Transcript: Friday, November 15, 2013

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you in part by —


BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Win streak. The Dow and S&P hit records, rising for six straight weeks. And with rates expected to stay lower for longer, our higher yielding stocks. The dividend payers set out to perform.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Cutting the quota. The government proposes cutting back on the amount of ethanol in gasoline — handing a victory to oil companies and potentially consumers. But the move comes at a cost.

GRIFFETH: And market monitor. Our guest tonight has two energy plays that he says are must own stocks.

All that and more tonight on NIGHTLY BUSINESS REPORT for this Friday, November the 15th.

And we say good evening, everybody. I`m Bill Griffeth. Tyler Mathisen is off tonight.

GHARIB: And I`m Susie Gharib. Good evening from me, as well.

Big round numbers and new records on Wall Street today. The Dow is near the 16,000 level for the first time ever. And the S&P 500 index just points away from 1,800, a new milestone. And the NASDAQ, 4,000 just around the corner, a level not seen since 2000.

Those are new records for the Dow and S&P, and both averages have posted gains for six weeks in a row.

Also closing at new highs, the Dow Transports and S&P Midcap 400 Stock Index.

So, here`s a rundown of the closing numbers today. The Dow jumped to
85 points, the NASDAQ added 13. That`s a new fresh 13-year high and the S&P rose 7 1/2 points.

Seema Mody has more on the recent bull run-up, which stock sectors are making the biggest gains, and why high dividends really matter to investors.


Stocks have been on fire this year. One of the big reasons, the Feds monetary policy.

And with Fed nominee Janet Yellen`s dovish commentary yesterday —

JANET YELLEN, FEDERAL RESERVE CHAIR NOMINEE: We expect to maintain a highly accommodative monitory policy for sometime to come.

MODY: — expectations are rates will stay lower for longer and experts say that`s a boon for stocks.

JOHN LONSKI, MOODY`S CAPITAL MARKETS CHIEF ECONOMIST: Strike equities owes much to low interest rates, Fed funds may be close to zero percent until the middle of 2015, bold yields running higher. I don`t think the equity market will come under pressure for significantly higher interest rates anytime soon.

MODY (on camera): Historically speaking, in a low rate environments, high dividend yielding stocks do out perform as investors are on the hunt for yield. Health care and consumer staples, two sectors that offer the highest yield are up over 80 percent since 2008. And while consumer staples and health care stocks are already up double digits this year, analysts say some of the stocks in these sectors are trading at an attractive evaluation.

(voice-over): Within pharma, Pfizer (NYSE:PFE) trading at a discount to its peers, and in the consumer staple sector, Altria and Wal-Mart (NYSE:WMT). But some say these defensive sectors are overvalued and technology is the place to be. In fact, many of the large cap tech giants offer an attractive dividend yield. Apple (NASDAQ:AAPL) and Qualcomm
(NASDAQ:QCOM) both offer a dividend yield above 2 percent.

Although Dan Greenhouse at BTIG says with the yield on the 10-year Treasury rising, investors are becoming more selective and looking for names that offer a yield higher than the yield on the 10-year note.

According to Wisdom Tree, fewer than a third of stocks on the S&P 500 have a dividend yield above 2.7 percent, which is a yield on the 10-year treasury. Big names in that group, AT&T (NYSE:T), Entergy (NYSE:ETR), and PG&E.

But whether it`s the defensive sectors like healthcare and consumer staples, or high growth sectors like tech, one theory experts agree on, dividend stocks will be high in demand as long as interest rates remain low.



GRIFFETH: And joining us now to talk more about the financial markets and what it means for your portfolio is Darrell Cronk. He`s regional chief investment officer at Wells Fargo (NYSE:WFC) Private Bank.

Darrell, thanks for joining us tonight.

DARRELL CRONK, WELLS FARGO PRIVATE BANK: Thank you, Bill. Great to be here.

GRIFFETH: Are there any headwinds that could stop this? We had six straight up weeks now. We`ve been through the tough months of September and October with great gains. Where is the weakness in this market?

CRONK: Yes, I`m not sure you`re going to see a lot of it. I mean, we only have 30 trading days left in calendar year 2013. So, I think we`ll start to look forward into 2014, Bill. And as we look into 2014, I think the environment sets up really nicely for overall economic growth and some decent earnings growth in 2014.

So, I`m not sure there are a lot of headwinds. Valuations are reasonable both on the absolute basis. And certainly on a relative basis to your earlier point and the earlier segment where interest rates are and also don`t forget cheap inflation or low inflation at today`s levels.

GHARIB: Darrell, I`d like to follow up on the report that we just had from Seema where she is talking about, you know, the Fed`s — the Fed friendly market. But at some point, the Fed is going to cut back on the stimulus.

CRONK: Right.

GHARIB: What are the companies that do you think will be the growth winners in that environment? And do you agree with some of stocks that Seema was talking about?

CRONK: Yes. Actually, I think as you turn the page into 2014, what we`re really focused is you`ve got to think in terms of what I call growth winners versus liquidity winners. So, what I mean by that is sectors of the economy that are going to stand on their own two feet on growth and not necessarily be dependent on the excess liquidity in the market.

So, I would give you, Susie, a couple sectors. We like the tech sector. Certainly evaluations, the tech sector is trading at a discount to the market multiple today and it normally traded about 20 percent premium.

So, extremely cheap and actually technology companies as a sector have more cash on their balance sheet today than they do debt. They have low payout ratios so favorable.

We also like the industrial sector. That tends to be a sector that benefits mid-cycle to late cycle, and you`re seeing the U.S. manufacturing renaissance really play through. So, those are growth winning sectors.

You know, liquidity winning sectors are going to be things like utilities and telecom and maybe to a lesser extent health care, that we think evaluations are getting stretched there right now to be honest.

GRIFFETH: What about — well, you mentioned utilities but dividend players, I mean, those that have been helping people achieve a yield you can`t get in the bond market and they have been a darling of this market for a couple years. Is that too crowded a trade, or would you look to them, as well right now?

CRONK: No, we`ve actually got most of those, Bill, underway right now. So, again, if you look at utilities, telecom, probably the two staples to a lesser extent. We think do staples will benefit to the wealth effect to the consumer and continuing spending but those pure dividend plays look really expensive to us right now.

So what you can`t get away from them completely and important to have a diversified dividend in the portfolio, we think they look expensive.

The only other point I`d add to that, Bill, is we`re looking globally and internationally to dividends right now. If you look at a lot of countries overseas, their actual dividend rates are considerably higher than the U.S. and you get better diversification benefits as well, and in some cases, a much more reasonable evaluation level.

So, investors have to look global as well as domestic in staying with domestic S&P sectors.

GRIFFETH: Darrell Cronk of Wells Fargo (NYSE:WFC) Private Bank — thanks for joining us tonight, Darrell.

CRONK: Thanks, Bill. Appreciate it.

GHARIB: Some big changes may be coming to your gas tank but also, it could mean higher prices at the grocery store. Vowing to pressure from the oil industry, the Environmental Protection Agency is proposing a sharp reduction in the amount of ethanol which is mostly made from corn in the nation`s fuel supply.

Jackie DeAngelis has more on what that could mean to energy company`s corn farmers and consumers.


JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The EPA proposing for the first time today to ease and lessen the requirements for ethanol in gasoline. This is quite significant because the agency for the first time acknowledging the fact the mandate requirement set in 2007 may be difficult or potentially impossible to meet. The EPA asking refiners to blend 15 billion gallons of renewable fuel into U.S. gas supplies. That`s roughly 16 percent less than what Congress` 2007 renewable fuel law requires.

The impact of this on the markets — well, corn futures were immediately lower on the news. That`s because ethanol comes from corn and this proposal would reduce corn demand. In this addition, the refiner spiking on this because it brings their cost down and, finally, if it`s cheaper for the refiners, it means it`s cheaper at the pump and, thus, gasoline futures also seeing a decline.

Some other implications to consider here: ethanol demand is dropping off a bit because of the recent surge in domestic oil and gas supplies. In addition, demand for transportation fuel also dropping. That makes ethanol less appealing.

Finally, using corn in ethanol makes the corn price more expensive.
This, of course, makes it tough for ranchers out there to use corn to feed animals.



GRIFFETH: Elsewhere, JPMorgan (NYSE:JPM) Chase, of course, the nation`s largest bank, they have agreed to a $4.5 billion settlement with investors over bad mortgage-backed securities the company sold ahead of the financial crisis. The same group of 21 institutional investors already received an $8.5 billion settlement from Bank of America (NYSE:BAC) on similar claims.

GHARIB: A clear legislative rebuke to the troubled health care law today. The Republican-controlled House passed a bill aimed at undermining the Affordable Care Act, voting to let insurance companies review canceled plans and sell individual health plans to anyone, even if they don`t meet coverage requirements in the new law. Thirty-nine Democrats broke rank supporting the so-called Keep Your Health Plan Act. It goes to the Democratic-led Senate where it`s expected to fail.

GRIFFETH: And, of course, all of this comes as President Obama met with top health care insurance CEOs today at the White House, trying to drum up support for his latest fix to the troubled law.

And, of course, all of this comes as President Obama met with top health care insurance CEOs today at the White House, trying to drum up support for his latest fix to the troubled law. He urged those companies to reinstate thousands of policies that were canceled and he enlisted their help to get the problem-plagued Web site back on track as well.

The president spoke before the meeting about the need to reach out to those executives.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I appreciate all these folks coming in. We`re going to be soliciting ideas from them. So, this is going to be a collaborative process. We want to make sure that we get this done so that in the years to come, every American is going to have the kind of affordable health care that they all deserve.


GRIFFETH: Well, John Harwood joins us once again from Washington tonight. Of course, we`d all love to know what was said in that meeting after the president spoke.

But, really, John, what happens next at this point?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, the most important thing that happens next is the effort between now and November 30th of the administration to meet it`s pledge to get that Web site functioning smoothly. They reported some progress so far, and it was interesting that in the outside of the meeting, including the bite you played, Bill, the president may clear his agenda, wasn`t just about the fix which may be a dubious impact in the long run. We don`t know how many people will be affected by that.

But enlisting those executives to help work around where necessary, the problems with the Web site, communicate with customers get people signed up because the thing that`s ultimately going to determine the success or failure of this law is whether they can get a critical mass of people to sign up under the exchanges, under the new pricing structure that has left the old one behind, which is why you`re not going to see that many policies get extended into 2015. If they get that working, get people to see the choices that they have, then the law has got a shot to succeed.

GHARIB: John, you mentioned that November 30th deadline. I don`t know if that`s still going to stick. Maybe you don`t know, either. But there have been so many deadlines and they keep changing.

Which are realistic that they`re going to stick and which ones won`t?

HARWOOD: Well, the reason that November 30th is so important is that in order for people to be covered on January 1, there are a lot of policies that expire at the end of 2013, you`ve got to be able to sign up by December 15th and pay a premium. So, November 30th gives you two weeks after that for that to happen.

Now, the pattern that we`ve seen, every company sees when they have open enrollment is it tends to come in a flood at the end. So, if it`s not right at the end, you`re going to have real problems heading into January.

Beyond that, you have a deadline of March 31st. That`s the end of the open enrollment period. That`s the last point in which people can sign up and be deemed to be covered under the individual mandate.

GHARIB: How much you want to bet the deadlines change next week and you`ll be telling us all about it?

Thanks so much, John — John Harwood reporting from Washington.

And still ahead on the program, Sony (NYSE:SNE) releases the first update to its Sony (NYSE:SNE) PlayStation game console in seven years, and it could hold the key to the struggling electronic company`s future.


GRIFFETH: Sales of video game players were lower again last year.
The NPD Group which tracks the sale of gaming hardware and software said the sales of consoles last month fell by 8 percent compared to October of 2012, but the sales of games themselves shot 12 percent higher this past year, thanks to some must-have titles like “Grand Theft Auto V” and “Pokemon X&Y”.

GHARIB: Well, sales of game consoles are expected to pick up sharply very soon, ands that`s because two of the biggest manufacturers of game players are putting out brand-new systems just as the holiday shopping season kicks into high year.

And as Josh Lipton tells us, the newest console from Sony (NYSE:SNE) just out today is off to a terrific start.



JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): From New York to San Francisco, hard core gamers lined up outside of stores for one of the most anticipated launches in years.

UNIDENTIFIED MALE: Yes, we`ve been waiting for awhile for this. This is a big deal.

CROWD: Three, two, one.


LIPTON: Midnight on Friday, Sony (NYSE:SNE) officially launched the PlayStation 4 in the U.S. The first shot in the upcoming video game wars, Microsoft (NASDAQ:MSFT) is expected to release the Xbox One next week which will be Sony`s biggest competition in the battle for hard core gamers.

And with analysts pegging the global console markets at around $10 billion, it`s a battle that neither side wants to lose.

(on camera): So, how do these two consoles stack up?

Well, the features are actually pretty similar, but here`s the big difference, the PS4 will retail for about $100 less. Sony (NYSE:SNE) is hoping that`s going to give it the competitive edge it needs to beat out its rival.

UNIDENTIFIED MALE: In terms of overall numbers, we`re planning on selling 5 million units worldwide by the end of our financial year, end of the March, and that`s significantly ahead of where we were with the last generation of PlayStation 3.

LIPTON (voice-over): Morgan Stanley (NASDAQ:NBXH) (NYSE:MS) forecasting similar numbers, with expectations for Sony (NYSE:SNE) to sell around 3 million units by the end of the year. In any way you slice it, Sony (NYSE:SNE) has held a pretty dominant lead in terms of hardware units shipped to retailers this year. Analysts Sony (NYSE:SNE) has a lot riding on the launch.

LEWIS WARD, IDC RESEARCH DIRECTOR, GAMING: I think Sony (NYSE:SNE), you know, if it wants to get back to make it`s own predictions for where it will be in a couple years in terms of profitability, the PS4 platform has to succeed.

LIPTON: Sony (NYSE:SNE), once seen as the premiere name in consumer electronics has lost its luster. The stock is down nearly 50 percent over the past decade, with companies like Samsung and Apple (NASDAQ:AAPL) now dominating the space. But this year, shares have bounced back tacking on about 65 percent since January. Goals, like the team at Morgan Stanley
(NASDAQ:NBXH) (NYSE:MS), pin their hopes on faster restructuring of the company especially with the PC and TV segments.

And a strong showing from the PS4 could go a long way in helping Sony
(NYSE:SNE) win back consumers.

Josh Lipton for NIGHTLY BUSINESS REPORT, San Francisco.


GRIFFETH: Elsewhere, one week after Twitter`s successful initial public stock offering, options on shares of the micro blogging site began trading today but shares of Twitter ended 1.5 percent lower after an analyst downgraded it at S&P Capital IQ. They noted that all the money the company has been spending lately to expand their business.

GHARIB: Joseph A. Bank is pulling its bid to buy Men`s Warehouse.
And that`s where we begin tonight`s market focus. Now, Joseph A. Bank`s
$2.3 billion unsolicited proposal to acquire its larger rival Men`s Warehouse expired yesterday. Now, although Men`s Warehouse never entertained that bid, Joseph A. Bank said it would be open to future talks.

Shares of the retailer were up on the news. Men`s Warehouse rose 1 percent to $46.63. Joseph A. Bank up a fraction to $50.72.

General Electric (NYSE:GE) plans to spin off its credit card business next year as a separate public company. The move would take G.E. out of retail lending in North America in an effort to make less money from the volatile financial sector and more from manufacturing. The stock rose a fraction today to $27.20.

GRIFFETH: Agilent Technologies (NYSE:A) climbed to multi-year highs after reporting strong fourth quarter earnings. The scientific instrument maker beat on both the top and bottom lines but guidance missed Wall Street`s estimates. Weak guidance did not weigh on shares, though. The stock surged by more than 8.5 percent, closed at $54.93.

And investors bought up shares of Zulily, and the company`s Wall Street debut. That discount retail site that targets moms priced shares above an increased range around $22 and shares took off, ending the day up more than 71 percent, closed at $37.70.

GHARIB: Our market monitor guest tonight is bullish on stocks but says investors should prepare for stocks to pull back in these last trading days of the year. He`s Peter Sorrentino, senior portfolio manager at Huntington Asset Advisers.

So, Peter, it sounds like a little bit of good news, bad news.

Tell us how much of a pull back you`re expecting over these next couple of weeks. And then how do things look for 2014?

Well, thank you, Susie.

We really look for a rotation in leadership. As you pointed out in an earlier segment, the value dividend paying segment had a great run the past couple years and with softening commodity prices, we think we`re going to see rotation leadership and that will lead to a combination with the tax selling that occurs at this time of year. Some weakness in the leadership, as we get new leaders emerging.

Again, in an earlier segment you talked about technology and we think those are will see cash flow and the ones we want to be in in the next year. But in that transition, we think it`s less than 5 percent, but we do see some potential weaknesses, portfolios get repositioned and investors take advantage of whatever tax opportunities they have in their portfolios.

GRIFFETH: The biggest pullback we`ve seen all year. We`ve had a few
5 percent pullbacks. But it`s been forever it seems when we last had a typical 10 percent correction in this market. You still don`t see that in the offering, either, do you?

SORRENTINO: We don`t. Really, with the softening of commodity prices, especially on the back of the news today from the ethanol rebate, if you will, back to the markets, we don`t see commodity prices threatening any time soon. Interest rates are effectively a reflection of inflection pressure. With that taken off the table and clear understanding on what will happen with fed policy, we don`t see much of a threat to the market in here, and the data we`ve been getting coming out of the private sector in terms of the economy looks pretty good and looks to be picking up some momentum. So —

GHARIB: All right.

SORRENTINO: — we think the economy holds together.

GHARIB: All right. Peter, let`s go down some of the stocks that you are recommending.


GHARIB: You were talking about tech a moment ago. And you have EMC
(NYSE:EMC) on the top of your list. Pretty much the stock is trading at the same level it was at the beginning of the year. Why do you like this and where do you see it going?

SORRENTINO: Again, this is a growth name and it`s one that investor really have been passing by, doesn`t offer a big dividend, no big buybacks, no special activity. But looking at their suite of products, especially in the area of data storage, disaster recovery, this is a kind of name that as business expands, this is a necessary going forward. And there is a lot of regulation going out now with regard to businesses and their ability to come back from a disaster, and when we see the security issues, data today coming out that the auctions exchange board had a problem.

So, we think security and disaster recovery become big themes and EMC
(NYSE:EMC) is really well-positioned to take advantage of that.

GRIFFETH: You like natural gas, the fact that you`re thinking we`re going to see much higher prices down the road and a company you think will benefit is Schlumberger (NYSE:SLB), why?

SORRENTINO: Well, because prices collapsed so much in the last couple of years, we really saw North American drilling activity fall off dramatically. We view that that`s going to come back very strongly.
They`ve had good success outside the U.S., outside North America, and we think that they`ll continue and we like Schlumberger (NYSE:SLB), very high quality, strong balance sheet and their products really speak well to the type of activity that we think you`re going to see in the North American drilling environment in the year, or couple years ahead, really.

GHARIB: All right. Let`s talk a little bit about another stock, sort of in the energy area, Chicago Bridge and Iron, CBI is the ticker there.
Stock almost has doubled. It`s about $80 now.

What`s your target on this? And what`s the attraction?

SORRENTINO: Well, this is a name that — it`s industrial and a lot of people think of it as one you would probably want to avoid after the run it`s had. But the natural gas story as it comes back in North America and we move from especially being domestic consumption to an exporter of natural gas, Chicago Bridge and Iron has a huge technology footprint in both liquification and gasification of natural gas. They benefit not only from the projects in the North American market but those around the globe.

So, as natural gas continues to expand in replacement fuel for electricity generation, we think Chicago Bridge and Iron is really just in the right place to benefit from it.

GHARIB: OK, terrific. Any disclosures, Peter?

SORRENTINO: I do not own names personally. We do own them in the funds and we own less than 5 percent.

GHARIB: OK. Great, thank you so much. Have a great weekend. Thanks for coming on the program.

SORRENTINO: Thank you.

GHARIB: Peter Sorrentino, senior portfolio manager at Huntington Asset Advisors.

GRIFFETH: And coming up, will falling gasoline prices and rising stock market put consumers in a spending mood this holiday season?


GRIFFETH: So do you plan to do any shopping on Thanksgiving? How about Black Friday, the day after, or the rest of that holiday weekend? A new survey out today from the National Retail Federation showed that up to
140 million Americans plan to hit the stores over that long Thanksgiving weekend, that`s actually down a bit from last year but more shoppers than ever are planning to head out on Thanksgiving Day itself this year.

GHARIB: You better get going. Christmas is just now 39 days away and many consumers are already figuring where they`re going to shop and how much they were willing to spend. So, will the current economic environment be naughty to shoppers and retailers this year, resulting in disappointing spending or will it be nice, giving the whole economy a lift?

Courtney Reagan takes a look.


Each holiday season comes with its own set of broader economic issues that often impact consumers` budgets for gift-giving, and this season is no different. Higher payroll taxes, lack of confidence in Washington lawmakers and higher health care costs are cutting into budgets, adding the hit to confidence from continued uneasiness of the job market and sluggishness growth and the naughty list looks fit for a Grinch.

But then again competition for consumer dollars is so intense, that retailers are offering some of the best promotions in years, and online shopping options have grown in number and ease. Plus, home values are rising. The stock market continues to hit fresh highs, weather trends are favorable and holiday shopping season gas prices are the lowest levels in four years, that all makes the nice list, quite jolly.

(on camera): Historically, when gas prices fall this time of year, consumers shift those savings to their holiday gift buying, but it doesn`t seem to be the case this time around.

(voice-over): According to a new Gallup survey, the more than 1,000 consumers surveyed reduce their forecast for spending on Christmas gifts to an average $704, $82 below the October prediction and $66 below holiday shopping intentions this time last year.

MATTHEW SHAY, NATIONAL RETAIL FEDERATION CEO: The economic headwinds are still tough, and we expect it`s going to be a very promotional but a very solid holiday season.

REAGAN: While retailers have issued mix forecast about the holiday season, many at least say sales and traffic have been improving. Wal-Mart
(NYSE:WMT) U.S. CEO Bill Simon told reporters various headwinds and tailwinds in the marketplace, many of which we haven`t seen in combination before, make consumer shopping intentions hard to forecast. But there is always a chance for a Christmas miracle.



GHARIB: So, are you going to do online shopping?

GRIFFETH: Mostly online shopping and I`m not one that goes out on Thanksgiving either.

GHARIB: Me, either.

GRIFFETH: You`ll be tired, you`re making dinner this year.

GHARIB: Sixteen people, lots of pumpkin pie.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks for watching.

Great being with you, Bill.

GRIFFETH: Always enjoy being here. I`m Bill Griffeth. Have a great weekend, everybody. See you Monday.


Nightly Business Report transcripts and video are available on-line post broadcast at The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 CNBC, Inc.

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