHARIB: All right. You`ve given us a lot to think about in the second half of the year. Thanks so much, Art. Art Hogan of Wunderlich Securities —
HOGAN: Thank you.
GHARIB: — have a great weekend.
MATHISEN: Oil prices continue to hover around $100 a barrel. One issue not helping production is plunging in the North American country of Libya, amid a rival — civil conflict there. It prompted the State Department to say this week that any Americans in Libya should leave immediately. Even though Libya`s future is uncertain, the world is watching a conference being held in London to persuade international oil companies to invest in the company.
Michelle Caruso-Cabrera is there and she says it is a tough sell.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-
over): Three years after the fall of dictator Moammar Gadhafi, the country of Libya is racked by violence, competing militias taking over oil facilities, shutting down ports and even trying to sell stolen oil themselves on the international market.
DAVID BOOTE, GEOLOGIST: It`s pretty depressing really.
CARUSO-CABRERA: Geologist David Boote is one of the presenters at a conference in London this week, endorsed by the Libyan National Oil Corporation.
BOOTE: When the Arab Spring happened, I felt sure somehow myself that Libya was the one place it might work, because it has a small population, and very, very large oil reserves. You compare that to Tunisia or Egypt, where they have very large populations and smaller oil fields, they have resources. Libya has these tremendous resources, now they`re all squabbling over it.
CARUSO-CABRERA: As a result, oil production seems to fall by the minute. Now at only 165,000 barrels per day, down from more than 1.5 million in 2012.
Analysts say the loss of nearly a million and a half barrels of oil from the international markets every day is one reason oil prices remain stubbornly high. The most recent turn of events, a former general who has amassed a small army and is trying to rid the country of Islamic extremists.
In a phone interview, he told me if he`s successful in stabilizing the country and ridding it of terrorists, he will then call for elections.
Some believe the general may be supported by the CIA because he lived in exile in Virginia for nearly 20 years after being involved in a reported failed coup attempt against Gadhafi in the 1980s.
In our interview, Haftar denied any outside support from any country.
In what turned out to be a case of bad timing, the Libyan Oil Corporation finished up a two-day annual conference in London, designed to entice international oil companies to invest. It was a hard sell.
BOOTE: There`s no way that any company can actually operate there for the moment, and not worry about getting killed.
CARUSO-CABRERA: Naaman Elbouri is Libyan and chairman of an oil
NAAMAN ELBOURI, TRANS SAHARA GROUP CHMN: We have got some problems, but, however, I believe that these problems are expected. Building a country from scratch, because that`s exactly what we`re doing in Libya. We have no institutions. We have constitution. We have no army, no police force. So, everything has to be built from scratch.
And, you know, obtaining freedom and democracy is not an easy task.
CARUSO-CABRERA: One geologist in attendance told us if Libya could regain stability and investments, it could quickly be producing as much as
2 million barrels of oil per day, which could potentially help to lower prices.
For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera, London.
GHARIB: The first shoe has dropped in the mismanagement scandal engulfing the Veterans Affairs Department. Today, President Obama says the head of the agency was out.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: A few minutes ago, Secretary Shinseki offered me his own resignation. With considerable regret, I accepted.
(END VIDEO CLIP)
GHARIB: John Harwood joins us now from Washington, with more on this story.
So, John, I guess now the search is on for a new chief of the V.A.
And given all the problems there that have been going on for decades, all the dysfunction, what`s the key skill he needs to have in your view?
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, I think you`re going to need to have a high energy leader and somebody with tremendous management skills.
Sloane Gibson, the acting secretary who has been put in place, somebody who`s been running the USO, multi-generation military family, somebody who also has a masters in business administration. So, he`s got management skills. But they`re going to look for somebody permanent and get on the job.
And that job is so important given the political pressure that`s been mounting and the revelations of the difficulty and care. The president said today he simply couldn`t afford anymore distractions by having Shinseki take so much fire.
Here is the president.
(BEGIN VIDEO CLIP)
OBAMA: He has worked hard to investigate and identify the problems with access to care. But he told me this morning that the V.A. needs new leadership to address them. He does not want to be a distraction because his priority is to fix the problem and make sure our vets are getting the care that they need.
(END VIDEO CLIP)
MATHISEN: So, John, what kind of fixes are on the table?
HARWOOD: Well, one of the fixes which both parties are discussing are ways to expedite accountability for members of the V.A. bureaucracy, many of whom are under civil service protection.
Diane Feinstein, senior Democrat in the Senate, just came out with a statement and said it`s unfortunate that Eric Shinseki had to leave before he was given the tools to reform. You need new authority in Congress and Democrats and Republicans are both talking about giving the new secretary some authority.
GHARIB: And some people have said, it needs more money, more funding.
It`s underfunded. But I`ve seen that the V.A. budget has tripled in the last decade or so.
HARWOOD: The V.A. budget has increased and, of course, you`d expect given the surge of veterans coming home from these two wars that we`ve been fighting. But one of the things that`s been discussed, the president today talked about a surge of doctors to service some of the people who`ve been waiting. Others say if you have been on a wait list for a certain amount of time, the federal government ought to pay for private care. We`ll see what solutions get finally enacted, but you can bet that there are going to be some changes.
GHARIB: And we`re going to keep talking about those changes.
Thanks a lot, John. John Harwood in Washington.
MATHISEN: Coming up, want double gains on your stocks? Well, this week`s market monitor says he`s got just the thing for you. Three power names he says will be 20 percent winners.
GHARIB: Wal-Mart (NYSE:WMT), the world`s largest retailer and biggest employer in the United States, is heading back to school.
Courtney Reagan shows how the company is offering high school students a new way to look at retail.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
When it comes to retail, this may come to mind as the only career big box stores have to offer.
UNIDENTIFIED FEMALE: How are they going to get merchandise together?
REAGAN: But in Scarborough High School in Houston, Texas, that perception is starting to change.
TRACY DAVIS, UNIVERSITY OF HOUSTON DOWNTOWN: There is a perception of retail out there that it is a go nowhere job, that it doesn`t pay well.
So, why would a parent say hey, son, hey, daughter, have you ever thought about going into retail? It doesn`t happen because it is the perception that we have to change.
REAGAN: Tracy Davis is with the University of Houston Downtown. He is behind this pilot program aimed at teaching high schoolers retail is more than just ringing a register. The four-year class is called E-tail Retail, and has the support of retail giant Wal-Mart (NYSE:WMT), which has set up a retail lab at the school and provides students with the hands-on training at area stores.
NICK SCRIBNER, WAL-MART HUMAN RESOURCERS MANAGER: And we tell them, as long as they`ve got a smile on their face and they`ve got the ability and the desire to work hard every day, they will have a very successful career.
REAGAN: A career in anything from logistics to marketing to store managing. Jobs high school junior Ramon Cardanes never realize were involved in retail.
RAMON CARDANES, SCARBOROUGH HIGH SCHOOL JUNIOR: I had no idea in retail, the huge amount of jobs that are carried.
REAGAN: Also a surprise to the students, the potential pay. Upwards of $150,000 a year for big box store managers.
CARDANES: All around us, we have perfect examples of people who started off from scratch, from nothing, from pushing carts to becoming a manager, to becoming a store manager, to eventually moving up to a corporate level. I mean, it`s amazing that the opportunity can get here.
JOEL LOPEZ, SCARBOROUGH HIGH SCHOOL SOPHOMORE: Maybe I can start my own business since I already have so much insight on retailing. It`s big or even bigger than Wal-Mart (NYSE:WMT).
REAGAN: Lofty goals from students with more confidence and knowledge to take on the world of retail.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.
MATHISEN: Call it stumbling out of the blocks. That`s where we start tonight`s market focus. Shares of the network equipment maker Infoblox were hammered today after the company warned its profit for this quarter will be lower than expected, because of contract delays and a slowdown in orders. The company CEO is also stepping down after 10 years at the top.
Shares of Infoblox down 37 percent, 37 percent, to $12.96 today.
But a positive outlook sent shares of Ann higher today, despite weaker than expected earnings. The parent of Ann Taylor and Loft Brands raised its second quarter revenue forecast. Traffic picked up in May following that severe weather.
Shares of Ann up 4 percent to $38.87.
Valeant Pharmaceuticals upping its offer once again for the Botox maker Allergan (NYSE:AGN). That`s the second time this week. Valeant says it`s now going to offer $55 billion in cash and stock, up from $49 billion.
The bid values Allergan (NYSE:AGN) shares at more than $179 each. Today, shares of Allergan (NYSE:AGN) were up almost 6 percent to $167.46.
While Valeant also ended up higher, up 1 1/2 percent to $131.21.
GHARIB: Meanwhile, also in the drug industries area, U.K. drugmaker Shire (NASDAQ:SHPGY) is reportedly considering a cash offer of more than $4 billion for NPS Pharmaceuticals (NASDAQ:NPSP). NPS is a specialty maker of drugs for rare diseases. For its part, NPS says it has not been contacted by Shire (NASDAQ:SHPGY). Nevertheless, NPS shares jumped more than 13 percent, to $31.13. Shire (NASDAQ:SHPGY) fell a fraction to $173.39.
Well, the ongoing saga between Mens Warehouse and Jos A. Bank appears to be winding down, finally. Shares of both companies got a bump after the Federal Trade Commission approved the merger of the two men`s clothing stores. Jos A. Bank up more than a percent to $64.95. Mens Warehouse spiked 3 percent to $49.78.
Home improvement company Lowe`s is hiking its dividend nearly 28 percent to 23 cents a share. The dividend will be paid on August 6th to shareholders of record as of July 23rd. Now, the company has declared a dividend every quarter since it went public in 1961.
Lowe`s was up a fraction today to $47 and change.
While Lowe`s is hiking its dividend, Mack-Cali Realty (NYSE:CLI) is cutting its. The real estate investment trust is slashing its dividend in half to 15 cents a share. Shares of Mack-Cali fell almost 1 percent to $21.75.
MATHISEN: Our market monitor tonight is cautious, especially compared with prior guest Art Hogan. But that`s what makes a market after all.
Charlie Smith expects stocks to be flat for the rest of the year. He says, though, that investors can still make money. He`s going to show you how. He is chief investment officer at Fort Pitt Capital Group, and also portfolio manager of the firm`s total return fund.
Mr. Smith, welcome. Good to have you with us.
CHARLIE SMITH, FORT PITT CAPITAL GROUP: Thank you for having me.
MATHISEN: Our earlier guest, Art Hogan, has a year-end target on the S&P 500, about hundred points or more from yours, you see it basically flat, $19.38 or thereabouts.
Why the divergence? Why the different opinion?
SMITH: Well, I think the big issue is earnings, where we believe earnings will be. Our estimate for the earnings for the S&P 500 this year is about 5 percent under the consensus. You put a 17 multiple on our $114 earnings number, that gets you to $19.38. I have a feeling that Art is probably closer to consensus than ours.
GHARIB: You`ve said that you have a couple of stocks in the energy space that you think can improve by 20 percent or more over the next year or so. Let`s find out why and which ones.
What`s the attraction with Kinder Morgan which has been kind of stuck in the $30 range most of this year?
SMITH: Right. Kinder Morgan is a very large energy pipeline and oil and gas pipeline company. They have 80,000 miles of pipeline in the U.S., the biggest in the U.S. Twenty-five percent of the stock owned by Richard Kinder who is the CEO, really the opportunity here is to take advantage of moving all the shale gas that we`re producing at record levels in the U.S.
over the last six or eight years.
The opportunity for Kinder is yield. They pay a 5 percent dividend.
And the company says that they`re going to grow that dividend to the tune of 3 percent to 5 percent per year over each of the next two to three years. So, we think the stock can move up to $40, plus you`re getting a 5 percent dividend yield while you wait.
MATHISEN: Your second choice is Chart Industries (NASDAQ:GTLS). But as you point out candidly, it is down from about $130, into the $70s now.
What`s the catalyst going to be to turn this stock around?
SMITH: Well, we have been patient with this one. We began following it a couple of years ago, under a $100, got to $130 as you said. It`s now back in the low $70s. They should earn around $4 next year, maybe $5 a year after that.
They have seen a slowing in their growth this year, partly due to a slowdown in business in China. They`re a big overseas operator. But their main business is infrastructure for natural gas processing and natural gas transportation. And that business is growing quite nicely.
So, I think there is a growth opportunity here. The stock symbol is GTL —
GHARIB: OK, seems like we had a little technical problem there. That was Charlie Smith with Fort Pitt Capital Group. His third stock, by the way, was Axiall, which is trading on the NYSE.
Coming up next, Microsoft`s former CEO slaps a $2 billion price tag on the L.A. Clippers. But he`s not the first billionaire to covet a franchise. We`ll take a look at why sports teams are becoming a play thing for the ultra-wealthy. That`s up next.
MATHISEN: Madison Square Garden (NASDAQ:MSG) is on a winning streak.
Shares rising for the 11th day in a row, the longest streak since it spun off from cable vision. That was four years ago. The stock got a pop today after the New York Rangers, which MSG owns, advanced to the Stanley Cup Finals last night, along with word that the L.A. Clippers basketball franchise could sell for $2 billion. That kind of price tag would bode well for MSG`s marquee teams, the Rangers and the Knicks. Shares of MSG up
3 percent on the session today, to $54.86.
GHARIB: Now, as for the L.A. Clippers, who was the winning bidder?
None other than former Microsoft (NASDAQ:MSFT) CEO Steve Ballmer.
That $2 billion price tag though is still not a done deal. Embattled owner Donald Sterling could still fight the sale.
But it seems the new past time for the very wealthy is buying sports teams. Robert Frank takes a look at whether professional sports franchises are becoming a new collectible for billionaires.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Call it billionaire inflation. The prices of things that billionaires really want are soaring. Sports teams may be their hottest new status symbol. Steve Ballmer, the former Microsoft (NASDAQ:MSFT) CEO, has reached an agreement to buy the L.A. Clippers for $2 billion.
As one of Ballmer`s friends told me this morning, quote, “He is obsessed with basketball. He needs something to do. And he`s got $18 billion.”
PATRICK RISHE, WEBSTER UNIVERSITY SPORTS BUSINESS PROFESSOR:
Ultimately, $2 billion was the price Steve Ballmer had to pay because this was a very competitive bidding process and he knew if he came in low, he would not win this team.
FRANK (on camera): Now, if this deal happens, it will underscore a fundamental shift in sports. Sports teams have become more like collectibles, driven by the money and desires of today`s billionaires rather than win-loss record and TV deals. Basically, they`re more like Picassos than profit machines.
Here are the ways in which the Clippers are like a collectible.
(voice-over): The list of bidders for the Clippers reads more like a mini-Forbes list. David Geffen, Oprah, and Tony Ressler. Ballmer`s did with nearly twice the competing offers, and after missing out on two previous deals, he didn`t want to miss another.
They are also scarce assets. The NBA, the NFL and the MLB are not creating new teams. So, it`s not replaceable.
It also gives you access to an elite club. Just like the Ferrari club, buying a sports team gives you membership in a special group. There are more than 2,000 billionaires in the world so owning a sports team makes you special, kind of like having one of only five of those balloon dogs made by artist Jeff Koons.
RISHE: There`s only 30 teams in this leagues. So, being part of that club, it`s a vanity purchase that some cannot resist.
FRANK: And finally, parabolic valuations. Sterling bought the Clippers in 1981 for $12.5 million. If it sells for $2 billion, that`s a gain of over 16,000 percent.
Ballmer would join other new money billionaires who bought trophy teams. Mark Cuban cruise line billionaire Micky Arison and Ballmer`s fellow Microsoft (NASDAQ:MSFT) alum, Paul Allen. Not a bad club to join.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
MATHISEN: Rich guys have always bought sports teams, but one of the differences is there was a period when large corporations like Time Warner
(NYSE:TWX) or Gulf and Western owned a lot of sports teams, including Time Warner (NYSE:TWX) owning the Raves, and Gulf and Western, the Knicks and Rangers. They`re out of that business.
GHARIB: You say rich guys, but you know what is interesting? A lot of women, Oprah Winfrey was a bidder. So was Steve Job`s wife, Laurene Jobs.
MATHISEN: She was supposedly one of the bidders in this. But it will be interesting to see how it all pans out. It is not a done deal yet.
All right. That will do it for NIGHTLY BUSINESS REPORT for tonight.
I`m Tyler Mathisen. Thanks so much for joining us.
GHARIB: And I`m Susie Gharib, have a great weekend. Tyler and I will see you back here 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) 2014 CNBC, Inc.