Transcript: Friday, November 1, 2013

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

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Solid sales. General Motors (NYSE:GM), Ford and Chrysler all report double digit sales gains for October. So, what`s going right for the big three, and what the industry needs to keep firing on all cylinders?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Buyback bonanza.
Companies have loads of cash on hand and many are using it to buy back their own shares. Are buyback companies a better investment than ones that don`t?

MATHISEN: Picture perfect? Kodak is back. The company`s next chapter started today. Shares began trading on the big board. But this is not your father`s Kodak or the one you used to know. Can it succeed?

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, November 1st.

GHARIB: Good evening, everyone.

Americans are buying cars, a lot of them in showrooms across the country were bustling in October. Despite the government shutdown, October was another month of strong auto sales, proof that the manufacturer in new car sales and trucks are one of the engines powering the U.S. economic recovery. Now, each of Detroit`s Big Three scored double digit sales gains and much of that on pickup truck.

General Motors (NYSE:GM) was in the fast lane. Sales surged almost 16 percent. At Ford, sales grew 14 percent. And at Chrysler, they were up 11 percent.

Phil LeBeau joins us now from Chicago with more on that.

So, it was an amazing month sale. You know, the headline numbers look fantastic but when you look under the hood, there are some numbers that weren`t so good like Chevy Volt numbers, they dropped.

You know, what happened there?

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: That got a lot of attention today, Susie. The Volt sales dropped 31.7 percent for the month of October this year compared to October of 2012.

Now, GM is quick to point out that October of 2012 was the second best month ever for Volt sales and they believe that the inventory is on the low side. So, as a result, it`s not as though they are seeing falling demand, but at the same time the Volt sales this year are just over 18,000.

For the year, Volt sales are up just 2.7 percent. So, not a huge amount of growth there, and a lot of people are sitting there saying will this be a niche vehicle, or can General Motor really take these sales and grow them at a nice clip over the years to come? And that remains a big question for a lot of people watching this.

MATHISEN: Tell us about pickup sales, Phil. Have they started to slow a little bit?

LEBEAU: They are. And that`s expected for the most part of the industry. They had a huge run in the first half of the year, Tyler, largely because of what we saw with the housing market picking up, small business owners restocking their fleets. And almost everybody in Detroit will tell you that they expected a start of a cool-down in terms of pickup truck sales.

That doesn`t mean a slowdown, just that they`re not going to grow as quickly as they were in the first half of this year.

GHARIB: You know, Phil, I was surprised to see incentives and rebates are back. You know, what`s the story there and will this keep the auto sales market strong going into 2014?

LEBEAU: Well, Susie, this is what worries people the most about the auto market. Will they start to repeat the mistakes from several years ago when they really started putting huge amounts of money on the hood of the vehicles in order to juice the sales? We`re not seeing that yet. What we are seeing is a little bit more competitive market between the auto markets. And the concern is, if this economy plateaus or doesn`t continue growing at the clip it`s been growing at, will they have to put more money to goose the sales?

GHARIB: All right. We`ll keep watching.

Phil, thanks so much. Phil LeBeau, reporting from Chicago.

MATHISEN: Well, it is a new month. And on Wall Street, day one was a good one for stocks. The markets got a big boost from a surprisingly strong read on U.S. manufacturing in October. It rose at the fastest pace in 2 1/2 years. Also, a strong read on factory activity in China.

All the major averages avoiding a third consecutive day of losses with stocks, rising into the close. The Dow up nearly 70 points, NASDAQ added two, the S&P 500 was up five. Rates on the 10-year treasury note rose steadily all session long closing up at 2.6 percent.

GHARIB: A top Federal Reserve officials said today, it`s time for the central bank to phase out the stimulus program. Charles Plosser, president of the Philadelphia Federal Reserve Bank, said the Fed should have begun tapering back at its — tapering back at its meeting earlier this week.

(BEGIN VIDEO CLIP)

CHARLES PLOSSER, PHILADELPHIA FED PRESIDENT & CEO: I thought we kind of missed an opportunity to make a small gesture to signal the fact this is a dial we can move and we can adjust it and fine tune it, if you will.

(END VIDEO CLIP)

GHARIB: Plosser also suggested setting a maximum dollar amount for the Fed`s bond buying program, instead of sticking to the target of U.S.
unemployment rate getting down to 6 1/2 percent.

MATHISEN: And in addition to the Fed stimulus this year, one of the factors that has helped stock prices in 2013 is a rash of buybacks.
Companies using their cash reserves to snap up their own shares. That reduces the supply of stock and lifts the profit per share.

Dominic Chu has the story.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Corporate profits in the stock market are at record highs but one financial success may be a bit more complicated to explain. That`s earnings per share.

RON INSANA, THE MARKET SCORE BOARD REPORT: If you have $100 in profits and 100 shares out standing and buy back half, your earnings per share will go to $2. So, you can double your earnings per share, a key stock market measure, without actually growing profits. It`s one way to grow earnings per share. It is not a way to grow corporate profits.

CHU: Miller Tabak`s chief economic strategist Andrew Wilkinson took a large at companies with a larger share to look at how earnings per share were affected. Take business software giant Oracle (NASDAQ:ORCL).
Wilkinson estimates that its earnings per share were about 9 percent better this past quarter simply because of having fewer shares outstanding.

Global casino giant Wynn Resorts (NASDAQ:WYNN) got an estimated 23 percent improvement. And satellite TV provider DirecTV got an estimated 47 percent improvement.

Nuveen Asset Management`s chief equity strategist Bob Doll said the effects of share buybacks are important.

BOB DOLL, NUVEEN ASSET MANAGEMENT: Most estimate say that 2 percent to 3 percent of the earnings growth we`ve seen is from buybacks, the shrinkage of share. So, it`s not inconsequential.

CHU: Generally speaking, companies that buyback their own shares have outperformed the broader market. Since the end of 1999, Wilkinson notes that the S&P 500 Buyback Index is up 250 percent. That`s versus the 20 percent rise in the S&P 500.

There`s an even exchange traded fund that tracks companies that engage in bigger stock buyback programs. The PowerShares Buyback Achievers, ticker PKW.

So that`s one place to look if you believe or don`t believe the stock buyback story.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

GHARIB: Tim Courtney is a believer in stock buyback. He`s chief investment officer at Exencial Wealth Advisors.

Tim, welcome to NIGHTLY BUSINESS REPORT.

Let me begin by asking you, sort of getting into the debate about stock buybacks.

You know, some people would say a stock buyback is basically you`re playing with the numbers, it`s financial engineering, and that it would be better if a company used that money to grow the business, to develop new products. What do you say to that?

TIM COURTNEY, EXENCIAL WEALTH ADVISORS: Well, I think, for one, I think the market is pretty good at seeing through that. It is pretty transparent and it`s hard to hide the fact that you are increasing earnings per share by doing share buyback. So, I think the market does a good job of pricing stocks and seeing through that.

But I think another reason why companies would do that besides maybe trying to make the numbers look better is because maybe they don`t feel like they have enough confidence in the economy or maybe there are legislative risks to go take cash and go do a large scale research and develop the project. They would be better off taking that cash and going in and buying back stock.

MATHISEN: You know, you saw numbers that were in Dominic`s piece there. If I`m trying to choose between two companies, relatively comparable in many ways and one is buying back shares, the other is not, should I choose the one that`s buying back shares?

COURTNEY: Well, I think it depends, although that`s a good sign if the company is looking at its prospects and has access cash, and it`s putting that cash to work back into buying stock. I think that`s a mark in the favor. All of the things being equal, you would want to see that, certainly.

GHARIB: But not all buybacks are beneficial. It doesn`t always work out that way, right?

COURTNEY: That`s right. I mean, there are — there is some study — there are some studies that show that companies that have lower profitability when they do invest in themselves, they tend to have lower returns and there are examples of stocks recently that have shown that same phenomenon. So, it tends to be the companies that it works best for are companies with higher profitability, where they`re taking pre-cash and putting that back to work, buying back their shares — not so good for companies who are struggling with profitability.

MATHISEN: Do any of those companies you mentioned, do any come to mind? Name them.

COURTNEY: Well, there was an article yesterday from “The Wall Street Journal” talking about IBM, and how IBM`s price really has not moved in the last couple years and primarily it`s because IBM is having some trouble generating revenue growth. So, I think that`s a good example of a company that`s doing share buybacks but it`s not affecting the price. And again, that goes back to the market being pretty effective at determining what`s causing these earnings per share increases and not just adding value onto the stocks because they are buying back shares.

GHARIB: So, Tim, what is the trend now for buybacks? This year was a big year for buybacks. It seems like every company was announcing some kind of buyback program. Has the trend run its course?

COURTNEY: It looks like it`s going to continue because earnings are still growing. Companies it looks like in the third quarter, profits will set a new quarterly record. And so, it`s going to be a lot of cash on company`s balance sheets and that probably — is probably going to tend to indicate the buybacks will continue probably into 2014 increase.

GHARIB: Let me throw a little curveball at you. Some companies like Apple (NASDAQ:AAPL) are being urged to go out and borrow money to do a stock buyback and not use their cash and in Apple`s case, because they have to bring it back from overseas and pay tax on it.

Does that tell you anything — if they`re borrowing to buy it?

COURTNEY: Yes, I`ve seen that a lot and I think the match shows that that can make sense. And I think again, that`s an issue with the tax code.
It — I don`t necessarily agree with some of the tax policies that we have for patrioting of cash but with those tax costs to bring back in money from the United States, it certainly can make sense to borrow and buy back.

GHARIB: All right. Well, we`re going to leave it there. Thank you so much for your thoughts. Tim Courtney, chief investment officer at Exencial Wealth Advisors.

MATHISEN: And some more trouble at J.P. Morgan Chase. The U.S.
Justice Department and the Securities and Exchange Commission are now looking into the hiring practices of J.P. Morgan at its Hong Kong offices, amid reports that relatives of Chinese party officials got jobs there. The bank also said in a regulatory filing that several U.S. government agencies requested information about its foreign exchange trading business and whether its employees were rigging currency markets.

GHARIB: And J.P. Morgan Chase isn`t alone. Citigroup (NYSE:C), the U.S. bank that conducts the most international business also revealed that federal investigators are looking into its foreign exchange trading for evidence of possible market manipulation.

MATHISEN: And more now on the troubled rollout of the Affordable Care Act`s online marketplace, Healthcare.gov. A company called Compuware
(NASDAQ:CPWR) took an independent look at what users of the Web site experience as they shop for health insurance plans and what they found may surprise you.

Bertha Coombs has more.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
How bad was the first day of open enrollment on Healthcare.gov? Just six people managed to enroll in the first 24 hours, according to newly released Health Department documents. By the morning of October 3rd, fewer than 250, because of the technology problems plaguing the site.

While access was universally poor, the site`s glitches appeared to have made access in some of the 36 states on the federal insurance exchange worse than in others.

MIKE SMITH, COMPUWARE VP OF ENGINEERING: There are variations that tend to be effected by geography or which Internet service provider or which browser that you`re using.

COOMBS: Engineers at Compuware (NASDAQ:CPWR) in Lexington, Massachusetts, began independently tracking Healthcare.gov and user experience in mid-October. At that time, users in a handful of states like Oklahoma in green saw pages load with normal 1 to 2-second performance, but for most, in red, it was taking well over 8 seconds.

SMITH: Those tend to be factors that relate to geography, because different service providers exist in different geographies. There are certain techniques that can be employed to minimize these kinds of differences.

COOMBS: Recent fixes appear to have improved user experience times overall.

SMITH: You want to provide a performance testing environment at scale so millions of users are simulated users are running against the site to make sure that it will scale and provide the response times necessary under that condition.

COOMBS (on camera): Jeff Zients, the Obama adviser overseeing the tech surge to fix Healthcare.gov, says their measurements are now showing that page loads are taking less than 1 second on average across the site.

But here at Compuware`s end user testing, they are still seeing wide disparities. In Kansas City, Kansas, today. It was pretty good, about 4 seconds. But still, next door, in Kansas City, Missouri, it was taking over 30 seconds.

(voice-over): To improve your own experience, Compuware (NASDAQ:CPWR) suggests making sure you have the latest version of your Web browser, clearing your cache history of old Healthcare.gov cookies, and optimizing your connection by making sure you`re not slowed down by sharing Wi-Fi, for example. Health officials vow the site will work smoothly by the end of this month.

SMITH: They will see a surge of activity that they better plan for.

COOMBS: Because the stakes are too high now for another failure.

Bertha Coombs, NIGHTLY BUSINESS REPORT, Lexington, Massachusetts.

(END VIDEOTAPE)

GHARIB: Still ahead on NIGHTLY BUSINESS REPORT, a Kodak moment. The iconic American brand is back on the big board, but how does the new company differ from the old and is it a good investment?

(MUSIC)

GHARIB: Who says you can`t go home again?

Well, Kodak has emerged from bankruptcy and traded again today on the New York Stock Exchange, but as Hampton Pearson reports, the pioneering photography company is vastly different from your great grandfather`s Kodak.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The new Kodak is a technology company focused on imaging for business with a full line of high tech commercial printing products. Now trading on the NYSE with its new ticker symbol KODK, today was the first Kodak moment for the new business, according to CEO Antonio Perez.

Quote, “The change in our symbol reflects we`re a new company that`s focused on business-to-business product services, well capitalized and firmly committed to delivering value for shareholders and innovation to our customers.

Eastman Kodak (NYSE:EK), the Rochester company founded in 1889, became an American icon, selling cameras, film, chemicals and photograph paper.
But those products became almost useless in the digital age.

Kodak did not transition fast enough and was forced to do bankruptcy filing last year — a textbook case among leading economist for how not to survive in a 21st century global economy.

Mistakes of the past still haunt the new company. Leading Wall Street analysts are adapting a wait-and-see attitude. Standard & Poor`s gives the company a borderline junk credit rating. The risk comes from Kodak`s small share in the large, mature and declining market for commercial printers.

Kodak professional film however remains the gold standard for much of the motion picture industry, including new contracts with six major Hollywood studios just in the last year.

(on camera): Any future Kodak moments will depend how the company competes in an industry that has been totally transformed by technology.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson.

(END VIDEOTAPE)

MATHISEN: Well, The Container Store also began trading on the New York Stock Exchange today, and that`s where we begin tonight`s “Market Focus”. Shares of the retailer doubled after pricing its shares above the expected range. The CEO of the company which specializes in shelvings, storage bins and boxes says he`s optimistic about the growth prospects.

(BEGIN VIDEO CLIP)

KIP TINDELL, THE CONTAINER STORE CHAIRMAN & CEO: We`ve indicated we can grow absolutely at 10 percent square footage growth per year minimum and we spent much of our history doing that. So, we`re looking at double digit growth from here on. It`s great to be immature in retail with only
63 stores. There is a lot of runway left.

(END VIDEO CLIP)

MATHISEN: And the stocks surged to 101 percent today to $36.20.

Weakness in refining led to a decline in Chevron`s quarterly net. The country`s number two oil company reported gas and oil output increase but not enough to meet estimates. That pressured the stock. It closed almost
2 percent to $118.01.

GHARIB: A boost in media and sports revenue helped Madison Square Garden (NASDAQ:MSG) posts an earnings beat. The operator of the New York sports arena said the net income jumped 16 percent. That made up for weak revenue generated by Radio City Music Hall. But shares ended the day down at $58.45, a drop of almost 3 1/2 percent.

And shares of First Solar (NASDAQ:FSLR) surged after the company boosted its profit forecast for the year. The maker of Solar Equipment reported earnings yesterday that came in way ahead of analysts estimates.
Sales in Canada and revenue from a solar plant in California helped the company beat forecast. The stock climbed to a 2-year high, up today to almost 18 percent to $59.14.

MATHISEN: And our market monitor guest in week says the stock market should continue to rally this month and in December. He`s calling for the Dow to hit 16,000 by the end of the year and 1,800 on the S&P 500.

He`s Hank Smith, chief investment officer at Haverford Investments.

Mr. Smith, welcome. Good to see you here.

How confident are you that the markets will continue to do well?

HANK SMITH, HAVERFORD INVESTMENTS CHIEF INVESTMENT OFFICER: Good evening.

Well, we`re entering a very seasonably favorable period of time, November and December historically are very good months for the market.
We`ve gotten over a historically unfavorable seasonable period, October and September — in fact, making new highs along the way. But look, what`s happening now is confidence and sentiment is improving from years of fear and anxiety and I think we have a long way to go in that regard.

GHARIB: Yes. But, Hank, what is really going to drive stocks to go that much higher from here?

SMITH: Well, first of all, fundamentals have been good and continue to be good. Corporate America is the shining star from the recession and financial crisis. Balance sheets are exceptionally strong flushed with cash, productivity is high, earnings are good. They continue to beat expectations.

And if we can get an economy that picks up a little bit in 2014, I think that`s going to fall right to the bottom line with continued good earnings.

MATHISEN: Let`s move, Hank, to a couple of your stock picks. Let`s begin with J.P. Morgan, a bank that`s been operating under a regulatory and legal crowd continues to do so. Why should I put money into that bank given its circumstances and not another?

SMITH: Right, it`s still one of the best and high — best managed and highest quality banks in the world and with tremendous earnings power and it`s amazing how after discussions of $13 billion, $15 billion the stock is still holding up. That`s because investors realize the earnings power this company has, and I think you`re going to get it at a very attractive evaluation right now.

GHARIB: Let`s talk a little bit about IBM. You heard the guest earlier saying despite the stock buybacks that it`s been doing, that the stock hasn`t really benefited from it and if you look at the chart, here is a stock that was above $200 not too long ago and now at $179. Why do you like it?

SMITH: Well, look, IBM is about software and services. That`s how the company has evolved. And yet, the quarterly misses in the past two or three quarters have been about the hardware business, which is becoming sequentially less and less important.

We think they`re going to get through those problems and we do believe they are going to hit that $20 per share by 2015, which makes this an extraordinarily cheap company and if you`re worried about the market reaching all time highs, this is a nice stock to buy that is very high quality company that`s not at the all time high.

MATHISEN: Give me a 30-second pitch for your third stock United Health.

SMITH: Well, it`s the highest quality of the HMO group and, look, the HMOs are part of the solution. They aren`t going to be excluded. That was the fear from last year and we`re very encouraged that the government`s hiring their division to fix the software glitches of government.org and we think this company, too, is very attractively priced with a good growth prospect.

MATHISEN: All right. Hank, do you or Haverford own any of these stocks?

SMITH: We do. Haverford owns them and I own them personally, along with my immediate family.

MATHISEN: Put your money where your mouth is. Thanks very much, Hank. Appreciate it.

Hank Smith, chief investment officer —

SMITH: Good to be with you.

MATHISEN: — at Haverford Investments. You, too.

And still ahead: the cost of protecting the world`s largest single day spectators sporting event. That`s the New York City marathon.

(MUSIC)

MATHISEN: A gunman shot and killed a TSA worker inside a terminal at Los Angeles International Airport this morning. That delayed flights into and out of LAX for hours. The shooter, a 23-year-old from New Jersey was taken into custody. Several others were injured.

GHARIB: That deadly shooting at LAX comes just two days before the New York City marathon. Now, security was already high in the wake of terrorist attack at the Boston marathon earlier this year.

Mary Thompson takes a look behind the scenes of the world`s largest marathon, and what it means for the New York economy.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
When runners tow the starting line of Sunday`s New York City marathon, they do so on the long and tragic shadow of the Boston marathon bombings.

RAY KELLY, NYPD COMMISSIONER: In light of the attacks in Boston this past April, the NYPD began examining and enhancing its coverage of the race, starting the day after the Boston marathon.

THOMPSON: The New York Road Runners Club is spending over a million dollars on security this year, more than double spent on the last marathon.

On race day, spectators backpacks will be subject to search, hundreds of mobile cameras around the city will be monitored by security, 48,000 runners will be screened at the start and stripped of certain gear.

PETER CIACCIA, ING NYC MARTAHON TECHNICAL DIRECTOR: But some of the things that we change what`s new this year was over the shoulder hydration packs that some of the runners wear, camel backs are what they are called in the industry, those are not going to be permitted this year.

THOMPSON: This is a come back year for the marathon, canceled at the last minute because of Superstorm Sandy. Officials were criticized in 2012 for not acting earlier.

(on camera): But the bad feelings didn`t last. Race director Mary Wittenberg saying last year`s controversy didn`t scare runners or sponsors away.

MARY WITTENBERG, NEW ORK ROAD RUNNERS PRESIDENT & CEO: Sponsorship is sup. We`re going to celebrate ING this year and we`ve just structured premiere partnership and sponsorship for the marathon for next year, for the next eight years. So, partnership is stronger than ever.

THOMPSON (voice-over): Case in point, the maker of running gear Asics, which never thought of dropping out.

KEVIN WULFF, ASICS AMERICA PRESIDENT & CEO: We`ve been with New York over 20 years, 45,000 runners, 2 million spectators. This is the largest race in the United States. So, we`re excited and it`s something that we`ve been doing for a long time, and we love it.

THOMPSON: Like the runners, they are in it for the long haul, staying the 26.2 mile course come hell or high water.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.

(END VIDEOTAPE)

GHARIB: And to read more about preparing for the New York City Marathon, head to our Web site, NBR.com.

You know, it`s so nice to see people so positive, whether you`re a sponsor or runner, and against all odds.

MATHISEN: Yes, that`s right. So many people — I was talking to one running on this weekend, she said she had to get there like four hours early in part to comply with the new security screenings for the runners themselves.

GHARIB: It`s going to be a great day —

MATHISEN: But it`s going to be cold but good.

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Have a good weekend.

MATHISEN: And I`m Tyler Mathisen. Thanks for joining us. Have a great weekend, everybody. We will see you back here on Monday.

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) 2013 CNBC, Inc.

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