Positive Outlook On Investment Banks from Kramer

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Two tech titans out with two different earnings stories after the closing bell today. Intel (NASDAQ: INTC) posted strong results and Apple (NASDAQ: AAPL) surprised investors with a rare earnings miss. This was Apple’s first miss since 2004. After back-to-back record quarters, Apple (NASDAQ: AAPL) posted results below analyst estimates. Here are the numbers. It earned $7.05 a share. Analysts were counting on $7.39. Revenues also came in lower than expected, $28 billion — about a billion and a half below estimates. The problem here, a drop in iPhone sales as buyers waited for the new model that was launched just last week. Investors dropped the stock in after hours trading. Shares tumbled almost, more than 6 percent to $396. In the regular session, Apple (NASDAQ: AAPL) closed at a record high of $422.24.

Investors were buying up Intel (NASDAQ: INTC) in after hours trading on its powerful profit picture. Shares were up as much as 5 percent. The chip maker earned $0.65 a share, $0.04 more than analysts thought. Revenues also on the high side, surged 30 percent to more than $14 billion. It’s the first time quarterly revenues have topped $14 billion. Intel (NASDAQ: INTC) Chief Financial Officer Stacy Smith says there were two factors driving that growth.

STACY SMITH, CFO, INTEL: We saw double-digit unit growth in PCs and notebooks were, you know, quite strong. And the other side is, you have all of these devices that are computing and connecting to the Internet — PCs, tablets and phones. They’re driving a build out of the server infrastructure to support all of those devices and we’re uniquely positioned to benefit from that trend. Our data center group revenue was up 15 percent.

GHARIB: While tech companies dominated after hours, investors focused on the financials earlier in the day and Goldman Sachs was in the spotlight. The giant investment banking firm reported a quarterly loss. This is its second ever loss since going public 12 years ago. Here are the numbers. Goldman lost $0.84 in the third quarter. Analysts were expecting a smaller $0.16. Revenues tumbled 60 percent to $3.6 billion, also missing estimates. CEO Lloyd Blankfein blamed the quarterly loss on difficult market conditions and the lack of confidence among investors and corporate clients.

For more on Goldman’s dismal quarter and the outlook for the stock, let’s turn now to tonight’s “Street Critique” with Hilary Kramer of gamechangerstocks.com. So Hilary, you have always liked Goldman. You raved about it in our program many times. How do you feel about it now?

HILARY KRAMER, EDITOR, GAMECHANGERSTOCKS.COM: I still love Goldman Sachs and I’m more optimist than ever. It’s just that now I think investors are finally seeing it my way.

GHARIB: How is that? What do you mean?

KRAMER: Goldman Sachs trades at a huge discount to tangible book value. Basically it’s under valued vis a vis the rest of the Street. Think about it. Financials have just gotten so badly hurt. Goldman Sachs just like all the other investment banks tend to see most of their mergers and acquisition revenue in the fourth quarter, which we are in now. And there’s a backlog of deals that Goldman Sachs has. So analysts, once they digested the news today about Goldman Sachs $393 million loss, figured out that the fourth quarter is going to be an excellent, blowout quarter, especially if underwritings come back, Susie. A very interesting fact is that 500 companies are waiting to go public and as soon as you see an opening, banks like Goldman Sachs are going to be able to start to bring them public again.

GHARIB: So are you saying you are buying Goldman today? Also, where do you see the target? Here’s a company that the stock is trading at $175 in January. What’s your target on it?

KRAMER: I believe that Goldman could certainly get back above $200. It just could be a two-year process to get there. But don’t be surprised if it moves very quickly right now more towards the $150 level where it was in the early spring.

GHARIB: Let’s talk a little bit about Morgan Stanley (NYSE: MS). That’s another one of your favorites among the financials and it’s reporting earnings tomorrow. What are you expecting and what’s your view on the stock?

KRAMER: Morgan Stanley (NASDAQ: NBXH) (NYSE: MS) is going to deliver news the same way. There might be some disappointment with trading revenue or just like in the case of Goldman Sachs, private equity transactions. They have to be written down, but Morgan Stanley (NASDAQ: NBXH) (NYSE: MS) should surprise to the upside. The stock was up 9 percent today during the day and that’s a reflection of what everyone is expecting to hear, some really positive guidance as we’re in this fourth quarter and all these big mergers are in the process of happening.

GHARIB: Now I know you haven’t been a fan of big banks, but Citi yesterday reported some solid numbers, better than expected numbers. Its stock was up sharply today. Any change of heart on Citi?

KRAMER: No, I think the same way about Citi, but if I had to choose, it’s still the investment banks. It’s Goldman Sachs (NYSE: GS), Morgan Stanley (NASDAQ: NBXH) (NYSE: MS), the one that make these large margins on these big transactions and underwriting revenue. It’s a lot tougher, even though I do love Citigroup (NYSE: C) and JPMorgan, the mortgages are a hang over. So that will take time. But Citigroup (NYSE: C) is especially appealing because of their international expansion (INAUDIBLE) CEO is executing so well in places like India and China.

GHARIB: We have to talk about Apple (NASDAQ: AAPL). Now the numbers were very disappointing as we just reported at the top of the program. You sold your shares of Apple (NASDAQ: AAPL) not so long ago. But first, give us your reaction about those Apple (NASDAQ: AAPL) numbers.

KRAMER: Apple’s numbers weren’t surprising to me at all. They still were excellent. Sales are up 39 percent and the expectation is for $38 billion in sales in the next quarter, but the problem with Apple (NASDAQ: AAPL) is that at a certain point, growth just has to slow down to some extent. The Street’s reaction to this, they just got spoiled and. There’s this herd mentality. And as soon as a growth stock starts to stall out, you’ll see this sellout start to take place. My single worry is when it’s the bottom line and not the top line is the problem. This could be (ph) the sales that were the issue. I’m expecting a problem when the margins start becoming a problem because of competition from others.

GHARIB: Real quickly, are you a buyer of Apple (NASDAQ: AAPL) at $396?

KRAMER: No. I’d wait. Even though it’s not an expensive stock, Susie, I’d wait for it to get cheaper before buying.

GHARIB: Before we wrap up, just real quickly, what’s your sense of the tone of the markets? We have these triple digit gains one day, yesterday triple digit losses. What’s your take on the markets right now?

KRAMER: There’s a lot of concern out there about Europe and there’s a lot of knee jerk reactions going on, but much of the problem has to do with ETF trading and a lot of the programming trading and that’s what causes this whip sawing. And that upsets investors and other investors. Some of it is just technical in nature, but I think the whole world is waiting for Sunday, Susie when 27 leaders in Europe get together and decide the fate of Greece and Europe.

GHARIB: We’re seeing a lot of wild trading recently. Before we go, Hilary, any disclosures on these stocks that we discussed today?

KRAMER: Yes. I own Morgan Stanley (NASDAQ: NBXH) (NYSE: MS) and I own Goldman Sachs. I do not own Apple (NASDAQ: AAPL), as you know.

GHARIB: Thank you so much, Hilary, great talking to you as always.

KRAMER: Thank you, Susie.

GHARIB: And we’ve been speaking with Hilary Kramer of gamechangerstocks.com.

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