tv Nightly Business Report PBS October 22, 2011 1:00am-1:30am PDT
>> tom: hopes for a solution to the european debt crisis help power the blue chips to their fourth straight weekly gain, but that could all change if there's no big deal by next week as promised. >> you could see a situation where you could see another financial panic, another financial crisis that could not only take europe down, but could actually start to affect the u.s. as well. so the stakes are very high here. >> suzanne: from europe to earnings, it's a golden quarter for the golden arches and a few other big firms. what the results may suggest about the economy.. it's "nightly business report" for friday, october 21. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> tom: good evening, everybody. susie gharib is on assignment tonight. i'm joined by suzanne pratt. suzanne, earnings and europe battled for investors attention today. stocks rallied as optimism grew ahead of this weekend's summit of european leaders. tom, several big blue chip firms reported solid results. we'll get to those numbers in a moment. but first, the market: the dow rose 267 points, the nasdaq added almost 39 and the s&p tacked on 23. trading volume, the heaviest
this week. 1.1 billion shares on the big board. 2.1 billion on the nasdaq. today's big rally helped the blue chip dow knock out their fourth straight week of gains. the dow rallied three days this week for a net overall gain of 164 points or almost 1.5%. the nasdaq went the other way, down in three sessions this week for a net loss of 30 points or 1%. but the s&p 500 tacked on 1% on the week. >> suzanne: as we mentioned, helping fuel the rally: healthy results from honeywell and mcdonalds. third quarter profits grew nearly 9% for the golden arches. on a per share basis, the world's biggest restaurant chain earned $1.45 a share. two pennies better than expected. honeywell saw profits of $1.10 a share, a dime above analysts estimates on a jump in aerospace sales. meanwhile, earnings for general electric merely matched analysts estimates, the first time they didn't top forecasts since 2008.
and, now that we're deep on wall street, experts are weighing in on the quality of the profits and revenues. >> it's very important to note that all of the strength is coming from an increase in revenue growth in asia and emerging markets, and that's helping offset the weakness in the u.s. and europe. >> reporter: that may be the case, but in the last few weeks, european headlines have overshadowed earnings news, good or bad, from many large u.s. companies. but, experts say investors should pay closer attention to corporate results. first, because many companies are doing a good job weathering a shaky environment and more importantly it may be the economy isn't as bad as we thought. so far, third quarter profits for s&p 500 firms have grown by nearly 15%. that's nearly two percentage points better than what was expected earlier this month. others, however, still worry economic conditions will worsen as the year comes to a close and
the profit picture will reflect the change. g.e. fueled that anxiety today. it reported results that merely matched expectations and analysts noted profit margins in industrial units hit a low for the year.. still, analyst stephen tusa says don't read too much into the decline. >> everything we see from ge reflects what we're seeing from other, which is a solid growing economy, but one that is not growing as fast as it should be at this point in the cycle. >> reporter: we're barely a month into the fourth quarter, but already 27 large firms have made confessions about earnings, also known as pre-announcements. of those, 19 were negative and seven were positive and one was in line with forecasts. earnings experts jharonne martis says such early indications suggest firms will struggle for profits in the coming months. >> one interesting factor about the negative pre-announcements is that they're throughout all the sectors. it's not one specific sector whereas in the past we would see
it in one particular sector like the financials, now we're seeing the negative pre-announcements across the board. >> suzanne: join us this tuesday, n.b.r.'s susie gharib talks about fixing the economy with honeywell chairman and c.e.o. david cote. >> tom: still ahead, tonight's market monitor guest is looking for stable earnings. randall eley of the edgar lomax company tells us what's in his portfolio now. greece will get $11 billion more to help it pay its bills. this latest money comes as the top financial officials in europe will be working this weekend looking for solutions to fix that continent's debt problems. beefing up your banking system and negotiating how big losses could be for owners of pregovernment bonds. nariman ba raf esch where is with us. from massachusetts. how about big are the stakes
for these talks? >> never's huge in the sense that if they don't do something quickly and if they don't do it right in a sense then you could see a situation where you could see another financial panic, another financial crisis that could not only take europe down but could actually start to affect the u.s. as well. so the stakes are very high here. >> tom: but stakes have been high for the past year and a half. why now at this point does it seem to be on the precipice of either large enough success or perhaps even a big failure. >> well, the problem is that they haven't done that much so far. what they've done has been very low slow, very small, very limited. and the worries, the concerns are spreading now, not just, you know, the usual suspects, greece, portugal and ire happened but to spain, to italy and very recently to france. so it's not contained any more. it's starting to spread and the contagion, if you will, is starting to worry a lot of analysts. >> and you included, here.
exactly how bad could the damage be if the solution we hear on sunday or even the middle of next week isn't large enough? >> well, certainly the armageddon scenario, the lehman moment for europe could involve a very deep recession, a freezing up of their banking system, and at which could be just pretty horrific. so europe could go through a true second dip, something along the same leans as it did three years ago. very deep recession. as i said which could probably drag the u.s. back into a recession again. that is the double double dip scenario for the u.s. as well. >> what are the signs that you are looking for late sunday night to let you know if the european finance officials have a big enough solution. >> well, the key here is are they going to mostly through some kind of leveraging mechanism turn this pot of money that they have, about 600 billion dollars into something much larger, say
four or five times as big so that they could prevent, for example, this crisis from spreading to spain, to italy, even to france. that to me is probably the single biggest element here. if they can do that, then we're on our way, to a solution. >> tom: the difficulty here in doing that kind of leverage is to some degree the european downgovernments want greek bondholders to take a haircut meaning they would accept less than what they bought the bonds for, up to 60% some are saying buts to bond hold ares are banks and the european government was likely to have to put in public money into the banks to support the haircuts that they want to see, right? >> you are absolutely right. there is no easy way out of this in the sense that a haircut which a lot of people think is inevitable will hurt the banks the most. so part of whatever solution they come up with has to be, call call it a bailout, call it a health package, whatever, for banks as well. otherwise we're talking about a very bad banking crisis as well. in europe. >> does greek avoid a
default best-case scenario or controlled default best-case scenario. >> well, the hope, can't avoid a default. the hope is that it will be a controlled default. but a default by greece which we can call it something else. a restructuring, a repricing, repile pro piling, whatever we want to call it but a default is in a sense inevitable. greece is insolvent. >> tom: it certainly is and we've seen another $11 billion spent just this week hoping to put off the inevitable. our guest nariman behravesh, thank you. >> suzanne: one of the longest conflicts in u.s. history is about to come to an end. president obama announced today all u.s. troops will be home from iraq by year's end. the final phase of troop withdrawal, wraps up a war that has lasted nearly nine years. >> for the next two months, our troops in iraq, tens of thousands of them will pack up their gear and for the journey home. the last american soldier will cross the border out of iraq with their heads held high,
proud of their success, and knowing that the american people stand united in our support for our troops. that is how america's military efforts in iraq will end. >> suzanne: the war has claimed more than 4,400 american lives. beyond the human cost, the price tag for u.s. military activity in iraq has been steep. the defense department puts the cost of operations there in the past decade at more than $700 billion. also in washington today, president obama signed into law free-trade agreements with south korea, colombia and panama. the administration says those pacts will support tens of thousands of american jobs.
groupon groupies mark down november 4 on your calendar. this isn't a coupon deal, that's the date the company will launch its initial public offering seeking to raise a tidy half a billion dollars or so. if the i.p.o. succeeds, the company would be valued at more than $11 billion. is it worth that much? darren gersh takes a closer look. >> reporter: here's the deal from groupon-- for $16 to $18 a share, you get a business that is growing fast and cracking open the huge local retail market. before you buy, consider that analysts at morningstar peg groupon's value at $8 a share. >> this is a hugely expensive business. i mean, you really look at what they are doing, they are
sticking themselves in the middle of a transaction and grabbing a huge toll for that. >> reporter: morningstar gives groupon credit for strong execution and rapid growth, but says the barriers to entry are low and the competition could be fierce. >> we still think overall, this is a business that runs in single digit operating margins and really can't climb out of that range unless they do something extremely dramatic and really curtail their growth. >> reporter: in a video roadshow, executives say the company earns back the cost of attracting a new customer in a few months, allowing it to quickly grow its subscriber base. but those marketing costs are a huge concern. earlier this year, the company was spending $6 out of every $10 it brings in on marketing. in the latest quarter the company brought that down to $4 in $10. >> unfortunately, that has led to a decrease in subscriber growth and a flat growth in terms of groupons. can this company continue to grow at an attractive rate with a reduced marketing spend,
that's the question, that's what management has to answer. >> reporter: if groupon is to justify its offering price, tuck finance professor anant sundaram says the company will have to manage a $1 billion swing from a loss to a profit and triple its customer base. >> and then, if the market two years from now remember is attaching a very high p.e. ratio of something in the mid-30s, then discounting it back to the present one might say look a $12 billion valuation is justified, but these are extremely, extremely aggressive assumptions. >> reporter: groupon is selling just under 5% of the company, so demand could drive up the price for a small number of shares. but analysts warn anyone looking for a bargain, should look elsewhere. darren gersh, "nightly business report," washington. >> tom, 267 points for the dow, a very nice end to what feels like a very, very long week. >> tom: way, y5 yeah, lots of news, the first busy week
of earnings season, significant buying interest, no doubt with folks finding values in the market. let's go ahead and rolled with tonight's market focus. optimism with earnings and europe helped fuel the buying we saw today, helping push the dow industrial average to its fourth straight weekly gain. with today's 2% gain, the dow has been able to break out of the range it had been in since august. the last time the dow traded over 12,000 was august first. fueling the gains today, insurance firm travelers. shares shot up more than 5%, reaching their highest price since late july. volume almost doubled as the stock continues jumping after its earnings report this week. in fact, travelers was the best dow stock this week, gaining almost 12% compared to last friday night. fellow insurer chubb also popped five percent today on strong volume.
the jump this week in chubb takes the stock up to a new 52 week high. the buying in insurance comes despite chubb and travelers reporting more than one billion in losses combined due to hurricane irene. but both say insurance prices have increased, after years of falling insurance premiums. despite the strength with insurance stocks, for once we did not see the financial sector take the lead. instead, the consumer discretionary sector instead put in the strongest performance up 2%. material stocks were second, followed by the financial sector. leading the consumer sector, harman international. the company is probably best known for its audio component business like stereo speakers. shares rocketed up 20%. but even with that jump, the stock remains below where it was trading before the july sell- off. the company reported strong profits thanks to its auto equipment business.
speaking of car makers, ford saw a nice bump today. shares gained almost 5%. that brings ford stock up to its highest price since early august. today two of the major credit rating agencies boosted the company's debt rating to within one notch of investment grade. the last time ford's i.o.u.s were considered investment grade was 2005. just yesterday, ford said it may bring back a stock dividend before its credit ranking is back in investment grade territory. tech stocks were moving. hard disk drive maker seagate rallied 28% after its earnings last night. flooding in thailand has hurt some manufacturers there and analysts think seagate will benefit from higher prices. for its part, seagate says its factories in thailand are running at full capacity. flash memory maker san-disk popped nine percent after better than expected earnings. while it warned the tough
economy was hurting demand, its business has been helped by the popularity of tablet computers and smartphones. and semiconductor equipment maker altera gained 12%. quarterly results were weak but analysts are optimistic about its outlook. finally in commodities, coffee perked up, the biggest jump in 16 months with bad weather worries in central america. copper rebounded after dropping for four straight sessions. and silver settled back over $31 an ounce. and that's tonight's market focus." >> suzanne: b.p. is one step closer to launching new exploration deep in the waters of the gulf of mexico. the bureau of ocean energy management today okayed b.p.'s plan to drill up to four wells the agency says it has verified that the company is meeting beefed-up safety standards. this would be the first new drilling approved for b.p., since an explosion at its deepwater horizon oil platform
in the gulf killed 11 workers and launched the worst offshore oil spill in u.s. history. still, b.p. will have to get drilling permits before starting work. >> tom: here's what we're watching for next week: our friday market monitor guest is gary motyl, chief investment officer at templeton global equity. we'll get a first look at third quarter g.d.p. and new home sales for september. monday, netflix reports quarterly earnings. we'll learn more about how many subscribers quit netflix after controversial changes to its service and fees. >> suzanne: there were harsh words for rupert murdoch, both inside an outside news corp's shareholder meeting in los angeles today. murdoch and his sons are facing a revolt at the annual meeting over their handling of the company's phone hacking scandal. investors will vote on the company's board members, including murdoch and his two sons. while the family's 40% stake virtually guarantees they'll be re-elected, protestors have put
the company in an unusual defensive position. >> tom: wal-mart is rolling back health care benefits. the giant retailer is cutting health benefits for part-time workers and raising premiums for many of its full-time staff. wal-mart is the largest u.s. private employer in america insuring more than one million people. new part-time employees who work less than 24 hours per week won't be eligible for health benefits. and employees who use tobacco will be charged more for their health care coverage.
stable is not a word many would use to describe the climate for investors but tonight's market monitor says that's what they should be looking for. he's randall eley is president of the edgar lomax company, recently named a category king as a top performing mutual fund by tracking firm lipper. congratulations on that honor, well deserved. >> thank you, and good to see you, tom. >> narrator: . >> tom: well, so that now that a category king is with us, rab dahl, what is stable about the markets, those days? >> you have to pick individual stocks that are stable. but i think the market is going to hold up relatively well given how low the federal reserve has pushed interest rates. >> tom: that may be the case but what about the situation in europe and the ripple effect here in the united
states, any concern with that? >> remember, there are always problems in the world. and i don't think these times are much different from others except that what we call the developed world where the u.s. is the leader, is in greater debt than it has been then certainly in american history. and that debt has to be resolved. it's going to be a long-term process but the fact in life is the united states is still by far the world's richest power. we've got resources and it's just going to take time. >> tom: we've seen households deleverage, we expect the government to bin deleveraging if it hasn't already. what is that em pact, though, on corporate earnings growth if there is less and less debt out there? >> that's right, it's definitely going to, i believe, reduce corporate earnings growth, since world war ii is has become almost doctrine in america, that corporate earnings should grow at a rate of about% a year, before that time in the early 1900s, there were times people were happy to get half that rate of growth. so at some point we're going to return to an old normal
which will be a rate of growth somewhere south of 7%. but growth is good at whatever level you can get it in comparison to economic declines which so many people i think wrongfully fear for the long-term. >> and are you looking for growth on a couple beck name household names. we begin with coca-cola, ko the ticker symbol. big global drink manufacturer has been having some trouble in north america though, the stock below 0. what do you expect out of ko. >> if nothing else i expect the earnings to continue coming in at a steady rate. the people drink coke. many people even when they can't eat, unfortunately. but also i expect some growth. it doesn't have to be high, the point is we can buy this stock at a very low p-e ratio of 12 12. that gives us an expected return over the next five to ten years of eight and a half to 9% a year. >> all right, are you looking for another liquid asset. this time in oil with exxon mobile, o xom. stock price here at 2k8-- $80
per share yielding over 2%. how tied to this is oil if europe happens to have trouble, couldn't oil prices move lower. >> they could move lower temporarily. but the fact is -- >> this is one of those situations whatever happens in the developed world, i would expect to see the emerging world make up for it. exxon has literally been a money printing machine during our lifetime and i expect that to continue. current pe is 10 by the way so i'm looking for a minimum over the next five to ten years of 10% earnings yield per year. >> certainly better than the 7% or the 3.5%, the old new normal as you mentioned. prov picks april 15th you were here. this year you liked another oil giant chevron which is essentially unchanged in the stock price. you also liked at&t down 5%. do you still like these today? >> i sure do. like them very much. you are locking at p-e ratios, that is a very high return going forward. >> if at&t doesn't get the okay from the justice department to purchase t mobile s that good or bad
for at&t. >> i think medium term it could be bad, but at&t is a very profitable company and i expect both thar land line and mobile business to continue to do very well. >> you had two additional picks back there in mid-april, travelers, the insurance company we spoke earlier b what a woke it has been for travelers, its share price down about 4%, wal-mart up about 6% since you last visited us. do you still like these. >> like both of them. although i would in a new portfolio would put money in some stock that is cheaper. >> do you havings in positions in anything. >> we own them all. >> randall eley a category king, according to the ed-- with the edgar lomax company. and. >> suzanne: and finally, baseball has been very, very good to saint louis. the cardinals race to the world series, including two rounds of playoff games helped the city raise over $2 million in additional sales tax. that's helping st. louis louis close a near $3 million budget gap. and that means city workers won't be furloughed.
before the cards made the playoffs, 7,000 city workers were facing one to two weeks without pay this fiscal year. tom, it's one and one between the cards and the texas rangers. we'll see game three in houston tomorrow. in my household we're routing for the cards. myed o oldest son is a st. louis fan even though we are new yorkers. >> as a cubs fan it is tough to root for st. louis but i have to pull for the national league as well. >> got to do what you've got to do. >> s that that's "nightly business report" for friday, october 21. i'm suzanne pratt. goodnight everyone and have a great weekend. you, too, tom. >> tom: good night, suzanne. i'm tom hudson. have a great weekend, everybody. we hope to see all of you again next week. "nightly business report" is made possible by: this program was made possible by contributions to your pbs