Legg Mason --- Cripps, Richard ---Managing Director- Portfolio Strat.
>> welcome back. a hardy sales forecast from cisco helped give investors the push they needed to buy stocks today. richard cripps from legg mason says for the first time in two years, tex have crossed a threshhold he’s excited about -- techs have crossed a threshhold. mr. cripps joins us from baltimore. let’s start with cisco. where are these earnings numbers critical to the market and why did this one report re-ignite optimism about profits?
>> cisco is a bellwether for many technology companies, particularly in the equipment area of that sector. but, again, as we mentioned, overall, the whole sector is looking a lot better and i think valuations for technology stocks information technology in general, is really quite attractive relative to the general market so we think with good valuation and momentum coming into the sector, this will be one of the leading sectors for 2006.
>> can you narrow it down further, though, beyond cisco? there were earlier earnings disappointments. what other types of technology stocks would you say fit into this valuation picture?
>> as a general category, in terms of industry groups or sub strategy groups, software look quite good. microsoft was a name that frustrated a lot of investors with its sideways action for a long time but that stock looks attractive to me, as well.
>> where do you see stocks in the market as a whole going from here? do you think today’s gains are extendible?
>> yeah, but i think we’re in a waffling period. clearly a week before the last fed announcement and until the next announcement in march and thereafter, investors are looking for the tipping point with a good signal from the fed that they’re probably through raising interest rates and i think the fed is leaning towards a view of being more ambig ambiguous about that than what investors want so it is somewhat uncertain as to what the fed is doing. i think stock prices will be held to a narrow trading range until we have that clarity. >> do you think stocks are more tethered to the fed or to another factor, say, oil prices?
>> in the near term, it’s the fed. and i say that from the standpoint that the assumption here is now that oil prices probably have reached some degree of equilibrium, meaning supply and demand represents one price, a speculative premium represents another price and we’re probably at that level so i don’t think that oil prices have a risk of going much higher so the risk in the near term is probably more of what the fed might be doing, absent, of course, a big event that makes oil prices go way up.
>> would you say crude oil prices around $62 are at a floor?
>> if you were to try to vector supply and demand, most observers would suggest $50 would be more of a price that oil should be trading at. the difference between $50 and the current price is the speculative premium for the uncertainty in the world today. as long as that uncertainty doesn’t expand, i think oil prices can drift lower.
>> from an investment perspective, you’ve told us energy is your top sector. energy has been a big story recently with a decline in oil and natural gas. does the pullback in prices change your outlook?
>> no, i don’t think so, because i think the economics of the industry at even $50-a-barrel oil are so much better than what investors thought a year ago. so we think that the pullback and i think they are due to pull back and 12 of the last 14 months, they’ve been the best performing sector. we think that pullback would be something that investors want to increase positions as opposed to reduce.
>> are you increasing your exposure to energy on the dip this week?
>> we’re basically an equal weight from where we had been overweight in our model so as we get lower prices, we need lower prices before we add.
>> you told us you like technology, specifically software and energy. what stories would you -- industries would you avoid?
>> we look at stock prices relative to expectations, relative to changing expectations and two sectors of the market that look to us to be problematic for that kind of analysis would be consumer-oriented, consumer discretionary, and consumer staples. those would be the sector we’d shy away from and would be underweight.
>> closing out, let me get your forecast for the s&p 500 by year’s end.
>> i think we have a year similar to last year, meaning that we move up a positive single-digit number. so if you were to, depending on where the mark the s&p from, i think that’s probably 3% to 4% from where we are today.
>> thank you very much for joining us.
>> pleasure.
>> once again, our thanks to richard cripps of legg mason. while americans paid more for water and energy drinks last quarter, consumers overseas bought more bubbles.
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Listen Market briefing--- Lori (slow)
News Corp. --- Brett (slow)
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the gain. the s&p rose 10 points, 1265. and the nasdaq composite up 22 points to 2266. cisco systems leading the markets today as a sales report last night re-ignited optimism on earnings growth. tonight, a couple of standout earnings reports released after the close of the trading session. news corp. said profit almost tripled in the latest quarter while whole foods reported earnings jumping 26%. brett gehrig has more.
>>ats sales and higher revenue at its cable television networks pushed profit at news corp. to just over $1 billion. excluding the gains from asset sales, profit came in at 21 cents a share, beating the 20-cent estimate among analysts. here’s how the quarter breaks down in the divisions. profit from cable networks rose 15%. fox news channel attracted more viewers. the costs of starting the fox reality channel trimmed results at the unit. the broadcast television unit boosted profit 20%, falling short of analysts’ estimates. and profit at the film division fell 26%. none of news corp.’s films opened in the top spot at the box office in the quarter. meantime, whole foods said first-quarter profit rose as shoppers picked up more prepared foods during the holidays. that, and the remodeling of many stores, boosted comparable store sales 13%. the company continues to take market share from traditional grocers such as kroger and safeway. here’s what appears to be spooking investors in the after hours’ trading of the stocks, earnings per share on an operating basis came in at 41 cents a share, matching the average estimate among analysts. some investors may have been expecting more since the stock trades at over 50 times its expected earnings, triple the forward price-to-earnings of the s&p 500, which stands at 16. yet, its results lately have not been remarkable. the company missed analysts’ estimates in the fourth quarter primarily because of higher-than-expected costs for opening new stores. the company said then that the expenses were higher than expected because of the increase in the average size of the store and the number of prepared foods they sell. the top brass at whole foods is holding a conference call with analysts as we speak. we’ll see if they mention the cost issues again as a factor in the last quarter’s results.
>> thank you very much for that. we do have additional earnings reports tonight, this time from prudential financial. prudential coming in with earnings per share, $1.46 versus the estimate of $1.22. that $1.46 number, we want to be clear, is the adjusted operating income excluth prudential’s costs to acquire wachovia. so prudential beating the street by 23 cents a share and offering their full-year 2006 guidance in line with analysts’ forecasts. as far as assets under management, as of december 31, prudential says they have $532 billion. moving on tonight, bloomberg’s dick keil, our white house reporter, is traveling with president bush. just a short time ago, he conducted an interview with the president aboard air force one. here are the highlights from the discussion. the president says dividend capital gains taxes must be kept low. he says letting tax cuts expire would hurt investment. bush tells our bloomberg reporter, the g-8 members will push russia on economic reform and he says the u.s. is working with china to reduce trade imbalances and keeping taxes low will help maintain the housing market . president bush said u.s. and allies lack clear understanding on iran arms. back to the markets . the dow hangs on to impressive gains today, closing close to session highs. for more, here is a report filed by deborah kostroun from the big board.
>> today was the first 100-point close for the dow jones industrial average since the first trading day of the new year, january 3. u.s. stocks closing with their third largest gain of 2006 and what led the gains? it was technology leading the s&p 500. that after cisco’s earnings, and hewlett-packard putting in a pretty good performance, gaining 5.4%, the most since august 17, 2005. remember that hewlett-packard, they report earnings next wednesday. and there’s a feeling that if cisco exceeded estimates today, that hewlett-packard may exceed estimates, as well, when they report earnings next wednesday. univision at a 52-week high, up almost 12% today, also the biggest gainer in the s&p 500 after news that univision’s board met to consider a sale that may fetch more than $10 billion. also, while we’re talking about tv, directv posted a profit beating analysts’ estimates and announced plans to buy back as much as $3 billion in shares. crude oil closing at its lowest price this year, down 54 cents, to $-- energy, the best performer in the s&p 500 but for the month of february, energy stocks down 5.6%. but a little bit mixed as the integrated oil stocks were lower. shares of general motors, biggest drag on the dow jones industrial average, downgraded by deutsche bank on concern about conflict with the u.a.w. pepsico reported their biggest sales gain in four years on surging demand overseas and frito-lay snacks in the united states. pfizer plans to sell its consumer health unit which makes mouth wash. they may attract buyers such as novartis, johnson & johnson and procter & gamble. i’m deborah kostroun at the new york stock exchange for bloomberg news.
>> cisco’s bullish sales forecast gave a boost of confidence to tech investors, sparking a rally. robert gray has details from the day’s nasdaq trading from the market site in times square.
>> technology companies led a rally in wednesday’s session, leading the nasdaq composite higher by about 1%, reversing a four-day decline. cisco systems’ forecast out tuesday after the close really helping to fuel the sentiment, reversing it. it had been negative over the past several weeks since fourth-quarter earnings began coming out with disappointments from many large cap tech companies including apple, google and intel. ted oberhaus with lord abbett and company saying earnings in general have been good with 2/3 of the companies reporting beating average estimates but when cisco raised its forecast, tech responded. that’s what we saw in wednesday’s session. cisco with its biggest gain in three years after the chief executive saying revenue will accelerate 10% to 12% in the current quarter, in the third quarter, and that was raising the forecast from their prior outlook. dell also helping to lift tech stocks and fuel the rally. upgraded to outperform from market perform at be sanford c. bernstein. the analysts saying dell’s earnings and revenue will exceed analysts’ estimates when dell reports next week. also saw a number of semiconductor stocks leading the way higher, communications chips including maxim integrated products and xilinx among those. google shares had been at their lowest level since october, did a u-turn and apple shares were lower but finished higher in wednesday’s trading.
>> vonage holdings, a pioneer of internet phone calling, has filed to raise $250 million in an i.p.o. the company’s also replacing its chief exec, stepping up a defense against competition from larger carriers. vonage named tyco international chief executive mike schneider as c.e.o., replacing founder jeffrey citron. is this a sign the frothy i.p.o. days of 2000 are making a comeback? we’ll bring in suzanne o’halloran to help answer the question.
>> not necessarily. vonage, which is operating at a loss, according to its filings, may be the exception to the type of i.p.o.’s coming to market this year. companies have raised about $3.5 billion in i.p.o.’s and january had more deals than any month since 2000 but experts say companies going public today are financially healthier and more established. professor jay ritter of the university of florida says the average company going public is 11 years old compared to six in the year 2000.
>> the market is skeptical about companies with unproven business models, companies that six years ago went public when they were too young, just aren’t get being financed by the market now.
>> investors are rewarding companies with a proven track record, fueling the 10% gain this year in bloomberg’s i.p.o. index. better performers include altus pharmaceuticals and american railcar. other mature names include mastercard international, morgan’s hotel group and morton’s restaurant. these and other deals are dependent on how the stock markets perform overall and u.s. stocks are modestly up this year. we’ll wait and see.
>> thank you very much. much more on the markets as “after the bell” continues.
