Shaw Capital Management Equities: NBR for March 18, 2011 - Full Episode

  Japan, Libya and U.S. Oil Futures
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: President Obama put Libya on notice today saying the U.S. and its allies are ready for military action. Tom, the president`s message was clearly aimed at Libyan leader Moammar Gadhafi.
TOM HUDSON, NIGHTLY BUSINESS REPORT ANCHOR: It sure was Susie. It was one of the most direct and forceful statements from President Obama on Libya. He said Gadhafi must end the violence and pull back troops from towns under attack.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Let me be clear, these terms are not negotiable. These terms are not subject to negotiation. If Gadhafi does not comply with the resolution, the international community will impose consequences and the resolution will be enforced through military action.
GHARIB: Ahead of the president`s warning, Libya said it`s ceasing all military action and will begin talking with opposition groups. That came after a vote at the United Nations calling for a no-fly zone over the country. Not surprisingly, oil markets were volatile today. Crude prices closed down $0.35 to settle at $101 a barrel, off their high of $103. As Suzanne Pratt reports, the oil market is coping with a long list of issues.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the past week, much of the world has been fixated on Japan, with one exception. The global oil market is paying much more attention to bubbling conflict in North Africa and the Middle East. Oil trader John Woods says right now all eyes are on Libya.
JOHN WOODS, ENERGY TRADER, JJ WOODS ASSOCIATES: You look at Gadhafi like, all right, listen, we`re going to go in there and start bombing you if you don`t knock it off. All of the sudden he says, OK -- oil drops three bucks, but nobody really believes him.
PRATT: And traders worry supply disruptions won`t end with Libya. Trouble is brewing in Bahrain, Iran and Saudi Arabia, all big suppliers of oil. Oil expert John Kilduff says conflict in any of those countries would have a huge impact on crude oil prices.
JOHN KILDUFF, PARTNER, AGAIN CAPITAL: If we see the situation in Saudi Arabia in particular worsen, if the protests in the Shia-dominated eastern region where the oil is produced escalates, all bets are off. We could easily see $150, $200 oil on increasing fears there.
PRATT: Still, traders say oil prices would be much higher today if there hadn`t been the earthquake and tsunami in Japan. Yes, in the short- term, Japanese demand for diesel fuel to power generators is expected to pick up. But, experts predict overall Japanese oil demand will be constrained for months, if not years.
KILDUFF: Stepping back you have to accept the fact that their economy is going to be damaged from this, that they will be knocked off their block for a while and it will take some time to come back.
PRATT: Experts also predict energy markets worldwide will be extremely volatile this year, not to mention dominated by the headlines.
WOODS: It`s tough to talk about a technical market because you can throw that stuff pretty much out the window. You have to pay attention to the news.
PRATT: All this turmoil in the Middle East comes at a particularly bad time for U.S. consumers. We are just weeks away from the start of peak driving season, which fuels demand and undoubtedly prices at the pump. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
Japan Disaster One Week Later
TOM HUDSON: The latest now from Japan, the nuclear troubles there remain in limbo tonight as engineers battle to cool spent fuel rods at the Dai- ichi power plant. They have put a new electric line in place and hope to make progress at the plant`s reactors over the weekend. While the nuclear situation unfolds moment by moment, Japan continues its massive rescue and recovery effort. Lucy Craft reports from Tokyo.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s been one week since Japan`s nightmare began and Tokyo`s normally bustling streets are darkened and quiet. A draconian energy conservation campaign -- triggered by the nuclear plant crisis -- has made travel difficult and forced the country to turn down the lights. To save electricity and because of continuing powerful aftershocks and anxiety over the threat of radiation contamination, leisure and entertainment has been sidelined. Shopping malls are deserted. Customers are staying home in droves, glued to their TV sets and the ongoing power plant disaster. How that drama resolves itself remains uncertain. What is likely is that Japan -- one of the world`s top nuclear power nations -- may at last be abandoning its love affair with atomic energy. Japan`s conservative party leader said this week that siting future plants will be extremely difficult, a conclusion the center- left ruling party called extremely obvious. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
Bank Dividends Are Back
TOM HUDSON: Remember bank dividends? They`re back. The Federal Reserve today gave some of the nation`s biggest banks the OK to pay investors more money, but only at banks that passed a financial stress test. Some analysts think those dividends are heading higher. But as Darren Gersh reports tonight, there is a limit.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Federal regulators did not sound the all clear on banking today. The stress test results were more like a cautious so far, so good, according to analysts like Karen Shaw Petrou.
KAREN SHAW PETROU, MANAGING PARTNER,FEDERAL FINANCIAL ANALYTICS: It is a signal that the banking system is beginning to get off the mat. I don`t think it is anywhere close to up and running yet.
GERSH: Since the crisis brought the industry to the brink of failure, the Federal Reserve says the nation`s 19 biggest banks have almost doubled a key capital ratio from 5 percent to more than 9 percent of assets -- a $300 billion swing. Regulators found big banks have enough capital to survive a scenario where unemployment climbs back to double digits and the economy falls back into recession this year. Banks that cleared the regulatory hurdle can now use some of their money to reward their investors, a move seen as a key step in healing the financial system.
PETROU: To make new loans, you have to have capital. To have capital, you have to have investors. To have investors, you have to give them something for their money and that`s dividends.
GERSH: Five banks announced dividend hikes today. JPMorgan, Wells Fargo (NYSE: WFC), U.S. Bancorp (NYSE: USB) and State Street (NYSE: STT) say they`ll also buy back some of their shares. But the good news has its limits. The Federal Reserve has effectively restricted dividend payouts to 30 percent of earnings and those dividends may face more risk than in the past, says Morningstar (NASDAQ: MORN)`s Jim Sinegal.
JIM SINEGAL, ASSOC DIR, RESEARCH MORNINGSTAR: If the economy starts to turn down again, I think regulators have given themselves a lot more leeway now to tell the banks to pull back and not pay out so much. So it`s possible that if the economy heads down again, these dividends that we`re seeing now could end up going away once more.
GERSH: Sinegal expects the strongest banks to raise dividends in the coming year. The payouts are still well short of the levels in the boom years, but Credit Suisse analyst Moshe Orenbuch says regulators are now drawing distinctions based on performance.
MOSHE ORENBUCH, BANKING ANALYST, CREDIT SUISSE: There are going to be haves and have nots among the banks. Some will be better than others. The Fed actually tried real hard in the last stress test in May of 2009 to kind of keep everyone sort of on an equal footing and so I think the stronger banks will actually do better as a result.
GERSH: One big investor has some reason to be happy with the results of today`s stress test. Warren Buffett injected capital into Goldman Sachs at the height of the financial crisis. Today Goldman got the green light to buy out that investment, handing Buffett a roughly 70 percent return. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Steinberg Is Focused On Middle East, Not Japan
SUSIE GHARIB: Our "Market Monitor" tonight says his biggest concern is what`s going on in the Middle East, not Japan. Joining us now, Richard Steinberg, president of Steinberg Global Asset Management. Hi, Rich.
RICHARD STEINBERG, PRES., STEINBERG GLOBAL ASSET MANAGEMENT: Good to see you Susie.
GHARIB: Well, let`s start out by talking about how the situation in the Middle East is impacting your investment strategy.
STEINBERG: Sure, Gadhafi today said that he would take a step back from annihilating the rebels and he said (INAUDIBLE) before so oil took a step back, but he`s no fool. He did this to give himself a break. If we really end up with an increased problem in Libya and oil spikes, it could really create disruption in the market. Right now we think there`s about a 15 percent premium to the Libyan Bahraini Saudi problems. So it`s something that we`re watching very closely.
GHARIB: You have five stocks that you`re still recommending in this environment. Let`s get right to it and at the top of your list, you have Ford, Ford Motor, which is one of the stocks you recommended a year ago when you came on the program. Why do you like it?
STEINBERG: They`re clicking. It`s amazing. When you make cars that people want to buy, earnings go up. They`re going to earn $2 this year. We have a $24 target. We think that they`re just entering their sweet spot.
GHARIB: All right, so nice move on that from $14 where it is now. Tell us about Itron (NASDAQ: ITRI). This is ticker symbol ITRA. What`s the story there?
STEINBERG: Itron (NASDAQ: ITRI) makes the smart meters that go on the side of your house for electricity and natural gas and for water. And it`s an efficiency energy play. They`re going to earn $4 next year. It`s really, really cheap and we think that there`s a lot of upside to that, may have an $80 target.
GHARIB: Hewlett-Packard (NYSE: HPQ) is on your list and here`s a company that`s been having a really rocky time. Stock has been struggling. Why are you recommending HPQ?
STEINBERG: We think the market is over reactive. It`s trading at 7.5 times earnings. They have a new CEO that`s a show me CEO. But 7.5 times earnings, you really have an opportunity to buy a really great global name cheap.
GHARIB: And what target price do you have?
STEINBERG: We have a $55 target.
GHARIB: So there`s still room to grow there. Tell us about your next stock, CIT Group (NYSE: CIT). This is the financial services, ticker symbol CIT. John Thain, who used to be the CEO of the New York Stock Exchange has been the CEO there for a while. Tell us why you like the stock trading at $42.
STEINBERG: It`s got a $46 book value. This was a prearranged bankruptcy. They have lots of earning power. The credit cycle is just starting to turn. And there`s probably 20 percent upside to this name.
GHARIB: And the fifth stock you`re recommending is Nestle. We know what that company makes. Tell us why you like it.
STEINBERG: When people are stressed, they eat chocolate, right.
GHARIB: We`re all stressed.
STEINBERG: We think there`s 15 percent upside. It`s a great global brand. The commodity price has eased, especially in sugar. We think they`ll have a lot of leverage to their earnings. And it`s a name, especially with the rockiness in Europe, something you can buy really cheap right now.
GHARIB: Let`s quickly go over the four stocks you recommended a year ago when you were here and look at them, International Assets Holding (NASDAQ: IAAC), Ford Motor, Lowes Companies and a ETF for Korean stocks. All of them up from a year ago. What are your thoughts? Do you still own these? You told me about Ford, so what about the others?
STEINBERG: We own International Asset Holdings, great commodity (INAUDIBLE). We continue to hold it. We`ve taken some money off the table in Korea, especially with what`s going on in Japan now. It`s probably something we`ll reinvest again to buy back. And Lowes, we`ve owned it. It hasn`t really done much. We`re being patient and we`ll just see how the housing cycle starts to turn. I don`t own any of these names that we mentioned tonight, but our firm owns them all.
GHARIB: OK. You answered all the questions quickly, gave us a lot to think about it. Thanks a lot Rich, have a great weekend.
STEINBERG: And our prayers go out to the people of Japan.
GHARIB: All right. Thank you so much. And we`ve been speaking with Richard Steinberg, president of Steinberg Global Asset Management.
Apprentice School Education
SUSIE GHARIB: Here`s a dilemma for the job market: not enough job openings and where there is an opening, often there aren`t enough highly skilled workers to fill that job. To get around that problem some companies are following a centuries-old tradition: apprenticeships. Anna Olson takes us to Northrop Grumman (NYSE: NOC)`s apprentice school for shipbuilding.
ANNA OLSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Kimberly Jarvis is learning how to build parts that fit into aircraft carriers and nuclear submarines.
KIMBERLY JARVIS, APPRENTICE, NORTHROP GRUMMAN: This is a theory class that we go through during the apprenticeship program where we learn how to put different angles and bends in the pipe.
OLSON: Jarvis is one of more than 700 students enrolled in Northrop Grumman (NYSE: NOC)`s apprentice school. Apprentices in this program are full-time, paid employees who also take academic classes at the shipyard and local community colleges.
JARVIS: I realized that I could be a better asset to the company coming through the apprenticeship program and so far, it`s going awesome.
OLSON: The apprentices here are learning skills like pipe fitting and surveying -- skills that, for many, could lead to long-term jobs. Seventy percent of all Northrop Grumman (NYSE: NOC) apprentices are still with the company 15 years later.
EVERETT JORDAN, DIRECTOR, APPRENTICE SCHOOL: We remember when there were apprentices learning how to be gunsmiths and work with leather and do all of the things that were necessary in colonial times. I would tell you that it`s not that much different today.
OLSON: Everett Jordan, a former apprentice, is now director of a program that began in 1919. He says students learn leadership skills and the know-how to produce highly specialized equipment for the Defense Department.
JORDAN: It`s a great opportunity to select the best and the brightest and continue to educate them in craftsmanship, scholarship and leadership.
OLSON: The Obama administration has discussed the need to expand apprentice programs like this one across the country. But so far, many companies have been unwilling to invest in training. Apprentice graduates like Andrew Balarabe say employers might want to start.
ANDREW BALARABE, APPRENTICE SCHOOL GRADUATE, NORTHROP GRUMMAN: I think it should be contagious. Other companies need to realize, hey, let`s have these old guys that are getting ready to retire, let`s train the younger guys.
OLSON: Balarabe graduated from the program last month. He used to be a mechanic, but didn`t see a career in it. Now he`s an accomplished welder finishing his associate`s degree.
BALARABE: I see myself staying with this company for a very long time. I have a bright future.
OLSON: Northrop Grumman (NYSE: NOC) doesn`t require workers to stick around after training. Instead, the company says it creates competitive opportunities that entice them to stay. Apprentice grad Jerome Hashagen says that philosophy works.
JEROME HASHEGAN, APPRENTICE SCHOOL GRADUATE: It builds loyalty to a company where you`re not just job shopping all the time, looking for another company that pays a few dollars more an hour. It just becomes part of you.
OLSON: That kind of future is appealing to many, so much so the company gets 100 applications a week for the program. Anna Olson, NIGHTLY BUSINESS REPORT, Newport (NASDAQ: NEWP) News, Virginia.
Market Focus with Tom Hudson
SUSIE GHARIB: The Dow rose almost 84 points, the NASDAQ added seven, the S&P 500 up five. As for trading volume, almost two billion shares moved on the big board, over 2.5 billion on the NASDAQ.
TOM HUDSON: Lots of big headlines for the market this week, marked by nuclear fears in Japan, more tension rising in Libya, really putting investors worldwide on edge. For the week, here are the Dow Industrials, falling 1.5 percent. The gains today and yesterday just simply not enough to make up for the losses earlier in the week especially from Wednesday. The NASDAQ meantime dropped 2.7 percent from a week ago tonight. The NASDAQ remains in negative territory for the year. The S&P 500 off 1.9 percent compared to a week ago. Consumer staple stocks the biggest drag on the index this week.
Leading the sector gains today, no surprise it was financials. We`re going to roll out the exchange-traded fund, XLF, bouncing more than 1 percent, volume, it was triple its normal pace. Big banks took the lead after the Federal Reserve gave many of them the blessing to hike dividends and start stock buybacks as Darren reported. Now he did mention of course that JPMorgan was among the first to announce a big dividend increase and a stock buyback. Look at JPMorgan here, the last year we go and we`re off by 2.6 percent today. In fact it`s just today now we`re back to where the stock was one week ago. Other banks stocks jumping, Sun Trust up almost 5 percent. Goldman Sachs, Darren mentioned that one, up 3 percent today. Bank of America (NYSE: BAC) shares, though, kind of dragging, up just a fraction. It did not request permission from the Fed to raise its dividend in the second quarter.
Now Caterpillar (NYSE: CAT) continued adding to some recent gains here. We`re going to roll out the last 90-sessions. Look at this move. We`ve gone from $80 to over $105 just a few months ago. It`s the best performing Dow Jones Industrial stock this week. The most recent low came just a day before the Japanese disaster. Today Caterpillar (NYSE: CAT) said global dealer sales were up 59 percent in the three months ending in February. Shares up by almost 2 percent, leading the Dow.
Cigarette maker Lorillard (NYSE: LO) meantime popped 11 percent, seven times its usual volume. Look at this move higher. It takes up back to levels we haven`t seen since last fall when the Food and Drug Administration panel saying menthol cigarettes, removing them from the U.S. market would help public health. The panel did not recommend banning menthols, perhaps a bit of a relief rally. About 90 percent of its sales come from menthol cigarettes.
Starbucks (NASDAQ: SBUX) is becoming just the latest consumer company to raise prices, announcing today that it`s going to move its coffee prices higher. Shares though really just a fractional loss, but they were very active. It`s hiking grocery store coffee bean prices by 12 percent. The executive blames speculators on higher coffee prices.
Just one new stock to get you updated on this week, an IPO from Cornerstone OnDemand. It priced at $13 per share. But its first trade was over $19 per share today, so the stock actually closed lower. Cornerstone by the way is a human resources software provider.
And that is tonight`s "Market Focus."