Interview: Merck
>> louis died at 64 years of old. he served as chairman from december 2003 to july. platt was instrumental on hiring a chief executive. platt spent 33 years at hewlett packard rising from an engineer in 1966 to president and chief executive. in 1993 he succeeded company co-founder david packard as chairman and served as president and chief executive until his retirement in 1999. next week merck faces its second trial over the painkiller vioxx. this after a jury in houston last month ordered the company to pay $253 million to the family of a man who died after taking the painkiller. today merck’s general counsel says the company will not change its legal strategy. june?
>> ellen, jury selection in the second vioxx trial begins monday in atlantic city, new jersey. a postal worker claims the painkiller caused his heart attack. he took vioxx for two months to treat pain in his knees, one of which was injured by shrapnel when he was a marine in vietnam. today merck’s general counsel said the defense will show that vioxx did not cause his heart attack.
>> according to the motion recovered from his mild heart attack and did not suffer significant cardiac impairment. there is no medical or scientific evidence that vioxx contributed in any way to his heart attack.
>> but plaintiffs’ attorney steve north said merck scientists as far back as 1997 privately expressed concerns about a cardiac risk associated with vioxx and argues that could affect the jury.
>> even though i have a great deal of confidence in the jury system they’re affected by emotional considerations. and if they feel or see that there was improper conduct that greed was a motive on behalf of merck, that’s going to affect their assessment of it.
>> a jury in houston, texas, decided on august 19, that vioxx was responsible for the death of 59-year-old robert ernst who took the drug eight months. it ordered merck to pay $258 million. frazier says merck’s legal strategy will stay the same. the plaintiff’s attorney north says doing that could be risky.
>> they’ve taken a sort of hard stand from the beginning of these issues right on. they fix one position and they stick with it, and i think you have to be more flexible if you’re a defense lawyer and you see that things haven’t worked. then you have to try another way of approaching it.
>> merck withdrew vioxx from the market almost a year ago in the largest recall ever after studies linked it to heart attacks and strokes after 18 months of use. merck’s shares have fallen 36% since vioxx was pulled off the market . ellen, back to you.
>> june, thanks so much. now the latest on katrina. michael brown no longer leading the federal recovery effort in the aftermath of the storm. mark crumpton joins us with more. mark?
>> ellen, homeland security secretary michael chertoff says brown, the director of fema, the federal emergency management agency, is being sent back to washington. he’ll be replaced at the helm of the relief effort by coast guard vice admiral thad allen. secretary chertoff says it’s because fema needs to be ready to handle other storms or additional disasters that may come along. but the move does come amid intense criticism of brown and others involved in the federal response to katrina and there are now published reports that brown inflated his credentials in emergency management.
>> here are the ground rules. i’m going to answer the questions. i’ve explained what we’re doing. i thought it was about as clear as i possibly could be in english as to what i’m doing and why i’m doing it. next question?
>> the white house says president bush will head back to the gulf coast this weekend on his third trip to the region devastated by hurricane katrina. remarks at the state department, mr. bush said that america is “a strong and resilient nation and has the spirit and resources to
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Listen Interview: Portfolio manager with ING
>> benchmark index has gained for a second week even as the recovery costs from katrina continue to rise and economists continue to lower economic growth forecast. our next guest thinks stocks will climb. doug cote is portfolio manager with i.n.g. where he helps oversee $8 billion in assets and he’s joining us now from hartford, connecticut. thank you for joining us, doug.
>> you’re welcome. my pleasure, ellen.
>> some investors, some traders caught by surprise, perhaps, that stocks were higher not just on friday but basically this week as well as last week. what’s behind the rally we’re seeing?
>> well, many investors and analysts missed all year the strongly positive fundamentals in the market . and let’s look at it. you have extremely strong corporate earnings, secondly compelling valuation and thirdly you have a broadening or―of the economic sector in the benchmark. this combines together to explain the resilience that has been in the market that is limited downsize and enhanced opportunity for upside return.
>> but, doug, what about the fact economists are lowering their economic growth forecast? what about the fact you have companies now out there lowering some of their profit forecast saying they’re feeling the effects either of higher energy costs or katrina slowing business?
>> certainly different stocks will be affected differently but if you look at the macro picture, corporate profits have been extremely strong across the board and i expect that to continue.
>> where do you think they’ll be strongest?
>> well, i think across the board. you’re seeing energy has been the big story this year but look at technology. technology has really been surging in the second half of the year, in the third quarter. you’re seeing health care starting to pick up, financials are doing ok. and that’s the benefit of having a broadly diversified benchmark. and also if you look at valuation of the benchmark, the s&p 500, just five years ago in 1999 the p ratio was at a high of 32. that translates to a 3% earnings yield. now you can get the same index for half the price. that’s a 15 times p/e which translates to 6.5% earnings yield. compare that to 4% for the 10-year bond and you just have very strong valuation and fundamentals in this market .
>> let’s talk about some particular stocks. i know apple is one of your top picks. bob bowden from the nasdaq showing us today’s gains, showing us the stock at another record high. how much higher do you think the stock can go?
>> well, apple is indicative of the story in this market and what that is is strong, consistent corporate earnings. and apple hasn’t just been this quarter for several quarters apple has been demonstrating consistent earnings. and usually when that happens to a stock, it tends to continue. another stock is --
>> before we talk about another stock, apple trading, though, for 31 times twings profit estimates. at what point does it get too expensive?
>> well, what i see is that it’s going to probably get cheaper because the earnings are going to continue to grow at the remarkable rate that it’s been. and that’s the key point to valuation as long as the earnings are coming in stronger than they expected as it has been with apple, then you’re ok in the stock.
>> and, doug, what’s your strategy with apple specifically? do you take some of the profits or do you continue to add shares? how long do you kind of hold on to your entire holdings?
>> well, it’s the same way i look at the market . as i said earlier, this market has strong fundamentals, corporation earnings, valuation, and on diversification. and apple ranks high on all three. to us relatively to the tech sector it still has good value and it has very strong wall street estimate revisions, positive revisions, and the corporate earnings continue to come in. so it will stay the course.
>> t.x.u., that other stock i believe you were going to tell us about, what do you like about t.x.u.?
>> t.x.u. is another turnaround story much like apple computer. they’ve had for the past over four quarters just consistent strong returns that have greatly exceeded wall street expectations. that’s what you want in a stock, a stock that is ahead of the expectations on a positive basis and the valuation in that stock is around $15, which is a compelling value. that, again, also ranks within its industry, the utilities industry, on valuation earnings and as the good diversifying stock.
>> and very briefly how much higher do you think that stock can go given the surge we’ve seen?
>> if it continues to put up good numbers on earnings, it will continue to increase. and we will stay the course as long as that company continues to deliver superior earnings.
>> doug, thanks for joining us. have a wonderful weekend.
>> you’re welcome. you, too. thank you.
>> doug cote of i.n.g. investment management. merck facing a second trial over the painkiller vioxx. that continues next week.
