Transcript: Friday, October 25, 2013

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and
Susie Gharib, brought to you in part by —


at a record, the Dow close to one and the NASDAQ is closing in on 4,000.
But with the indexes at lofty levels, can you still find value in this

Proceed with caution? Could all this optimism derail the bull run?
We have five things market watchers say every investor should watch.

And, power shift. The oil and gas boom in North Dakota and Texas
isn`t just benefitting the heartland. It`s also creating jobs in
Philadelphia, at a shipyard.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Friday, October 25th.

Good evening, everyone. I`m Susie Gharib. Tyler is off tonight.

More positive momentum on Wall Street today. The S&P 500 closed at
another record high, and the major stock averages ended higher for the
third consecutive week. Now, two tech companies were the talk of the
trading day. Amazon (NASDAQ:AMZN) surged 10 percent and shares of
Microsoft (NASDAQ:MSFT) shot up 6 percent. It was the biggest gainer in
the Dow index.

Investors brought up those stocks, reacting to the quarterly results
that came out late yesterday that we told you about.

Here is a look at today`s closing numbers. The Dow rose 61 points,
the NASDAQ added 14, closing at a 13-year high, and the S&P tacked on
seven, closing at that new record 1,759.

So with the S&P at a new record and the NASDAQ closing in on 4,000, it
may be getting tougher to find some real value in the stock market.

But as Seema Mody found, there may still be some value plays out


getting tougher and tougher finding value in this market, but there are a
couple of what experts say are deep value plays, beaten down names that are
still pumping out earnings.

First up, Joy Global (NASDAQ:JOYG), mining and equipment maker. With
shares down about 9 percent this year, analysts say it`s trading at an
attractive evaluation in comparison to its peers in the industrial sector.
Plus, the improving global economy is expected to result in more demand for
industrial names.

In the retail space, American Eagle, down 25 percent in the past three
months. Analysts have been cautious on this retailer due to its high
environment and low store traffic. That`s what hurt earnings in Q2. Add
to that, a colder and wetter spring resulting in less demand for summer
wear, although, analysts say the teen retailer could benefit from the
upcoming holiday shopping season.

Switch focus to tech, IBM — yes, it`s been a tough couple quarters
for Big Blue. That resulted in a beaten down share price. But income
seekers are cheering its dividend yield of 2 percent and its plans to
continue to find new growth opportunities.

Within tech, it`s a battle between the slow-growing tech names that
yield steady earning great and new age Internet names that are posting
strong top line growth. Skeptics say these high flying Internet names like
Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) are trading at a rich
valuation and might be too expensive. While the bulls say if you want
growth, this is the place to invest.

investor from 1999 that`s here in 2013 saying that a good place to make
money from evaluation and cash flow prospective is what we more
affectionately refer to as new tech over the last four or five years.

MODY: Whether it`d be industrial, retails or tech, if the market
continues to move higher, experts say it will be even more difficult to
find deep value plays.



GHARIB: Let`s turn now to Stephen Wood to find out where he`s finding
good stock buy. He`s chief market strategist with Russell Investments.

So, Stephen, nice to have you with us.

Are you finding that stocks are just getting too expensive?

think in the U.S. market, where we`re seeing a fair valuation on the
market. So, when you look at the earnings, P.E. So, how much can you buy
in earnings for what you`re paying for stocks, I mean, it looks kind of
fairly valued. It doesn`t look overly expensive, but it certainly doesn`t
look overly cheap, either.

So, from our prospective, if we confine ourselves to the U.S. market,
I think we`re seeing an environment where stock picking, stock selection is
going to become more important.

Valuations are always important whether it`s growth or value
selections. But stocks right now, they don`t look overly rich but we think
it`s going to become more of a stock pickers game, an active management
game, and picking those companies that not only have great earnings. But
in this environment, they can really dry revenue.

So, I think revenues are going to be far more important for stock
performance going forward.

GHARIB: Did you agree with what Seema just reported, that new tech is
the place to find the good deals?

WOOD: Well, I think it`s a part of it, and we would look at a multi-
asset strategy. We`re not only looking within tech, but energy. You know,
health care, the broad array of the best companies with equities, but also,
we`re looking globally. So, we want to understand our valuations more
attractive in Europe and the United States, for example.

So, look at emerging markets. Look at Europe, and where can those
really strong balance sheets, those revenue drivers, be have for evaluation
discounts. So, I think we would look within equity space, but also look
globally to see where the opportunity sits.

GHARIB: You sound very upbeat and positive, and I know there`s a lot
of positive feelings out there in the market. But aren`t you a little
nervous when you see — even the Russell 2000 hit an intraday new record
high during the day, S&P at a new record. Stocks like Google
(NASDAQ:GOOG), you know, getting above $1,000.

Doesn`t this make you a little bit more cautious?

WOOD: Well, we`re always looking at what are the risks and
opportunities in the market. So, we talk about this stuff every day, every
week, all month long, all year long. So, for us, this is nothing new.

So, when stocks pull back we have a similar conversation. But you`re
right, the Russell 2000 small cap stocks are right at an all-time high.
The Russell 1,000, which is large cap space, is at an all time high as of

But within that space, again, we don`t see an over or stretched
valuation. We just want to know what are the names that have better and
stronger balance sheets because if you look at the earnings environment,
you`re kind of — you know, right around market averages. But when markets
tend to do well, people tend to bring up these concerns.

GHARIB: Right.

WOOD: We would also look at Europe. We would look at emerging


WOOD: We would look commodity space, infrastructure, take a very
multi-asset approach to this.

GHARIB: All right. Let me ask you this. I mean, it doesn`t take
much, as you know, to trip up this market. All we need one negative
economic report out of China or something like that, that everybody gets
very nervous.

So, how should investors protect themselves as we have these rallies?
Would you recommend sell into the rally? Take your profits?

WOOD: I think they need to take a very actively managed strategy.
So, rebalancing is a part of that. Looking where valuations are richer,
more attractive. So, they again, this globally diversified, multi-asset
strategy. It`s not one versus the other. It`s about how do you combine
them in the total portfolio?

And I think if you look at what can trip us up, you know, political
risks, which we`ve been seeing a lot of — I mean, that can be an
opportunity, and we`ll look at what happens in Washington. If the market
were to pull back, that would be an opportunity. Military interventions
tend to be opportunities as well.


WOOD: But I think, perhaps, most importantly, the Federal Reserve is
going to keep interest rates very low for the foreseeable future, and that
is going to be a natural wind underneath equities right now. So, we`re
constructive. We understand there`s going to be volatility, but going into
2014 — again, globally diversified strategies make sense to us.

GHARIB: All right. Sounds good. Thank you so much, Stephen. Have a
great weekend.

WOOD: You, too.

GHARIB: Stephen Wood, chief market strategist with Russell

Well, despite the recent rise in the major averages that we`ve been
talking about, some experts say they are seeing warning signs that the
markets may be a little overheated. So, is it time to adjust your
portfolios and take some money off the table, or keep risking it, betting
that stocks will go even higher?

Dominic Chu takes a look.


are showing signs of worry and they are looking at the number of different

First, there`s market sentiment. According to data from the American
Association of Individual Investors, investors are not only the most
optimistic they`ve been in 10 months, they`re also the least pessimistic in
the last 21 months. If investors are too bullish, that could be a bad

Second, is the stock market too richly valued? Many say no, but the
S&P 500 currently trades at 16.5 times earnings. In other words, you`ll
pay $16.50 in stock price for every dollar of earnings that a company
makes. That`s higher than average.

Third, momentum is slowing down. Stocks that rocketed higher like
electric carmaker Tesla and online media company Netflix (NASDAQ:NFLX) are
losing steam.

Fourth, some stocks are reaching record highs and surpassing $1,000 a
share — think Google (NASDAQ:GOOG) and That could be a
warning sign.

And fifth, margin debt is at a record high. In other words, investors
are borrowing record amounts of money to buy stocks.

Veteran investor Byron Wien says to stay alert.

BYRON WIEN, BLACKSTONE: You don`t have an enormously over priced
market. You have a market that`s vulnerable to a correction at any time.
There`s a fair amount of speculation in the market.

CHU: On the other hand, some think the bull run continues.

there are some warning signs out there, we think that 2014 is going to
allow for the market to really expand its multiple. And you`re going to
see earnings pick up, revenue pick up and that`s going to push the market
higher in our opinion.

CHU: Now, it`s not to say anyone really knows where the market is
headed, but some experts are definitely moving ahead with some caution.



GHARIB: We begin “Market Focus” tonight with some positive results
from United Parcel Service (NYSE:UPS). The world`s largest package
delivery company beat estimates by a penny and reported revenue that
matched forecast. Growth in online retailing and a boost in European
exports helped UPS deliver solid results. Shares rose more than 1 percent
to $95.61.

Growth overseas, cost cuts and lower tax rates are helping Procter &
Gamble (NYSE:PG). P&G posted profits that were in line with estimates and
revenues slightly above expectations. The maker of Tide and Pampers also
reconfirmed its positive forecast for this year.

But signs of growth didn`t help lift the stock. Shares were down a
fraction to $80 a share.

Sherwin Williams posted a rise in earnings, helped by strong sales at
its paint stores. The company has benefited from a housing rebound,
bolstering its retail business and help the offset a rise in raw material
costs. Investors brushed off that aspect, sending the stock up more than 4
percent to $195 and change.

And a jump in sales helped Callaway Golf (NYSE:ELY) beat earnings
expectations and boost its outlook. The CEO said the golf equipment maker
gained market share in many major markets, and better weather in Europe and
the Americas led to more golf rounds being played.

Shares surged almost 20 percent to $8.70.

And still ahead on the program: remember the mortgage-backed security,
the bond, made famous by the housing crash. Well, now, there is a new one
being offered that`s backed by rental homes, but will this time around be


GHARIB: JPMorgan (NYSE:JPM) reaching a $5 billion settlement with the
Federal Housing Finance Agency. The deal resolves claims that it misled
Fannie Mae and Freddie Mac about risky mortgage securities sold before the
housing market collapse. A broader deal with the Justice Department is
still being negotiated.

Well, it pays for an airline to take off on time. United Airlines
just received the largest fine ever by the federal government for leaving
passengers stranded on the tarmac. The Department of Transportation fined
United more than $1 million for keeping passengers aboard 13 flights during
thunderstorms at Chicago`s O`Hare Airport in July of last year. Federal
rules say that planes carrying more than 30 passengers are prohibited from
keeping them on the tarmac for more than three hours without offering them
the chance to get off the plane.

Wall Street regulators have put a cap on claims that the NASDAQ
exchange will have to pay out for its botched initial public stock offering
of Facebook (NASDAQ:FB) shares last year. It`s $41.6 million. That figure
was calculated by Wall Street`s watchdog FINRA, the financial industry
regulatory authority. The amount is much less than the 62 million that
NASDAQ had set aside to repay brokerage for lost money.

So, you`ve heard of mortgage-backed securities, and their role in the
housing market collapse. Now, there is something called rental-backed
securities. They are bonds backed by single family rental homes. This new
investment vehicle may be hitting the market next week.

Diana Olick has details.


When housing came crashing down and millions of Americans lost their homes,
large scale investors crept in to the nation`s neighborhoods. They bought
thousands of foreclosures not to flip but to rehab and rent. They are
still hungry for more, but need more cash.

asset class. Clearly, it`s been a good investment for these large
companies that put equity at stake. And now, they`re looking to gain some
either exchange, this leverage for another, or take up some — just brand-
new leverage.

OLICK: Sitting on a portfolio of close to 40,000 homes, Blackstone,
the largest player in this game, will offer bonds backed by its homes.
It`s just like a mortgage backed security but instead of revenue coming
from monthly mortgage payments, it comes from rent.

$500 million dollar worth of these bonds will be offered as early as
next week according to sources. JPMorgan (NYSE:JPM), Credit Suisse, and
Deutsche Bank will market the bonds, which represents a few thousand homes.

Potential investors are already asking a lot of questions.

WHALEN: We want to look at the operations. This is a — again, its a
new asset class and so, we want to make sure that the sponsor that has, you
know, invested the equity is going to be able to collect rent, re-rent
these properties in a fairly short time period and basically very efficient
about operations.

OLICK (on camera): Investors also want to know how committed these
sponsors are to this asset class. Will they sell the homes to other
investors or hold on for the long haul, and where are these homes? Are
they in good local markets with good economies and good jobs?

In other words, will the tenants be able to keep paying rent?

securitization serves a great purpose, if done well. But I think it`s a
little — it takes a little more development coming.

OLICK: With investors pouring $20 billion into single family rentals
in just the past few years, there is no doubt Wall Street will look to cash
in. The hope is they will also look back at the last run on a clever new
investment product and learn from their many mistakes.

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


GHARIB: For more on the potential risks and rewards backed by single
family rental homes, head to our Web site,

Our market monitor tonight says now is not the time to pile large sums
of new money into stocks. He`s David Katz, chief investment officer at
Matrix Asset Advisors.

David, you sound pretty cautious. Do you buy into what Dominic Chu was
reporting earlier in our program, the warning signs that are out there in
the markets?

think they are warning signs per se. We`ve been very bullish all year.
We`ve been upbeat about the market. We`ve got a lot of the returns.

With stocks up 25 percent, we don`t think now is the time to get
renewed optimism. Now is not the time to be doubling down your bets.

Our best guess is stocks in the end year are higher. It`s going to be
a good fourth quarter. We`re upbeat about next year.

But if you`re look to put new money to work, we could put it to work
during sell offs when the market is getting spooked by something, like the
last few weeks, you have a 4 percent, 5 percent sale off. We would buy
into that, and we wouldn`t be chasing the rallies.

GHARIB: All right. You have a couple stocks that you`re
recommending. Maybe they`re the ones that you buy when the market dips
down a bit.

Let`s start with the first one, Capital One Financial (NYSE:COF). Why
do you like this one?

KATZ: Well, the stocks that we`re going to talk about generally
haven`t done as well as the overall market. So, we`re pretty comfortable
buying them here. Capital One has under-performed the over financial group
and credit card group in the last year terms of stock performance. But
their business is actually been doing much, much better. Credit trends
have been very good. Its sales at under 10 times earnings and management
has made a renewed commitment to shareholders to return dollars to
shareholders through buybacks, through a higher dividend.

We think they`re going to be very focused on shareholder value, and
its one of the cheapest credit card and financials out there in very good

GHARIB: And your next one sounds like sort of fits in to that same
formula, Cisco (NASDAQ:CSCO) Systems, which has slipped recently, although
it`s been up for the year. It`s now trading at 22 bucks. Why do you like

KATZ: Well, Cisco (NASDAQ:CSCO) has done nicely for the year, but
they`ve given back a lot of them in the last few weeks. The sentiment has
turned from positive to very negative. Right now, the stocks at 10 1/2
times earnings, pays about a 3 percent dividend yield.

We think they have a good long term future. The next quarter might be
a little bit difficult, but at 10, 11 times earnings with nice earnings
growth over the next two to three years, we think it`s a good company, very
good entry point, our target is in the high 20s. We think on the downside,
maybe you have about $20. So, you have $2 at downside, $8 to $10 at
upside. We think that`s a very good risk-reward.

GHARIB: All right. Let`s talk a little bit about McDonald`s, because
investors were al little disappointed in their earnings report, quarterly
numbers that came off this week. It got as high as $103 just a few months
ago. Why do you like McDonald`s?

KATZ: Well, in fact, if you listen to that investor called the
(INAUDIBLE) were pretty hostile toward management. The company beat
earnings by a penny, but their revenues were a little bit light. They gave
a lackluster outlook in terms of same-store sales trend. Having said all
that, they pay 3 1/2 percent dividends. They sell at 15 1/2 times

We think in a better global economy, a better European economy, a
pickup in the United States, business is going to pickup. And at this
price, it`s a very good way to play in the market. And it`s done
exceptional well this year. This is one that hasn`t participated, if the
market sells off, McDonald`s should hold up real well and we think should
make pretty good money for you.

GHARIB: All right. One more, Qualcomm (NASDAQ:QCOM), another tech
stock. What`s the story here?

KATZ: Qualcomm (NASDAQ:QCOM) is at play on the next technology.
Their wireless devices, they provide guts to phones and to iPads, to
wireless ones, and to iPads. It sells (ph) about 15 times earnings.
Management is very focused on, enhancing shareholder value. They`re more
and more now in terms of the dividend, buying stock back. It`s at a very
good price.

We`re in different weather. Apple (NASDAQ:AAPL) wins the game, or
Samsung wins. Qualcomm (NASDAQ:QCOM) is providing chips to both of them.

GHARIB: To both of them and it was up quite a bit today, at $68. You
have a target on it?

KATZ: Our target is in the low $80s. But we think longer term, it
even can do better than that.

GHARIB: All right. Any disclosures, David, on any of these stocks?

KATZ: We own all of those stocks. We continue to buy all of those

GHARIB: All right. Fair enough.

Thanks so much, David. Have a weekend.

KATZ: Great to be here.

GHARIB: David Katz, chief investment officer at Matrix Asset

And coming up, as energy prices fall, will American consumers spend
more just in time for the holidays?

GHARIB: The White House promised today the nation`s troubled health
insurance Web site will be repaired by the end of the November. Speaking
for the first time since his appointment earlier this week, the
troubleshooter assigned to fix the Web site has this to say.


JEFF ZIENTS, PRESIDENTIAL ADVISOR: By the end of November, the vast
majority of consumers will be able to successfully and smoothly enroll to
the The issues with will be resolved and
the system will operate as it`s designed to.


GHARIB: Also today, the Obama administration said it`s hired a new
general contractor and technological expert to manage the overall effort.
It`s quality software services. This is a unit of United Health Group, the
health insurer.

Well, some bad news from some furloughed government workers who
applied for and got jobless benefits during the 16-day federal shutdown.
The Labor Department says that since Congress approved back pay for those
furloughed employees, that means they were not unemployed and that
individual states have to get them to return any unemployment checks they

Oil prices rose today, closing at $97.85 a barrel, but they still
managed to decline for three straight weeks.

And with the trend in energy prices moving lower, Jackie DeAngelis
takes a look at what that means for gas prices and consumer spending.


Lower energy costs look like an early holiday gift for U.S. consumers. You
probably notice that gas prices are down a lot. AAA says the national
average is $3.31 a gallon, down 13 cents in a month, and down from this
year`s high of $3.74 in February.

The question, how low can we go?

ANTHONY GRISANTI: I think at the pump, you could see $3.10. And if
you remember last year, we were coming out of a summer where the supplies
were very tight because there was a lot of refinery problems and then we
had Sandy coming into the picture.

DEANGELIS: Others are targeting $3.15 to $3.20. Why? Crude oil is
comfortably below the $100 a barrel mark, down almost 11.5 percent from its
52-week high.

Longer term, rising U.S. oil production is making us less dependent on
foreign supplies, which should drive prices even lower.

T. BOONE PICKENS, BP CAPITAL FOUNDER: We are importing about 8
million or 9 million barrels a day. That we can eventually absorb with our
production if our production gets high enough. So we have plenty of room.
We just crowd those people out of market.

DEANGELIS (on camera): One rule of thumb here: every time the price
of crude drops a dollar, the price of gas comes down about $2.25. Not bad,
but the current levels won`t get the experts thinking that U.S. consumers
are about to change their spending habits.

you know, that`s returning a bowl of soup at the deli. They`re not going
to drive more. They`re not going to take more vacations.

DEANGELIS (voice-over): Still, most seem to agree every little bit

UNIDENTIFIED MALE: Yes, when it`s cheaper, we spend more.

UNIDENTIFIED FEMALE: Even a little bit makes a big difference in our

DEANGELIS: And as temperatures fall outside, it`s looking like it may
be cheaper to keep things warm inside. Natural gas is down roughly 11
percent in the last six months, and heating oil has seen a drop of 6
percent in two months.

UNIDENTIFIED FEMALE: It will be great to do more shopping.

DEANGELIS: Not a bad thing with the holiday shopping season about to



GHARIB: And finally tonight, the dramatic rise in production of shale
oil and natural gas in the nation`s West is now benefitting companies all
the way across the country.

Brian Sullivan has the story from the City of Brotherly Love.


oil and gas boom is not just benefitting Texas and North Dakota. It`s also
bringing big business to Philadelphia — really big business — because the
men and women of the Aker Philadelphia Shipyard are building that.

(voice-over): The Liberty Bay, a huge new tanker set for duty
transporting oil up and down the West Coast for subsidiary of ExxonMobil

Shipyard manager John Bond lays out just how big the ship really is.

JOHN BOND, SHIPYARD MANAGER: The actual oil capacity, you`re looking
at about 136,000 cubic meters, and put that a little bit more in
perspective for Navy people at home. It would be around 33 million gallons
of crude oil and approximately 790,000 barrels of oil.

SULLIVAN: Aker Philadelphia is a subsidiary of a Norwegian company,
but the rest for the story is mostly home grown. The Jones Act law
requires any ship transporting goods, including oil, within America, to be
built in America, and much of the steel even comes from American steel

Like many industries shipbuilding fell on hard times during the
recession, but the energy boom has helped the Aker shipyard nearly triple
employment in the last two years to more than 1,000 workers.

our industry. The increase in shale oil production in the United States
has increased dramatically and ships have played an increasingly important
role to move that oil to refineries along our nation`s coast.

SULLIVAN: And these jobs will last for awhile. The shipyard is a
contract to build six tankers. Liberty Bay is the first and each ship can
cost as much as $200 million and take up to a year to build.

So, while the actual oil and gas being drilled is thousands of miles
away, the workers here at the shipyard say the impact is being felt much
closer to their home.

For NIGHTLY BUSINESS REPORT in Philadelphia, I`m Brian Sullivan.


GHARIB: And you can read more about shipbuilding in Philadelphia and
how it`s benefitting from the nation`s oil and gas boom by heading to our

Well, that`s it for us, NIGHTLY BUSINESS REPORT for tonight. I`m
Susie Gharib. Tyler Mathisen will be back on Monday with me. Thanks for
watching and have a great weekend.


Nightly Business Report transcripts and video are available on-line post
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