Interview: RBC Researcher
>> stocks today reversed direction, giving up earlier gains. this month, the benchmark stock indexes have failed to hold on to earlier dwaynes in―gains in four of the six trading sessions. we’ll get peris spect -- perspective from phil dow with rbc dain rauscher. we have to start with the reversal, it seems to be a trend. what you do make of this? why the selloff into the close?
>> my guess is that everybody and most of the action in the market has been trading oriented but most of the traders are probably waiting until tomorrow to see what chairman greenspan has to say. yesterday, the interruption in the rally was due to mr. guynn’s comments, the federal reserve of atlanta president, saying there would be more rate hikes so my guess whoever speaks most recently is the one people listen to and tomorrow you have the grand master speak.
>> does greenspan become an excuse, given that people have known this testimony was coming up, meaning stocks were higher today although people anticipated the speech? are there other concerns out there?
>> what you hear is the white house lowered their g.d.p. estimate and raised their inflation guidance going forward. that may have tripped the market up. but my guess is the excuses are that the market does whatever it will do and has taken the cue from traders. you talk to people that understand hedge funds and they’ll tell you domestic hedge funds were probably short every domestic asset class with the exception of commodities and explain the recent rally as short covering by those people in the last three or four weeks. my guess, the most important thing for us to focus on now, those of us who are mortal and individual investors, is a bright opportunity on the horizon, when the fed stops hiking. this is the first positive catalyst i can think of in about five years’ time and i would bet it’s going to be hard to react to that. once the news is out, i think you have to anticipate it so you may see something that’s been gone for a long time. you may see anticipation. you may even see investment activity in the market and i think things could get better over the summer here.
>> phil, if you are anticipating that the fed will soon say it’s going to stop and then indeed stop raising rates, how are you positioning for that? what do you recommend to investors?
>> soon for me is within the next six months and it’s not too soon if it is within the next six months to begin positioning. i think quality is the main thing. there’s a great article in the journal today that focused on growths for value. i think if you focus on quality companies, those rated a or b by s&p on the stock rating with dividend payments, you find the earnings yields are greater than you get from the t-note.
>> i find it interesting that you like the dividend payers, as that’s been a recommendation for some time now. we had seen a lot of those stocks bump up on their stock price. is there still room to grow for dividend payers?
>> i think so. the last 10 or 20 years you’ve had c.f.o.’s favor share buybacks or mergers and acquisitions. it’s only been the last couple of years that dividend growth has become predominant. having said that, you want a relatively low current dividend, 2% to 3%, but one that can grow dramatically and i think a lot of people miss, if you look at the yield in cash on the 10-year investment in pfizer or citigroup, you’ll see yields that are double-digit and you want to buy these attractive franchises at what i think are reasonable prices and hold on for powerful dividend increases.
>> pfizer, citigroup, what other names are in the category?
>> i used them as historic examples and i didn’t go through compliance to clear recommendations so please don’t take them as recommendations, but the key is, high quality companies.
>> one of the concerns in the market today was that if in fact alan greenspan tomorrow talks about the fact that inflation is still around, according to the jack guynn comments yesterday that, rates will rise for the near term, perhaps six months, what does that mean for profit growth?
>> my guess is profit growth is robust. if you―look at g.d.p., the revenue line, the anticipation is 3.5%. the historical average is 3.1%. so looking forward at the coming six months or year, my guess is the revenue line will be good. the earnings line has been underestimated for 13 straight quarters. my bet this year is you will see double-digit earnings growth on the s&p.
>> what crind kind of growth for the index itself?
>> my guess is you’ll see positive 10% when all is said and done and the year is over.
>> do you think the nasdaq will erase its decline?
>> i do. i don’t think the game is over for small caps. my guess is there are still attractive smaller cap companies on nasdaq that will do quite well this year.
>> phil, thanks so much for joining us.
>> my pleasure, ellen.
>> phil dow is director of equity strategy at rbc dain rauscher. alan greenspan a focus for investors as they wait for his testimony tomorrow. we’ll preview what we may hear from the chairman.
在线播报
Listen Market briefing --- Ellen (slow)
Healthsouth --- Chicago Securities Attorney (slow)
NYSE --- Deb (fast)
NYMEX --- Su (fast)
fuel rose last week. su keenan has details. first, let’s check other energy movers as well as the broader market . gasoline and natural gas futures declining by at least 1%. that drop in oil, however, failing to give a sustained lift to stocks. here are the settling numbers, how the market closed -- healthsouth will pay $100 million to settle an s.e.c. lawsuit that accused the company of accounting fraud under former chief executive richard scrushy. healthsouth is the largest u.s. operator of rehabilitation hospitals. the s.e.c. had sued the company in march, 2003, claiming it overstated earnings by at least $1.4 billion. for reaction and analysis, we have chicago securities attorney joining us from telephone. i-want to start with your reaction. how much of a surprise there’s a settlement here?
>> it’s not too surprising. the s.e.c., generally, when they file these types of civil claims, make it a high priority to settle the case. the only thing that surprises me is the number of $100 million. most analysts were thinking the settlement would be two to three times that amount.
>> any insight you can give us? why do you think that’s the figure?
>> i think we’re seeing the beginning of a sea change at the s.e.c., kind kind of the emphasis is now becoming, go real hard against the individual people responsible for the fraud but not quite as hard against the company because shareholders that had nothing to do with the fraud are impacted to the extent you have a very large settlement.
>> what about the timing of it? it’s about the jurors and 12 days of deliberations with the individual case against richard scrushy. in terms of the timing, is that significant?
>> i don’t think so. the s.e.c. dances to its own beat and it’s difficult to say whether the criminal deliberations for mr. scrushy would have any impact on the release date but i highly doubt it.
>> what about what kind of cloud this lifts, how much does this lift the clouds that have remained over the company?% -
>> in the last year and a half to two years, there’s been the cloud with respect to regulators and cloud number two is the cloud with respect to class action attorneys. the good news is that this settlement basically removes the cloud with the regulators, providing more certainty going forward with respect to the company.
>> the company expected to, in the next three weeks or so, release its restated financial accounts. how much of a cloud double that will lift?
>> that will open up a new avenue with respect to the class-action attorneys am anything that the company itself or s.e.c. can provide to the class-action taerns or to the public as a whole will be used in the class-action suit against the company.
>> i also want to talk about another legal development. bernie ebbers, former chief executive of worldcom, may settle investors’ suit as well as u.s. claims against him. what reaction do you have to this development?
>> it’s good to see. the individuals that lost an extensive amount of money due to the fraud engaged in by mr. ebbers, obviously, they want their pound of flesh but more than anything, compensation and to the extent bernie ebbers can take some of the ill-gotten gains and provide them to investors, it’s a good thing.
>> our latest developments are that he may pay an undetermined amount to settle restitution claims by prosecutors and investors. give us some guidelines, what numbers can we anticipate?
>> that’s difficult to estimate because bernie ebbers still has sizable assets but over $300 million in debt with respect to loans he owes to worldcom so any money that either the government or investors can get from him, it’s better than nothing, but i would be shocked if we were talking about any real money left.
>> andrew, thank you very much, we appreciate it. keep in mind, richard scrushy awaiting a decision in a birmingham criminal trial on related charges. jurors are deliberating for the 12th day. turning our attention from the legal cases to the stock market . a lot of movement in the afternoon session for stocks. deb kostroun is standing by at big board.
>> the market started higher but the last two hours of the trading session, a lot of weakness developed in stocks in that last two hours and in fact stocks really retreating ahead of alan greenspan’s tomorrow. he’s going to be giving testimony on the state of the economy. a lot of concern that he’ll be suggesting interest rates will keep rising, and, of course, higher interest rates means slower economic growth and slower earnings growth. if you look at what went on today, by the close of trading, gainers in the s&p 500, the autos, semiconductors and real estate. if you look at the dow gainer, mimics the gainers we saw in the s&p 500. that would be general motors, caterpillar, altria and also intel. general motors said yesterday they planned to cut 25,000 jobs and billionaire kirk kerkorian saying that he’s been boosting his stake of g.m. to 7.2%, short of his goal of 8.8% and j.p. morgan analyst saying the failure of him to get all of those shares may prompt him to raise his offer for the company. and caterpillar raising its dividend by 22% to 50 cents a share. this is a year-to-date chart, higher on the day. they’re going to split the stock two for one after sales jumped by a third last year. prudential upgrading that stock. semiconductors, really led by texas instruments. generally higher. and this after texas instruments saying second-quarter earnings will be 27 to 30 cents a share as consumers buy new phones to surf the internet. the earlier profit forecast was 25 to 29 cents of the laggards in the s&p 500 including transports, healthcare and equipment and retail. energy was lower, starting the day positive but ending lower. this is really the reversal seen in crude oil. crude oil was down $1.22 a barrel at $52.54, having an impact on the integrated oil stocks.
>> we did get an upgrade having to do with google. they started with a buy at smith barney, a price forecast of $360 per share, the analyst citing exposure to the search market and growth in online advertising. turning our attention to the energy rally. we did see, today, that faded by noon. prices fell after the latest government report showed a gain in national supplies of heating oil. nymex crude oil ending the session down after rising earlier in the day. su keenan has details.
>> big turnaround in oil prices. the latest energy department survey of oil, gas and distillate fuel supplies kicked off the rally we saw this morning. none of the 16 analysts surveyed by bloomberg predicted we would see the biggest drop in crude inventories since the start of the year. this was a surprise. crude oil inventories falling by just over three million barrels last week. gasoline inventories in the u.s. also falling last week. analysts such as a.g. edwards and bill o’grady said we should be used to seeing these supply declines with “incredible demand out there.” fimat’s john kilduff said the fact that there was a surprise, pushed prices higher.
>> most were looking for crude oil inventories to have risen this past week but they declined on a robust refinery environment that chewed through available crude oil inventories but the good news is, it was turned into much-needed dist lal inventories which rose so we see a fade off the highs and i think we might end up negative on the day.
>> that was his midday call and he turned out to be correct and he says prices will continue to fall in the coming weeks. looking at the distillate inventories, including heating oil and diesel fuel, coming in higher than analysts’ forecasts. many in the market focused on opec which meets next week, planning to increase production quotas by half a million barrels a day, set for discussion by the oil ministers. rick mueller, an analyst with energy security analysis, says says that could send prices lower.
>> there’s rumbling from opec about raising the official quotas but that’s just talk. they are pumping out a great deal of oil. opec production is near record highs and that’s reflected in the high inventories. high inventories, mueller says, will ultimately result in prices in the mid to high $40-a-barrel range. that’s his current prediction.
>> in terms of other predictions, let’s return to the story having do with google. we have smith barney starting google shares with a buy rating. you see the shares trading higher .6% in extended trade emp. mark mahaney with smith barney forecasting a 29% gain on the stock.
