Transcript: Friday, August 29, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and
Susie Gharib.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: August ascent. The S&P
500 turns in its best monthly performance since February. But could
September`s jump-packed calendar send stocks in a different direction?

The doctor is in — at Wal-Mart (NYSE:WMT). The world`s largest
retailer is making an aggressive push into primary care health services and
could change the system as we know it.

And market monitor. Why small caps are the big shots in this market.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Friday, August 29th.

Good evening, everyone. Tyler is off tonight.

Forget about those dog days of summer on Wall Street. The major
averages just wrapped up a blowout month of August, one of the best this
year, capping four straight weeks of gains despite low trading volume,
struggling economies in Europe and deepening troubles in Ukraine and the
Middle East.

On this final trading day of the month, the Dow added almost 19
points, the NASDAQ rose 22, and S&P up 6 1/2 points, closing at a new
record of 2,003. And, by the way, tomorrow will be the 2000th calendar day
since the bull market began on March 9th of 2009.

And what a month August has been for Wall Street. The Dow is up more
than 3 percent, the NASDAQ posted a gain of 4.8 percent and the S&P higher
by more than 3 1/2 percent. Only February posted higher gains for those
big indexes.

So, why do the markets keep rising in spite of the headline risks?
And what are investors looking forward to in September?

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Despite turmoil in
the Mideast and Ukraine, the market remains at an uptrend. Now why are
stocks rising and what could derail the rally?

First and most importantly, the market is up because of continuing low
interest rates. Secondly, these low commodity prices like oil. Third,
it`s a slowly improving economy. Fourth, we have record earnings. And,
finally, the U.S. is still the best place to put money.

Next, what could derail the rally? Other than a significant global
crisis, there is two red flags. First is a rapid rise in rates like above
expectation economic numbers or a change in the Fed outlook. Secondly, a
significant profit margin deterioration. We`re at record high profit
margins right now, but higher commodity prices or higher labor costs could
compress earnings. Corporations would have to raise prices then. That`s
very difficult right now.

For now, barring a global crisis, most market watchers say the uptrend
will likely continue.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock
Exchange.

(END VIDEOTAPE)

GHARIB: Patricia Edwards believes the markets will go higher through
the end of the ear and she just raised her target for the S&P 500 index to
2060. She`s managing director of investment at U.S. Bank Wealth
Management.

Patty, that`s a pretty bullish forecast. If you`re right, that would
mean that the S&P 500 for the year of 2014 would be up 11 1/2 percent.
What`s going to drive stocks, according to your to forecast?

PATRICIA EDWARDS, U.S. BANK WEALTH MANAGEMENT: Well, we think we`re
in a goldilocks economy. It`s neither too hot nor too cold. We think that
the Fed is still behind us in providing liquidity and when you wrap all
those things together, plus the earnings growth that we`re seeing, which
was 10 1/2 percent year over year, we`re thinking that things are still
going to continue to fumble along. Not, you know, off to the races but
still continue to fumble along.

GHARIB: What do you do? How do you weigh in a headline like we saw
today about that terror alert in the U.K., up against some good economic
news? I mean, what goes through your investment strategy when you come in
in the morning?

EDWARDS: Well, the headline out of the U.K. was certainly startling
but you can`t plan for events that we just don`t know are going to happen.
And so, you really have to look at the fundamentals underlying the market
first and foremost and if you look at the fundamentals, we`re not
overvalued, we do have the earnings growth. We do have strong cash on
balance sheets. There is a lot of good things going on. And absent and
absolute event, you know, some tragic event happening, you have the look at
those fundamentals and investing.

GHARIB: It sounds like you pretty much agree with the package we just
had with Bob Pisani in terms of what could derail the rally, right?

EDWARDS: Yes, we do. Our target of 2060 is just through the end of
the year. Right about this time of year as everyone coming back from the
Hamptons, you start to look out toward the end of 2015 and that gives us
even a little bit more wind in our sails —

GHARIB: Well, let`s talk about a near term event on the calendar,
September. I mean, people are coming back and looking at their portfolios
and we know that historically, September has been a very nasty month for
the markets. So many people have been calling for a correction. Do you
see like a 10 percent correction or more in the month of September? How
feasible is that?

EDWARDS: You know, anything can happen, and so, we would not want to
go on record and say there`s absolutely no way. But that being said, you
know, once again, it`s the fundamentals, it`s looking at — the market
loving to climb along (INAUDIBLE). People have been calling for a 10
percent correction for a lot of days now and it hasn`t happened yesterday.

We think that you could actually go in and buy any of the dips and we
think that consumers will continue to do that. There`s not a lot of money
flowing into equity mutual funds. We`re not near a blow off top and
trading at 17 times this year`s earnings. That`s very normal given the
amount of cash on the balance sheet.

GHARIB: Also next week, we have a lot of fresh economic data
including the job`s report. European central bankers are meeting on
Thursday. We`re going to have a lot of new information for investors to
review. How will that play out in the market?

EDWARDS: Well, certainly, the numbers on employment are crucial and
we would like to see that number continue to be above 200,000 new jobs
being added. That being said, what`s going to push the consumer to spend
more is not going to be new jobs. It`s going to be greater income.

So that requires the economy to pick up and requires more than just
new jobs. It requires better jobs.

GHARIB: All right. Patty, thank you so much for coming on the
program. Have a great weekend.

EDWARDS: Thank you.

GHARIB: Patricia Edwards at U.S. Bank Wealth Management.

Speaking of spending, a bit of a setback for the economic recovery.
Consumer spending in July fell for the first time in six months. Household
spending fell 1/10th of 1 percent from the month before, with an unexpected
dip in auto sales, getting some blame for that decline.

With consumers pulling back on spending last month, how did that
impact retailer earnings and what`s the outlook for consumer spending for
the rest of the year?

Sara Eisen reports.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Challenging, that was a commonly used word by executives in corporate
American this earnings season when it came to describing the state of the
U.S. consumer.

MARK BUTHMAN, CFO, KIMBERLY-CLARK: Given recent results and the
challenging macro-economic environment, we now expect that our full year
equity income will be down compared to last year in our original
expectations for this year.

RICHARD OREILING: Low and middle consumers are continuing to
struggle. They have changed the buying habits. While our customer always
finds a way to work through difficult times, she is struggling to overcome
the sustained nature of the headwind she is facing. As we move through the
second half of the year, we will begin to lap headwinds that have weighed
on our core customer.

EISEN: Even Macy`s (NYSE:M), which has been holding up better than
most retailers had this to say about the current state of spending: “Our
outlook for the fall season reflects our confident optimism tempered by the
reality that many consumers still are feeling the impact of an economic
environment that at best is improving very gradually.”

The pessimism may help explained today`s data, showing household
spending dropped in July for the first time since January, calling into
question whether the economy can sustain the post winter momentum and
growth.

MICHAEL JEFFRIES, CHMN & CEO, ABERCROMBIE & FITCH: While we continue
to operate in the challenging environment, we`re pleased that we were able
to exceed both our earnings expectations coming into the quarter and prior
years earnings, as we continue to manage expenses tightly.

EISEN (on camera): Despite the gloom, there are some reasons to be
optimistic going forward. Consumer confidence has been rising. In fact,
at multi-year highs right now. The price of gasoline this labor day
weekend, the cheapest since 2010.

And generally, comments from CEOs about back-to-school fall shopping
season have been upbeat. It`s going to be the key question facing the U.S.
economy, 70 percent of which is dominated by consumer spending.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.

(END VIDEOTAPE)

GHARIB: It doesn`t look like consumers had been opening their wallets
at Toys R Us, the nation`s largest toy store chain posted a wider than
expected loss in the just completed second quarter. Sales actually rose
but deep discounting took a big tool on the retailer`s bottom line, as it
cleared out store shelves ahead of the big holiday shopping season.

Low income borrowers looking to buy a new home might be getting some
help from Uncle Sam. The Federal Housing Finance Agency which overseas
Fannie Mae and Freddie Mac wants the two firms to provide more support to
struggling borrowers taking mortgages and refinancing current loans.

Well, some of those same store, same low income Americans can now turn
to the nation`s largest retailer for primary health care visits. Wal-Mart
(NYSE:WMT) is testing in-store health clinics for the uninsured, charging a
flat fee. Will it work and will it force other providers to change the way
they provide care and how much do they charge?

Bertha Coombs has the story.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Wal-Mart (NYSE:WMT) launched its newest health clinic with a marching band
and fanfare. The retailer is looking to change the game in retail health,
offering more services at a lower cost than its rivals.

JENNIFER LAPERRE, WAL-MART U.S. SR. DIR. HEALTH AND WELLNESS: Price
matters to our customers and our associates. So, the Wal-Mart (NYSE:WMT)
care clinic is really about establishing that new price point.

COOMBS: At a anytime when more workers face higher out-of-pocket
costs, Wal-Mart`s clinics offer expanded services in stores such as
physicals and wellness checkups face-to-face with nurse practitioners for a
total of $40, far less than a typical doctors` visit. For its employees,
it`s just 4 bucks.

LAPERRE: At $4 and $40, significant disruption in the industry.

COOMBS (on camera): While it`s only a pilot program for now, analysts
say if Wal-Mart (NYSE:WMT) can make this level of pricing work, it will
pose a big challenge not just other retail clinics but to other providers –
– doctors and hospitals.

CHRISTOPHER KERNS, ADVISOR BOARD COMPANY: They are a real
opportunity. They are a real threat in many different places and if
providers don`t respond accordingly, they could see many of their most
profitable channels disrupted.

COOMBS: Wal-Mart (NYSE:WMT) is facing its own higher health cost as
more of its associates are now enrolling its health plan, in the wake of
the Affordable Care Act. That plays a big part in the retailer`s clinic
equation.

NEIL TRAUTWEIN, NATIONAL RETAIL FEDERATION: That`s a pretty good way
to handle that added enrollment and first time health coverage consumers.

COOMBS: And it doesn`t hurt that once they are all in the clinics,
they will likely shop in the store.

Bertha Coombs, NIGHTLY BUSINESS REPORT, Carrollton, Georgia.

(END VIDEOTAPE)

GHARIB: And you can read more about Wal-Mart`s big push into primary
care on our Web site, NBR.com.

Still ahead on the program, what is the new way to get to the head of
the class in school? The smart money says high-tech tutoring.

(MUSIC)

GHARIB: The U.S. treasury secretary will finally speak out about so-
called “corporate tax inversions”. Jack Lew is planning a speech on
September 8th where he could offer a hint to the administration`s efforts
to tackle the problem of American companies reincorporating overseas in
order to avoid paying higher U.S. taxes.

The corporate drone wars are heating up just weeks after Amazon
(NASDAQ:AMZN) announced plans to use unmanned aircraft to deliver goods.
Google (NASDAQ:GOOG) now says its developing a drone system to deliver
packages to customers and it`s testing them right now in Australia.

A different kind of testing is just around the corner as millions of
kids head back to school. That means a lot of parents are thinking about
getting their children some extra tutoring help, and thanks to some high
tech new tools, that business is taking off.

Julia Boorstin has our story.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tutoring is a
$7 billion annual business in the U.S. alone. And thanks to new
technology, virtually connecting students to tutors online, more students
can access better customized help 24/7. Revolution prep with $15 million a
year in online revenue is growing at 75 percent a year.

JAKE NEUBERG, REVOLUTION PREP: We have a platform that is very
similar to Skype. It`s two-way webcam. They have a shared white board.
The curriculum is embedded right there into technologies.

BOORSTIN: Now, a range of Internet and education giants are jumping
into tech-enabled tutoring, making acquisitions and investments to bolster
the sector that`s poised for disruption. This summer, Barry Diller`s IAC
bought Princeton Review combined with tutor.com, which connects students to
3,000 tutors in 40 subjects. Digital tech book company Chegg bought online
tutoring center InstaEDU for 30 million, education publisher Pearson
snapped up Tutor Vista, and Graham Holdings is pushing more of Kaplan`s
test prep tutoring business online.

Meanwhile, startups ranging from WyzAnt and Varsity Tutors tech
platforms for finding in-person tutors to revolutions online offerings are
growing fast by offering the power of a personal connection.

NEUBERG: One to two hours per week of private tutoring on top of that
can make a dramatic difference if a student being a 3.0 student to 4.0
student. So, it`s a great ROI.

BOORSTIN: And venture investors see the potential for technology to
disrupt education. They poured over $420 million into 53 education
startups in the first half of the year on track to set a record for the
sector.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

GHARIB: A lot of those students might be looking to get a new tablet
computer this school year and they`ll have lots to choose from. That`s one
reason why research firm IDC just cut in half its outlook on global tablet
sales growth this year to 6.5 percent, citing soft demand in Europe and
here in the U.S.

Apple (NASDAQ:AAPL) is reportedly working on a system that could
change the way you pay for everything from coffee to shoes, and that`s
where we begin tonight`s “Market Focus”.

The tech giant is collaborating with Dutch chip maker NXP on
technology to enable pay-to-touch in the next iPhone. This technology
allows a smartphone to communicate wirelessly with other devices by tapping
them together. Just yesterday, Apple (NASDAQ:AAPL) announced an event
scheduled for September 9th where it`s expected to reveal the new iPhone.

Shares of Apple (NASDAQ:AAPL) were up slightly to $102.50. That`s a
new record. NXP added 2 percent to $68.52.

Big Lots (NYSE:BIG) reported earnings that came in better than
expected as the company posted higher sales. But the discount retailer`s
revenue was below estimates and the same was true for its same-store sales.
The chain did raise the lower end of its yearly earnings forecast. Still,
shares fell nearly 2 percent to $46.35.

Some promising drug news lifted shares of AstraZeneca. The company
moved a key immune disease treatment into a mid-stage study, heightening
hope for its success. The drug is designed to help the body`s immune
system ward off tumors. The stock moved up more than 2 percent to $76.01.

BioCryst Pharma also higher after it announced plans to initiate a
study of its Ebola drug on primates. And it`s received an additional $2.4
million in government funding for the test. Shares were up more than 2
percent to $13.50.

Tesla and Chinese phone carrier are teaming up to build 400 charging
stations for electric cars in the Asian nation. The move is an effort to
push sales in the world`s biggest auto market. Tesla`s shares closed at an
all-time high today, $269.70, a gain of more than 2 percent.

And 10 bucks could buy you a piece of Kraft (NYSE:KFT) Foods. The
company is offering up to 1.5 million shares of its stock as part of its
new social stock plan. The food giant is partnering with Loyal3
Securities, which allows investors to purchase fractional shares in the
company. Kraft (NYSE:KFT) shares edged up a fraction to $58.85.

Our market monitor guest says this is the ideal time for investors to
buy small cap stocks. He`s Craig Hodges, co-portfolio manager of the
Hodge`s small cap fund, which is up 8 percent so far this year.

Craig, nice to have you back on the program.

CRAIG HODGES, THE HODGES SMALL CAP FUND CO-PORTFOLIO MANAGER: Thanks,
Susie. Glad to be on.

GHARIB: You know, you probably hear this all the time because you
managed a small cap fund, so many strategist tell individual investors —
put your money in large stock caps. They are adorable. They are safe,
especially in times that are uncertain.

You`re obviously doing pretty well with your small cap portfolio.
Make the case about why investors should buy small caps.

HODGES: You know, I think in a portfolio, everybody needs some small
caps. You know, there is a lot of advantage to small caps.

You know, the one thing is they are entrepreneurial in nature. You
know, sometimes smaller companies are a lot more nimble. But the main
thing — the main reasons that we like them is, you know, there is not that
geopolitical risk that everyone is afraid of right now. They also — you
know, they also have a lot of advantages with just their size. It`s easy
to grow a company from $1 billion to $2 billion than $1 billion to $20
billion.

And, of course, in this slow growth environment that we`re in, you
know, big companies need new growth avenues and, of course, by getting
buyouts, buying small and mid-sized companies, larger companies can grow.

Last year, we had about six companies out of our portfolio, the Hodges
small cap portfolio bought out. This year, we`ve already had about five.
So, there is a lot of reasons to own small caps.

GHARIB: You make a lot of good points. Let`s look at some of the
stock that you`re recommending that fit those data points.

The first one on your list is Kapstone Paper and Packaging, the ticker
symbol is KS. It trades on the New York Stock Exchange at $30. Why do you
like this particular one?

HODGES: Well, Kapstone is an interesting company. It`s the
corrugated paper and it`s like a lot stocks in our portfolio. We love
industries that have high barriers. There is not much competition. A lot
of their competition has gone away. You know, there`s been a lot of
consolidation in that industry and no one is going to go out and build new
virgin paper mills. It`s just — nobody wants that in their backyard.

So, with less competition and when demand comes back and the economy
comes back, you`re going to see these guys` earnings go up pretty
significantly and their margins go up, as well. So, we think it`s kind of
a small name that`s probably a good acquisition candidate out there. So —

GHARIB: It`s trading at $30 now. Where do you see the target over
the next year, year and a half?

HODGES: You know, we — I think — I think next year or the year
after next, they could earn around $3 a share. So, on $3 earnings, the
stock could trade in the mid $40s, because it will have at least that
growth rate. So, it`s got a lot here.

GHARIB: Let`s talk about your next one. Shoe Carnival (NASDAQ:SCVL)
(NYSE:CCL), ticker symbol SCVL. It trades on the NASDAQ around $20. The
stock has been falling recently, picking up a little bit as you see here
though.

HODGES: Yes.

GHARIB: Tell us what the attraction is here.

HODGES: Well, it`s a name we`ve been involved with for awhile and
it`s been a little bit disappointing. But they are getting to a stage.

You know, I filled up my car yesterday and it`s about $30 less to fill
my car up than it was say a year ago. I think this fall everyone is going
to have a little extra money in there. So, I think some of these very
hated, unloved retail stocks have some opportunities, low expectations.

Shoe Carnival (NASDAQ:SCVL) (NYSE:CCL) is in the family shoe channel.
They have 380 stores. We think they could take that to 700 stores over the
next several years. But it`s one that`s been disappointing, trades low
price, we feel like, and we think it`s got probably 10, 12 points of upside
over the next year, year and a half.

GHARIB: OK. And the last one on your list, Matador Resources. This
trades also on the NYSE. MTDR is the ticker symbol. It`s trading at 27
bucks.

HODGES: Yes, Matador, great management. They are in the energy
business. It`s an E&P company, and they are in the Permian Basin and the
Eagle Ford Shale, both in Texas.

But this is a very well-run company we think over the next several
years is going to be able to make a really nice sum of money just from
their expertise in the shale drilling and there is oil — as oil prices I
think will continue to be elevated, they are making great rates of return
on each one of these wells and they`ve got several, several, you know,
opportunities to continue to do well in this shale business, and I think
it`s an undiscovered company that`s really under appreciated. And, you
know, I think it`s the company over two or three years could go up
significantly.

GHARIB: All right. Well, a lot of these are off the beaten track,
really interesting list of stocks. Thank you so much, Craig.

Craig Hodges —

HODGES: My pleasure, Susie.

GHARIB: — with Hodges Small Cap Fund.

And coming up on the program, playing dirty is taking on a whole new
meaning. We`re going inside the big business and big risk of Spartan
races. That`s coming up.

(MUSIC)

GHARIB: And finally tonight, a new and very different type of sport
is gaining popularity and a lot of interest from corporate sponsors. But
as Morgan Brennan shows us, these growling obstacle course races may be too
tough for some athletes and a bit risky for some companies.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Put the other hand there. There you go. See?

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
When participants sign up for a Spartan race, they face these obstacles.
Plus, spear-throwing and mud stretching on for miles, designed to push even
the best athletes to their limit.

Spartan race is part of a growing fitness craze called obstacle course
racing. It`s the fastest growing sport in the U.S., with more
participating in these races than marathons and half marathons combined.
In 2009, an estimated 50,000 crossed the finish line. Last year, 3
million.

JOE DESENA, SPARTAN RACE: I think it`s primal. I think deep down
inside, we`re all wired to climb, crawl, swim. And now, with social media,
you can share that experience. So, I think people get out of their
cubicles, out of their house, off their coach, they do it, it feels great,
they share friends and it`s gone globally viral.

BRENNAN (on camera): The sports` exclusive popularity has caught the
attention of corporate sponsors and the media giants. In the Spartan race,
Reebok has become a title sponsor and NBC Sports has begun broadcasting its
races. And the sports` newly formed governing body is lobbying to get
obstacle course racing made into an Olympic sport.

JONATHAN AGES, BLOOD, SWEAT & CHEERS CEO: About five years ago,
brands really weren`t paying attention to this fitness space, and they have
awoken to see there are more than 4 million people that did color runs and
mud runs last year. And this trend is continuing to grow. So, I think
it`s likely we`re going to see more and more brands enter this space.

BRENNAN (voice-over): Spartan`s competitors in this space include
Tough Mudder and Warrior Dash. All three are expanding rapidly and inking
deals with sponsors. Not just the race company.

DESENA: Cottage industries are being built around the sport. For
instance, we created a shoe with Rebook, certain kinds of ropes are being
created, certain gyms are being created, all kinds of training equipment
and gear and clothing are being created with companies like Reebok. And
again, it shows that this is not a fad. This is here to stay.

BRENNAN: But a number of risks faced this fast-growing phenomenon,
injuries, even deaths have been reported at some races, causing critics to
call for better safety regulations. And some have questioned whether the
sport is reaching saturation. As more companies pop up to cater to what
might be a limited number of people willing to scale walls, flip tires and
climb ropes.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

GHARIB: Looks like fun.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks
so much for watching. Have a great weekend and we`ll see you back here on
Monday for a special Labor Day broadcast.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. 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) 2014 CNBC, Inc.

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