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118> <Type: SHOW> <Head: NIGHTLY BUSINESS REPORT for April 19, 2013, PBS> <Sect: News; Domestic> <Byline: Susie Gharib, Bob Pisani, Diana Olick, Jane Wells> <Guest: Andrew Burkly, Jim Atchison, Hank Smith> <Spec: Business; IBM; Economy; Stock Markets; Wall Street; Bombings; Crime; Boston, Massachusetts; Violence> <Time: 18:30:00>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you by --
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Feeling blue. IBM weighs heavily on the Dow. And although stocks finish higher on the day, it turns out to be the worst week of the year.
And that mood permeated seemingly everyone as a massive manhunt in Boston played out in front of our very eyes like some television drama.
This is NIGHTLY BUSINESS REPORT for Friday, April 19th.
Good evening, everyone. I`m Susie Gharib. My colleague Tyler is off tonight.
While the big story today Boston, all around the country, everyone was consumed by the massive manhunt in and around Boston for the surviving suspect in the Boston marathon bombings. Americans at work, at home, and even on the trading floors on Wall Street were glued to television sets for the latest news.
But business did carry on. On Wall Street, stocks rose slightly on light volume, but three major stock averages ended with their worst week of 2013. By the closing bell, the Dow was up 10 points, the NASDAQ gained 39, and the S&P 500 added 13 points.
For more on the story and the mood of investors this week, we turn now to Bob Pisani at the New York Stock Exchange.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It was a tumultuous end to a tumultuous week, bookended by the Boston marathon bombing and investigation. Stocks opened mixed, with IBM down about $14 right out of the gate on disappointing earnings. IBM is a Dow component, and that $14 drop cost the Dow almost 100 points.
But it was the ongoing investigation in Boston that dominated traders` attention. For much of the day, traders stood around monitors, watching the developments unfolding. When they weren`t discussing Boston, the focus of the conversation was the poor performance of the markets. With the Dow down roughly 2.2 percent this week, many traders noted that this was similar to the meager 3 percent pullback at the end of February, which proved to be a buying opportunity. But many have argued that this pullback might be different.
First, this decline saw heavier volume and panic selling, particularly on Monday and Wednesday, when 90 percent of the volume was on the downside. Many are now questioning whether we are still in an uptrend in the markets.
Second, the economic news is different. March and early April economic numbers have been weak.
(on camera): The final piece of the puzzle is earnings. And with only one-fifth of the companies reporting so far, the early news has been mixed. There is one clear trend. Revenues have been lighter. Less than one-half of the companies have been able to meet their estimates.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GHARIB: Joining us with more on the markets now, Andrew Burkly. He`s chief portfolio strategist at Oppenheimer and Company.
You know, Andrew, as Bob Pisani just reported, it was a tumultuous week. It was also a very emotional week, not just because of the volatile swings in the market, but because of the terrible tragedy in Boston that continues on.
So when you were hearing from clients today, how were you advising them on an emotional day like today?
ANDREW BURKLY, OPPENHEIMER & CO CHIEF PORTFOLIO STRATEGIST: Yes, well I think here in New York everyone was kind of glued to the television, but talking to a lot of colleagues in the Boston area, they said it was very eerily quiet and just the lockdown was very, very strange.
But when we talked to clients and investors in general, you know, we tried to encourage them to take a longer term perspective and not get caught up in the volatility of these short-term moves. But to try to focus on the longer term fundamentals, which we still think are still pretty good. The economy is still growing. Earnings are still growing. The fed still pretty supportive.
But, you know, certainly volatility has picked up a bit this week. And we expect that to continue here in the near term.
GHARIB: And that`s what I was going to ask you. I mean, assuming that this manhunt is solved and the suspect is apprehended this weekend, turning to Monday, how do you think things are going to play out? What`s going to happen next in the market? Is volatility still going to dominate trading? Are the markets going to go up? Are they going to go down? What`s your prediction?
BURKLY: Well, I think you have both macro and micro trends next week. As you said in the lead there, about 20 percent of companies in the S&P reported earnings. But it really gets heavy next week. We have about 170 companies in the S&P 500 reporting, and about 10 Dow components.
And earnings have been mixed. They have been OK. Top line has been a little soft. As Bob Pisani said, only about 45 percent of companies are beat top line. So, it continues to reflect the sluggish global economy that we have.
GHARIB: So what is the message of these earnings, and how should investors use that information when they`re making their investment decisions?
BURKLY: Well, I think -- you know, again, I think you`re going to have to see the near term volatility. And we do think you`re going to get a bit of a setback in the market. But we do think longer term, the economy is still growing here. So, we would use that as more of a buying opportunity.
If you look within the earnings what you`re seeing is the company that has more stable earnings path like consumer staples are doing OK, where the more cyclical-oriented companies are the ones that seem to be disappointing here. But now you`re paying a pretty steep valuation differential for the stable earnings companies like consumer staples.
So we would actually start to look to rotate the other way, thing the economy is going to improve and get into more cyclical areas like technology potentially.
GHARIB: Oh, you would get into technology? Even though -- you see bargains because they`ve been so beaten down over the last couple of weeks?
BURKLY: Yes. I think the valuation differential is so stretched at this point, you find a lot of the big stable consumer staples companies trading at 20 times earnings, where you see a lot of the technology companies trading 10 times earnings. So about half the valuation. And we do think there is some good value there as the economy does improve. We think that`s a better opportunity.
GHARIB: I want to ask you also about economic numbers, because next week, we are getting some economic numbers on housing. But also, we`re going to get a sense of how the economy grew in the first quarter with that gross domestic product GDP number coming out.
How is that going to impact market action next week, do you think?
BURKLY: Well, I think the components and the mix of GDP growth is going to be very important, because what we saw in the fourth quarter of last year was a really big drag in terms of government spending. And that`s not likely to repeat here again in the first quarter. But that`s what investors are going to be focusing.
I think consumption will stay OK, which has been pretty good all throughout in here. But we do know the first two months of the quarter were much stronger than the third month March, and we do know the data so far in April has been soft as well. So, it`s more of the mix in terms of growth, how that sets us up for the second quarter and going forward, that investors are going to be looking at.
GHARIB: Andrew, thanks for the overview. Thank you very much. Thanks to Andrew Burkly, chief portfolio strategist at Oppenheimer & Company.
Turning now to our "Market Focus".
And we begin with General Electric (NYSE:GE). It reported solid earnings that came in line with analysts estimates. But G.E. CEO Jeff Immelt called the quarterly numbers mixed and said that the first half of 2013 will be challenging because of weak industrial demand.
Shares of Dow component G.E. tumbled more than 4 percent, weighing down the blue chip average. The stock closed at $21.75.
Capital One was a bright spot in today`s trading. Its first quarter profit beat analyst estimates by 18 cents, and that was thanks to improved lending margins. The company also said it`s seeking approval to buy back shares.
Capital One gained almost 6 1/2 percent. That`s its biggest gain since November of 2011. It closed at $56.17.
Kimberly-Clark (NYSE:KMB), which makes Kleenex and Huggies, among other products, posted higher profits and raised its forecast for the rest of the year, citing strong growth in international markets and lower costs.
Kimberly-Clark (NYSE:KMB) touched a new all-time high today before closing at $106.10, up almost 5 percent.
Honeywell also a winner, reporting better than expected earnings on increased margins. Expenses fell slightly, and Honeywell increased the low end of its four-year profit guidance. Investors snapped up the stock. Honeywell up almost 4 percent to $74 a share.
Video game stocks gained despite a research report saying sales were off 10 percent in March as customers wait for new consoles to be released. Still, new game launches help drive software growth for the month. Investors bid up Take Two Interactive, almost 4 percent Activision and Electronic Arts (NASDAQ:ERTS) about a percent up apiece.
A lot of action and shares of PepsiCo and Mondelez. This is the spin- off from Kraft (NYSE:KFT) Foods. Reportedly Nelson Peltz`s Trian Hedge Fund has taken big stakes in both companies, about $1.5 billion in Pepsi, $1.3 billion in Mondelez. There is speculation that Peltz and other activist investors could push PepsiCo to spin off its Frito-Lay snack unit and combine it with Mondelez.
Pepsi shares gaining almost 2 percent to $82. Mondelez up more than 5 percent.
AB InBev and Constellation brands got the go ahead from the Justice Department to complete the Grupo Modelo deal. AB InBev sold a brewery to Constellation, as well as over assets and now can acquire the 50 percent of Modelo it doesn`t already own.
Investors cheered the revised deal. AB inBev gaining more than 1 1/2 percent, Constellation up almost 2 1/2 percent.
And a new ticker symbol trading on the New York Stock Exchange today, SEAS -SEAS for SeaWorld. The amusement park company made a splash in its debut on Wall Street. The CEO rang the opening bell at the big board. You`ll remember we told you last night that the company raised $702 million after pricing its shares at $27 each. They surged 24 percent on their first day of trading to close at $33.52.
Now, earlier today, I spoke with Jim Atchison and began asking him where is SeaWorld`s growth going to come from.
JIM ATCHISON, PRESIDENT, CEO & DIRECTOR, SEAWORLD ENT: We have a lot of ways to grow. You know, our core business is very strong. We operate 11 parks around the country, and we`re generating great growth through them.
We have other ways like our intellectual property, our brands and trademarks that we can monetize as well moving forward. And that`s a strength of ours.
And then there are other new park concepts that we can look at. We`re opening a new park in California this year, Aquatica Water Park.
GHARIB: But you do face a lot of competition from people like Disney (NYSE:DIS), Six Flags. What are you going to do to get more people come to your park instead of them (ph)?
ATCHISON: Well, I think focus on having a different sheet of products. We have 57,000 animals in our care and the know-how to care them, right? We present them in a way that inspires people. And as long as we stay differentiated, I think people connect with that.
GHARIB: So a day pass costs from $80, $90. Are people ready to pay that much?
ATCHISON: Sure, sure. You know, we have millions and millions of people who have already paid that much.
Think about it, though, it`s a great value if you compare the cost of going to a football game, a basketball game, you know, really, and those are maybe three-hour experiences. People are in our parks for eight or nine hours sometimes. So, there is a lot of value.
GHARIB: Given the tragedy at the Boston marathon and new worries people having being in large public gatherings, what impact might this have on your attendance this summer?
ATCHISON: As awful as the events were, I think we all realize that -- you know, this is -- this is something that we can`t reconcile and shouldn`t treat as the norm. I think Americans are more resilient than that. They recognize in the face of terror not to respond to it in that way.
So, I think people are going to be willing to get out to resume their lives. You know, always remember and never forget that event, but I don`t think they`re going to change their lives. That`s why you do something like that.
GHARIB: Is SeaWorld taking any action to step up security?
ATCHISON: You know, we don`t talk publicly about our security measures. But we`re very confident with what we do and how we`re doing it. We`re always revisiting, always revising what we have. But we don`t talk about the measures we have in place.
GHARIB: So you raised a lot of money today. What are you going to do with all that cash in the public offering?
ATCHISON: You know, we`ll be de-levering with these borrowings, so -- with this IPO. So we`ll be reducing some of our borrowing. Some interest expenses and that helps everybody and our shareholders for sure.
GHARIB: You came public at a very difficult time. This week we had all of the big stock sell-offs. What do you think SeaWorld has going for them?
ATCHISON: You know, I think the sector has proven to be more resilient than people thought. You know, the current recession, you`ve seen the whole sector, the whole theme park sector, really acquit itself nicely, perform quite well, and we`re no exception.
So I think when you look at the sector, it`s a more defensive space than you might think. And in our case, we`re a total return story. We are pay agonize dividend with this offering. We feel good about the offering that we have.
GHARIB: It is very unusual that you said you`re going to be offering investors a dividend. Very rare for a new public company to do that. Why did you decide to offer a dividend?
ATCHISON: It speaks of the strength of the company. We generate a lot of free cash flow. We`re looking at a total return for our investors. So, a dividend is a big part of that. That`s a solid part we can offer.
GHARIB: Do you think that`s going bring more investors to buy into the stock?
ATCHISON: People are looking for yield these days, for sure. And that`s certainly an advantage.
GHARIB: And the SeaWorld IPO by the way is one of the five biggest offerings in the U.S. this year.
Still to come on the program, the housing market showing signs of strengthening. And with the nation`s home builder schedule due to report their earnings next week, we`ll take a look at the one company you should watch.
But first, here is a look at how international markets fared today.
GHARIB: Boeing (NYSE:BA) grounded 787 jetliners could soon be flying again. The Federal Aviation Administration approved Boeing`s redesign for the faulty battery system, the next step in getting the plane back in the air. Boeing`s CEO said this clears the way for us to return the planes to flight.
The new batteries will be shipped immediately. Next week, the federal officials will tell airlines how to make changes to the plane and issue the final approval to fly the plane with the modified system.
Meanwhile, the nation`s largest pilots union has teamed up with representatives of the major airlines to sue the Federal Aviation Administration over its decision to furlough air traffic controllers. The lawsuit asks a federal court to block the furloughs, which are scheduled to kick in on this Sunday. The furloughs taking place at regional airports across the country are the result of billions of dollars in automatic federal spending cuts approved by Congress in the socalled sequester legislation.
Honda is recalling more than 200,000 minivans and SUVs in the U.S. and Canada to fix a shifter problem. The models on the recall list Honda CRVs and Odyssey minivans, model years 2012 and 2013, and the 2013 models for the Acura RDX SUVs. Honda says the device that prevents drivers from shifting out of park without pressing the brake pedal may not work properly in below freezing weather.
Now, some of the nation`s largest home builders report earnings next week. This as sentiment among the builders slipped in April for the third straight month. What should investors be looking for?
Tonight, we conclude our week-long series "Earnings Spotlight" with real estate correspondent Diana Olick taking a look at the sector and the bellwether company to watch.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Demands for newly built homes is rising, but new homes are not rising fast enough to meet it.
JERRY HOWARD, NAHB: The home builders are themselves worried about their ability to provide the housing in a lot of instances.
OLICK: Land, labor, and credit are standing in the way. Credit in particular as banks are unwilling to lend into a still shaky sector.
HOWARD: I think for the short-term, the people who have the cash will have the advantage.
OLICK: And that`s the big builders, flush with cash from the equity markets. Four builders report quarterly earnings next week. Which one to watch? Analysts say Texas-based DR. Horton.
MEGAN MCGRATH, MKM PARTNERS: They`re the largest builder in terms of the number of closings, and they`re in the most markets. So they`ll probably be able to tell us not only about orders, but also about other things that are important to folks now like what are materials prices doing, how are you negotiating with suppliers.
OLICK: D.R. Horton`s stock has out-performed many of the home building peers recently as the big builders have seen solid growth of orders in new homes. DR. Horton builds lower-priced entry level homes which is where much of the demand is now. The move-up market has dropped off.
MCGRATH: D.R. Horton (NYSE:DHI) itself has the representation of being a first-time buyer company. And I think that`s a lot of what they do. They actually did a pretty good job
over the last couple of years shifting their product to meet the demand of who was in the market. So, they did shift a little when the move-up buyer was there. They can shift back to the first-time buyer if that buyer comes back into the market.
OLICK (on camera): First-time home buyers have always been crucial to the builders. But tight credit and competition from all cash investors have kept many of them sidelined. These buyers usually make up more than 40 percent of the home buying market. Today, they`re at roughly a third. The builders are trying to get them back in the front door. But with rising construction costs, home prices will likely do the same.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Alexandria, Virginia.
GHARIB: Time now to turn to our market monitor guest who says investor sentiment is improving, even with all the stock market volatility. He is Hank Smith, chief investment officer at Haverford Investments.
You know, Hank, it`s hard to see investor sentiment improving, especially after day like today with everything going on, not just volatility, but some of these real world events. What are clients telling you?
HANK SMITH, HAVERFORD INVESTMENTS CHIEF INVESTMENT OFFICER: Well, first of all, I think clients for the first time are starting the sense of a little bit of confidence both in the economy and in the markets. And this is because we`re four years removed from the financial crisis and the recession. And these flare-ups in Europe are becoming less frequent.
So a lot of the big macro headwinds seem to be less of a concern. It`s not that they have gone away. It`s just that they`re a little bit less of a concern.
So, investors are demonstrating a little bit of confidence, tiptoeing into the market and we`re seeing that with fund flows.
GHARIB: And you`re telling your clients who are tiptoeing in that they should balance their portfolios between defensive and offensive stocks and a good dose of what you call steady eddies. Let`s look at some of the steady eddy stocks.
GHARIB: McDonald`s (NYSE:MCD) at the top of your list.
Why do you like McDonald`s (NYSE:MCD)? The stock was down quite a bit today on disappointing numbers.
SMITH: Well, it`s a classic steady eddy in that its earnings aren`t impacted by the near term direction of the market. It`s also a global play and an emerging market play, all combined into one. So it`s a terrific defensive company.
GHARIB: And what about Johnson & Johnson (NYSE:JNJ)? That`s the other steady eddy that you talk about.
SMITH: Well, look, people are still going to buy Band-Aids. They`re still going to buy Tylenol. They`re going to still buy many of the medical devices and drugs that they provide. So you`re going get growth. You`re getting an above average dividend, a better than bond dividend yield, and you`re almost assured of annual increases in dividends. So, you get your cake and you get to eat it, too.
GHARIB: All right. On the other side of the equation, you have some cyclical stocks that you are recommending here. You have Union Pacific (NYSE:UNP), ticker symbol UNP. Tell us about that.
SMITH: Well, look -- even though it`s a domestic company, it`s an emerging market play because of all the traffic from east to west, feeding to Asia and the emerging economies. Plus, it`s a play on the revival of manufacturing and industry in the United States. And that is taking place.
GHARIB: All right. And DuPont, which should be reporting earnings soon. You like this one, even though the stock has been in a trading range in the mid-40s. Tell us what`s the attraction.
SMITH: DuPont has been in a decade-long transformation from a traditional chemical company to a light sciences company focusing in ag biotech, agricultural biotech. So they are part of the solution of feeding the world, and that is a long-term trend that has -- should have a lot of benefits.
This is a company that is becoming a much more consistent and steady than it was a decade or two ago.
GHARIB: And now for the final stock, Apple (NASDAQ:AAPL), which doesn`t fit in either one of these categories. But you saw it`s a terrific buy. Today, the stock was down again. It`s now trading at $390.
Why are you saying that put money into Apple (NASDAQ:AAPL) now?
SMITH: A year ago, there was too much euphoria. Today, there is too much pessimism.
Look, Apple (NASDAQ:AAPL) is reflecting an absolutely worst case scenario with earnings there to be reported this Tuesday. There is likelihood it`s not going to be that bad. And if Tim Cook can lay out a plan for a capital outlays to shareholders in terms of dividend increases and share buybacks and reassure investors of their products and their vision for products, I think this stock could be much higher next week.
GHARIB: All right. Very interesting information. Thanks so much, Hank.
Any disclosures to make? Do you own any of these stocks?
SMITH: We own them all, and I own them all personally.
GHARIB: All right. Thank you so much. Have a great weekend. Hank Smith of Haverford Trust.
SMITH: Thank you.
GHARIB: And coming up next, as the price of gold and silver plunge, we`ll take you to one of the country`s largest coin shows to see who is buying and who is selling.
But, first, a look at commodities, treasuries, and currencies.
GHARIB: Next week on NIGHTLY BUSINESS REPORT, here`s what we have coming up: we`ll have earnings news every day as 10 Dow firms and 172 S&P 500 companies report.
And we`ll interview Caterpillar`s CEO Dug Oberhelman on Monday as his company reports.
And on Friday, a check on how the economy is doing with the reading on first quarter GDP.
Now, we`ve been talking a lot this week about the downward movement in precious metals. And we continue to be on the lookout to see what people are doing when it comes to buying gold and silver.
Well, the largest coin show on the West Coast kicks off today, and that`s where we find Jane Wells, taking the pulse of the gold and silver bugs.
UNIDENTIFIED MALE: It`s very flashy, very nice.
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you want to know how people feel about gold, don`t look at the markets, look at the coin shows.
SCOTT GRIFFIN, GRIFFIN COIN: On the entire floor, we`re expecting business in the tens of millions of dollars.
WELLS: At the Santa Clara coin show in the heart of Silicon Valley, thousands came to buy and sell -- mostly buy.
KERRY PIEROPAN, SPECTRUM NUMISMATICS: You see more buying. People interested in buying.
WELLS (on camera): Why?
PIEROPAN: They`re taking advantage of the dips.
WELLS (voice-over): Kerry Pieropan is buying. He is a wholesaler whose firm has been involved with some big auctions, including one for a rare coin, which sold for a record $10 million.
(on camera): What kind of coin is it?
PIEROPAN: That`s 1794 silver dollar.
WELLS: For $10 million?
PIEROPAN: Ten million dollars.
WELLS (voice-over): The volatility in gold prices recently has brought out some panic selling. But buyers have piled in, and prices are stabilizing. The challenge at a show like this is finding someone willing to sell for a reasonable price.
GRIFFIN: There just aren`t that many willing sellers at this price, because they don`t think the published price is the real price.
WELLS (on camera): Why is that?
GRIFFIN: For every five ounces of paper silver or gold, there is probably only one ounce of physical. And when they realize that, they say I`d rather have the physical than the paper.
WELLS: With gold reaching new highs today, is that the buzz here?
(voice-over): This is my report from the same coin show two years ago when prices were hitting record highs.
(on camera): What`s the hot buzz here today, do you think?
UNIDENTIFIED MALE: Silver. Silver. Everybody wants to buy silver.
WELLS: Two years later, the price of silver is down 40 percent. But silver eagles are still hard to find. They are still in high demand.
GRIFFIN: Going out and finding silver coins, silver bullion is exceedingly difficult to do right now.
WELLS (voice-over): It appears no matter what happens with price, some will not give up the notion that an investment in silver and gold always shines.
PIEROPAN: It`s just a market that is filled with, you know, contradictions.
WELLS: For NIGHTLY BUSINESS REPORT, Jane Wells, Silicon Valley.
GHARIB: And that is NIGHTLY BUSINESS REPORT for tonight. Have a great weekend, everyone.
Tyler and I will see you right back here on Monday.
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