SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Closing in on the end of
the first quarter. What`s working and what`s not? And which trends have
emerged that could benefit investors in the second quarter?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Outdoor spin. CBS
(NYSE:CBS)`s billboard unit goes public. Why this old media spinoff has
HERERA: Market monitor. Our guest tonight has a list of companies
that have undergone big restructuring. And now he says their shares are
ready for takeoff.
All of that and more tonight on NIGHTLY BUSINESS REPORT for Friday,
Good evening, everybody. I`m Sue Herera, filling in tonight for Susie
MATHISEN: And I`m Tyler Mathisen. Welcome, everybody.
It is not over yet, but the month of March and the first quarter of
the year are just about history. And so far, Wall Street`s performance has
been about as welcome as this winter`s weather, with the major averages
swinging up and down like the temperatures but ending pretty much flat for
And it`s not just here. That same halting performance has been seen
in markets all over the globe. So what trends outperformed in the first
quarter of this year, which didn`t, and what lies ahead for the second
quarter kicking off on Tuesday?
Bob Pisani takes a look from the New York Stock Exchange.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It will be a
choppy end to a choppy quarter. Like last year`s first quarter, everything
was up 10 percent. This quarter will produce some real winners and losers.
That`s what traders call a stock ticker`s market.
Let`s look overseas first. Many traders who were buying Japanese
stocks like crazy last year suddenly got clobbered this quarter. Stocks
had been rising there on a weak yen and on a Japanese stimulus program.
But effect of that boost has now faded.
China started off very weak but has been rallying recently. The
problem with China is that their growth appears to be slowing down. Now,
here in the U.S., gold mining stocks which were among the worst performers
last year were very big gainers as were airline stocks, which rose on
higher profits and on reduced capacity.
But the most discussed change in the market came from new techs and
social media stocks, high flyers. For example, Groupon (NASDAQ:GRPN),
Twitter, Amazon (NASDAQ:AMZN), LinkedIn (NYSE:LNKD), and even Netflix
(NASDAQ:NFLX), all of which started the year very strong, drooped in the
second half of the quarter as traders became more concerned with
Now, we`ll start earnings season for the first quarter in just two
weeks. The expectations are not very high because many companies,
particularly retailers, cut their earnings forecast due to the brutally
cold winter. But there`s considerable hope that activity will pick up now
that the weather is finally starting to improve.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock
MATHISEN: And joining us now to talk more about the markets and his
second quarter expectations is Russ Koesterich. He`s global chief
investment strategist with Blackrock.
Russ, good to have you back. Welcome again.
RUSS KOESTERICH, BLACKROCK GLOBAL CHIEF INVESTMENT STRATEGIST: Thanks
for having me.
MATHISEN: All righty. I want to get to one of the risks that you`re
concerned about in the second quarter of this year. And that is
geopolitical instability. And within just the past few minutes, we`ve
gotten word that President Obama and Russia`s President Putin have had a
conversation where actually Mr. Putin called Mr. Obama trying to work out
a, quote, “diplomatic resolution” to the crisis in Ukraine.
What would a, quote, “diplomatic resolution” of this instability in
that part of the world mean to the market, and what would happen if things
heat up rather than cool down?
KOESTERICH: Well, I think right now the risks are to the down side in
terms of things heating up. You know, a solution from the market`s
perspective means that this gets taken off the table. This is not
something investors have to worry about, either in escalation of violence
or an escalation of sanctions that really materially impacts the economy.
The risk is not so much that things are going to blow up or get out of
control in the Ukraine. The problem is more that there`s very little bad
news discounted into the market. You`ve got volatility, well below the
long term average. It means if you do get an unpleasant shock, that`s
something investors are not prepared for.
HERERA: What about if it green lights the market, though, if they do
reach some sort of diplomatic resolution?
KOESTERICH: Well, I`m not sure that`s going to produce a rally,
because again I don`t think the market`s expecting a particularly bad
scenario right now. Instead I think really what you need to get a catalyst
for a leg up in the market is less about the international situation, less
about the Ukraine. It`s closer to home.
As we get into the first quarter earnings season, do we see positive
guidance? Do we see an improvement in the economy? Do we see better
That to me is the necessary ingredient less so what`s happening in the
MATHISEN: So, Russ, one of the stories of this first quarter has been
the sort of rotation away from what we`ve been calling the momentum stocks,
which are stocks basically that go up because they were going up. And a
move toward more value, I guess, in the market.
Do you expect that trend to continue in the second quarter?
KOESTERICH: I think it will. I think this is a really important
point. Because the fact that the market`s been in trading range the last
few weeks and really the whole quarter obscures the fact there are large
rotations going on. We`ve seen a movement out of the glamour stocks into
growth and value. We have more recently seen a move out of small cap into
large and mega cap. They reflect the same underlying trend.
In a world where most of the mainly asset classes are close to fair
value, investors are looking for bargains. I think what you`re seeing now
is a rotation into parts of the market where investors see some relative
value. In my opinion, that`s likely to continue.
MATHISEN: All right. So, do you go more for the large caps and leave
the mid caps and small caps behind this year?
KOESTERICH: I think that investors do have a modest tilt to the large
and the mega cap names. You know, a couple of reasons for that, Sue.
First of all, they are cheaper. They`re much cheaper. But second of
all, if you see what`s likely to happen on the monetary side, if we do see
a creep higher in rates, particularly real or inflation-adjusted rates,
that is probably a bigger headwind for small and mid cap names which tend
to experience more multiple compression when real rates rise than large and
So, I think the larger companies are likely to be more resilient if we
do see rates rise.
MATHISEN: Russ, always great to see you. Thanks for being with us.
KOESTERICH: Thanks, Tyler.
MATHISEN: Russ Koesterich, global chief investment strategist for
HERERA: It was a volatile Friday to wrap up a volatile week on Wall
Street. Stocks soared higher earlier in the session before ending the
session with only modest gains. Good economic data helped, of course, with
personal income and personal spending both rising 0.3 percent in February,
despite all that cold and snowy weather at the start of the month.
On Wall Street, the Dow was up as much as 150 points shortly after the
open, ended 58 points higher, and higher for the week as well.
The NASDAQ added four, but ended its worst week in a year and a half
after a selloff in Internet and biotech stocks. The S&P today adding eight
and it was pretty much flat for the week, Ty.
MATHISEN: A solid debut for CBS (NYSE:CBS) Outdoor Americas, that`s
the billboard giant spun off from broadcaster CBS (NYSE:CBS). It began
trading for the first time today. Shares moved higher right out of the
blocks, surging more than 5 percent for the session as a whole.
Morgan Brennan now on why this so-called old media form of advertising
is now attracting a lot of new money.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Ever wonder who`s responsible for those billboards on the highway? They`re
called out of home media companies. They own and operate billboards,
airport signs, subway and bus station posters, even those neon displays you
see in Times Square. They`re considered old media companies, and today one
of the industry`s biggest debuted on the stock exchange. Called CBS
(NYSE:CBS) Outdoor Americas, the new company was spun off by its namesake,
CBS (NYSE:CBS) Corporation.
The broadcast giant spinning off its outdoor advertising business to
focus more heavily on content.
LES MOONVES, CBS (NYSE:CBS) CHAIRMAN & CEO: The idea of splitting off
the outdoor division, it was a positive for the outdoor group plus a
positive for CBS (NYSE:CBS), because it gives us more cash and more ability
to continue to expand in the content business.
BRENNAN: But CBS (NYSE:CBS) Outdoor has amassed quite the display
empire. The company counts 330,000 displays across the U.S. and another
26,200 in Canada and Latin America.
And those numbers are likely to grow. For the industry, spending on
outdoor ads grew more than 4 percent last year. That`s why analysts say
it`s a good time for the so-called “old media stock” to go public.
EDWARD ATORINO, BENCHMARK CO. LLC ANALYST: Outdoor economy has picked
up a little bit. So you`ve got a positive move in the stock price.
But CBS (NYSE:CBS) is not going to stay in the outdoor business.
They`re still an investor. But their core business remains entertainment.
BRENNAN: So far, investors seem to agree. CBS (NYSE:CBS) Outdoor
stock surging 5 percent in its first day of trading — a big difference
between this tried and true business and the so-called new media companies
that have been garnering most of the attention on Wall Street.
Compare that to King Digital, the maker of popular mobile game “Candy
Crush” saga. When that company went public just earlier this week, it
dropped 15 percent on its first day.
(on camera): But for the industry`s recent growth, advertisers still
only spend about 5 percent of their ad budgets outside. And with a growing
popularity of platforms like mobile, it`s only going to become more
challenging to attract those ad dollars.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan on the Sunset Strip in
HERERA: Two blue chip Dow components are going to battle. Walmart is
suing Visa (NYSE:V) for $5 billion. The world`s largest retailer alleging
the payments giant is charming unreasonably high fees on purchases that
Walmart`s shoppers make with their credit and debit cards.
Mary Thompson has more.
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
It`s an expensive charge. In a suit filed in Arkansas, Walmart claims Visa
(NYSE:V) illegally inflated swipe fees on credit card payments from 2004
through 2012. Walmart is seeking $5 billion in damages.
DAVID DARST, GUGGENHEIM SECURITIES MANAGING DIRECTOR: I think they`re
trying to get attention.
THOMPSON: The suit is the latest chapter that long running dispute
between the nation`s retailers and Visa (NYSE:V) and its rival MasterCard
For years the retailers, including Walmart who pays a lower negotiated
rate, maintained the two firms violated antitrust rules by overcharging
retailers. In its court filing, Walmart claims Visa (NYSE:V) has engaged
in a conspiracy with some of the nation`s largest banks to illegally fix
the interchange fees and inflate the network fees that Walmart and other
merchants pay on Visa (NYSE:V) charge card transactions.
Walmart declined to comment on the suit as did Visa (NYSE:V), though
it wasn`t totally unexpected.
(on camera): Walmart is one of 35 big retailers that opted out of an
earlier $5.7 billion settlement with Visa (NYSE:V) and MasterCard
(NYSE:MA). The retailers saying the swipe fee settlement wasn`t tough
enough and wouldn`t prevent Visa (NYSE:V) and MasterCard (NYSE:MA) from
increasing swipe fees in the future.
(voice-over): Among those filing separate antitrust suits against
Visa (NYSE:V) and MasterCard (NYSE:MA), Macy`s, Target (NYSE:TGT), Office
Depot (NYSE:ODP) and 15 others. Walmart declined to say if it plans to
file a similar suit against MasterCard (NYSE:MA), but analyst David Darst,
whose firm is seeking investment banking business from Visa (NYSE:V), says
retailers are protected.
Under Visa (NYSE:V) share structure, any litigation costs above and
beyond reserves Visa (NYSE:V) already set aside will be borne by the $22
billion worth of class B shares held by banks like JPMorgan (NYSE:JPM) that
used to own Visa (NYSE:V).
DARST: The largest banks and credit card issuing banks will be the
ones that actually bear the cost via their investment in Visa (NYSE:V).
THOMPSON: Walmart taking a swipe at Visa (NYSE:V), looking to cut a
cost that`s ultimately paid by the consumer.
For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.
MATHISEN: Coming up: airline stocks have been flying high, and
there`s one regional carrier that many are calling the new darling of Wall
Street. See if you can guess which one.
MATHISEN: The government is demanding at least $1 billion from
drugmakers for delaying generics. The Federal Trade Commission is seeking
at least that much from big pharmaceutical companies which allegedly took
steps to impede the sale of cheaper generic medicines after the patents on
high-priced brand name drugs had expired. The drug companies being sued
include Solvay, owned by AbbVie, Actavis, previously Watson Pharmaceuticals
(NYSE:WPI), Paddock Labs, part of Perrigo (NASDAQ:PRGO) Pharma, and
Cephalon (NASDAQ:CEPH) owned by Teva.
HERERA: Another blow to PIMCO, the world`s largest bond fund, which
is still reeling from corporate defections over allegations of a hostile
work environment. PIMCO`s total return fund may not be returning very much
these days. The flagship portfolio is trailing 87 percent of its peers so
far this year, that according to Morningstar (NASDAQ:MORN).
MATHISEN: Different story at the nation`s big airlines, Sue. Among
the companies that have been top performers so far this year, especially
Alaska Airlines with shares up 24 percent since December.
And Alaska Air, which is breaking out of its niche of flying only in
the western U.S., may be about to soar even higher.
Phil LeBeau has more.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): With
the Eskimo on the tail, Alaska Airlines stands out on the tarmac. And
increasingly among flyers looking for a new way to the western U.S.
UNIDENTIFIED MALE: I think they are efficient, friendly, and they do
a pretty good job.
UNIDENTIFIED FEMALE: From my experience this time, I like them better
from other airlines.
LEBEAU: From its hub in Seattle, Alaska is rapidly expanding, adding
flights to five new cities, including Baltimore and Tampa.
BRAD TILDEN, ALASKA AIR CEO: This latest move today is really just
about strengthening our hub in Seattle and sort of playing to our strengths
LEBEAU: Because it`s smaller than other airlines, Alaska has been
willing to try new ideas for customer service, like boarding passengers
from the front and back of the plane. Next month, passengers will be able
to print out bag tags at home so they`ll spend less time waiting to check
luggage at the airport. Alaska`s also testing an app telling you wait
times at security before you get in line.
CURTIS KOPF, ALASKA AIR: I have four choices, literally right this
moment at the Seattle airport. Which one is the fastest? Oh, the fastest
one is the one down here. I am very happy to walk down there to get the
LEBEAU: But as Alaska gets bigger, it`s also facing stiffer
competition. Delta is expanding in Seattle, and other carriers are adding
flights along the Pacific Coast.
HENRY HARTEVELOT, AIRLINE CONSULTANT: Alaska`s very much a West Coast
airline. And while they have added flights from Seattle and a few other
places to the East Coast, ultimately it ends up touching either in Seattle
or Portland. And they`ve got to figure out what to do. They`re really
LEBEAU: Despite potential headwind, Alaska is proof airlines have
room to soar even higher.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Seattle.
HERERA: BlackBerry posts a smaller than expected loss, and that`s
where we begin tonight`s “Market Focus”. Cost-cutting helped the
struggling smartphone maker`s fourth quarter results but sales still missed
estimates. The company has lost a stunning $5.9 billion for its fiscal
year. But the CEO says a turn around is in sight.
(BEGIN VIDEO CLIP)
JOHN CHEN, BLACKBERRY CEO: We need to build up the capability, both
in engineering and marketing as well as in the sales force. So, but we`re
going to be very moderate.
Everything we talk about being able to be cash flow positive by the
end of the year, fiscal year, and being profitable the next fiscal year in
some quarters, it`s still right on.
(END VIDEO CLIP)
HERERA: Nonetheless, shares fell 7 percent to $8.41.
Finish Line`s quarterly earnings rose 25 percent on stronger same-
store sales. The athletic gear retailer said demand for basketball shoes
helped make up for a slowdown in sales of running sneakers. Despite the
increase, revenue came in short of estimates. Still, shares were up 2
percent to $27.05.
MATHISEN: Massachusetts is blocking the sale of Zogenix
(NASDAQ:ZGNX)`s controversial but FDA approved painkiller Zohydro. The
state declared a public health emergency that stems from the abuse of
opioids. The drugmaker criticized the move saying it unfairly restrict
access to an approved drug. Shares tumbled on the news down almost 7
percent to $2.73.
An upgrade lifted the shares of Cognizant Tech. Morgan Stanley
(NASDAQ:NBXH) (NYSE:MS) upgraded its rating on the stock to overweight form
equal weight. The firm`s analyst says the company`s growth potential may
have been underestimated. Shares were up about 4 1/2 percent today to
HERERA: Our market monitor says individual stock selection is a much
more significant factor in portfolio performance this year than it was in
2013 when virtually every stock in the S&P 500 and the Dow went up.
He`s Jordan Posner. He`s senior portfolio manager with Matrix Asset
Welcome, Jordan. Nice to have you here.
JORDAN POSNER, MATRIX ASSET ADVISORS SENIOR PORTFOLIO MANAGER: Nice
to see you, Sue.
HERERA: So what type of stocks do you find still have value? We`ve
talked earlier to Russ Koesterich. He said they`re favoring the larger cap
stocks. Does that fit in with your portfolio selection?
POSNER: Well, we`re a large cap stock manager. So we`re always
looking for stocks within the large cap sector. What`s interesting is that
what we`re finding most attractive are stocks in the financials, the
industrials and the energy sectors.
And that`s because we`re expecting that the general economic activity
in the U.S. and actually worldwide will improve throughout the year. And
these three sectors should have pretty good participation in that recovery,
and the stocks we think in those sectors are pretty cheap.
MATHISEN: You know, Jordan, it`s been a kind of choppy first quarter
of the year which ends on Monday. Is that the kind of performance, a
little higher volatility that we`ve been accustomed to that you expect for
the remainder of the year?
POSNER: But we would expect that for the year, you`ll probably see
something in terms of total return, dividends plus appreciation, in the
range of 8 percent to 10 percent, which is kind of a normal historical
range. But we do think that there`ll be volatility throughout the year.
And we would expect there to be some type of correction, perhaps as much of
a 10 percent correction at some point during the course of the year.
And that`s typically generated by some kind of unforeseen macro event.
We would prefer to use the dips down, the downward volatility, as an
opportunity to buy stocks that we think are attractive, and wouldn`t
necessarily chase rallies to increase in asset allocation.
HERERA: Let`s go through some of the stocks that you do find
attractive at this point. In the health care sector, Hologic
POSNER: We`re looking at companies that have the ability to improve
their business internally not just sell more widgets as it were.
Hologic (NASDAQ:HOLX) has had some turnover. There`s a new CEO, very
well reputed. He has brought in some excellent operators. The businesses
are real franchises. They`re the leader in mammography for women. It`s a
terrific business, throws off a lot of cash.
And the company is really working to restructure itself during the
course of the year. We would expect that 2014 will be an ebb in earnings.
And when we look into `15, the stock is trading at around 13 times and we
think that our estimate of the intrinsic value of the company is probably
something close to 30.
MATHISEN: Your second choice is Occidental Petroleum (NYSE:OXY).
It`s about $94 right now. You see it getting to $121. How`s it going to
POSNER: Well, we think that will take maybe sometime, probably over
the course of a couple of years. But as a result of some management
turmoil, actually a fight in the upper realms of management, the CEO who`s
continued to be there, Mr. Chazen, has gone after a separation of the
company, selling some assets, unlocking some of the value.
And when you look at the sum of the value of the parts, that`s closer
to $120 a share, you`ll start to see actions taking place in the second
half of `14 and into `15 which will unlock that value, make it become more
HERERA: And let`s finish up with Devin Energy, which, you know, the
stock has had a little bit of tough sledding, but you think that management
is making some rather aggressive moves to right that ship and make some
POSNER: Absolutely. The company has historically been perceived as
very oriented towards natural gas, which has been a difficult area.
They`ve been reinvesting very heavily, getting rid of assets and
reinvesting in more oily assets as it were. These assets have much higher
valuations, generate more cash and they`ve done a very good job in terms of
refreshing and upgrading the asset base. That really has not been
reflected in the stock.
HERERA: All right. Of the stocks that we mentioned, do you have any
disclosures to tell us?
POSNER: We own all three of these stocks for our clients. My family
and I own them ourselves.
HERERA: All right. Jordan, thank you so much. Have a great weekend.
Good to see you again.
HERERA: Jordan Posner.
All right. Coming up, when we come back, millennials and money. What
makes this generation of investors so different from previous ones?
HERERA: General Motors (NYSE:GM) is expanding its ignition switch
recall to include an additional 824,000 cars. That is on top of the
already recalled 1.6 million vehicles. The recall now includes all model
years of the Chevy Cobalt, the Chevy HHR, the Pontiac G5, the Pontiac
Solstice and the Saturn Ion and Sky — Ty.
MATHISEN: And, Sue, a big win for Tesla. The electric carmaker
striking a deal with New York Governor Andrew Cuomo that will let Tesla
keep its existing stores in the state. CEO Elon Musk has been battling a
few other states that have challenged its direct to consumer Tesla sales
Separately, federal safety regulators ended an investigation into its
Model S sedan following some recent car fires caused by road debris,
puncturing the lithium battery. The company says it will add an additional
metal shield to the undercarriages of all new and previously purchased
Model S cars to stop foreign objects from damaging those batteries.
HERERA: And, finally this evening, a peek into what the future of
Wall Street might look like as some young millennial investors met at the
University of Dayton`s rise conference discussing their investment
And Dominic Chu was there.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Once
a year, some of the brightest young investors in the country and around the
world gather here for the University of Dayton`s student investing
conference. It`s known as RISE, Redefining Investment Strategy Education.
UNIDENTIFIED MALE: You need to be trustworthy, ethical, and
CHU: It`s here that the millennial generation comes to exchange ideas
and meet some of the industry`s elite personalities.
SANDRA PIANALTO, FORMER CLEVELAND FEDERAL RESERVE BANK PRESIDENT: I
started with the Federal Reserve right out of college. And three decades
later, I had a fascinating and rewarding career with the Federal Reserve.
CHU (on camera): So what attracts these titans of Wall Street? They
know these students have their fingers on the pulse of the market.
MATT MCCORMACK, BAHL & GAYNOR INVESTMENT COUNSEL: I love their
energy. I love getting some great ideas from them. And honestly, I`m also
looking at potentially hiring a few down the road.
CHU: What makes the next generation of investors different than the
previous ones? Students like Nathan Hague from the University of Dayton
are taking a much different approach to investing than his parents or
NATHAN HAUGE, UNIVERSITY OF DAYTON STUDENT: I think the older
generation typically invested a lot more in the blue chips, single stocks.
Whereas somebody like me I`m a little more tactical. I like kind of the
shorter time frame, maybe three to 12 months. I typically do a mutual
CHU: Others are focused on some more established and traditional old
world investments like in the energy sector.
Ania Mesa from New Jersey City University is focused on picking
ANIA MESA, NJ CITY UNIVERSITY MASTERS STUDENT: We have HP, which is
Helmerich and Payne. We cover that for a little over a year right now.
We`ve received about 116 return on our investment. It`s definitely
CURT WANEK, UNIVERSITY OF WISCONSIN MILWAUKEE STUDENT: Biotech for
one reason is usually if you play it right, the risk can match the reward.
JON JAEGER, UNIVERSITY OF WISCONSIN MILWAUKEE STUDENT: I love crowd
source. It`s a progressive industry. That`s something that everyone needs
is growing revenues.
TOMMY DOYLE, CHRISTOPHER NEWPORT UNIVERSITY STUDENT: I really like
social media because the massive potential it has. And everybody`s on it.
There`s always new acquisitions the companies are taking. It`s a growing
industry. I think we should take advantage of that.
CHU: Many students have a great track record, one that even the pros
would be envious of.
But they`re trying not to rub their success in too much. As they
know, mastering the markets from the market masters is just one step taking
them towards their dream jobs.
Stay tuned, because these folks are the future of Wall Street.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
HERERA: Looks like they have some very bright futures, too. Some of
those picks were great.
MATHISEN: Meet your new boss.
HERERA: No kidding.
MATHISEN: We`ll be working for them in a few years.
MATHISEN: Yes, hopefully.
HERERA: That`s it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue
Herera, filling in for Susie. Thanks for watching.
MATHISEN: And I`m Tyler Mathisen. Thanks for me as well. Have great
weekend, everybody. We`ll hope to see you back here Monday night.
Nightly Business Report transcripts and video are available on-line post
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