Interview: Wachoiva securities
>> crude oil rose more than 6% this week, the biggest rally in three months. concern u.s. gasoline demand will not―demand will overreach summer production. the concern about gasoline pushing gasoline higher by almost 2%. heating oil and natural gas futures up, as well. looking forward to next week, traders and analysts having a hard time figuring out which way the markets will trade. the benchmark stock indexes have been whipsawed, as well, over the past week by earnings reports and inflation concerns. the dow moving more than 100 points in five of the past eight trading sessions. doug sandler is chief equity strategist with wachovia securities and joins us from his office in virginia with his view on the market . thanks for joining us this friday. i guess the markets this week would be what they used to call in disney world, an e-ticket ride. is there any way to know whether we need to strap ourselves in for next week or not?
>> there’s a lack of conviction in the market and that’s where you find the most opportunities. i get excited when you see the market churn as it did over the last week or so. it means a lot of people are selling out of fear and i think there’s a lot of opportunity. i’m excited, more excited friday, today, than i was on monday.
>> we lost big today. why are you excited today?
>> well, exactly, i think people are running for the exits for no good reason. in the end, we think the economy’s going to slow. that’s happening. but we think people are―or investors are generally thinking the economy will stop. if it just slows, there are still a lot of opportunities. one of my favorite parts of the market is the secular growth stories. those are the stocks that can grow in a good economy or a bad economy. a good example of those would be like the starbucks where it’s more a penetration story than it is a story about the underlying economy. in the end, these stocks are cheap. these are like the real jewels of the market that you rarely get a chance to buy at a decent valuation, you’re getting an opportunity today and go theeing that opportunity because investors have only focused on cyclicals for the last three or four months―i’m sorry, the last 12 or 18 months and i think that’s what you’re getting, that’s where the opportunity is, that’s where we’re most excited.
>> you think, though, that people will start thinking that and we’ll see more days like we saw yesterday?
>> yeah, yeah. yesterday was a perfect example of what we like to see more often, which is generally mass entrance into the market but the stuff that really worked yesterday were the real companies, the companies that weren’t just economically sensitive and that’s what got us excited.
>> a lot of companies are reporting better than expected earnings but we also saw, as you mentioned, the economy slowing. what’s your outlook for earnings in the second quarter if things tailed off at the end of march, but not enough at that point to affect first-quarter earnings?
>> i think in the end it’s a good environment for companies. i think the economy, like i said, is still chugging along, maybe slower than what people expect but still chugging. i think that’s a good environment for companies. in the end, you know, it will be a little bit about cost cutting, too. but we like the market . we think we’re in the goldie locks economy and i hate to use the overused word but it’s not too hot, not too cold and that’s not a bad environment in which to operate.
>> as an equity strategist, give me your thoughts on the mergers of the exchanges over the past couple of days. will it make a difference in the way you do your business?
>> i don’t have a lot of insight into any of that. in the end we think the markets are generally fair t.may help big institutions but for us, i don’t have a lot of comment on those mergers. we get a lot of questions from retail investors every day asking how to play the mergers, should i buy the next big likely takeover candidate? and from our perspective, that’s one of the most foolish things you can do is try to figure out who gets taken over next, pay the extreemual already built into the stocks and in the end, nine times out of 10, those mergers don’t happen. if you’re looking to play the m&a game, you ought to play the m&a advisers, the goldman sachs is a great example, number one m&a adviser out there. they make money when the deals get done. we own that stock and recommend it here, as well.
>> anybody you want to stay away from?
>> who do you stay away from? a lot of the interest-rate-sensitive companies, some of the cyclicals. the pure cyclicals. think about the companies that can only do well if the economy’s really humming. those kind of companies, i think, will have a problem going forward. it may be semiconductor equipment companies, it may be the pure industrials like the caterpillars of the world. those are the kind of companies we’re a little cautious with, paring back, trimming. they’re the sources of funds investors need to look at those.
>> thank you very much, doug sandler, chief equity strategist at wachovia securities.
>> thank you.
>> next week, we’ll move deeper into earnings season. how is the market interpreting first-quarter results and what are they likely to do next? we’ll bring in june grasso with investor analysis after this break.
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Listen Market briefing --- Mike (fast)
Instinet --- Allan (slow)
NYSE --- Lisa (slow)
instinet, as well as the announcement of the new york stock exchange merging with archipelago.
>> after the news conference, i spoke with the c.e.o. of instinet about how the competitive landscape has changed.
>> i think one of the reasons why there is this need to get bigger on the part of people in the business is because the business is extremely competitive and very low prices, commoditized business without much differentiation between competitors.
>> i also spoke with nasdaq c.e.o., robert greifeld, about whether the timing of his deal had anything to do with the new york stock exchange’s announcement two days ago.
>> two deals this week, is there a nuclear arms race between the exchanges?
>> you’re seeing the reaction to the regulations coming in 2006 where you’re redefining the equity landscape nationally. when we started to think about it, we thought we would expand our view of the market internationally, also.
>> how does this change the competitive landscape overall? you compete with london, with germany, with tokyo.
>> with the new regulations, you’ll see a floor-based market going to an electronic platform following the lead nasdaq established in 1971. the fact that they go electronic allows the participants with nasdaq to trade more effectively with and against them. that’s an opportunity for us. this transaction puts us in an ideal position to gain share in the trading of listed stocks.
>> were you pushed into this direction to close this deal more quickly because of what the new york stock exchange did?
>> we’ve been involved with this transaction since the auction started last fall. we went to an exclusive state with the seller three weeks ago. there are a lot of players in the transaction, three deals in one. we had zero time to think about anything else.
>> flip it around. you’re already taking market share from the new york stock exchange, do you think they were pushed into their deal as a result of what you were up to?
>> i think the losers in the auction for instinet had to make certain decisions and they probably had to make them fairly rapidly.
>> you’re saying the new york stock exchange was one of the losers?
>> i’m just saying that the losers in the auction, i don’t know who they were, really had to rethink their strategic options.
>> did you look at the company they are doing the deal with?
>> what i say is my job is to talk to everybody in the space, whether they be from london, deutsche bourse, chicago, it’s part of my job responsibility and something we’ve done in the past and will continue to do in the future.
>> in the press conference, you said you would be maniacle, explain what that means?
>> we want to be focused on completing our trading plan, whether that’s to exceed for volume or new listings or in the financial products reason a.it’s the hallmark of the management style of nasdaq and of our corporate culture.
>> in terms of trading volume and the number of listings you have, what are the targets you’re setting for a year from now as a result of this transaction?
>> we decent have a hard target but clearly we want to win an increase percentage of companies that come to market . we typically win around 60%. we’d like that number to be higher. as we have the opportunity to community the value proposition of the nasdaq market model where you have electronics but you also have market makers competing with each other, we stand a very good chance of winning a listing.
>> in your vision of the world, do you see the floor traders at the exchange disappearing?
>> the floor traders are going to have to compete in the new electronic world. it’s their fundamental business challenge to make sure they’re able do that. if they do that well, they’ll prosper, if they cannot, they will have a difficult time.
>> i think small investors will look at these giants and wonder if prices will go up.
>> what you’ll see is better prices within our auto matching engines, enhanced liquidity, increased time priority in addition to price priority so we think all investors will win through this transaction. we think the american capital market system will be strengthened.
>> how dramatic a shift do you envision in the way people are buying stocks?
>> i don’t see a dramatic shift. we have seen a trend line where more people buy stocks electronically, directly accessing the market through their broker. that trend will continue. the fact that we have a large electronically accessible liquidity pool will help accelerate that trend.
>> one quick last question, what do you expect this deal to do for your own stock.
>> as we said, this deal will accrete to our shareholders within the first year. we also will see that in the second year we’ll realize about $100 million of cost synergies so it should be a very good transaction for our shareholders.
>> bloomberg l.p., owner of bloomberg news, competes with reuters in providing news, information and trading systems to the financial services industry. bloomberg tradebook competes with instinet in the business of matching stock trade orders. mike?
>> allan dodds frank. instinet shares sold off on the news of the deal. robert gray has more on that and the rest of the selloff on the nasdaq. robert gray is not with us but we’ll go to the new york stock exchange where bloomberg’s lisa leiter is at the big board. consumer stocks leading the way lower there in friday afternoon’s selloff.
>> the markets not only failed to build on yesterday’s rally, which was the best in a year and a half,,the dow and s&p erased most of their gains for the week. both indexes finish said slightly higher on the week. the benchmark indexes were lower most of the session, but late in the afternoon, the market indexes really took a turn for the worst after the “wall street journal” reported that north korea may be planning a nuclear test. weaker-than-expected earnings were the initial catalyst behind the move lower in household names. maytag, the stock falling the most in percentage terms after its profit plunged and fell short of forecasts. its credit rating was lowered. eastman kodak debt downgraded to junk, the company posting its second straight loss. the s&p retailing index, one of the worst performing groups on the s&p. the costco effect sending retailers lower. target, home depot and lowe’s among retailers moving lower after costco said it would miss its quarterly earnings. medtronics stock lower after the world’s biggest maker of spinal implants agreed to pay $1.35 billion to end a lawsuit. stocks moving higher today, there were some, oil-related stocks. oil had its biggest weekly gain in three months on concern that gasoline demand will outpace production. shares of exxon-mobil, conocophillips, chevrontexaco and schlumberger all higher. the major indexes have been whipsawed over the past week and a half by earnings reports and a concern that a pickup in inflation will force the federal reserve to step up the pace of interest rate hikes. the dow has moved 100 points in five of the past eight trading sessions. mergers were a theme in the market this week with the nyse-archipelago deal and today’s deal between nasdaq and instinet. i’m lisa leiter at the new york stock exchange.
>> eastman kodak said it lost money for a second straight quarter. red ink coming from the costs of plant closings and job cuts. excluding special items, the operating profit was a big miss and sales fell 3%. chief executive dan carp calls the results disappointing.
>> we had a number of executional issues. that doesn’t mean there’s a problem with the market demand. our digital products in march were up 31% in sales, only up 17% in january and february. as that continues on and we’ll have more digital sales this year than traditional sales, then we can close the gap as we go through the rest of the year. we won’t close it right away, but we can see market demand there and we’ll get operational issues behind us.
>> sales of film and other traditional photo products and services fell 18% last quarter. revenue from digital increasing nearly 1/4. a u.s. grand jury plans to investigate tom coughlin, former vice chairman of wal-mart. coughlin, who was the president and c.e.o. of wal-mart’s sam’s club stores, retired january january 24 after allegations of misappropriation of funds. last week, wal-mart stores suspended coughlin’s benefits after an investigation into his financial transactions. wal-mart says it’s not the subject of the probe. we’ll look at where stocks may be headed next with doug sandler, chief equity strategist at wachovia securities. that’s next at bloomberg news continues.
