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The Friday Five

Fri, 3 May 2013

Five stats from the market and the stories behind them. This week: content kings, patent cliffs, and 30,000 head to Omaha.

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Video Transcript

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to the Friday Five, five stats from the market and the stories behind them. Joining me, as always, with the Friday Five is Morningstar markets editor, Jeremy Glaser.

Jeremy, thanks for joining me.

Jeremy Glaser: You're welcome, Jason.

Stipp: So what do you have for the Friday Five this week?

Glaser: We're going to look at $4 billion, 8%, 38%, $85 billion, and finally 30,000.

Stipp: $4 billion is the size of sales that CBS had in the first quarter. This was a record quarter for them, and it shows that content is actually doing pretty well.

Glaser: Content is king. CBS had a great quarter. Time Warner had a strong quarter with their cable networks. Comcast, which owns NBC Universal, that segment, their cable networks, had a strong quarter. This is a continuation of a trend that we've seen a very robust market for high-quality TV and movie content and that consumers are still willing to kind of pay up for those big cable bills. We haven't seen so much cord-cutting, that the content providers haven't been able to get paid for what people actually want to watch. I think that's been an interesting trend there.

If you look at the trouble that the music industry had kind of making that transition as things started to go online. TV seems to be handling it a little bit better so far. There, obviously, are disruptive technologies that come in there, but for the most part, at least this quarter, the content was doing very well.

Stipp: On the flip side, 8% refers to the drop in operational sales at Pfizer. This is the so-called patent cliff that we've been expecting.

Glaser: You're right that this weakness that we've seen in Pfizer is not a huge surprise. A lot of their big branded drugs now are subject to generic competition. As consumers trade down to those cheaper drugs, that's going to hurt their sales. But for long-term investors in Pfizer, the real questions are: Is that pipeline big enough? Will they have enough new drugs or new potential blockbuster drugs coming down the line that they'll be able to replace those sales and bring the firm back to growth?

[Morningstar analyst] Damien Conover, who covers Pfizer, thinks that the answer to that question is yes. He sees a lot of candidates that are either in late-stage trials or that are just coming to market that have the potential to be really big sellers for them. He doesn't expect to see Pfizer all of a sudden growing like a rocket ship, but he thinks they could see some pretty solid growth in the years to come, potentially starting in 2014. Then investors with that focus need to look to there, and not worry about some short-term weakness. Shares look about fairly valued right now. But if this is the kind of company, if there is a pullback, it could look interesting.

Stipp: 38% is the rise in revenue at Facebook. Their engagement metrics and other metrics are looking pretty good.

Glaser: Facebook had a great quarter. Right now, a lot of analysts, including our Rick Summer, are focused on if Facebook is able to keep their users engaged and then sell ads to them. In this quarter they were able to show that they could do both. They now have 60% of their users visiting every day. That number is higher in the U.S. and Canada, and they're trying to sell more ads, almost a 50% increase in ads, as there are ads coming up through the news reed and other areas that previously advertisers didn't have access to. Facebook is able to charge more for those. There is better engagement there, and advertisers have been, it seems so far, happy with those. Facebook is a story that's going to be told over an extremely long time. After a runup in the stock, their shares don't look supremely attractive right now. But if there is another weak quarter and there is a pullback, Facebook could be an interesting wide-moat holding.

Stipp: $85 billion is the amount of the monthly Fed bond buying. We got some news this week from the Federal Open Market Committee which released its statement, and that number could go up, could go down. It depends. There is some flexibility now.

Glaser: The flexibility was the big story. There wasn't a lot of other surprises there. They said there was a moderate rate of expansion, that inflation remains very much under control--if anything, it's almost too low. They see some deflationary pressures there and that employment remains under a lot of pressure. But they did say that that bond buying that they're doing until unemployment gets under 6.5%, could go up or down. That's not just totally set in stone. They're going to look at economic indicators, and if things look like they are getting worse, if fiscal policy doesn't become more helpful they mentioned, they could increase that bond buying. They could decrease it if things are starting to get a little bit better. I think that flexibility kind of shows that this isn't an all-or-nothing proposition. It maybe give us a little bit of a sense of what their exit policy might be, and shows that the Fed is really in this for the long run.

Stipp: 30,000 is the possible number of folks who might be descending on Omaha, Neb., this weekend for the annual Berkshire Hathaway shareholders meeting, the so-called Woodstock for capitalists. You will be there, Jeremy. What are you going to look for?

Glaser: We're going to be there. I think that the meeting often doesn't have any enormous surprises. Buffett really is, if anything, extremely consistent. So I think we're going to hear the same discussion of buy-and-hold investing, how to find these great businesses. But I think there will be a few key issues that we hope to see raised. The first one is on the dividend, maybe some more discussion about that. Buffett spent a lot of his annual letter this year describing why he doesn't pay dividend, why he thinks it would be better for shareholders who want income just to sell some of their shares and use that money versus him paying out that dividend. But it still doesn't eliminate the fact that he is sitting on a huge pile of cash, and though he's found a few deals here and there, he hasn't been able to find that elephant that he's been looking for, and that could be a big topic of conversation.

Also who's going to succeed him in the CEO role, I think, will also be something that people will talk about. He's said that they've identified a candidate. We don't know who that is yet. And as other parts of the plan come together, with Ted Weschler and Todd Combs running some of the investment portfolio, with the potential of his son, Howard Buffett, taking over the chairmanship or potentially Bill Gates taking over the chairmanship. The CEO is really the big question right now. I think a lot of investors will feel better knowing who was going to step into those shoes and be able to actually run all these operating businesses.

Stipp: Five more stats, five interesting stories. Jeremy, thanks for joining us, and will look forward to your coverage this weekend.

Glaser: You're welcome, Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.

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