tv Nightly Business Report PBS October 1, 2010 1:00am-1:30am EDT
of germany's s.a.p., and he replaces mark hurd, who resigned last month. we talk with an analyst about what this big management decision means for h-p. you're watching "nightly business report" for thursday, september 30. 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
>> susie: good evening, everyone. hewlett packard has a new boss tonight. he's leo apotheker, and he's the former c.e.o. of the big german software giant, s.a.p. tom, he led that firm to 18 straight quarters of revenue growth. h-p also announced ray lane, a former president at oracle, will take the job of non-executive chairman. >> tom: susie, both men are moving into those positions november 1, at a time of crisis at h-p. the computer company forced out c.e.o. mark hurd eight weeks ago in a scandal involving a female contractor. >> susie: word of the new c.e.o. came after the market close. shares of h-p fell 4% in after- hours trading. joining us now with more on h-p is tom smith, equity analyst at standard and poor's. hi, tom. >> hi, thanks for having me. >> susieso is leo apotheker the right person for this job. >> hp could have chosen from all across silicon valley and they chose him. he is a guy with some stormy
tenure in his last days at hp but he knows software deeply as does ray lane and i think he can steer the company in a useful direction by taking them into software. >> susie: so actually that is interesting. both-of-these two new top executives have software expertise. do you think that means that hp is going to move more in that direction and away from hardware and services? >> well, i think so. i think they have recently built up the services through the eds acquisition and hardware through 3come, the palm, the three par acquisitions this area and some others. so i think they are really set up well in hardware to expand in a comprehensive data center offering. but you want hardware software and services and software where they are looking-- lacking in terms of what shows as a percentage of total revenue. that is where i think they need to build and buildout software that matches the consulting capability that they can buildout of their
services arm. >> uh-huh. >> all right, so now apotheker takes over officially on november 1st. what is son number one. what should be his first priority as c.e.o.? >> well, i think job one is just to keep a good thing going. there is a great story going on at hp even without a c.e.o.. they lead a great analyst meeting. and the department heads all put on a good show. they got market share to brag on in printers, in pcs, the data centers, offerings, i think are getting stronger. so you have to keep that going. they have a lot of cost cuts in motion. we've got to keep that going and the prior c.e.o. was famous for that. so you have got to see if he can at least match that. and then give a new five year plan that would presumably include more software and a comprehensive datastar strategy that can take on the likes of auricle and ibm and dell. >> susie: now taking a look at hp shares. first of all they sell in after-hours trading as we reported a few moments ago. would you be a buyer of hp as $40 a share?
>> well, yes, we would. in fact, we upgraded just this weak after the analyst meeting from buy to strong buy. we see the stock as attractiveively valued. and paper you'll get a knee-jerk drop in the shares but i think they are quite attractive. as i say, the earnings, outlook at least from the company has come up slightly. they now have better properties through acquisition in hand. and i think that they are really primed to go. >> do you have a target on the hp shares. >> our target price for hp is 54 dollars. >> which is where it was about a year ago. >> which is where it was about a year ago. and looking at that before i came in, that would be about a 28% gain so just to regain where you were would be pretty good. on a pex basis, we're-- on a pe basis we're talking about a substantial discount to the overall market and to other large tech it companies in the s&p 500.
>> susie: all right. and any disclosure to make on hp? >> right, i don't own the shares. >> susie: thank you so much for coming on. we really appreciate it. we've been taking-- speakinging with tom smith of standard & poor's. >> tom: wall street is calling it "the september to remember". stocks surged this month for the best september in 71 years. the rally came despite mixed reports on the economy and light trading volume. for the month, the dow jumped nearly 8&, the nasdaq skyrocketed 12%, and the s&p 500 rose almost 9%. those indexes also moved higher during the third quarter. the dow gained almost 10.5% in the past three months. what happens next with stocks? market analyst scott sheridan of think or swim says it depends on what happens with the mid-term elections. >> i think when we get some clarity on direction in this market, and i think it depends on which of the two parties really gets most of the seats or more of the seats in that election. then, we'll know, i think, if we're heading further up or if
we're going to head back down. personally, i think that the market has a lot more room to the downside than it does on the upside. >> tom: small investors have kept a close watch on the market's on the september to remember. but they may be sitting on the sidelines. suzanne pratt takes a look at what it will take to get small investors back into the game. >> reporter: it's lunch time at this midtown manhattan ameritrade office, and surprisingly, there are some small investors inside. surprising, because small investors have been absent from the stock market for nearly two years. ameritrade's peter sidebottom says small investors are getting ready to tiptoe back into stocks. >> we think they are starting to gain confidence. there are starting to be good earnings reports. we see some momentum in the indexes and also in the market. we think they're starting to look at and figure out how they want to be back into equities. >> reporter: the dow has rallied nearly 8% in september, and many small investors have missed it. the blue chip index is up 60% since stocks bottomed in the march of last year.
and guess what-- the little guy missed that, too. first, it was the financial crisis that seriously spooked individual investors. and just as they started to return to equities early this year, they got burned again by the "flash crash" in may. a huge drop in volume at major stock exchanges is evidence of investor indifference, and so is the flow of money out of stock funds and into bonds. according to trim tabs investment research, investors have pulled billions of dollars out of u.s. stock funds this year, and they've been doing it for 22 straight weeks. so what will it take to get small investors back into equities in a big way? trim tabs' vincent deluard says mostly small investors want to know the deck isn't stacked against them. >> retail investors think the stock market is not the right place for them. it's a place for hedge funds, high frequency traders, trading desks. but the retail investor is always the one losing. and that's how they think of the
stock market now, and that's got to change. >> reporter: others expect small investors will rediscover stocks when they feel in charge of their destiny. >> the biggest trend we see in the market is people want to take control of their own finances. so they're looking for tools, information, research, ways to get back into the market that are smarter and better than they did it before. we think that will be in equities, but it will also be in fixed income and e.t.f.s. >> reporter: oh, yes, and there's one more thing that can help attract small investors again-- that's a stock market that keeps going higher. suzanne pratt, "nightly business report," new york. >> susie: here are the stories in tonight's "n.b.r. newswheel:" that strong september ended on a weak note. the dow fell 47 points, the nasdaq dropped almost eight, and the s&p 500 off 3.5 points. trading volume, too, ending the month on an up note, climbing from yesterday's levels to nearly 1.3 billion shares on the big board, and nearly 2.5 billion shares on nasdaq.
employers may be cutting fewer jobs. new claims for jobless benefits dropped, falling by 16,000 to 453,000 in the past week. the economy grew pretty poorly during the second quarter. the gross domestic product was revised slightly higher today to 1.7%. that's a sharp drop off from the first quarter's 3.7% pace. new rules for oil drillers-- the interior department says offshore drilling rigs will now have to certify they have working blow-out preventers. that's the part that failed in the b.p. gulf oil disaster. and more problems for b.p., this time on-shore-- oil leaked today from a pipeline at a b.p. refinery in texas. the company says the spill was contained. still ahead, as wall street wraps up a strong third quarter, we look ahead to how stocks will perform the rest of this year. >> tom: taxpayers are one step closer to getting a chunk of their bailout money back, this time from a.i.g.
the insurance giant will repay a loan from the new york federal reserve first. then, a.i.g. plans to convert the government's $49 billion of preferred stock into common stock. those shares would be valued at around $29. based on tonight's closing price, taxpayers would have a profit of about $16 billion. but uncle sam is expected to slowly sell its position, similar to how it is dealing with the citigroup bailout. then, the government converted a $25 billion citi stake into common stock, and started selling the shares in late april. so far, uncle sam has made a profit of $3 billion. as for the overall tarp program, of the $386 billion spent on bailouts, almost $200 billion has been paid back, with taxpayers earning another $25 billion in dividends. >> susie: the people enforcing the biggest overhaul of the nation's financial rule book in decades were asked how they're doing today. some lawmakers worry the regulators will be more concerned with protecting their turf than making the law work.
on capitol hill, fed chairman bernanke, f.d.i.c. chair bair, the c.f.t.c.'s gensler and comptroller of the currency walsh were among those testifying. together, along with treasury secretary geithner, they're the newly created financial stability oversight council. a key author of the law, senate banking committee chairman chris dodd, called on the team to work together. >> this organization is not intended to be a top down, but rather a collective gathering of equal partners in all of this. and i would expect that no one to hide behind the work of the fed or the treasury, nor to be intimidated by it. >> susie: the group has to write hundreds of rules to put financial reform into place. it holds its first meeting tomorrow. >> tom: the european debt crisis isn't over. spain today lost its triple-a credit rating. moody's downgraded the country on worries about its budget deficit. the credit rating agency says spain must convince financial markets it can pass a budget that cuts the deficit.
spain's unemployment rate is 20%, and its economy is predicted to grow at just over 1% next year. meanwhile, ireland is rescuing another failing bank, the second this week. those rescues are pushing the irish budget deficit to nearly a third of its total economy, a record for euro-zone members. meanwhile, stress tests could become common for banks in the european union. the group's finance ministers have agreed to regular stress tests to boost financial confidence. in july, the e.u. ran the banks through their paces for the first time. seven of 91 banks failed.
>> susie: it was a strong september, i strong third quarter and now investors are just hoping that this momentum continues for the rest of the year. >> tom: absolutely. although the momentum this week has kind of lost some steam. we haven't seen a lot of big market moves one way or the other including today. let's get you updated in tonight's market focus. after rallying the first three weeks of this month, the stock market eased into the end of the month. it was the fourth straight day of modest moves. none of the ten major stock sectors made a move of more than six-tenths of a percent. information tech stocks led the way lower. this technology exchange traded fund saw a fractional loss, but on volume that was slightly ahead of average. j.d.s. uniphase dropped from a
four-month high, falling almost 3.5%. symantec slid 3%. it had been rallying since the middle of last month, after intel's buyout of competitor mcafee. tellabs fell almost 3% on stronger than usual volume. an analyst at morgan keegan downgraded tellabs over flat sales expectations and weak investor sentiment. watching hewlett packard after the close as the company announced its new c.e.o. shares ended the day down 1%, and fell another 4% after the close. shares traded above $46 the day before mark hurd was forced out from the corner office; after the close, shares were trading below $41. another tech stock to watch is comverse technology. it makes telecommunications software, and may be the focus of some buyout interest. shares bucked the weak market today, jumping more than 15% on six times its usual volume. "the wall street journal" reports oracle and others are kicking the wheels. apple always is the source of market rumors, and today, the focus fell on possible suppliers
for the next iphone that is in the works. that may help explain some of the buying interest in wireless technology firm qualcomm. shares added almost 2% on twice its usual volume. this is its highest price since late january. meantime, a report from taiwan speculated audio chip maker cirrus logic may be replaced as an iphone supplier. that sent shares down 6% as volume more than quadrupled. cirrus didn't comment. we mentioned the a.i.g. strategy to pay back taxpayers' bailout. it also announced a deal to raise money by selling two insurance businesses in japan to prudential. prudential stock fell 4% on the deal. it was the biggest percentage loss in the s&p 500 index. prudential will pay $4.8 billion, most of that in cash, for the two businesses. while we're talking about mergers and acquisitions, how about an update on the car rental fight for dollar thrifty? dollar thrifty shareholders rejected the buyout offer from hertz. a competing and higher-priced offer is on the table from avis.
the object of the buying interest, dollar thrifty, saw little movement in its stock today. but hertz dropped almost 9% after being turned down by dollar shareholders. avis stock was up fractionally. avis says it will launch its offer within ten business days of the hertz deal being rejected. the september rally for the market has been impressive. the leaders include companies closely linked to the global economy and the construction business. caterpillar was the best performing dow component this month, up almost 21%. alcoa was up more than 18%. its earnings are due out in a week. and home depot rounded out the best three with a 14% gain in september. and that is tonight's "market focus."
>> susie: expect to keep paying 44 cents for first class stamps next year. the postal service wanted to increase the rate by two cents beginning in january, but today, the independent panel that oversees the post office denied that request. the reason? the postal regulatory commission said the requested rate hike was not due to the recent recession. instead, it was an attempt to address long-term problems like retiree health benefits. the postal service hasn't commented. here's what we're watching for tomorrow: our friday "market monitor" guest is gerald buetow, chief investment officer at innealta capital. also, the august reports on construction spending and personal income come out, along with september's auto sales.
and speaking of cars, it's one of this years most hyped models, but can the small chevy cruze generate big sales for general motors? mattel's fisher price unit has recalled more than 11 million toys, including over seven million tricycles. some hot wheels and barbie free spirit models with a fake key protruding from the frame are part of the recall. so are nearly a million fisher price high chairs with dangerous pegs, and three million inflatable balls found on play gyms. for more details on the recall, visit our web site at nbronpbs.org. >> tom: your refrigerator may have played a part in an international price fixing scheme. japanese electronics maker panasonic and appliance maker whirlpool today admitted they worked together for years to coordinate prices for refrigerator and freezer compressors. the justice department says the two firms will pay more than $140 million in fines and plead guilty to price fixing charges.
sam, welcome back to nbr. >> happy to be here, tom. >> tom: let's look back here for a moment. third-quarter performances as we've said has been pretty remarkable. market rally in july and a big one in september. what were the contributors? >> i think really it was the unwinding of a lot of concerns that investors had. particularly about the possibility of a double dip recession accompanied by deflation and i think they were disheartened by listening to fed chairman bernanke talk about how the fed will be right there to additionally buy treasuries, mortgagebacked of what we call quantitative easing gained with what the mat bureau of peck research deemed the prior recession to be over. >> some of that quantitative easing is speculated to begin possibly in the fourth quarter. so what's the outlook and let's begin just with october. because cemented in most investor's mind, october 1929. october, 2008. it's been a month for stock crashes. >> absolutely. well, october really is a
bottoming month. what we have found is that five of the last ten bear markets have ended in october. but the average price change for the s&p 500 in the entire month is actually better than the average for all 12 months. >> tom: you know, the investment committee at s&p in which you sit on recently raised your 12 month target for 5900 looking for a double-digit gain about a year from now, about 11%, why? >> that's right, our feeling is that we are now entering the very favorable seasonal period for the market. the third year of the president's term in office usually is a very strong one for equities. we are still maintaining a fairly healthy earnings improvement over the coming year. we also don't think we're goinging to be slipping into a double dip recession even though the economic expansion will be a half speed one. we still believe that it will be healthy enough to support good earnings growth in the coming year. >> tom: that journey begins with the fourth quarter in which we're on the eve of here. and the traditional sector strength has been in information technology, consumer staples and discretionary stocks as well
as health care. what have been the drivers? >> well, usually what happens is that in the third quarter investors are fairly nervous. they're cautious about equity prices so they're pretty much embracing all of the defensive sectors. in the fourth quarter, they tend to gravitate a little bit away from the defensive toward the sick i will cames but sort of being a little bit in both camps. and then the first quarter of each year we find solidly cyclical performances outform-- outperforming the defensive which-- defensive ones. >> tom: you hit upon this a moment ago. the big question is the election, the midterm election. we are seeing the years for investors during this presidential cycle have opinion pretty good. you mentioned the middle coup-- couple of years and here the performance returns his core-- historically, year two, 5%, year three next year up better than 17%. why do you think? >> well, what happens is investors heading into the midterm elections are very nervous. they end up selling off or at least sitting on their
hands. so that tends up being the worst six month period, the second and third quarter of this current year of the president's cycle. but the best three quarters are the ones we are just approaching, the fourth quarter of it this year, first two quarters of next year and then it helps the third year of a president's term in office. most intriguing in my opinion is that since world war ii the third year has advanced 94% of the tire. of course past performance is no guarantee of future results. >> tom: of course not but heavy odds there now talk about the outcome and how the market has behaved because there is lots of talk about how gridlock can be good for investors. but you've looked back and when congress and the white house are in the same party, average returns better than 7.5%. when there is a difference, almost 7%. but when the two houses of congress are held by both parties which is the likeliest scenario this fall, only an average gain of 2%. >> exactly. going back to 1900, the data show that you really don't want gridlock it might be good for bonds but it's to the good for stocks and it's primarily because of the
uncertainty. nobody really knows what is going to be emanating from congress because congress won't be able to be in agreement. >> tom: certainly one to watch as we move into the fourth quarter. always great to see the outlook. and hear the outlook, sam. thanks so much. >> thank you, tom. >> tom: out guest is sam stovall chief investment strategist at standard & poor's. >> susie: and finally, "caveat emptor," "semper fidelis," "ipso facto." need help translating latin? google can help. the search giant today added latin to its automatic translation service. google says it's the first translation system for a language with no native speakers. but the service could be useful for the 100,000 american students who take the national latin exam every year. it could also help many other latin language scholars worldwide. so, carpe diem! tom, we don't need google to know what that means. >> tom: seize the fish-- seize the day, no seize the day, all right. >> susie: be sure dow that, everyone else as well.
that's "nightly business report" for thursday, september 30. i'm susie gharib. good night, everyone, and good night to you, too, tom. >> reporter: good night, susie. i'm tom hudson. good night, everybody. we'll see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org