Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to the Friday Five.
Last week on the Friday Five, it was all Europe all the time, and although news out of the Continent is still dominating headlines, believe it or not, it's not the only game in town. Here with me to offer five stories that don't have to do with Europe this week is Morningstar Markets editor, Jeremy Glaser.
Jeremy, thanks for joining me.
Jeremy Glaser: Jason, you're very welcome.
Stipp: So, what you have for the Friday Five this week?
Glaser: We're going to talk about Cisco, General Motors, about Barnes & Noble, department stores, and finally reasonable economic news.
Stipp: So on Wednesday the market was down across the board, but one stock offered a little bit of a bright spot in the afternoon; it was Cisco, who reported earnings that were better than expectations. What's the story there?
Glaser: Cisco's been struggling a lot recently. They moved into a lot of weird noncore businesses, things like the Flip video camera and getting into consumer routers. And over the past couple of quarters they've really been focusing on retrenching on their core businesses and trying to turn the business around. And I think we saw this quarter that that's really starting to pay dividends. They really had results that blew away expectations, and profitability looked pretty good, and they gave an outlook that was much rosier than we've seen from them in a long time.
So, it sounds like all of those difficult restructuring steps that they are taking are actually working well for them, which is good news to hear for Cisco on its own, but also for the broader tech industry. In the broader economy, it shows that people in the enterprise space are still spending money on new equipment, are still willing to invest, which shows they have some confidence that there is going to be growth going forward. It was nice to see some good corporate results from them.
Stipp: General Motors also reported this week. They had some pretty good results. This is a stock that our analyst has been pretty positive on for a while. What's the story with GM?
Glaser: This is another company that had really great results, results that were much better than expectations, and the stock actually sold off on the news, because of just everything that was going on in Europe this week, which I know we said we weren't going to talk about. But certainly, GM really is doing well. After they came out of bankruptcy and restructured, they were able to cut so many costs that they are able to be profitable, even selling far fewer cars than they were before the crisis hit.
The auto industry as a whole is still selling many fewer cars than they were. The seasonally adjusted sales rate is still no where near that 16 million a year that we think is a normalized base. So, as we move from 12 million a year now to 16 million, I think there is going to be a lot of room for GM and for other auto companies to grow. But GM looks really well-positioned, and it was just good to see confirmation again of that this quarter.
Stipp: In consumer-related news, Barnes & Noble is going to be launching a new Nook Tablet device. This could set up for an interesting Christmas/holiday season--which device will win? What's your take on that?
Glaser: It seems like the tablet space is going to have a lot more competition this Christmas than we may have thought just a few months ago. Obviously the iPad is out there, they are the big behemoth in the room. But there has been a lot of growing interest in the Amazon Fire, which we've talked about before, and now Barnes & Noble's entry into the marketplace with their Nook Tablet. I think it shows that consumers are actually pretty interested in finding a tablet that maybe is priced a little bit less than Apple's iPad, even if it is smaller or has some fewer capabilities.
I think that some reports have already shown that the interest in the Fire is really sky-high, and that it could even outsell the iPad through the holiday period, which at the $199 price point is much easier to do. But still, I think it just shows that this marketplace is very immature, and it's going to take a long time before we know exactly who are the big winners, who are the big losers in the tablet space. So, it might ... be a little bit premature to say, OK, Apple's absolutely got this one totally locked up, and we could just move on and worry about the next category. There is going to be fierce competition for those holiday dollars in this space.
Stipp: Speaking of the holidays, retailers are obviously front end center when it comes to any discussion of the holiday shopping season. They also reported, several of them, this week. What were the results there?
Glaser: We got some nice department store earnings. Both Macy's and Kohl's reported results that were better than expected and show that consumers are really out there still spending. With all this backdrop of terrible news coming from across the globe, with all this talk about political gridlock everywhere, people are still going to Macy's and buying that new coat. People are still going to Kohl's and making those purchases.
I think that's a good sign that the economy has not completed cratered, and that people aren't just going back into their homes, locking the doors and counting every single penny and saving every single penny. I think that as we look into the fourth quarter, and look at where growth is going to be there, and also into 2012, the good results at the departments stores bode well, right now for the holiday season and beyond.
Stipp: So, lastly Jeremy, economic data that came out this week despite all the problems in Europe actually didn't look that bad. What does the recent data say about where we're going in this country?
Glaser: Again the world is not completely collapsing, and particularly the United States economy. Job openings expanded to one of the highest levels in a very long time. Initial unemployment claims, which are seen as a leading indicator of what's going to happen with employment, have continued to decrease even as economists sometimes expect they are going to tick up a little bit. ... We saw that exports continued to expand, that American manufacturers and other exported goods are becoming more competitive across the world. I think all of this is good news for the economy.
It doesn't mean that we are going to see incredible, robust growth, or that we're going to all of a sudden bounce back in a minute and be at 4.5% unemployment, but it shows that, again, the economy is still growing. It might be slow, but we're still in an expansion, and I think that's certainly good news.
Stipp: Well, Jeremy as much as I'd like to permanently put Europe on a do-not-discuss list, I don't want to make any promises that you can't keep. But thanks anyway for the reprieve this week.
Glaser: You're very welcome, Jason.
Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.