Market briefing --- Lori
Gasoline price --- Su (fast)
AMD --- Bob (fast)
>> welcome back to “after the bell,” i’m lori rothman. it was a tough day on wall street. breadth, the worst it’s been all year. a look at the three major indices -- alcoa was the leading gainer on the dow after are theeing better-than-expected earnings after the bell last night. you can see investors shrugging off that news, focusing on rising oil and metals prices. the s&p 500 lost over 10 points, 1286 the close and nasdaq declining close to 23 pointsst the rising energy prices did not help the equities market . crude oil and gasoline finished the session at their highest price since the days after hurricane. nymex crude oil futures closed two cents shy of the $69-a-barrel mark, $2 below the all-time high. gasoline continues to bolster this rally with futures prices closing above the $2 mark for the second straight day. su keenan is here, now, with the latest.
>> concern that iran’s oil exports could be cut because of conflict over its nuclear program is one key to today’s rally. concern about tight gasoline supplies is another. analysts and traders surveyed by bloomberg predict that tomorrow’s government report will show u.s. supplies fell by two million barrels last week.
>> last week’s inventory number, we had a surprise five million draw. we were expecting 1 .5 million draw. this is coming before the gasoline season. usually we don’t see those draws until the first or second week of may so they’re starting to draw gasoline earlier so speculation that gasoline could go to $2.62, it’s anybody’s guess.
>> $2.62, he’s referring to the energy department forecast that the average price for gas this summer will rise above $2.50, in other words, 25 cents more than last summer. the government says while prices are unlikely to to the record pump prices we saw after hurricane katrina, rising demand is pushing things higher.
>> we think the main factors that are going to drive prices for motor fuels, of course gasoline and diesel fuel, are the high crude oil price that i’ve mentioned. we’re talking about a 13% increase this summer in crude oil compared with a year ago.
>> a growing number of analysts and traders are saying breaking the old price records is not a question of if, but when.
>> and su, some people say when might be tomorrow with the inventory report released. anyone saying that could be the catalyst?
>> it’s possible, if analysts are surprised by a bigger-than-expected drop in gas supplies. but looking ahead to the forward contracts, july already trading above $70 and december trading at $72 a barrel.
>> su keenan, thanks very much. turning our attention to tomorrow’s earnings reports, aemmed aemmed―advanced micro devices will be out with first-quarter results and bob bowden has a preview.
>> thank you. for months we’ve been hearing one refrain when it comes to microprocessor stocks, that intel has been losing market share to advanced micro devices. we’ll hear more about it after the close of trading tomorrow when a.m.d. reports. last month, a.m.d. released three new versions of its opteron server chips after grabbing more than 20% of the microprocessor market in the fourth quarter, the first time they did that since 2002. intel’s market share shrank in the fourth quarter overall to 79%. let’s talk about server chips specifically, where opteron plays. a.m.d.’s opteron more than doubled its market share to 12% of the market in 2005, up from 4.9% in the fourth quarter of 2004. on the bloomberg terminal, the difference between a.m.d. and intel stocks in the last year and it’s quite a difference with a.m.d. shares doubling in that period, the white line. while intel, the orange line, falling 20%. the company is essentially playing in the same market with very different results. a.m.d. shares trading at 24 times this year’s earnings, a higher valuation than intel, trading at a forward p/e of 18 times. but the question for investors is do earnings growth justify a.m.d.’s higher valuation? you decide. analysts right now expecting a.m.d. profits to rise 117% in 2006, better than doubling. intel profits predicted to drop 27%. checking a.m.d. shares today, down .64% but gained on monday 2.6%. year to date, a.m.d. shares up 12.25% during a period when the s&p 500 was up just 3.1%. so a.m.d. has been a winner. we’ll learn more tomorrow.
>> bob, thanks so much for that. the nasdaq bought a 15% stake in the london stock exchange, becoming the largest shareholder in europe’s biggest equity market . the purchase comes 12 days after the nasdaq dropped the takeover bid for the london exchange. nasdaq paid almost $800 million for the l.s.e. shares, including all of the stock held by london’s threadneedle asset management. the purchase may help nasdaq chief executive robert grefelt toward his goal of creating the first transatlantic stock market . the stake makes it harder for rival bidders for the london market such as the new york stock exchange and may force l.s.e. chief executive to negotiate with the nasdaq. she rejected the nasdaq’s takeover offer as too low. former chief executive of the deutsche boerse said a combination of the l.s.e. and the u.s. exchange will be a formidable rival for other european markets .
>> that would create such a pull for the blue chip companies in continental europe to list there, institutional investors would go there, as well, that i think that pull would create a problem for even the large continental european exchanges.
>> seifert was forced to step down from the deutsche boerse after his failed attempt to take over the london exchange. on the surface, it looked pretty good. genentech’s first-quarter earnings topped analysts’ estimates and the company even raised its 2006 forecast. but the stock is taking a hit after hours. jon fisher of fifth third bank will tell us what went wrong for the company, next.
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Listen Interview: Portfolio Manager at Fifth Third Bank
>> one of the world’s largest biotech companies just reported earnings. joining us to discuss genentech’s latest call is jon fisher, portfolio manager at fifth third bank. jon follows d.n.a. closely and joins us from minneapolis. welcome, jon.
>> good afternoon.
>> our first question is, initially after reporting its first quarter result, beating estimates, genentech shares popped in the extended session but then turned sharply lower. what was behind that move?
>> i think once you look at really the details of the numbers, you find that revenues just met estimates. her septip surprised to the upside as many investors expected but avastin was in line and rituxan disappointed. all of the earnings upside came from the company spending less money on r&d and marketing and higher interest income than what investors had in their models and at this multiple, investors aren’t going to buy any more of the shares at this multiple, if they’re not going to get any revenue upside.
>> how overvalued do you feel shares of d.n.a. are right now?
>> i wouldn’t be surprised to see the stock have a six handle on it at some point this year.
>> and your firm does not own shares of genentech. is this the reason, the values?
>> yes.
>> so, their number one drug, rituxan, reported sales of $477 million, lower than anticipated. how significant of a concern, though, is this? >> it’s a concern. i just think from a big-picture point of view, it’s just the lack of upside surprises, now two quarters in a row, from the key product portfolio with the company. and if you go back over the last two years, particularly with avastin, but through 2005 and into 2004, genentech repeatedly, quarter after quarter after quarter, surprised investors with how much stronger their sales were than what people expected. like i said, this is two quarters in a row, now, where investors have caught up and are now able to pretty much gauge the trajectory of sales for the key products. at this multiple―go ahead? >> i was going to ask you, jon, you mentioned the decline in r&d spending. we did also hear from genentech that they’ve submitted applications to use avast win chemotherapy and treat breast cancer. are they trying to expand uses for their current treatments and in your view perhaps not spending as much to build up the pipeline?
>> let me correct one thing. r&d spending didn’t decline. it’s just r&d spending wasn’t as much as the consensus figure was.
>> i see.
>> they’re still spending a lot of money on r&d and one of their strategies is to expand the number of indications for avastin and the number of indications for rituxan as well as herceptin, and that’s the reason her ceptive surprised to the upside this quarter and probably will next quarter and people are looking for reaccelerating growth from rituxan because of extended indications and part of the continued growth expected for rituxan is for expanded utilizations but investors have these expectations for revenue models already built in and at multiple you’re paying for genentech, you’re already paying for the future benefits of these expanded labels.
>> d.n.a. did boost its full-year e.p.s. growth to a range of 45% to 55%. earlier forecasts were looking for e.p.s. growth of 44%. if d.n.a. comes through with that boosted growth level, would that put the valuation more in line with what you’re expecting?
>> i think what the stock is going to do this year is growing into its multiple. the company? absolute terms, is performing very, very well, putting up very strong growth, both revenues and earnings, it’s just the multiple is too high and i think you’re going to see them continue to put up strong numbers and those strong numbers will grow into the stock price and the met pel will get―multiple will get more attractive over the year as the stock is flat to down and earnings and revenues grow. it’s not any sort of failing at genentech, it’s just the fact that investors got a little euphoric at the end of last year, beginning of this year and have overbid the value of the stock for future growth.
>> fifth third bank’s jon fisher, thanks fur your insight.
>> thank you.
>> our thanks to jon fisher, portfolio manager with fifth third bank. u.s. and chinese officials are in washington holding a press conference, the subject is trade. china’s vice premier is there, as well as u.s. commerce secretary carlos guiterrez. guiterez is speaking right now. china may extend its ban on pirated movies and illegal software which could ease tensions between the u.s. and china just in time for the arrival of president hu jintao. he will come to the u.s. next week and let’s listen to the commerce secretary.
>> we were able to make clear progress in a number of core areas and i will touch on four highlights. first, we made headway in increasing u.s. access to the u.s.-chinese market .
>> we will continue to monitor the press conference. oil has moved to record highs in london. analysts at deutsche bank say that will happen with rising demand. opec still a substantial control over price. more in the “chart of the day” with tom keene. next.
