Transcript: Monday, December 29, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, funded in part by —

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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Prices stumble. Oil falls to a 5 1/2-year low as Libyan production concerns fail to support prices. What’s next for crude?

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Win streak snapped. The Dow may have dropped, but it is shaping up to be another banner year for equities. And tonight, a list of stocks you may want to consider for the New Year.

GHARIB: And going public. Shake Shack files for an IPO. But will investor appetite for new offerings be as strong in 2015 as it was this year?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Monday, December 29th.

Good evening, everyone. I’m Susie Gharib.

GRIFFETH: And I’m Bill Griffeth, in tonight for Tyler Mathisen.

Despite another record-breaking day for stocks, the price of oil fell to a fresh multi-year low today on expectations that a global glut of crude oil may keep growing into the New Year. Now, it didn’t start out that way. Oil today actually began the session higher on concerns that unrest in Libya could put a cramp on global supplies.

But by the close of trade, futures had dipped to a new five-year low on a swell in supplies. Light sweet crude feel more than a dollar. It closed at $53.61 a barrel. And the benchmark Brent Crude in London was down $1.57, closing at a 5- 1/2 year low of $57.88 a barrel.

Jackie DeAngelis has more on today’s wild swings in the price of crude and what could affect oil prices moving forward.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Another volatile day for crude prices. We saw a little bit of a pop in prices this morning after traders were concerned about reports of clashes in Libya around one of the key export terminals. But then, prices went sharply lower, closing at $53.61 for West Texas Intermediate. That was the lowest close since May of 2009.

Basically, what this underscores is that geopolitics could still take oil prices higher, but the events have to be very significant. This particular one wasn’t. So, traders right now are still looking for the same story, which is supply and demand, and they are not worried about global supply economics right now.

Meantime, I want to talk about gas prices because as we go lower in crude, we are seeing retail gas prices decline, $2.21 the national average for a gallon of regular according to AAA, down 10 cents in a week. And traders say we could go lower from here. A lot of people reporting in their states that they’re seeing gas prices under $2. Obviously, a very strong news for consumers as we head into 2015.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

GRIFFETH: Here’s a question. Will low oil prices make some energy companies attractive takeover targets in to 2015? We will explore that question a little bit later in the program tonight.

GHARIB: Well, over on Wall Street, the Dow broke its eight-session winning streak, but we saw record closes for the S&P 500, as well as for the Russell 2000 and the Dow utilities index. At that close, blue chip Dow stocks were down 15 points, the NASDAQ rose by a fraction, and the S&P added 2 points.

With all the major averages at or near record highs, Dominic Chu takes a look at the range of stocks that help send the markets to hit new milestones in 2014, and whether the upward trend can continue.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): 2014 turned out to be another banner year for U.S. stocks, with large, mid, and small-cap indices all reaching record highs. But it was the sharp move higher in stocks in just the last couple of months that really propelled the market to rarefied air.

Since mid-October, the S&P large cap index has risen 12 percent. The S&P 400 midcap index has risen by nearly 14 percent in that span and that Russell’s small-cap index has also risen by that same amount. Some think the routing in small caps can continue into 2015.

JACK ABLIN, BMO PRIVATE BANK EXECUTIVE VP: The last stages of this rally will likely be a shift from large-cap into small as the investing space becomes smaller and smaller, as the rest of the world appears to perhaps be slowing down and that the U.S. is the only safe haven left.

CHU: Smaller company stocks are seen as more reliant on the U.S. economy as opposed to global factor, so it can be more insulated to foreign instabilities. If larger companies are on your shopping list, some of this year’s outperformers could continue to do so next year.

ABLIN: Next year, financials and health care probably the two large cap sectors that we like. Both of them are still trading at a relative discount when you look at them versus their peers, their other sector groups, and they do have some favorable momentum.

CHU: Next year may also be the year when just about anything can happen.

JURRIEN TIMMER, FIDELITY INVESTMENTS DIRECTOR OF GLOBAL MACRO: I think we’ll probably see a little bit of everything. I think the bigger question for asset allocators is, U.S. versus non-U.S., large versus small, investment grade versus high yield. I mean, I think those are the more interesting questions rather than just do stocks go up and down.

CHU (on camera): So, now that 2014 is just about over, it’s time to start looking ahead to 2015, which means taking a hard look at your portfolio and seeing if it still makes sense given risks and potential rewards.

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.

(END VIDEOTAPE)

GRIFFETH: Now, not every stock gained this year, although it sure seemed like it.

Morgan Brennan now takes a look at some of this year’s winners and losers in the markets.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It’s been another strong year for stocks. The Russell 1000 which includes the largest companies traded in the U.S. has gained more than 12 percent in ’14.

The biggest winner: Skyworks Solutions (NASDAQ:SWKS). The chipmaker has risen more than 150 percent this year, thanks in part to strong demand for the Apple (NASDAQ:AAPL) devices it helped supply. Investors say it was a perfect mix for many of the biggest tech stocks.

JOHN BUCKINGHAM, AL FRANK, MANAGEMENT CIO: Intel (NASDAQ:INTC), Nvidia, Cisco (NASDAQ:CSCO), Oracle (NASDAQ:ORCL), these are all stocks that we own in the technology space did well in 2014. Primarily because they were really undervalued heading into the year.

BRENNAN: Airlines also had a good year. Both Southwest and American Airlines more than doubled, as fuel costs have fallen and ticket prices have risen on stronger demand.

In pharma companies including Intercept Pharmaceuticals, Allergan (NYSE:AGN) and Mallinckrodt posted strong returns as well, helped by attractive dividends.

But what about the biggest losers?

BUCKINGHAM: Energy stocks have been battered and bruised. We actually like energy heading into 2015 because the stocks have gotten to be so inexpensive.

BRENNAN: Oil and gas producers including SandRidge energy and Oasis Petroleum (NYSE:OAS) have tumbled dramatically this year. And oil field services company Seadrill had lost more than 70 percent.

Cliffs Natural Resources (NYSE:CLF) and others steel stocks had another tough year as well, thanks to soft demand.

And telecom giant Sprint has also plunged as competition for subscribers continues to ramp up in the wireless space.

(on camera): But some of the 2014’s biggest losers could become next year’s outperformers. Buckingham, for example, like the oil driller Ensco, and battered blue chip tech companies like IBM.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan at the NASDAQ in New York City.

(END VIDEOTAPE)

GHARIB: Well, those are some of the big winners and losers of this year, but which ones could be the big gainers in 2015?

All week long, we’ll be talking with our market monitors about their stock picks. And we begin tonight with Peter Sorrentino. He’s senior portfolio manager at Huntington Asset Advisers.

Happy holidays, Peter. Nice to have you with us.

PETER SORRENTINO, SENIOR PORTFOLIO MANAGER, HUNTINGTON ASSET ADVISERS: Thank you, Susie. Happy holidays to you.

GHARIB: You heard our story at the top of the program talking about energy prices and all the volatility in that space. And y top stock pick right here is Valero, which is an oil refiner. And it’s trading right now at $50. You think it can go up by 20 percent. Tell us why.

SORRENTINO: Well, one of the things that we’re seeing is because of the supply of cheap crude that’s available, especially the low grade crudes coming out of both Mexico and out of Canada, that Valero’s uniquely positioned. Very few refineries in the world can handle that type of crude. So, it’s sort of a closed market.

So, the collapse in price really allows someone like Valero to use very cheap feed stock and because they’re pretty well integrated in both ethanol and the crude refining they can ship blended product all around the world. That creates an opportunity for them to undercut competition and take market shares.

So, even with prices crashing and prices at the pump falling every day, it creates an opportunity where sort of survival of the fittest becomes the rule of the day. And for those properly positioned, it creates a great opportunity.

GRIFFETH: A lot of analysts love technology still, Peter, and often they’re talking about the Apples and the Twitters of the world, Facebook (NASDAQ:FB). But you’re going with an old-school company, the software giant Oracle (NASDAQ:ORCL). Why?

SORRENTINO: Well, one of the things that we saw this year — and it’s been a recurring theme, it’s got to be getting attention and got to be getting its share of capital spending going forward — have been the security breaches. And they continue to happen. They’re becoming financially very risky. If you’re in a regulated industry such as financial service or utilities, this is a real problem and you have to start to address it and there’s going to be an outcry to see that it’s dealt with.

And so, for the big players who can cover a lot of the needs of a corporation, it’s a unique business opportunity. And Oracle (NASDAQ:ORCL) we think is well-positioned. They have a habit of moving the company where it needs to be, as we saw with their acquisitions over the last really 15 years. They move in a very methodical fashion.

So, it’s one of those names that it just keeps going up in your portfolio. You buy it well and it just continues to climb higher. So, it’s a name that we feel pretty confident that we can buy and it will continue to work for us for the foreseeable future.

GHARIB: Peter, we know that health care storks have been real strong winners in this past year. You’ve chosen for the New Year a REIT managed care company, Senior Housing Properties Trust (NYSE:SNH). Tell us about why this is attractive to you.

SORRENTINO: Well, one of the things that the health care law changes did was it sort of cleared the mist away and for those who are approaching retirement such a wave with the baby boomers, it created an opportunity for those in the health care, especially in the senior care area, to begin to, you know, position themselves where the demographic trends are most favorable and senior properties has been one where they’ve really done a good job of acquiring properties, they managed them well, they managed properties for others, and the demographic story is an old one, but it’s still there.

And we haven’t really seen much of a change in the labor participation rate. So, it, in fact, looks as though a lot of people who left the workforce have no intention of coming back. As such, we think that that creates a surge for them in terms of future clientele.

GHARIB: All right. Well, a lot of interesting things to think about. Thank you so much, Peter. Peter Sorrentino at Huntington Asset Advisers.

Bill?

GRIFFETH: All right. Heading overseas now, where there was more trouble for the stock markets in Athens today, Greek stocks fell another 4 percent after the Greek parliament failed to elect a new president. That forces the government now to call for national elections early in the New Year and stokes fears that a left-wing victory there could look to overhaul its European Union bailout deal.

GHARIB: And Russia’s economy is taking some real hits. The ruble currency fell another 7 percent in value today and Russia’s economy saw its first contraction in five years. Tough western sanctions and a steady slide in oil prices combine to shrink economic growth by half a percent in November.

GRIFFETH: Still ahead, will Shake Shack’s IPO filing today kick off a big year for initial public offerings?

(MUSIC)

GHARIB: If you’re hungry for a new place to invest your money, Shake Shack is warming up the grill for its initial public stock offering. The New York City-based burger chain, which has just 63 outlets right now, filed paperwork to begin shelling shares to the public and the company plans to open up more new restaurants with the money it’s raising.

GRIFFETH: And Shake Shack is not alone. This past year has been a very strong one for initial public offerings. So, what’s the outlook for new investment opportunities there in 2015?

Bob Pisani takes a look tonight.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: IPOs were big in 2014 and may even be bigger in 2015. 2014 saw 275 IPOs, the most since 406 companies went public in 2000. That includes the biggest of all time, Alibaba. The sector standouts were health care led by biotech and technology, where words like Cloud computing and big data and social media all became common terms in 2014.

What about 2015? The IPO market’s simple. It’s a sort (ph) of what’s happening now. Wall Street wants to take companies public that are growing. Where do you find that in 2015? You find it in technology. Some of the big names that may go public, include Uber, Airbnb, Pinterest, Box, Yodle, Spotify and Palantir. And that’s just in technology.

Other potential IPO candidates include First Data. That’s an electronic payments processor. Roku, they’re the owner of the famous set top boxes. Univision, a Spanish language-based media company. And finally, Ferrari, that’s a spin-off of Chrysler.

In consumer business, fast casual did well in 2014, so there’s a good chance high end burger joint Smashburger may go public as well.

Of course, biotech will continue to be hot as well in 2014. Cancer therapies of any kind were offered practically every week.

Now, is anything in trouble? With yields potentially rising, that makes yield-oriented names like master limited partnerships or MLPs less attractive. There were plenty of MLPs last year, mostly in the oil and gas pipeline business. And I think the chances that we will see less of them is pretty good in 2015.

For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

GHARIB: Mergers and acquisitions had a banner year with a whopping $3.5 trillion worth of deals. That makes 2014 the best 12 months of deals since 2007.

Our guest tonight, Robert Profusek, says this trend could continue in 2015. He’s chairman of the global M&A practice at Jones Day.

You know, Bob, for the longest time, nobody wanted to do a deal. What’s changed? What’s the conversation in boardrooms that all of a sudden this year and now you’re saying next year, that they have an appetite to do mergers and acquisitions?

ROBERT PROFUSEK, JONES DAY CHAIRMAN, GLOBAL M & A PRACTICE: Well, the basics are really very good. But I think what really changed is we didn’t have any of the after shocks of the financial crisis for the last 12 to 18 months. We didn’t have that U.S. debt downgrade, rumors of the breakup of the E.U., any of those things that made people cautious about spending big amounts of money.

GRIFFETH: I’ve always taught, Bob, that when you get a lot of mergers and acquisitions that signals a bottom of sorts. As companies see value, they want to go out and make those acquisitions, but we’ve had five years of a strong market already. Is there still value out there or are they just playing catch-up right now? And where do you see sectors where we’ll see some mergers?

PROFUSEK: Well, there can be a bottom, but one of the things that’s helped the market and has made the multiples that are made in M&A deals really very good is the incredibly low interest costs and the oceans of capital that are available to companies both on their balance sheets and, if they have to, going outside.

Obviously, pharma and health care were huge this year. Telecom was big. And not headline grabbing deals but there are lots of deals in financial services.

All that’s going to continue, I think, in 2015, but I also think we’re going to see a lot in retail. Maybe in retail, there will be a lot of shotgun weddings rather than other kinds of things. Frankly, the change in the dynamic in the oil patches are going to make a lot in energy, and we’re going to continue to see tons of deals in tech.

GHARIB: You know, Bob, we saw a lot of mergers. We saw a lot of what people saw demergers, companies splitting up, Hewlett-Packard (NYSE:HPQ), eBay (NASDAQ:EBAY) talking about the splits. Will we see more of those? And it seems like a lot of these have been pushed along because of activist investors.

Is that a trend you see continuing?

PROFUSEK: Well, the overall trend is towards capital efficiency. And that’s really the story of activists today. You know, in the old days, activists went after, you know, basically companies that were kind of not performing very well. Today, it’s really about capital allocation. Are you in two businesses that really don’t match up in terms of valuation in the marketplace?

So, yes, there have been a lot of them. I think there’s a lot more to come. There was something announced even today by Carl Icahn that seemed like a prelude to a breakup. But so called demerger, I think there won’t be nearly as many, but there will be plenty of those, as capitalists searching for highest application.

GRIFFETH: And quickly, do you see — I mean, there were those companies wanting to buy companies overseas for tax purposes. But Congress seems to be closing those loopholes. Does that take away the cachet of international mergers? Or do you see that picking up in ’15 as well?

PROFUSEK: Well, there’s a huge proportion. The world is globalized. So, M & A is globalized. The so-called inversion phenomenon, which you’re talking about, the treasury tightened down on that a little bit in October. And we haven’t seen too many of those. So, I think that was sort of a blip on the screen for the last year and don’t — there will be some deals but not a lot.

GHARIB: Sounds like you will have a busy year ahead, Bob. Thank you so much for coming on the program and happy New Year.

PROFUSEK: Same to you.

GHARIB: Bob Profusek with Jones Day.

GRIFFETH: Elsewhere, shares of Manitowoc (NYSE:MTW) popped after, as Bob was just mentioning, Carl Icahn disclosed a stake in the crane company. That’s where we begin tonight’s “Market Focus”.

What activist investor Icahn wants to do, he disclosed a nearly 8 percent position in the firm, saying he feels it’s undervalued. He says he has plans to push this company to split in two, separating its crane business from its food services business. Recently, another activist launched a similar campaign to improve Manitowoc (NYSE:MTW). Shares were up about 9 percent today, to a high of $22.79.

Elsewhere, Google’s email service Gmail has been blocked in China, in what may be a government attempt to limit or ban access to Google’s services. The drop in traffic seems to have started on Friday, according to Google’s data. Class A shares were down $4.21 to $537.31.

And Caesars Entertainment said about 40 percent of senior bondholders have backed its restructuring plan to improve its balance sheet. This comes after it recently said it would acquire its affiliate Caesars Acquisition to better position its debt load. Shares of Caesars down a penny to $15.45.

GHARIB: Starting today, shipping a package with UPS will be a little bit more expensive. Its rate hike of 4.9 percent went into effect. FedEx (NYSE:FDX) also upped its prices, but its rate increase won’t kick in until January 5th. Shares of UPS rose a fraction to $112.45.

Walgreen (NYSE:WAG) shareholders OK’d spending $16 billion this week to buy the rest of the European health and beauty retailer Alliance Boots that it didn’t already own. The deal is expected to close this Wednesday, and the combined company will be called Walgreen (NYSE:WAG) Boots Alliance. Shares rose slightly to $76.79.

And move over Uber. Xiaomi is now officially the world’s most valuable technology startup. The Chinese budget smartphone maker confirming that it raised more than $1 billion in a fresh round of funding, putting a value on the company at around $46 billion. That’s 5 billion more than Uber, the popular ride-sharing service.

GRIFFETH: Well, nothing even close to that at the weekend box office this weekend, but the take for Sony’s unconventional one online streaming release for its controversial new movie “The Interview”, those numbers were still pretty good as well. Could this mean a new way for Hollywood to release feature films in the future?

Jane Wells has more from Los Angeles tonight.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: I’m actually like Frodo Baggins.

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Not quite.

While Hobbits ruled the big screen over the Christmas weekend, Sony’s “The Interview” ruled the small screen.

UNIDENTIFIED FEMALE: Nuking all of the West Coast.

WELLS: Becoming the most successful movie to ever stream on YouTube with 2 million downloads across digital platforms, accounting for 80 percent of the $18 million the movie made.

UNIDENTIFIED FEMALE: It was really great, it was really funny.

REPORTER: Where did you see it, online?

UNIDENTIFIED FEMAEL: I saw it on YouTube, on Christmas Day, like right around 12:00 midnight.

UNIDENTIFIED MALE: I saw it online.

REPORTER: What did you think?

UNIDENTIFIED MALE: It was OK. Maybe a little overhyped.

PAUL DERBARABEDIAN, RENTRAK: I was amazed by these numbers of “The Interview”.

WELLS: So, does this usher in the era of finally releasing big movies in theaters the and online at the same time, providing consumers with the choice so many of them want?

DERBARABEDIAN: I would be shocked if the next “Star Wars” installment, the next “Jurassic” installment, the next Bond, which is next year, the next “Avengers” movie, the next “Ted”, which are all coming out in 2015, I doubt we’ll see any of those go day in day as “The Interview” was.

WELLS: But it maybe something we could see with more small budget independent films sooner rather than later.

UNIDENTIFIED FEMALE: It’s critical that he keeps his hand open and touches nothing.

WELLS: Even so, the online release highlighted another problem. An estimated 1.5 million illegal downloads denied Sony (NYSE:SNE) millions more in revenue. Yet with this first big test of how consumers would respond to choice, “The Interview” provided some answers.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

(END VIDEOTAPE)

GHARIB: Coming up on the program, the housing market is cooling off, and that could be a good thing. We’ll explain why right after this.

(MUSIC)

GHARIB: It looks like it’s shaping up to be a December to remember for auto sales. Cars.com says expect sales of cars and light trucks this month to hit 1.5 million units. That’s up more than 11 percent from a year ago, making this the best December for car sales since 2006.

GRIFFETH: And to another big purchase, we’re talking about a home now, and the U.S. housing market is rounding out 2014 on a decidedly weaker note with recent readings on home prices showing that gains are shrinking. Analysts expect more in tomorrow’s release of the Case Schiller home price index for October.

But some housing experts do say that slowdown in price growth may not be such a bad thing after all.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): What a difference a year in housing makes.

PHIL CEFARATTI, POTOMMAC RIVER REALTORS: There have been a lot of pent-up demand and it just sort of released itself beginning of 2013. We just saw a major, major huge jump in prices and that was due to activity of the pent-up demand.

OLICK: Home prices are still rising but the annual gain as of October was just 4 1/2 percent according to Black Knight Financial Services.

The double digit gains of a year ago, gone.

CEFARATTI: I really think we’re sort of at a plateau where we’re going to see sort of whether prices stay flat, they go up 1 percent, they go up 2 percent. Some areas might see a dip of 1 percent. That sort of thing.

It really, really depends on neighborhood to neighborhood, house to house.

OLICK: One state, Connecticut, is already in the negative for the year and prices fell on a monthly basis in four of the nation’s five largest cities. But that may not be negative for the health of housing in 2015. Affordability has been sidelining a lot of potential buyers. Home sales were down dramatically in November and price could be the culprit.

LAWRENCE YUN, NATIONAL ASSOCIATION OF REALTORS: Overall, the prices have been outpacing wage growth. So, that is hitting affordability.

OLICK: The number of homes for sale now is down a bit from a year ago, but the number of affordable homes for sale is way off. A survey of potential buyers by Redfin found just 11 percent said their biggest obstacle with lack of homes for sale while nearly 33 percent cited their biggest obstacle as affordability in the area they want to buy. That’s the first time since 2012 that buyers were more concerned about affordability than lack of inventory.

(on camera): The good news is, with prices rising even slightly, that means that more lower end homeowners will be coming up from under water, and that will allow them to list their homes for sale in the spring market.

For NIGHTLY BUSINESS REPORT, I’m Diana Olick, in Washington.

(END VIDEOTAPE)

GRIFFETH: By the way, if you want to read more about how a dip in home prices could benefit the housing market, you can head to our Web site, the story’s there, at NBR.com.

GHARIB: And that is NIGHTLY BUSINESS REPORT for tonight. I’m Susie Gharib. Thanks so much for joining us.

GRIFFETH: I’m Bill Griffeth. Have a great evening, everybody. We’ll see you again here tomorrow.

END

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.

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