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Mary Thompson, Eamon Javers, Diana Olick>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Heating up. The deep freeze may, may be coming out of the January market. But what does history say about the year ahead when the markets stumbled so badly at first?
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Sharp and swift. Oil prices skyrocket. But with no obvious trigger and the world still awash in crude, is it safe to say the worst of the selling may be over?
MATHISEN: Digging out. If you need someone to plow your driveway following this winter storm, there`s an app for that.
All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, January 22nd.
HERERA: Good evening, everyone, and welcome.
Stocks pulled it off. They went higher for the week. Just a few days ago that didn`t seem possible. What did seem likely was continued selling, similar to the kind we`ve seen pretty much all month.
The first week of January, the Dow index fell more than 6 percent. The second, it lost another 2 percent. This week, a reversal.
The Dow rose just under 1 percent. That weekly gain helped by a lot of buying today. By the close the blue chip index gained 210 points to 16,093. The NASDAQ added 119 points, more than 2 1/2 percent. And the S&P 500 tacked on 37.
There`s still one week left in this month, and though stocks are still sharply lower for January overall, that doesn`t necessarily mean the rest of the year will be down as well.
Bob Pisani tells us the opposite is usually true.
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BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s an ugly start to the year, but there`s hope. There`s been ugly Januarys before that have not turned into full-year disasters. So far, January 2015 is among the top worst Januarys ever, rivaling down Januarys in 2009, 1970, `60, and 1990. However, those other lousy Januarys did not end the year the same way, according to our partners over at Kensho.
In 2009, when the S&P was down 8 1/2 percent the year ended with a gain of better than 23 percent. Wow. In 1970, with the S&P down 7.6 percent in January, the markets also ended with a gain, though barely, 0.1 percent. In 1960 with the S&P down 7.1 percent in January, the losses abated somewhat and ended the year down 2.9 percent. And in January 1990, a down 6.9 percent month ended in a year only down 1.4 percent.
What`s it all mean? Bad starts to the year don`t usually last.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
(END VIDEOTAPE)
MATHISEN: And today, at the World Economic Forum in Davos, Switzerland, Larry Fink, the CEO of Blackrock, the world`s largest asset manager, echoed that sentiment.
(BEGIN VIDEO CLIP)
LARRY FINK, BLACKROCK CHAIRMAN & CEO: I do believe the market will be higher by year end. I said that last Friday. I do believe there is a need for blood in the street.
We need to -- we need to work out all the excess inventories in energy. The only way that`s going to happen is through bankruptcies of some of the oil companies as they stop pumping. And so, you know, this is all good. This is a good process. Actually, this market correction weeds out the weak.
(END VIDEO CLIP)
MATHISEN: And as for oil, Mr. Fink does not think we have seen a bottom in prices just yet.
HERERA: But that is the big question. Has the price of the world`s most closely watched commodity bottomed? In the past two days, we`ve seen a sharp and swift move higher, up about 16 percent today alone. Crude spiked 9 percent to settle above $32 a barrel.
So, why have prices moved so quickly and is the worst of the selling behind us?
Pavel Mulchanov, an energy analyst at Raymond James, joins us now.
Pavel, welcome. Nice to have you here.
PAVEL MULCHANOV, RAYMOND JAMES ENERGY ANALYST: Thanks for having me.
HERERA: I guess that is the question. Do you feel this market has put in a bottom or is in the process of putting in a bottom?
MULCHANOV: Yes. So, you know, with oil reaching $27 earlier this week, one thing we started to see that`s very important is companies actually shutting in existing oil fields. So, we know that everybody`s cutting back on investment. That`s not new. But companies shutting down existing operations because they cannot cover their cash costs with $27 pricing.
By the way, $27, that`s the benchmark in places like Canada. Heavy crude is now trading for $10 to $15 a barrel. It`s very hard to make money or even cash profit on that with that type of price. So, when we see companies shutting in fields, that almost always marks the bottom.
MATHISEN: So you seem to be suggesting that the industry broadly may be starting to get its hands around the supply problem. It isn`t really a problem with falling demand so much as it`s supply. But how much does Iran matter in this with their new flows coming on stream?
MULCHANOV: Well, everybody has known since last July that Iran signed a nuclear agreement and that sanctions were going to be lifted, it was only a matter of time. Obviously, it happened a week ago, but there was absolutely no surprise that this happened.
Iran is saying they can bring back 500,000 barrels a day. Not instantly, by the way. It will take time to do that. I know that our team has had that in our oil model for the last six months. I suspect just about everybody else did. So, there really should be no surprise.
Of course, it`s extra production. But by definition but it`s been priced in. Furthermore, we`re seeing supply falling already. Aside from these fields being shut down this month, we`ve seen supply falling in the United States since last March.
HERERE: Right.
MULCHANOV: We`ve seen supply flat to down in places like Brazil, Russia, China. You know, all of these are important producers. And even in some of the OPEC countries, Iraq comes to mind, Venezuela comes to mind, their industries cannot afford to drill under current conditions because the governments frankly have lot mouths to feed.
HERERA: Indeed.
MULCHANOV: So, even OPEC countries are embarking on a lot of austerity in response to this meltdown.
HERERA: Pavel, thank you so much for spending time with us. We appreciate it.
Pavel Mulchanov with Raymond James.
MATHISEN: We know that low oil prices, gas prices, they save drivers a lot of money. Some hold on to it, others spend it. And it is that spending that is helping Main Street business owners in more ways than one.
Kate Rogers (NYSE:ROG) has our story.
(BEGIN VIDEOTAPE)
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Low gas prices are great news for entrepreneurs like Josh York, whose business is on wheels. York is founder and CEO of New York-based GymGuyz, a fitness company that brings equipment and services to clients for on-site training. He has 45 locations, four of which he owns. The others are franchised out. He saved about 20 percent in total on gas in nearly a year amidst oil`s fall, nearly $14,000, which he plans to reinvest back into the business.
JOSH YORK, GYMGUYZ FOUNDER AND CEO: As far as gas dropping, we`re going to obviously put that into supporting our franchisees. Support to our franchise system is extremely important. And we`re going to provide that to continue building our franchise support team. And that`s where those dollars will be spent.
ROGERS: Others like Brandon Shamy, owner of three Smoothie King locations in New Jersey, are seeing dual benefits from lower gas prices. The fuel charges he pays for deliveries have come down, a savings of 30 percent. And consumers are spending more at his shop.
In fact, thanks in part to a warmer season, Shamy`s had his best winter in six years.
BRANDON SHAMY, SMOOTHIE KING FRANCHISEE: I definitely am seeing more willing to spend, whether it be adding something extra to their smoothie or grabbing a protein bar, where in past years I didn`t see that as often. So, I definitely see that these lower gas prices could definitely attribute to people having a little more disposable income to spend on some items.
ROGERS: Historically, energy costs have been a top three issues for some small companies, according to the National Federation of Independent Business. More than a third have cited concerns over the cost of natural gas, propane, and, of course, gasoline and oil meaning that these falling prices are welcome in more ways than one.
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).
(END VIDEOTAPE)
MATHISEN: And to read more about how low gas prices are helping main street businesses, head to our website, NBR.com.
Still ahead, small caps led us into the sell-off. Might they be leading us out? And should you be a buyer? Our market monitor has some answers and some investment ideas.
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HERERA: Existing home sales rebounded in December and closed out 2015 with the highest sales since 2006. The National Association of Realtors reports a 14.7 percent rise last month after being held back in November by the introduction of new mortgage disclosure rules. Sales were also helped by unusually warm weather.
MATHISEN: Regulators expect to expand the number of vehicles involved in the Takata airbag recall by 5 million. The National Highway Traffic Safety Administration also linked another death, the tenth, to that airbag defect.
HERERA: Falling oil prices dinged General Electric`s quarterly results. The conglomerate reported weaker than expected revenue despite posting better than expected profits. Shares came under pressure, falling more than 1 percent. And despite continued expectations for what CEO Jeff Immelt calls a volatile environment, the company did reaffirm its outlook for 2016.
Mary Thompson has more on GE`s results.
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MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: General Electric (NYSE:GE) closed out a transformative 2015 dogged by the same issue affecting it at the beginning of the year -- falling oil prices.
DEANE DRAY, RBC: This is still a tough, tough operating environment for anyone engaged on the oil side.
THOMPSON: And while declines in revenue at units catering to the energy sector contributed to a top line miss, other core industrial businesses were weaker as well. Still cost cutting, tax benefits, strengthened its remaining finance, businesses and its big aviation unit all helped to deliver an earnings beat.
While analyst Deane Dray points out that G.E. also made good on other promises.
DRAY: You can check the box all the way down the line in terms of delivering on margin targets, delivering on the organic revenue growth. I think GE is in very good shape there.
THOMPSON: The firm may be on the right track, though on the investor call, CEO Jeff Immelt admitted to being puzzled about this year`s stock market sell-off, triggered in part by fears about slowing global growth. With GE doing business in over 130 different countries, Immelt says demand for GE`s products and services is growing, not contracting.
JEFF IMMELT, GENERAL ELECTRIC CHAIRMAN & CEO: I have a difficult time reconciling this with the mood that is in the markets. Clearly oil pricing is a concern and will have an impact but our organic orders growth in the Middle East were up 14 percent in the quarter. So economic activity is ongoing, and our business in China grew slightly organically in the year, by 11 percent.
So, we`re seeing a lot of economic volatility but there`s still a lot of business out there for G.E. to hit its goals.
THOMPSON: To help meet the goals it set for 2016, GE will again keep a tight grip on costs. In energy, it`s doubling targeted expense cuts for this year, and in transportation, it`s taking cost outs where the year over year comparisons in locomotives will be tough.
Add in its big backlog of orders and GE expects to deliver on its promises for 2016.
For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.
(END VIDEOTAPE)
MATHISEN: The prolonged slump in energy prices takes its toll on another dividend, and that is where we begin tonight`s "Market Focus".
The natural gas producer Chesapeake Energy (NYSE:CHK) suspending dividends on its preferred shares now. The company says the move will save it $170 million a year and let it pay down debt and conserve cash. In July, Chesapeake suspended dividends on its common shares. Today, Chesapeake fell a percent to $3.51. Shares are down more than 80 percent in the past year.
Kansas City Southern (NYSE:SO) (NYSE:KSU) beat expectations in its latest quarter, but revenue was pressured by depreciation in the Mexican peso and a drop in energy-related shipping volume. The company operates railroads in the U.S. and Mexico, and part of what it ships is crude oil, coal, sand from fracking. Shares of K.C. Southern (NYSE:SO) rose 4 1/2 percent today to $67.41.
The aerospace company Rockwell Collins (NYSE:COL) saw its revenue fall in part because of a drop in sales to the government and earnings were hurt by late shipments from a supplier. Rockwell makes aviation equipment for commercial planes and the military. The company did, however, raise its full-year outlook because of the reinstatement of a tax credit. Shares off 1 1/2 percent to $84.44.
HERERA: AIG reportedly looking into spinning off its mortgage insurance business. That`s according to "Reuters". The move comes as activist investor Carl Icahn is calling for a break-up of the company. Shares of AIG rose nearly 2 percent to $56.35.
The first federal trial over General Motors` faulty ignition switch has been dismissed because of questions about the plaintiff`s claims. Both sides requested the dismissal after the judge asked the parties yesterday to consider dropping the case when he concluded there was merit to GM`s claim that a document was doctored and injuries were exaggerated. Other claims against GM, however, will proceed.
So far, GM has reached settlements of more than $2 billion over the faulty switch which has been linked to more than 100 deaths. Shares of GM fell about a percent today to $29.28.
MATHISEN: And now to our market monitor, who likes small cap names that he says have big growth potential. He`s Craig Hodges, president and portfolio manager at Hodges Capital.
Last time he was on in August 2014, he recommended Capstone Paper and Packaging. It`s down 42 percent. Shoe Carnival (NASDAQ:SCVL) (NYSE:CCL), which is up 8 percent. And Matador Resources, which is down 44 percent.
Craig, welcome. We may have to have you go and stand out in the snow with those stocks that are down.
CRAIG HODGES, HODGES FUNDS PRESIDENT & PORTFOLIO MANAGER: You know, if I`d just been on a month ago, I would have been fine. Just a month ago, I would have been fine.
MATHISEN: Tell me about them and what`s happened and whether you still believe in them or still own them.
HODGES: Matador Resources is one of our largest holdings. Of course, it`s an E&P company. And they`re in probably the best oil play you can be and that`s the Delaware Basin there in the Permian. Lowest cost. I mean, they make money in the mid-30s on there.
It`s the best small cap E&P company management team we know of. Stock was six weeks -- two months ago the stock was $28, and it`s been basically cut in half just in the -- like I mentioned the last couple months.
MATHISEN: But it is still a big holding of yours. And you still --
HODGES: Yes, it is.
(CROSSTALK)
MATHISEN: Quick thought on Capstone Paper and Packaging before we get on to your next choices.
HODGES: Another one of our large holdings and we still love it. We think it`s an acquisition candidate. They`re in the corrugated paper business. And a lot -- 70 percent of that business is controlled by three companies.
We think they`ve got a very veteran industry leader running that thing. And we believe it`s a good acquisition candidate. The stock`s come from the low 30s about a year ago down to below -- it`s trading below 20 now. So, we think over $2 in earnings. So, it`s an inexpensive stock we think that has good up side.
HERERA: Let`s go to your new picks, Inlink Mid-stream, which is a gas and liquid processing company.
HODGES: Yes. Another -- all these stocks you`re going to hear about have absolutely been destroyed. This stock a year or so ago was in the mid-30s. Now, it`s around 12.
It`s been kind of thrown in with all these other mid-stream MLP type, you know, toll road companies, if you would, for moving oil and gas. But they`ve got a very strong balance sheet. They do -- the largest owner of this stock is Devon Energy (NYSE:DVN), who they do a lot of their business with. Ninety-five percent of their contracts are fixed. Eighty percent of their volume is guaranteed by the second parties.
And so, you know, we think it`s been kind of thrown in with the other ones. They`re on record saying they will not cut the dividend. And at this price, the stock`s yielding over 9 percent.
MATHISEN: Let`s move on quickly to Spirit Airlines where you see 25 percent to 30 percent growth over the next year.
HODGES: Yes, another stock that`s been hammered, you know, was in the 80s, mid 80s. You know, you go back four or five months. Now`s around 40, 42, I believe, somewhere in that range.
They`ve replaced management. The reason they come down is everyone was afraid they were going to overdo on capacity. They were increasing capacity and, of course, that`s kind of a no-no in the airline business.
But there`s such a different model than everyone else if you know anything about Spirit. It`s very low fare, low frills, and now it`s trading down below ten times earnings. We think it`s gone down too low being cut in half and think the stock can go back into the 60s.
HERERA: I want to quickly get into La Quinta because it`s a hotel stock but you say it`s being treated, fascinatingly so, as an energy stock because of its large properties in places like Houston. So, it`s a proxy in your view for energy.
HODGES: Yes. Other stocks have been cut in half, treated like an energy stock even though it`s a hotel chain. They`ve got 20 percent or so, 25 percent of their properties in Texas, but only about 10 percent in energy markets where energy`s a key component there. So, we think it`s a complete overreaction.
Actually, the stock is trading below its replacement cost, which is very, very cheap. So, I think there`s tremendous upside in La Quinta.
MATHISEN: All right, Craig, thank you so much. Appreciate you being with us.
HODGES: Great being on.
MATHISEN: Craig Hodges of Hodges Capital.
HODGES: Thank you.
MATHISEN: Coming up, here comes the snow. But don`t grab a shovel just yet because there`s an app for that.
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MATHISEN: Here`s a look at what to watch next week. Federal Reserve policy makers meet. The big question is what if anything the Central Bank will say about the economy and recent stock and bond market volatility, busiest week, by the way, for earnings. Twenty-five percent of the S&P 500 scheduled to report along with a dozen Dow components. And Congress holds a hearing on drug pricing. That, folks, is what to watch next week.
HERERA: It`s winter, and, yes, there is a snowstorm. But this one is big. With roughly a quarter of the U.S. population in its path, and as it heads toward Wall Street, it`s already causing disruptions across the South and in our nation`s capital.
Eamon Javers reports on the winter weather threat.
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EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: On a day that was not fit for man nor beast, Washington, D.C. was hunkering down for a powerful blast of winter weather.
At the White House, officials canceled the daily briefing and Congress has already canceled some votes for next week. And at Amtrak people running to catch rides out of town as officials said they would keep trains going on the northeast corridor as long as it is safe.
Here at Ronald Reagan National Airport, travelers were scrambling to catch the last flights out of town. But one guy we met had just flown in from sunny Florida and he said he was looking forward to seeing snow for the first time in his life.
UNIDENTIFIED MALE: I just walked outside. This is my first taste of the Washington weather. That`s what I said, it`s pretty frigid up here.
JAVERS: Across the country, airlines canceled nearly 3,000 flights today and just as many for Saturday. Airlines scrambling to reposition their airplanes to warmer cities, hoping to get them back in service as soon as possible.
One piece of good news for children here in the Washington, D.C. area, the capitol police say that Capitol Hill will be open for sledding this weekend.
For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Washington.
(END VIDEOTAPE)
MATHISEN: Paul Walsh joins us now to talk more about the snowstorm and the impact he thinks it will have on businesses. He`s vice president of weather strategy at the Weather Company.
Paul, welcome. Good to have you with us.
When retailers lose a weekend like this, and many of them will, it would seem, in the Mid-Atlantic States, do they ever get those sales back?
PAUL WALSH, THE WEATHER COMPANY V.P. WEATHER STRATEGY: Yes, they pretty much do. And typically what happens when you have a storm like this is there are three phrases. The first phase, what I call the forecast factor. That`s literally when predictions of the storm comes out and it basically drives the surge of sales that we`re seeing at stores now like Walmart and Home Depot (NYSE:HD) and Lowe`s that are getting masses of people coming in. What ends up happening is they get a huge spike in sales.
Then when the actual storm hits people are hunkering down, they`re not out shopping, but after the storm is over, you generally see those sales come back over the next few days.
HERERA: Paul, the insurers, though, really are on the line for this because this is a massive storm with several components to it. We may have trees down and damage for a lot of homeowners.
WALSH: Yes, for sure. The insurance sector is going to see some significant losses. Storms like this in the past have caused north of $500 million in insured losses. And this is -- this storm is really looking to be, frankly for the D.C. area and mid-Atlantic it will be our storm of the century so far and that`s going to cause some significant loss for insurers for sure.
MATHISEN: We`ll pull up a shot of the White House, which is getting even whiter by the second this evening, Paul. I assume there are some retailers that actually benefit. Grocers certainly do, at least in the anticipation.
I did a story about the grocery business. They said people come, and they buy milk, they buy bread and they buy toilet paper.
I get the milk and the bread. I`m not sure I get the third one. But at any rate, there are retailers that benefit.
WALSH: Well, you know, actually, what I find is for the most part it`s a wash, because they`ll get the benefit certainly ahead of the storm but they have a lot of extra costs in terms of making sure they stay in stock, making sure they have enough people to be able to support it. The operations generally at headquarters are going 24/7.
So, there`s a lot of costs ahead of the storm. Obviously, when the storm is hitting, it hits a smaller geography, so the worst areas that will be hit for this storm will be D.C., Philadelphia, maybe New York.
But when the storm ends, that business will all come back. So it tends to be a wash.
MATHISEN: All right. Paul Walsh, thanks very much, with the Weather Company.
WALSH: Thank you.
HERERA: With a potentially historic blizzard bearing down on much of the East Coast, plows will be at a premium. In fact, one company is banking on it, offering homeowners snow removal service with just a few taps of a button.
And as Diana Olick reports, business is growing.
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DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just after a foot of snow fell on Syracuse this week, plow driver Jeff Deline (ph) got on this app to pick up his next job.
UNIDENTIFIED MALE: This is a job that I accepted. It shows the driveway size, three to five cars.
OLICK: Deline is using plows and mows, an app that like Uber delivers a plow to your door in less than an hour.
WILLS MAHONEY, PLOWZ & MOWZ CO-FOUNDER: We set out to develop this company actually after my mom of all people, you know, was stuck in her driveway and couldn`t get out.
How are we doing with the providers right now?
OLICK: Thirty-three-year-old co-founder Wills Mahoney says the app makes it easy for both homeowners and drivers to streamline service and payment. It is now in 30 markets, including Chicago, Cleveland, and Boston.
Mahoney says he has angel funding and is raising more to expand the app`s reach.
MAHONEY: Once the job goes out, it gets dispatched to the closest provider. So these guys are already going on their own route, and they`re picking up jobs, you know, right within their existing route. They`re basically getting money they never would have had before, and we pay them within 24 hours.
OLICK: Last winter when Syracuse was slow and Boston was buried, Jeff Deline sent five trucks east. And with the help of Plowz and Mowz made over $15,000.
JEFF DELINE, J&R LAWNS & LANDSCAPES: It really wouldn`t have been feasible to actually travel there and do that based on the amount of work we would have had to do to gain customers over there.
OLICK: The app isn`t available yet in D.C. Mahoney says he hasn`t signed on enough drivers to ensure quick service. But with a huge winter storm bearing down on the city, we called a local snow plow company yesterday just to inquire. They said they couldn`t guarantee any service before Monday.
So far, the service really only works for residential plowing. Commercial requires much more equipment and bigger contracts. Critics say the app takes away that personal connection where a driver really knows the property. But Mahoney counters that the app also allows customers to upload pictures and instructions.
MAHONEY: We know the model works, and we really want to scale up and really blow this company, you know, out of the water.
OLICK: Or at least out of the snow.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
(END VIDEOTAPE)
HERERA: To read more about on-demand snow removal head to our website, NBR.com.
MATHISEN: And before we go here`s another look at the day and the week on Wall Street. The blue chip index gained 210 you points today. NASDAQ up 119 and the S&P tacked on 37.
For the week, all of the major indexes for a change were higher. The NASDAQ with the biggest gain of more than 2 percent.
HERERA: All right. Stay warm.
I think the generator companies might do well.
MATHISEN: They will do well.
HERERA: That does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for watching.
MATHISEN: And I`m Tyler Mathisen. Thanks for watching me as well. Have a great weekend, everybody. And we will see you here, plowed out, on Monday.
END
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