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John Toohey
VP of Equity Investments
USAA
Scott Shellady, CME
Michael Binger, Gradient Investments, Senior Portfolio Manager
Fox Business Network
April 27, 2015
04:00 pm ET
7 minutes 39 seconds
David Asman
Liz Claman
David Asman
And before we get today's market action, we are of course waiting for Apple earnings straight ahead. The world's
largest company expected to report EPS of $2.16 and revenue of 56.08 billion dollars. What a big number that is.
Investors are going to be focused on some key numbers of course, including the iPhone sales. Analysts are
expecting sales of 60 million units. You've heard some lower numbers, but people say if it's above 60 it's a home
run for Apple. While it won't play into this quarter's earnings, of course analysts are also watching for any
comments on sales of the Apple watch. So far of course there are advance orders and any opportunity to put more
cash to work in the form of buy backs. The whisper number for buy backs, get this, 150 billion dollars worth. That
has to be some kind of record. The stock is up 20 percent year-to-date.
Liz Claman
But we had some volatile market action. As we just told you, we have Gradient Investment's Mike Binger. Mike is
here to tell you how to profit from the markets even if they end flat this year. USAA Investment's John Toohey here
to tell you which market indicator you should be watching to see when the market has maybe topped out. And Scott
Shellady in the pits of the CME. Scott, David was just mentioning a question about how the GDP number might be
revised. We had the Atlanta Fed a couple of weeks ago saying it would be zero, then it was up maybe one-tenth of a
percent, but could it be so bad that we see some shrinkage here?
Scott Shellady
We could actually see some shrinkage, and I think that the ten year has been telling you that. It hasn't really moved
since the last Fed meeting. We've been between, say, 15 basis points, 186 to 199 or around that level. I think that
it's almost foolish of the Feds talking about raising rates in an environment where we keep lowering growth,
lowering GDP, lowering everything else out there. All of the numbers have been coming across worse than
expected. Although I'd love to see a great reason to raise rates and everything would be busier and our economy
would be doing better, I just think it is going to be very difficult in this environment when we keep having things
like GDP lowered to raise the rates right now.
David Asman
All right. Michael Binger, I get depressed when I think about the GDP and the rates and what the Fed is, and it is
just so depressing. Let's talk about something exciting, that's the Apple numbers. The Apple numbers are coming
up any moment now. Now, you had Apple for a long time, you invested wisely in Apple when it was much lower in
cost, but you sold a lot of it, or correct me if I'm wrong, perhaps all of it in February. Why?
Michael Binger
We sold all of it in February right around these levels here. You know, I think investors forget that just two years
ago Apple was a dead company on a pre-split basis. The stock was $400, the iPhone 5 was a dud. Tim Cook could
never possibly replace Steve Jobs, and believe it or not Samsung was out innovating Apple. Well, we flash forward
now and the iPhone 6 was huge. Tim Cook has done a masterful job and the stock has gone from essentially $400 to
$925. It's more than doubled in two years. So I love Apple. It pained us to sell it, but when I look forward we're
going to have the two biggest iPhone 6 selling seasons behind us and I think there's going to be a little bit of a lull in
the growth here. I think the iPhone 7 will not be nearly as impactful as the iPhone 6. I just think the risk-reward is
not tilted as much in our favor. Who else is gonna buy this stock? Everyone owns it right now anyway. So we just
took it off the table, and hopefully we'll get a better buy point later. I love the company, I just don't think the stock
is that great right now.
Liz Claman
Michael is disciplined, right? John, tough to be disciplined but there are some signals that are coming through in the
markets, and that is a lot of company that have missed on revenue. You've been watching the revenue picture and
looking at exactly how that plays out. How do you think we then move our portfolios for the rest of the year?
John Toohey
Well, we're looking very closely at revenue growth, Liz, because we think this will be a big indicator as to where we
are in the bull market. If revenues pick up, we think we're still in middle innings, there's room to run. If revenues
are decelerating, which we've seen a little bit of early in earning season, that would be a sign of caution that we're in
later innings. But what we're looking for are companies that have strong, free cash flow and can use them for
dividend increases, buy backs, M&A, and companies that have revenue growth from both volume and pricing
power. An example of that would be the cruise lines.
Liz Claman
And particularly Carnival. You like Carnival and Norwegian, so you're picking two here for people.
John Toohey
We're picking two. A rising tide lifts all boats. We like Carnival because it's had a tough couple of years with a
couple of disasters, but it's also got a lot of capital spending behind it. So it's free cash flows are going to pick up.
And Norwegian is cheap, and with its recent acquisition or prestige we think there's a lot of synergy opportunities.
David Asman
All right. Well, a rising tide, by the way, the pun was not lost on us.
Liz Claman
I loved it.
David Asman
But, Scott, I've got to go back to that, the question whether the tide is rising. And, again, I don't want to depress our
viewers and all, but if you have a negative GDP rate you won't have growth in revenues and you won't have profits
higher, right?
Scott Shellady
Right, and we're having a hard time beating a lot of the earnings that we've had as of late, and they have been
lowered to all-time lows. So I'm not really bullish on the economy just yet, and let's just face facts here. We need to
have true growth. Just true growth. Not manufactured central bank growth. And does anybody see real true growth
coming around the corner? And I think we've got a study out that says investor's level of neutrality in the stock
market is at and all-time high. And a lot of folks would try to take that as bullish. I'm taking that as that they're very
cautious as to what might be coming around the corner. We're not having the growth here. You've seen some good
stock increases in Europe but that's because of the QE. What's next for the U.S.?
Liz Claman
Yeah, we're going to talk more about that precise metric you just gave about how more people are feeling very mad
about investing, but, Michael, you don't. You actually have some picks. You feel that Dow Chemical and Control4
Corporation are places to put your money. Kind of couldn't be further than Apple, but, you know, tell us why you
like these sort of old school industrial names.
Michael Binger
Yeah, well, you know, I agree with the other guests. I think the markets are in a real stalemate right now. We have
a forecast for kind of a flattish year. There's just equal number of positive elements and negative elements in the
market. With that said, we still have to try and make money, we still need to invest. So Dow, I love the cash flow
picture there. Dow is changing from this historically kind of stodgy chemical company, very cyclical industry, into
they're trying to transform themselves into a higher margin company. The recent sale of their chlorine business is
part of that process. They just had a great quarter, margins did indeed improve. If oil stabilizes here and rises,
that's going to be another positive here. I think the transformation is working. They're doing a lot of spending now
for growth in the future, which means cash flow to shareholders in the future.
David Asman
Michael, by the way
Michael Binger
Control4 is a
David Asman
Let me just push back for a second here.
Michael Binger
Sure, yeah.
David Asman
Because if you're for cash flow companies, I imagine you missed out on Amazon's huge jump, didn't you? Because
they're still operating at a loss.
Michael Binger
They are. You know, we don't own Amazon, you can't own them all, but I do like cash flow stories because I think
dividends in a flat year are very important. So a company like Dow, I mean it has a 3.3 percent dividend yield.
That's important in a 0 to 5 percent type of year.
Liz Claman
Good to see all of you, Michael Binger, John Toohey and Scott Shellady. Again, those Apple numbers are just
minutes away…
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