BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Price for perfection.
The Dow and S&P at record levels again. The good news seems to be baked into the market. But is that necessarily a good thing?
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Border threat? This refinery may be the biggest hurdle to keeping Iraq unified. Why and what it might mean for oil, as well?
GRIFFETH: And, the eternal portfolio? Our market monitor tonight has a list of stocks he says you need to own forever.
All that and more tonight on NIGHTLY BUSINESS REPORT for this Friday, June the 20th.
Good evening, everybody. I`m Bill Griffeth, in again tonight for Tyler Mathisen.
GHARIB: And I`m Susie Gharib. Good evening from me, as well.
Two new record the on Wall Street as investors feel good about the Federal Reserve`s policy on low interest rates. What about unrest in Iraq?
Investors seem to be shrugging that off for now.
As a result, both the Dow and the S&P settled at new records, while the NASDAQ closed at a 14-year high. Here are the numbers: the Dow added
25 points and closing in on this psychologically important 17,000 level.
The NASDAQ was up nearly nine, while the S&P scratched out a three-point gain.
For the week, all three indexes rose at least 1 percent. The S&P was the leader, up 1.4 percent.
And with summer about to begin, Morgan Brennan tells us some stocks sizzle more than others when the weather heats up.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Sell in May and go away. It`s a Wall Street mantra meant to avoid seasonal declines in equities. But there is a number of stocks that actually do better in the summer, posting on average double digit gains from Memorial Day to Labor Day and have been doing so for the past five years.
Take Apple (NASDAQ:AAPL). The tech giant was traded higher each of the last five summers, garnering a 15 percent return. Investors tend to pile into the stock ahead of September, when Apply typically makes product announcements.
JOHN STOLTZFUS, OPPENHEIMER & CO.: This is likely to be a summer that`s an Apple (NASDAQ:AAPL) kind of summer in that they`ve got a new cell phone coming out, the new iPhone is going to have a larger screen, particularly for baby boomers and for people that like an easier read on their smartphone.
BRENNAN: This summer`s peak vacation season, travel and leisure companies also perform well. Online travel sites like Priceline and Expedia (NASDAQ:EXPE) have typically pulled in 26 percent and 14 percent returns respectively.
And also gaming stocks like Wynn, and some experts even like amusement parks.
STOLTZFUS: Leisure stocks, in particular, we would think of Six Flags, an affordable luxury for families who are homebound this summer.
BRENNAN: Hot weather makes consumers thirsty. That bodes well for beverage companies like wine and beer makers Constellation Brands
(NYSE:STZ) that accounted for a heavy 20 percent return and Keurig Green Mountain averaged 17 percent during the summertime.
But pay close attention to energy companies, especially now that Iraq has sent oil prices higher.
MARY ANN BARTELS, MERRILL STRATEGIST: You tend to have the driving season, so demand for gasoline goes up and energy stocks also tend to rise.
So, if you`re looking for a seasonable bias trend, it`s definitely energy.
BRENNAN (on camera): But energy companies can be volatile, closely tied to crude oil and other commodity prices. It`s also important to always look at a company`s fundamentals, despite historic patterns or the season, and some experts have predicted a stock pull back, something to keep in mind even if indexes continue to hit record highs.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
GRIFFETH: Well, Mike Holland believes stocks in a bull market. He doesn`t see a correction anytime soon. He`s chairman of his own money management firm, Mike Holland and Company.
Michael, Janet Yellen this week took a rather unusual step as Fed chair by publicly stating that she didn`t think stocks are overvalued. She thinks they`re appropriately valued for the economy right now. I take it you agree.
MIKE HOLLAND, HOLLAND & COMPANY: I do, Bill. You know, we`ve been in a bull market since the bottom five years ago. The Federal Reserve said they wanted to lift stocks and bond prices. They have done it. She said it again this week that this is the main portion of why I remain unconvinced the word due for a bear market in the near future, she has said this week, along with the rest of the Fed, that they`re going to continue to support this market. I don`t need to know a whole lot more than that.
There are actually two other factors among the three factors that cause me to be this way. The second one is the negative psychology that began long before five years ago at the market bottom. People still don`t like stocks, overall. There is sentiment surveys that are toppy right now but overall, people still are very skeptical and cynical about stocks.
And then the last thing itself is the Fed. If the Fed stays where it is and we continue to have the evaluations where they are as Janet Yellen said, valuation plus the Fed plus negative psychology equals a market that isn`t likely to be in the bear face in the near future.
GHARIB: But, Mike, you saw this week that one concern that was in a lot of the computations about the outlook for the markets, inflation and Fed policy on that issue. You know, how can we be sure inflation is not going to be getting out of control? Where do you stand on that?
HOLLAND: Susie, it`s exactly the right question because people I respect and there is some who have been more right than others over the years are saying that they think that if we do get a significant correction in this bull market in the near future, it will be an inflation scare. We get the PCE number next week, which is what the Fed looks at. If that`s higher than people suspect, they will immediately say oh, the Fed is going to have to change its policy and tighten sooner, therefore we should sell stocks.
So, it`s — sometimes it gets pretty simple. This has been the easiest bull market of my long career and I don`t think the inflation bogey is going to come out and actually do some damage in the near future because of the things that Janet Yellen said this week about why inflation is not her worry.
GRIFFETH: For the most part, defensive stocks that have been leading this rally lately, you know, those stocks that don`t expect much growth in the economy, those stocks that pay a pretty good dividend, you know, those stocks that people go to for slow but steady growth. Is that where you are now or are you expecting stronger growth here?
HOLLAND: I don`t expect stronger growth for all the reasons you report every day, Bill. But I think that that way you described it, which is reasonably done well, is the description of the overall economy not only in the U.S. but globally. It`s slow grudging growth. It`s not really a Goldilocks economy by any stretch. But it`s continued.
But we`re going to get 9 percent earnings growth, maybe 10 percent in the U.S. It`s not enough to make people pop champagne corks but it`s enough to keep stocks under valued at 16 times next year`s earnings.
GHARIB: I just want to squeeze in one last question, and we have half a minute for it. It`s important — Iraq. I mean, at what point does the violence in Iraq or any other developments there become a problem for U.S.
HOLLAND: What used to be referred to, Susie, as the exogenous factor.
If we get this thing spiral out of control, which is entirely possible, which is one reason I always have cash, because maybe it will happen. If it does happen, I`ll have some cash. But that takes oil to 150, 200, 250 when craziness happens. Yes, all bets are off.
And so, for the people who actually stayed in this bull market for the last five years, you probably should have some cash in case something like that happens.
GRIFFETH: Yes. Michael, always good to see you. Thank you.
HOLLAND: Thank you, Bill. Thanks, Susie.
GRIFFETH: Mike Holland and Company.
GHARIB: Well, as Mike just said, the situation in Iraq could be an issue for the U.S. markets. Iraqi forces gathered north of Baghdad today, preparing for a push back to cut off Sunni rebels from reaching the capital. As a result, oil prices were relatively stable. Brent Crude fell a fraction, but the U.S. benchmark West Texas Crude was up 3/4 of a percent, topping $107, the highest level since September.
Michelle Caruso-Cabrera is in Iraq and has more on what could impact the oil market.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-
over): Islamic jihadists may not be the biggest threat to the unity of Iraq. Believe it or not, it may be this — an oil refinery. This is not the Baiji refinery in the news for the last three days because it`s under assault from the rebels. No, this facility is three hours away in the Iraqi region of Kurdistan.
(on camera): This is Kurdistan`s largest refinery. It processes
90,000 to 100,000 barrels of crude oil a day, into kerosene for cooking, gasoline and diesel, and also fuel for the power grid.
(voice-over): The refinery is emblematic of Kurdistan`s push to create its own oil industry and stands in sharp defiance of Iraqi central government.
RANJ SHERKO: This is our crude oil and we should get benefit to our Kurdish people:
CARUSO-CABRERA: Kurdistan is a semi-autonomous region of Iraq and the Kurdish people have long dreamed of having their own independent country.
They think they should be able to drill for the billions of barrels of oil in the ground beneath them. Their plan is to pump a million barrels of oil per day by next year, with the help of companies such as ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX) and Gazprom, which have exploration contracts.
But Baghdad says all these moves are unconstitutional. But Kurdistan`s minister of foreign affairs thinks otherwise.
FALAH MUSTAFA, KURDISTAN MINISTER OF FOREIGN AFFAIRS: Could the region laws have supremacy? So, therefore, we are the legitimate authority of this region. Whatever we do here is legal and constitutional.
CARUSO-CABRERA: Kurdistan doesn`t have just wells and refineries.
They`ve gone as far building a whole new pipeline buried underground here because the Iraqi government won`t let them use the one right across the boarder. It connects to a port in Turkey. When Kurdistan loaded up its first tanker with one million barrels of crude, it was front page news here. The headline reads, “Now, Kurdistan will have its own economy.”
(on camera): Kurdistan`s trouble to sell the oil because Baghdad threatened anyone who bought it. In fact, at one point, there were three tankers of Kurdish oil floating out in the ocean, a million barrels of oil on each — that is until today. “Reuters” reports they were finally able to unload one tanker in Israel.
(voice-over): Minister Mustafa says it won`t be long for the other two because the world needs more oil.
MUSTAFA: That will be sold and there is no legal dispute. We are determined to go down that road and that would be a new age in history of the Kurdish people.
CARUSO-CABRERA: Substantial oil revenues say experts will be a key step to Kurdistan independence. But already, the region`s newspapers are redrawing the map of Iraq where Kurdistan stands alone.
For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera, Northern Iraq.
GRIFFETH: Back here, Starbucks (NASDAQ:SBUX) is raising prices on some of the drinks by up to 20 cents. That starts next week. The company says the increase in its stores will hike the average customer tab less than 1 percent, but you can also expect to pay about a dollar more for packaged coffee Starbucks (NASDAQ:SBUX) sells in supermarkets.
GHARIB: That price hike is in response to a spike in coffee costs this year. Even though those prices have come down a little this week, coffee futures are still one of the year`s top commodity gainers.
Jane Wells has more.
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Coffee prices have been brewing up this year, and people have noticed.
UNIDENTIFIED MALE: I was doing it five times a week, but cut it down to three.
REPORTER: Why is that?
UNIDENTIFIED MALE: It just saves money.
WELLS: But they have come off a caffeine high. It turns a drought in Brazil maybe wasn`t so bad. Brazil is the largest producer of the popular Arabica beans and fears of a reduced crop sent coffee futures up over 50 percent. They have now fallen by more than half.
The CEO of Dunkin Brand said earlier this week that people overreacted to Brazil. Quote, “It wasn`t as bad as everyone expected.”
Today, however, coffee futures went back up because they are actually harvesting in Brazil. Time for the truth.
JAMES CORDIER, LIBERTY TRADING GROUP: There was rain that developed late in our spring, their fall, and we thought that may have helped the crop and some of the dryness, but it turns out that rain was too little too late.
WELLS: Higher prices are starting to trickle down to the consumer, even though Starbucks (NASDAQ:SBUX) locked in prices for much of its coffee when they were lower, it is planning to raise prices for customer next week for the first time in a year. On some beverages, it will range from 5 to
20 cents and packaged coffee itself in grocery stores could be 8 percent more expensive.
UNIDENTIFIED FEMALE: Coffee prices changing isn`t really affecting my consumption.
WELLS: Is it enough to make people think twice?
UNIDENTIFIED MALE: Need it. It gets me going every day.
UNIDENTIFIED MALE: What is the alternative?
WELLS: For some at the moment, apparently nothing.
For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.
GRIFFETH: By the way, on Monday, we told you about Starbucks
(NASDAQ:SBUX) reimbursing college tuition for some of its workers. Well, after facing questions about it`s program from education experts, the company is now clarifying it`s statement on that, and while we knew the juniors and seniors would be the ones receiving full reimbursement with under class men getting partial aid, it now turns out that the real cost of this is being born by Arizona State University, which is discounting its tuition in the form of scholarships, with federal aid expected to cover much of the rest in many cases.
Starbucks (NASDAQ:SBUX) will reimburse for out-of-pocket expenses for upper classmen once students earn 21 college credits.
GHARIB: Coming up on the program, this week`s market monitor has a group of stocks he thinks you should consider. He says they are undervalued, unloved but they`re good buys now.
GRIFFETH: Shares of oracle were hit today following the company`s earnings and revenue miss that we told you about last night. At the close today, shares were down about 4 percent to $40.82. Some of the problem has been attributed to the company moving into Cloud computing.
Josh Lipton has more now on Oracle`s cloudy transition.
LARRY ELLISON, ORACLE CEO: All the different pieces built on top of modern technology.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Oracle (NASDAQ:ORCL) has been talking about migrating to the Cloud for a few years, but now the software giant has hit a patch of turbulence. The company reported earnings and revenue that missed expectations and closely watched metric — revenue on software licenses also disappointed analysts.
Despite today`s fall in the stock, Oracle (NASDAQ:ORCL) shares are still up about 20 percent over the past 12 months. Companies around the world use Oracle (NASDAQ:ORCL) software to manage businesses. CEO Larry Ellison is pushing a rapid migration to the Cloud where web-based software sold subscriptions rather than licenses.
Oracle (NASDAQ:ORCL) says it has now become the second largest software as a service company in the world. But some financial analysts that cover Oracle (NASDAQ:ORCL) says its latest results were disappointing and proved that the company still faces real challenges ahead and is transitioned to the Cloud.
DAN IVES, FBR CAPITAL MARKETS: No different than Spain being eliminated from the World Cup after a week. That`s why I put Oracle
(NASDAQ:ORCL) results, investors were expecting a beat. They got a miss.
I call it a shocker and really took a step back in terms of credibility in the Oracle (NASDAQ:ORCL) story.
ELLISON: And we worked again and reworked.
LIPTON: While Oracle (NASDAQ:ORCL) boasts the growth of the Cloud services, its Cloud-based products still constitutes less than 5 percent of the company`s overall revenue. Analyst expect Oracle (NASDAQ:ORCL) will keep boosting its Cloud services both internally and also through acquisitions. Oracle (NASDAQ:ORCL) bought a company called Live Look on Friday, and there reports it may acquisitions of Microsystems for at least
Oracle`s latest results are bound to cause investor angst. Analysts say while Oracle (NASDAQ:ORCL) can`t turn away from the Cloud, it does needs to pick up the pace of change.
Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.
GHARIB: Sales at Darden`s Olive Garden and Red Lobster chains continue to slide, dragging down its earnings, and that`s where we begin tonight`s “Market Focus”.
Darden said profits fell 35 percent, blaming it on higher costs and expenses. The quarterly numbers included Red Lobster`s results, that chain is planning to spin off soon. Darden also issued guidance that missed estimates. The stock tumbled about 4 percent to $47.58.
By contrast, CarMax (NYSE:KMX) reported strong earnings today and the shares zoomed higher. The used car chain posted a 16 percent gain in profits, thanks to higher consumer traffic and pricing. Income in the company`s financing unit also rose and so did the number of cars sold.
Shares surged 16.5 percent to $52.75.
Well, third time is not the charm for AbbVie. It`s $46 billion takeover offer for Ireland-based Shire (NASDAQ:SHPGY), this is its third attempt, was turned down. Shire (NASDAQ:SHPGY) said the offer undervalued the company and its growth prospect. The drug maker also said the proposal would deny shareholders the full benefits of its strategy.
Shares of Shire (NASDAQ:SHPGY) popped more than 16 percent to $22 and change, AbbVie fell 1.5 percent to $53.30.
And Kite Pharma soared in its market debut on the NASDAQ today. The bio tech company, which is studying a potential immunotherapy cancer solution offered up 7.5 million shares. They were priced at $17 a piece.
Look at where they ended today. Investors snatched them up, sending the stock up more than 70 percent to $29.
GRIFFETH: Yes, Kite flying high. There I said it.
Shares of Molson Coors hit a record high after Morgan Stanley
(NASDAQ:NBXH) (NYSE:MS) upgraded that stock. The firm raised its price target by about $20, to $79 a share and changed the beer makers rating to equal weight from under weight. The analyst cited evaluation and improving fundamentals. That stock closed at $74.86. That`s an increase of more than 2 percent.
And it was a historic day for RadioShack but not in a good way. That stock traded below $1 a share for the first time ever, as investors continue to worry about the electronic retailers struggles. The New York Stock Exchange can delist any stock if it closes below a dollar for 30 consecutive trading days. We`re watching that one. Shares were at 92 cents down more than 10.5 percent on RadioShack.
And it looks like General Electric (NYSE:GE) is the winner in the battle for French conglomerate Alstom. The French government is now backing G.E.`s bid and also said it`s going to buy a 20 percent stake in Alstom. (AUDIO GAP) Heavy Industries upped their bid in an effort to win that company, but to no avail. By the way, Alstom still has to approve G.E.`s bid itself.
Shares of G.E. rose a fraction today to $26.97.
And Owens Corning (NYSE:OC) (NYSE:GLW) saw its shares fall after the company lowered its outlook for the year. It blamed the disappointing guidance on continued weakness in its roofing business. The stock dropped by 6 percent to $38.81.
GHARIB: Our market monitor guest tonight is confident the stock market has more room to run and he favors value stocks over growth stocks.
He`s Mark Tepper, president of Strategic Wealth Partners.
Welcome, Mark, to NIGHTLY BUSINESS REPORT.
Let me begin by talking to you about your strategy here, why value and how hard is it to find value stocks?
MARK TEPPER, STRATEGIC WEALTH PARTNERS PRESIDENT: Why value? So, you know, typically when an economy is pretty weak and just emerging from a recession, investors like they prefer growth stocks over value stock due to the fact that they`re not getting much growth out of the economy.
However, we`re in a place where the economy is strengthening and when the economy actually begins to strengthen, value stocks consistently outperform growth stocks. So, you know, there`s a lot of critics that will say there is no value left right now.
You know, we`re looking at a forward multiple on the S&P 500 of 15.7, which is pretty much in line with historical averages, and there`s a lot of people that say, well, it can`t go any higher, or if it does, it`s overvalued.
TEPPER: Look, these times are different. You know, we`re looking at a low interest rate environment. Capital is going to chase yield and you see a lot of money moving up the risk ladder. So, you know, we`re confident that the multiples could expand up to 17 or so before we would actually pull back our overweight rating on stocks to equal weight.
GRIFFETH: You say the two most undervalued and unloved sectors right now are energy and financials. I mean, with the price of oil going higher, I can imagine that might change. But be that as it may, you still like a company like Chevron (NYSE:CVX), right?
TEPPER: We do. Yes. I mean, you know, when you look at the energy sector, it makes up 13 percent of the earnings but represents but only represents 10 percent of the market`s cap waiting. So, there is a ton of long-term potential for the energy sector to recapture some share of GDP.
When you look at Chevron (NYSE:CVX), it`s a great dividend play. You know, a lot of our clients have transitioned into either selling businesses or they`re retiring. It`s a great dividend play. It`s got a good evaluation.
And the one thing about Chevron (NYSE:CVX), over the course of the last few years, it`s been unloved due to the fact that it`s been investing a lot in the form of capital expenditures. Management recently came out and said 2013 was a peak spending year, and that spending should flatten
out through 2016. So, it looks promising for Chevron (NYSE:CVX).
GHARIB: All right. Tell us about ConocoPhillips (NYSE:COP) trading around $85. You have a target of $100 on this stock. Why do you like it?
TEPPER: Yes, again. Another good energy play, good dividend, good evaluation. The one thing that really stands out about ConocoPhillips
(NYSE:COP) is the fact that it`s got diversification. So, it`s not just oil. It had this massive acquisition years ago where it did everything it
could to get into the natural gas space.
So, it gives an energy component in our portfolios, without being strictly dependent upon oil.
GRIFFETH: Among financials, you like Wells Fargo (NYSE:WFC). Of course, they`re the largest mortgage lender on the land. Is that a bet on the housing market?
TEPPER: No, no, not at all. I mean, that is one of our concerns, is the high exposure that Wells Fargo (NYSE:WFC) does have to the mortgage industry. We want to be in financials. Again, we think financials just like energy have the potential to capture some additional share of GDP.
Wells Fargo (NYSE:WFC), you know, even in the middle of all of the issues with the mortgage market, it`s done a very good job of beefing up both its consumers and also its commercial loans and we feel that those are going to be real important part of banking business over the course of the next several years as business begins to really undergo some more capital spending to replace some ageing capital stock that they haven`t invested in
over the course of the past decade.
GHARIB: All right. Lots of good information. Any disclosures to tell us about, Mark?
TEPPER: Yes. We as a firm own all three in our client portfolios.
GHARIB: OK, terrific. Thank you so much for coming on the program.
TEPPER: Thank you.
GHARIB: Mark Tepper, from Strategic Wealth Partners.
GRIFFETH: And coming up, how investors and startups are taking advantage of the hottest sector in the housing market, coming up.
GHARIB: Some positive news on the job front to tell you about. The Labor Department said 36 states saw employment growth last month, 14 states showed losses. North Dakota still continues to have the lowest rate of unemployment rate at 2.6 percent, followed by Vermont and Utah. Rhode Island, by contrast, has the highest at 8.2 percent and Nevada is second highest, followed by Kentucky.
GRIFFETH: And to another leg of the economy, namely housing. Last year, investors soared on the apartment sector claiming surging home sales would pull down rents and occupancy. It also feared that too much supply coming online but a stall in sales this year has them changing their tune to some degree.
Our real estate reporter Diana Olick has more on housing.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Look up into any apartment above you and odds are, it is filled. National apartment occupancy hit 95 percent in May, the highest level in at least six years, according to Axiometrics, a data provider. This as thousands of
new units are coming online.
STEPHANIE MCCLESKEY, AXIOMETRICS DIRECTOR OF RESEARCH: We`re expecting even though that there is a lot of new supply come online
already. It`s absorbed very well.
OLICK: It has investors who soured on apartment REITs last year when home sales were surging, rushing head-long into the trade. The S&P index of residential lease is now up nearly 14 percent from a year ago, and up nearly 20 percent just year to date. Top performers, preferred apartment communities, Essex and Avalon Bay.
Weak home sales this year, still rising home prices are behind all
UNIDENTIFIED FEMALE: I`m a new young professional and I can`t afford
to buy, so even though it adds up to probably the same.
UNIDENTIFIED MALE: I really don`t have the money to get a down
payment and get a good mortgage rate, so cheaper to rent.
OLICK: About 180,000 new apartment unit have become available throughout the U.S. in the past 12 months according to Axiometrics.
Thousands more are on the way as apartment construction has surged in the past two years.
Still, rent growth in May was the strongest in 16 months, at 3.5 percent.
No surprise, the surge in demand is fueling new startups design to make the rental experience smoother. Sites and apps like RadPad, Lovely, Hotpads, put listings in your hand and let you pay your rent and get stuff fixed while you`re at it.
A new one that offers reviews from current renters called Swaps launches later this month.
(on camera): And it`s not just these new buildings that are getting all the love. Apartment occupancy is rising nationwide because as rents go up, more people are moving to so-called class B apartments. This may not be in the top locations but they certainly do come in at a lower rent.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
GRIFFETH: By the way, to read more about the surge in apartment occupancy, head to our Web site, NBR.com.
GHARIB: And that`s NIGHTLY BUSINESS REPORT for tonight. Have a great
weekend, everyone. I`m Susie Gharib.
GRIFFETH: I`m Bill Griffeth. We will see you again 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.