Interview: Fifth Third Asset Management---Mikelic, Mirko---Sr. Portfolio Manager
>> we want to update you on the latest earnings results after the bell from alcoa. alcoa came in with a fourth-quarter earnings per share continuing operations of 35 cents a share. that’s excluding items. the thomson financial analysts were looking for fourth-quarter earnings of 37 cents a share, the 37-cent estimate was a 5% decline from this quarter last year. revenue for alcoa, fourth quarter coming in at $6.66 billion. the thomson estimate was $6.69 billion. alcoa has given no guidance for the first quarter. merrill lynch had predicted aluminum will be the biggest gainer among the most traded base metals in 2006. alcoa was expected to benefit from short supplies and continued demand from makers of cans, autos, and aircraft especially in the u.s. and china. alcoa shares ahead of the after the bell release, closed out the regular trading session of over 1% at $30.57 a share. general motors’ c.e.o. richard wagoner appeared on bloomberg television earlier today saying the automaker would cut losses significantly in 2006 and bankruptcy is not an option for the company. but with declining market share and still no word on the sale of a stake in gmac, how realist are wagoner’s statements? we’ll ask mirko mikelic, analyst at fifth third asset management, joining us from grand rapids, michigan, this afternoon. hi. thanks for being with us.
>> thank you for inviting me, lori.
>> so, what is your first reaction to wagoner saying they have no intention to file for bankruptcy? do you think he’s realistic there? >> well, they still need to help resolve the delphi situation first and foremost. once they’re able to resolve that, then the threat of a delphi strike goes away.
>> we’ve been reporting on the delphi issue along with the gmac issue for weeks, maybe months now. we’re not really hearing any firm updates on. that first, regarding dell -- delphi, what specifically does g.m. need to do? they announced reinstruction a while back, but investors aren’t too optimistic. would you agree?
>> i would agree. what g.m. may need to do is offer payouts to help out the retiree situation, help people retire with delphi. ford with visteon took some of the visteon plants back. i don’t think g.m. takes any of the delphi plants back.
>> with gmac, it’s been some weeks, rig wagoner said he would have no trouble selling the gmac unit. yet again, no status update here. what do you think is going on there?
>> i think it’s still a tricky sale. the mortgage and insurance business, that’s not problem spending those off. they’re stand-alone entities. but they are in the financing business. that’s trickier. how are you going to deal with dealers? there’s a lit more going on in that business.
>> do you think g.m. is having a hard time getting the right price for gmac?
>> i think buyers are taking a really hard look at the auto financing side. i mean, it’s declined―it used to be―half of their profits in 2004 came from the financing side. now it’s about a third. so, what’s the relationship going to be going forward? there are sill issues to be resovepled before any sale of gmac in terms of how are the dividends going to be going to g.m.? there are a few sticky points.
>> last week, we had the total vehicle sales, north american auto sales, as a whole fell. g.m.’s down some 10% in december. also, they’re losing market share. how do you think wagoner is feeling? he must be nervous.
>> i think they are nervous, particularly now with toyota, their san antonio plant coming online. the competition’s going to get much more intense. particularly in the s.u.v. market as well. there’s nowhere really where g.m. or ford can hide right now. they’ll have to offer a tremendous top-to-bottom lineup.
>> wagoner spoke about changing his focus, selling more cars and s.u.v.’s like this chevy tahoe that they redesigned. instead of focusing on the rental side of the business, which generates lower profit margins, you’re not optimistic on this strategy?
>> well, it’s going to be tough. they’ve relied on fleet sales to meet their numbers in the past. and i think it’s smart for them to move away from fleet sales because there’s zero margin there, really small margins, and try to focus on the retail side. but they’ll have to improve their quality first and foremost.
>> wagoner mentioned his liquidities as one of the big reasons they won’t file for bankruptcy. but how long can that last?
>> it comes down to the cash burden rate. say delphi files and it impacts g.m., we figure somewhere between a couple billion cash burn rate per quarter, maybe they would have nine mos, a year before they would have to file.
>> ok. all right. thank you very much for joining us.
>> thank you for inviting me.
>> mirko mikelic, an analyst at fifth third asset management, on his analysis of g.m.’s c.e.o., rick wagoner’s comments on bloomberg television this morning saying that general motors will not file for bankruptcy. we’re going to bring you more on alcoa, the aluminum maker, just crossed its fourth-quarter earnings results. we’ll have earnings reaction from scott burns from morningstar. that is next. the dow crossing 11000 for the first time since june of 2001. stay with us.
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Listen Market briefing --- Lori (slow)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)
>> welcome from world headquarters in new york city. i’m lori rothman. this is bloomberg “after the bell.” the industrials crossed 11000 after analysts upgraded shares of general motors and j.p. morgan chase. oil prices declined. here’s the chart of the dow. captioned by the national captioning institute --www.ncicap.org--
>> the dow first reached 11000 back on may 3 of 1999. on that day, the industrials closed at their high at 11,014.69. we’re going to go to the floor of the new york stock exchange and speak with a trader coming up. first, let’s check the settling numbers.
>> earnings season begins in the extended hours with fourth-quarter results from alcoa. analysts expect alcoa to post an operating profit of 37 cents a share. alcoa had $77 million in charges last year due to discontinued operations. sales at alcoa expected to rise 11%. alcoa expected to benefit from short supplies and continued demand from makers of cans, autos, aircraft, especially in the u.s. as well as in china. merrill lynch predicts aluminum will be the biggest gainer among the most-traded base metals this year. let’s check alcoa’s shares at the close. much more on the numbers as they break off the bloomberg television. • bloomberg terminal. for now, more on the dow’s close with deborah kostroun standing by at the big board. deb?
>> thanks, lori. a lot of people had been anticipating the dow at 11000 and many thought we would see it last year. however, we have come off a pretty good start to this year with the dow up the first five trading days of the year, same as the s&p and the nasdaq. closing above 11000, the next question is how can we sustain this level and get to some other targets. and that next target may be for the dow. a record close for the dow was 11,722.98 on january 14 of 2000 because, remember, the very first time that the dow hit 11000 was in 1999. of course, just the last time was in june of 2001. a lot of records today that we’re seeing. the cyclicals, we saw that last week, the cyclicals at a record, the s&p financial index and the am exbroker/dealer index. it was at a record last week and again today. we’re seeing records in the midcaps, small caps and the russell 2000. one of the things helping out the dow jones industrial average and that was general motors. remember, general motors shares have been up for a fourth straight day. that’s their longest winning streak in about three months. and remember that general motors, that was the worst performer in the dow jones industrial average last year. it was down 51%. but so far in this very early start of 2006, it is the best performer in the dow, up 13% so far this year. g.m. was raised to in line at goldman sachs and we have that detroit auto show going on in detroit. and so, we do have a lot of news and a lot of hype going on with a lot of those cars better being traded there. j.p. morgan upgraded, prudential, and merrill lynch an update from prudential as well. energy stocks an interesting story mainly because crude oil, natural gas, heating oil all fell. you is a many of the energy stocks lower. duke energy agreed to sell most of its plants operated by its money-losing wholesale power business to l.s. power equity partners for $1.54 billion. joining me right now, we have peter casa with i.b.i. and peter, tell me a little bit about today. a lot of anticipation about 11000. we finally hit it.
>> we finally hit it, deb, and we broke through it, stayed above it for a while, came back in, and the market rallied and we ended on our high today. a pretty good sign.
>> so, the biggest question is can we sustain this level above 11000?
>> i very rarely am bullish, but i am bullish over the last couple days. i’ve seen a lot of action, a lot of institutions buying stock. 11000 is a psychological barrier. we broke through it. tomorrow might be a small selloff, profit-taking, whatever, but i think we’ll be seeing this again.
>> so, this is just another leg up.
>> yes. i think so. i think it is another leg up. i see a lot of good fundamentals in the market right now.
>> and last week, we saw volume, 1.8 billion shares, today 1.7 billion. not too shabby.
>> in the beginning of the year you always see a pretty good spike in volume because a lot of institutions are trying to refigure where and what they want to be. so, there’s a lot of movement in stocks. give it a couple weeks and check the volume again.
>> anything else you’re looking at this week? a lot of earnings?
>> and how people are digesting the fed minutes from last week. it’s not major, major news, but i think you watch the earnings and see how last quarter was, you know, it could be another indication of a good market .
>> thank you. peter costa.
>> let’s check in with robert gray standing by in times square at the nasdaq market site. just about a five-year high close on nasdaq today.
>> absolutely, lori. a lot of superlatives today. nasdaq at its highest levels since february of 2001. the nasdaq 100 at its highest level since august of 2001. and we really are continuing to see this market led higher by the financials and by the semiconductors. look at the financials index here for the nasdaq, up 1% in today’s session. they’ve been advancing every single day, maybe not as large of a gain on a daily basis as the semiconductors, but clearly rising since the fed minutes last tuesday. 520 the level for the philadelphia semiconductor index, the highest level since february 19 of 2004. the hardware index up 1.2% today. we saw apple computer trading up at a record earlier today, but they closed down by about 50 cents ahead of mac world expo, steve jobs’ keynote tomorrow. they’ll be looking for product innovations. google shares did trade at a record and closing at a record as well, up .3% today. sandisk shares up another 4% today, getting upgraded to a buy at oppenheimer. they said short-term competitive threats are waiting for sandisk, the number-one performer in the nasdaq 100 last year, 151% and better than 21% in 2006. urban outfitters, the best percentage mover on the session, up 14.5% in one day. upgraded to an overweight at lehman brothers and new coverage at prudential with an overweight and a $34 target. they said it’s one of the best growth stories in retail at the moment. cisco systems up on the day, and juniper down 4.5% as double calls coming out of prudential as well. cisco getting the upgrade to an overweight and prudential downgrading juniper from a neutral to an overweight. back to you.
>> robert, thanks very much. you’ve probably heard the talk about general motors by now, that it may file for bankruptcy protection. but you haven’t heard it from chief executive rig wagoner and you won’t. he told bloomberg’s greg miles this morning g.m. has no intention of ducking into chapter 11.
>> it’s in no way, shape, or form a strategy we have for the business. we’ve got a lot of liquidity, a very aggressive plan to get the business turned around. i can tell you everybody at g.m. is absolutely focused on executing our turnaround plan, getsing the results back on track, and getting this conversation off the table.
>> we have a significant base of liquidity in the company. we’ve carried it for a long time and we do it to protect against a rainy days. we’ve had two lost years in the past 15 years. it’s important to keep that in context. and we have an identified plan to take out $6 billion of structural costs, a billion on material costs through 2006, and we’ve got a whole bunch of new prubblingtses coming that we think can help drive the revenue line.
>> wag oner predicts g.m. will cut losses significant this year. they had $4 billion in losses in the first nine months of last year. g.m. will post fourth-quarter results on january 26. gold rose more than $9 an ounce to the highest closing price in almost 25 years on demand by investors, speculators, and hedge funds. gold futures rose $9.30, or 1.7% to $550.50. highest closing price since january 23, 1981. prices have dropped only once since december 21. the world’s biggest carmakers are unveiling their newest models at the detroit auto show. will this help g.m. recover from its issues?
