Transcript: Nightly Business Report – September 22, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue
Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: On the move. Health care
stocks had a wild day after Senator John McCain dealt a blow to the
Republican-led repeal bill.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Bad week. Apple
(NASDAQ:AAPL) has its worst week in almost a year and a half, just as the
newest model of its flagship product hits stores.

HERERA: Taste test. Would you eat a burger created in a lab? Silicon
Valley is betting you will.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
September 22nd.

Good evening, everyone. I`m Sue Herera.

GRIFFETH: And I`m Bill Griffeth, in tonight for Tyler Mathisen, coming to
you this evening from the New York Stock Exchange.

In fact, here on Wall Street, there was drama in the health care sector
today. That group was the worst performing sector in the S&P 500, on
growing uncertainty over the Republican-led health care bill, as Senate GOP
leaders were looking to nail down final votes on their effort to repeal the
Affordable Care Act. UnitedHealth was a big drag on the blue chip Dow
index as a result today.

But then just after midday came that statement from Senator John McCain
that he would vote no on the measure. That followed reports that fellow
Republican Senator Susan Collins is leaning against the bill.

And with the chance of passage declining, stocks moved. Health insurers
including UnitedHealth pared some of their losses and finished mixed.
Hospital stocks got a lift by the end of the day.

And by the end of trading, the Dow Jones Industrial Average lost just nine
points, well off lows of the session, closing at 22,349. Nasdaq added
four. The S&P was up one today.

HERERA: And then there`s Apple (NASDAQ:AAPL). It had a rough day, capping
off a rough week, its worst in the last year, and its worst product launch
of the week of the iPhone era.

The latest version of the iPhone hits stores today. It appears there was
less fanfare and shorter lines than for previous launches. But some say
that could be due to poor reviews or the yet to be released iPhone X, and
the simple fact that more people are buying online.

But CEO Tim Cook is pleased with the way things are going.

(BEGIN VIDEO CLIP)

TIM COOK, APPLE CEO: I am thrilled. Here`s what we`re seeing right now.
The watch with LTE, the series 3 watch, we are sold out in so many places
around the world. And we`re working really hard to meet demand. We`ve
sold out of iPhone 8 and 8-Plus in some stores. But we`ve got good supply
there.

And so you can see what`s going on here this morning. I couldn`t be
happier.

(END VIDEO CLIP)

HERERA: Investors, though, a little bit less enthused. The stock was
lower today and off about 5 percent for the week.

GRIFFETH: And seeing a move like that in Apple (NASDAQ:AAPL) could make
investors a bit nervous, since many of you own shares outright or through a
mutual fund or retirement account. But is there reason to be concerned?

Joining us tonight to talk about, Piper Jaffray`s senior research analyst,
Mike Olson.

Mike, good to see you again. Welcome back.

MIKE OLSON, PIPER JAFFRAY SENIOR RESEARCH ANALYST: Thank you.

GRIFFETH: You often get a move — a pullback on Apple (NASDAQ:AAPL) shares
when they introduce a new product. Certainly, this was a big move this
time around. Is something else going on?

OLSON: Yes, there`s a couple of things going on. One is definitely the
phenomenon that you`re describing which we call sell the news phenomenon,
after a big announcement. You know, there`s a catalyst here that a lot of
investors were anticipating. And once we get past that catalyst of the
announcement of the new products, you sometimes do get a selloff.

Now, the second thing going on is clearly less hype around iPhone 8. We
think that`s directly tied to more interest in iPhone X. Essentially
what`s happened here is Apple (NASDAQ:AAPL) has stolen their own thunder
with the iPhone 8 with the iPhone X in the staggered launch. So, with that
product coming out in November, we expect to see a shift towards more
iPhone X users.

HERERA: So, if that is the case, we should note that that is a more
expensive product, the iPhone X, would a pullback like this week in Apple
(NASDAQ:AAPL) perhaps be a buying opportunity in anticipation of strong
sales of the X?

OLSON: Exactly right. That`s what we think. And we raised our price
target today, in fact, based on our expectations that, as you mentioned,
the iPhone X being a higher priced product will drive overall pricing
higher which will drive revenue and profitability higher. So, based on all
those factors, we raised our price target today. We do think this pullback
will prove to be a buying opportunity over the long term.

HERERA: But what happens to that iPhone 8 that seems to be getting lost in
the sauce here? It has had rather tepid reviews for being incremental, not
revolutionary, in terms of what`s being offered here. Then you have the
people waiting for the iPhone X.

Was this a mistake for Apple (NASDAQ:AAPL) to introduce these
simultaneously, virtually?

OLSON: Well, I think the issue is really just the lag in the iPhone X
availability. And this is unlike any release we`ve ever seen before for
iPhone. And I think as a result of that, we are going to see a bit of
weakness here for iPhone 8 in the September quarter. So, what we may see a
September quarter not quite as robust as what some investors are hoping
for. But I would say hang on for the December and March quarters because
in general, we should see an improvement, as I mentioned, in iPhone pricing
as the mix shifts more towards iPhone X.

GRIFFETH: Maybe we`ll all have to be patient, I guess.

Michael Olson with Piper Jaffray, thanks for joining us tonight.

OLSON: Thank you.

HERERA: Well, overall, the stock market has basically shown its
resilience, because this week, investors witnessed a war of words between
the U.S. and North Korea like few have seen before. The market was also
tested when the Federal Reserve said it would start to pare back its
stimulus program beginning next month. Despite those concerns, the Dow and
the S&P were both higher on the week.

Bob Pisani takes a closer look at the issues the market is trying to
digest.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s been a choppy
trading week. But the markets still managed to score a string of record
highs.

Three key themes were top of mind for investors this week.

First, North Korea. Geopolitical fears were back on the table as the war
of words between President Donald Trump and North Korean leader Kim Jong-un
heated up. Kim said Trump would, quote, pay dearly for his comments
bashing North Korea at the U.N. earlier this week. And North Korea`s
foreign minister fanned the flames by saying the hermit nation might test a
hydrogen bomb in the Pacific Ocean to teach the U.S. a lesson.

We saw a slight pullback in stocks and a slight uptick in gold. But the
reaction seems to be more muted with each passing threat. Despite the
clear danger, there is some fatigue in the market about all this back and
forth.

The second big them was Puerto Rico, and the aftermath of the hurricanes,
the several hurricanes that have hit the U.S. recently. CarMax (NYSE:KMX),
for example, reported earnings today and said it closed six stores in
Houston for a week after Hurricane Harvey. Hurricane Maria may brush the
east coast of the U.S. in a few days.

Finally, perhaps the biggest single mover of the market was higher interest
rates this week. The Federal Reserve hinted that another rate hike was
just around the corner and the yield on the ten-year hit its highest level
in a month.

The two-year yield soared to a nine-year high. That gave a hefty boost to
the banks, which were among the week`s big winners, but dealt a blow to
utilities and real estate. Those were more defensive names.

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

(END VIDEOTAPE)

GRIFFETH: And maybe no surprise, those rising tensions with North Korea
lifted the defense sector this week. The defense and aerospace ETF itself
rose about 4 percent. But, you know, North Korea isn`t just an issue that
Wall Street is watching. Also, our allies in South Korea are watching.

And Chery Kang is in Seoul for us tonight.

(BEGIN VIDEOTAPE)

CHERY KANG, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some explosive words
going around in New York this week at the U.N. General Assembly. North
Korean Foreign Minister Ri Yong-ho told reporters that North Korea could
test its hydrogen bomb in the Pacific Ocean in an unprecedented level.
Now, this is according to South Korea`s Yonhap news agency.

Now, to put this into context, the Korean foreign minister of North Korea
was asked by reporters about what Kim Jong-un meant by, quote, the highest
level of hard line measure in his statement that came out in his reaction
to the Trump speech at the United Nations earlier in the week. Now, North
Korea`s top diplomat did add that he did not know Kim Jong-un`s exact
thoughts. North Korea conducted six nuclear tests so far, and all of them
have been done out of underground tunnels in its territory.

Now, Kim Jong-un earlier in the day criticized the Trump speech, saying
that it did not help defuse tension in the region, and also added that U.S.
President Trump was, quote, unfit to hold the prerogative of supreme
command of a country.

For NIGHTLY BUSINESS REPORT, I`m Chery Kang in Seoul.

(END VIDEOTAPE)

HERERA: Strong words. And as the rhetoric between the U.S. and North
Korea intensifies, what should investors be watching?

Here to offer some insight is the Eurasia Group`s Asia director, Meredith
(NYSE:MDP) Sumpter.

It`s nice to have you with us, Meredith (NYSE:MDP). Welcome back.

MEREDITH SUMPTER, EURASIA GROUP ASIA DIRECTOR: Thank you for having me.

HERERA: Let`s start — first of all, the rhetoric that we have heard this
week is like nothing we`ve really heard before between the U.S. and North
Korea. But the market has not reacted as vehemently as some thought it
would. What would you be watching in the next move between the U.S. and
North Korea that investors might need to be aware of?

SUMPTER: Sure. Well, certainly, we have seen many different cycles of
escalating rhetoric and tensions between the U.S. and North Korea. And so,
investors are likely watching this cycle for clues as to where things are
likely to head next. I would suggest that investors take a look and see
how U.S. military and national security advisers are speaking to President
Trump about the way to conduct the diplomacy, the maximum pressure
diplomacy campaign, with — to compel Kim Jong-un back to the negotiating
table moving forward.

So, despite the heated rhetoric that you see this week, watch in coming
days for signs from Washington that Washington will double down on its
maximum pressure campaign to try to get North Korea back to talks.

GRIFFETH: Let me ask you a little more, Meredith (NYSE:MDP), about the
market response to this or the lack thereof. A couple of weeks ago, we had
what we called a safety trade, people rushed to gold, they rushed to bonds
and put it to its highest level of the year in terms of price. They rushed
to bonds and put the yields at the lowest levels of the year.

But now, we`ve receded from that safety trade, even as the rhetoric has
ramped up.

What do you make of that? Is that complacency or just a market looking
through all this rhetoric and believing that things will work out?

SUMPTER: I think it`s more so the latter. Washington just came out with
an executive order to increase financial pressure on Pyongyang, fresh
sanctions that is indicative of how Washington will approach this
relationship moving forward. Washington and for that matter Pyongyang,
regardless of the rhetoric that you`re hearing, neither side wants a
military confrontation — in fact far from an it.

And I believe investors are beginning to understand this and watch for
this. So, as long as the U.S. continues to focus on that pressure
campaign, that`s what we could expect the markets do. That`s how we can
expect the markets to respond.

HERERA: You do, however, have a percentage of probability just in case
there is a miscalculation. That`s the real danger, right, that there`s
miscalculation, either on the U.S. side or on North Korea`s side.

SUMPTER: Absolutely. Currently, we`ve placed that probability of a
military confrontation at about 20 percent. That`s precisely because when
you have these situations of heightened tension and when you have threats
that are being thrown back and forth, the risk for miscalculation on one
side or the other is indeed quite high.

HERERA: Meredith (NYSE:MDP), thank you so much. Appreciate —

SUMPTER: Thank you for having me.

HERERA: Appreciate having you with us tonight. Meredith (NYSE:MDP)
Sumpter with the Eurasia Group.

And still ahead, a major city deals the latest blow to Uber.

(MUSIC)

HERERA: Cheap imports of solar panels from China and other countries hurt
American manufacturers, so says the U.S. International Trade Commission.
The commissions has until mid-November to recommend a remedy to the
president. The decision also raised the possibility that the Trump
administration will decide to impose tariffs that could double the price of
solar panels from abroad. Shares of American solar panel maker First Solar
(NASDAQ:FSLR) rose on the news.

MATHISEN: Meanwhile, Uber has been banned in London. The city has deemed
the company unfit to run a taxi service and stripped of its license to
operate — certainly a major setback for a company known as one of the
fastest growing startups.

Gemma Acton reports for us tonight from London.

(BEGIN VIDEOTAPE)

GEMMA ACTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, there`s been a
significant public backlash today in London against this decision to not
renew Uber`s license. Apparently around 3.5 million Londoners use Uber,
which is around half of the population, which explains why the petition has
already signed by around a quarter of a million people.

What people are saying is, look, there isn`t a credible alternative in the
evenings. Yes, there are some night buses, but the underground trains only
run partially. And black cabs are not a credible alternative for
everybody. They`re very expensive. Sometimes they only accept cash. And
there just aren`t enough of them on the streets.

In fact, a lot of the anger here is being directed against black cabs
themselves who have pushed very hard for several years to have Uber banned.

Now, from the official responses, the Conservative Party has said once
again Labour has gone too far and it`s ordinary working people who are
going to pay the price for this decision. They did concede, however, that
there are safety concerns with regards to Uber, and these need to be looked
at, which is exactly what London Mayor Sadiq Khan has said. He really
focused on the safety and security issues when he supported Transport for
London`s decision.

He even said, look, it`s not Transport for London that people should be
annoyed at, it`s Uber themselves for flouting the rules.

Some are asking, why is Sadiq Khan taking on this battle? Some thinks it`s
possibly to further his political ambition, despite his denial in July that
he has ambitions to lead the Labour Party or be prime minister. So, where
this all ends up, it`s not clear. But some are hoping that instead of it
being an outright ban, perhaps in fact what will happen is that Uber will
simply be forced to raise its standards a little in order to keep
operating.

For NIGHTLY BUSINESS REPORT, I`m Gemma Acton in London.

(END VIDEOTAPE)

GRIFFETH: And in fact, in a tweet late today, Uber`s CEO wrote: Dear
London, we are far from perfect, but we have 40,000 licensed drivers and
3.5 million Londoners depending on us. Please work to make this right.

HERERA: Facebook (NASDAQ:FB) bows to investor pressure. That`s where we
begin tonight`s “Market Focus”.

The social media giant has scrapped a proposal that would give CEO Mark
Zuckerberg voting control of the company despite owning few shares. Last
year, investors filed a class action lawsuit to prevent Facebook
(NASDAQ:FB) from issuing a new class of shares, a move investors said would
cause shares to lose billions of dollars in value. Facebook (NASDAQ:FB)
shares fell slightly today to $170.54.

Sales at Finish Line remain under pressure. The athletic footwear retailer
said promotions in the latest quarter caused same store sales profits to
miss the mark. The company said it expects the retail environment to
remain challenging and as a result cut its earnings forecast for the year.
But the company had preannounced earnings and analysts said nothing in
today`s report surprised investors. So, Finish Line`s shares naturally
finished up 5-1/2 percent to $9.73.

Hewlett-Packard (NYSE:HPQ) Enterprises reportedly planning to lay off 5,000
employees, about 10 percent of its global workforce. Bloomberg says the
move is part of an effort to trim costs. Hewlett-Packard (NYSE:HPQ)
employees in the U.S. and abroad are expected to be affected. Shares rose
nearly 3-1/2 percent to $14.26.

GRIFFETH: General Electric (NYSE:GE) is reportedly in talks to sell its
industrial solutions unit to Swiss engineering firm ABB (NYSE:ABB) for as
much as $3 billion. According to Bloomberg, the companies could announce
that deal as early as next week. GE`s shares rose 12 cents today to
$24.87.

And Philips 66 Partners is buying pipelines from parent company Philips 66
for nearly $2.5 billion. That deal will give Philips 66 Partners more
assets in the important Bakken basin. Shares of Philips 66 Partners rose
almost 6 percent to $51.40.

That`s tough to say, Sue.

HERERA: It is. And you did it so well, Bill. It is tough to say. A
little tongue twister there.

All right. Now to our weekly market monitor who says she has three stock
picks that could weather a potential market correction. The last time she
was on in March, she recommended Amgen (NASDAQ:AMGN), which is up 4
percent. Johnson & Johnson (NYSE:JNJ), higher by 6. And Abbott Labs is up
15 percent.

Joining success is Nancy Tengler, chief investment officer at Heartland
Financial.

Welcome back, Nancy. Nice to see you again.

NANCY TENGLER, HEARTLAND FINANCIAL CHIEF INVESTMENT OFFICER: Thanks for
having me, Sue.

HERERA: Let`s get to your picks. Texas Instruments (NYSE:TXN) number one
on the list. Why?

TENGLER: Yes. So, this is a company management team that was very wise
and diversified away from the mobile space into industrial and auto chips.
So, they`re the largest analog chip maker. And in doing so, they lowered
their cost structure, improved their margins, and promised to return 100
percent of free cash flow to the shareholder, which they have done.

Dividends are up 25 percent over the last five years on an annualized
basis. Yesterday, they announced a 24 percent dividend increase and
expectations are for another 20 percent next year. So, total return to the
shareholder has been quite robust and we expect it to continue.

GRIFFETH: Home Depot (NYSE:HD), I mean, this has been sort of the darling
of the home improvement sector. And I wonder, you like this, and I wonder
how much of that is also influenced by the impact of the big hurricanes
we`ve seen recently and the need that the company is going to be able to
fill.

TENGLER: Yes. Well, that`s one of the unfortunate benefits to Home Depot
(NYSE:HD).

GRIFFETH: Yes.

TENGLER: And we still continue to wish our fellow citizens very good luck
in getting things back on track.

But in addition to that, Bill, the company benefits from two things. One
is, I do believe they`re Amazon (NASDAQ:AMZN)-proof, despite the fact that
Amazon (NASDAQ:AMZN) is interested in selling appliances and plans to
online. Home Depot (NYSE:HD) has built up a very fast-growing e-commerce
business. It grew over 20 percent in the first half of this year and 16
percent last year.

But more importantly, the American home stock is aging. Two-thirds of
homes are 30 years or older. Half are 40 years or older. And the average
home improvement cost in that range is about $3,500 a year.

So, Home Depot (NYSE:HD), while it has had a nice run, has a great yield,
has raised its dividend in the 20 percent range over the last five years
and is an extraordinarily well-managed company.

HERERA: Our last pick, XLP. It`s a consumer stable spider ETF, kind of an
insurance policy, you say.

TENGLER: Exactly, against a correction. No one likes that space right
now, because the market keeps going up. And those stocks are just sort of
sitting there.

But if you look back at the last bear market we had, January of `08 to June
of `09, that ETF went down half as much as the market. And over the full
cycle of that bear market, it actually was up 25 percent when the market
was down 2.

So, this is not — if you think the market is going to continue to go up
forever, then this is not necessarily the place you want to be. But if you
think there is room for a correction, these stocks and this ETF in
particular will stabilize with the 2.7 percent yield, and companies that
grow their earnings by 5 percent a year, very stable.

HERERA: Well, it`s always good to have an insurance policy, right?
Thanks, Nancy, have a great weekend.

TENGLER: You too, Sue. Thanks, Bill.

HERERA: Nancy Tengler with Heartland Financials.

GRIFFETH: And I don`t think the market is going up forever, by the way.

Coming up, why Silicon Valley is betting that the future of food starts in
a laboratory.

(MUSIC)

GRIFFETH: California has been one of the fastest growing states in the
nation. But a new study concludes that its momentum may be slowing.
According to beacon economics, the state`s workforce is effectively now at
full employment, which means future job growth and economic gains will be
curbed by the availability of workers.

California, as you may know, is the biggest state economy in the United
States — Sue.

HERERA: Bill, Walmart is taking grocery delivery one step further. It`s
now testing a service that would unpack your groceries and put them away.
The retailer is partnering with a provider of smart locks and home
accessories. The delivery person would get access to the customer`s house
using a preauthorized one-time passcode and put the groceries in the fridge
or in the pantry.

GRIFFETH: So what`s for dinner? Burgers certainly a popular choice.
Would you eat not one from a cow? It doesn`t come from a cow but from a
laboratory instead.

Some venture capitalists are hoping the answer may be yes.

Our Aditi Roy reports tonight from Oakland, California.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It looks
like a burger. And Hanna Rifkin can tell you it sure tastes like one.

HANNA RIFKIN, DIETITIAN: The first bite, it tastes like a burger.

ROY: But the reason Rifkin, a dietitian, keeps eating the impossible
burger is it`s not a traditional burger. It was created in a lab.

(on camera): This was what the test kitchen of a food technology company
looks like. On one hand, you have mixing bowls and patties of meat. On
the other, I`m wearing lab glasses and a lab coat.

PAT BROWN, IMPOSSIBLE FOODS FOUNDER & CEO: Our mission is to completely
replace animals in the food system.

ROY (voice-over): Pat Brown is a former Stanford biochemist who started
Impossible Foods, which is backed by Google (NASDAQ:GOOG) Ventures, Bill
Gates, and Khosla Ventures. The burger is already in restaurants like
Umami Burger and Momofuku in New York and soon it will be in even more
kitchens across the country.

This new Impossible Foods manufacturing plant is making 1 million pounds of
fake meat a month or more than 250 times what the company previously
produced.

BROWN: We`re targeting exclusively meat eaters. These are the only
customers we care about.

ROY: Brown says the reason for the burger`s success is the active
ingredient in it is soy leghemoglobin which makes it taste more like meat.
But the ingredient has come under fire from some environmental groups like
the ETC Group, which questions the safety of genetically modified
ingredients.

The group is asking Impossible Foods to pull the burgers off its shelves
until it can prove its safety. The FDA reportedly also has concerns soy
leghemoglobin might be an allergen.

But Brown says his company has done its own vigorous testing and is adamant
about the burger`s safety.

BROWN: I would say the Impossible Burger is the safest burger on the
market.

ROY: According to CB Insights, top venture capital firms are pouring vast
amounts of money into food substitute companies. Drinkable meal startup
Soylent raised $50 million in May. And Impossible Foods just raised $75
million in August. One study says the meat substitute industry alone could
reach $6 billion by 2022.

Hanna Rifkin is sold on Impossible Foods, too. She says she`s sinking her
teeth into the lab-made burger because it just her feel better than the
real thing.

RIFKIN: Usually after I eat a regular hamburger, I feel tired, I feel like
crap, and I have terrible breath. I notice I didn`t feel bad physically
after I finished the burger.

ROY: The company`s founder says they don`t just plan on stopping at
burgers. Eventually, the company hopes to expand to other types of food
made in a lab including fish, eggs, and dairy.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy in Oakland, California.

(END VIDEOTAPE)

HERERA: I`m not convinced quite yet. We`ll see.

GRIFFETH: Me either.

HERERA: That will do it for us tonight. I`m Sue Herera.

GRIFFETH: I`m Bill Griffeth. Give me a burger. Have a great weekend,
everybody.

HERERA: Me too.

GRIFFETH: See you Monday.

END

Nightly Business Report transcripts and video are available on-line post
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and commentators are their own and do not necessarily represent the views
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Business Report is not and should not be considered as investment advice.
(c) 2017 CNBC, Inc.

 

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