Transcript: Nightly Business Report – October 27, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Red hot. The Nasdaq had
its biggest point gain in a year, fueled by tech stocks that had been the
ultimate market winners this year.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Oil slick. Exxon and Chevron
(NYSE:CVX) saw their profits grow 50 percent. Sounds good, but investors
were left wanting more.

MATHISEN: And market monitor. CVS (NYSE:CVS) reportedly wants to buy
Aetna (NYSE:AET). But should investors like you buy CVS (NYSE:CVS) Health
shares? This week`s stock picking pro has an emphatic answer.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
October 27th.

HERERA: Good evening, everyone, and welcome.

What a day for the Nasdaq. The index was the clear standout, basking in
the glow of blowout earnings from Amazon (NASDAQ:AMZN), Alphabet, Microsoft
(NASDAQ:MSFT), and Intel (NASDAQ:INTC) that we told you about last night.
Amazon (NASDAQ:AMZN) and Alphabet closed at all-time highs and above the
$1,000 a share mark. The two Dow components, Microsoft (NASDAQ:MSFT) and
Intel (NASDAQ:INTC), were both up more than 6 percent. Microsoft
(NASDAQ:MSFT) hit a new all-time high. And Intel (NASDAQ:INTC) was the
best performing stock today on the blue chip index.

Today alone, Amazon (NASDAQ:AMZN) added more than $61 billion to its market
cap. Alphabet`s market cap now tops $700 billion, about twice the size of
ExxonMobil (NYSE:XOM). Microsoft`s market cap pushed past $650 billion,
just one week after hitting $600 billion. Intel (NASDAQ:INTC) shares hit a
17-year high. That along with Apple (NASDAQ:AAPL) saying it`s seeing
strong demand for its iPhone X sent the Nasdaq up more than 2 percent.

And the fact that index easily outperforming the Dow Jones Industrial
Average, which added 33 points to 23434, and the S&P 500, which gained 20
to hit a record.

The Nasdaq was the big winner for the week as well.

MATHISEN: Well, the global benchmark for crude settled above $60 a barrel
for the first in more than two years. Prices were supported by speculation
that the major oil producing countries will extend an output cut agreement
through the end of next year. That sent Brent crude higher along with
domestic crude.

The steady price rise in oil has been somewhat of a tailwind for the major
oil producers. Both ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) beat
earnings and revenue estimates. Both say profit grew more than 50 percent
in the most recent quarter. But the reaction was mixed, and Jackie
DeAngelis explains why.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s no secret
that the energy sector has been beaten down. Now, some of the biggest
energy companies in the world are signaling that the tide may be turning,
and the change in due in large part to the steady climb in oil prices.

For the world`s largest publicly traded oil company, ExxonMobil (NYSE:XOM),
better performance in its exploration and production and also refining
businesses also drove its solidly higher profit.

JEFFREY J. WOODBURY, EXXON MOBIL CORP. VICE PRESIDENT OF INVESTOR
RELATIONS: All three business segments delivered solid results, generating
cash flow from operations and asset sales that exceeded dividends and net
investments for the fourth consecutive quarter. These results were
achieved as the company worked to safely bring our gulf coast manufacturing
operations back online following the devastating attacks of Hurricane
Harvey.

DEANGELIS: Hurricane Harvey, which shut down a quarter of U.S. oil
refining during the quarter, resulted in a 4 cent per share hit for Exxon.
But higher oil prices weren`t enough to help Chevron (NYSE:CVX). The oil
major did report a sharp climb in profit and revenue and cash flow from
operations, a key measure of financial health in the industry, rose about
60 percent in the first nine months of the year.

But the company`s decision to drop its U.S. production hurt results, which
in turn offset the rise in oil and natural gas prices. The company also
said spending on large projects is being scaled back. And reducing
spending was a theme that ConocoPhillips (NYSE:COP) mentioned as well.
Like Exxon, the company reported better than expected results for the third
quarter but slashed its capital spending budget by 10 percent for the
current year.

Cautious optimism, how analysts in the energy space were looking at these
reports. Crude prices, of course, are still the key to future
profitability of these companies and it`s tough to know which way they`ll
go. On the one hand, persistent troubles in Iraq and Venezuela and the
questions surrounding Iran are all reasons supply could be threatened.
Prices could move higher.

JIM IUORIO, TJM INSTITUTIONAL SVS. MANAGING DIRECTOR: I think crude oil
prices are going to continue higher over the next two months, my objective
is $60 a barrel. I think once it gets to $60, it`s going to have trouble
going any higher than that.

DEANGELIS: On the other hand, should OPEC not extend its production cut, a
slide into the $40s wouldn`t be surprising either.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

HERERA: Merck (NYSE:MRK) was the worst performing stock on the blue chip
index today. That company said a cyberattack over the summer caused a
temporary production shutdown worldwide and cut revenue by at least $135
million in the third quarter. The company also reported a loss of market
share for many of its older drugs.

But earnings came in ahead of estimates, helped by cancer immunocology
drugs. Nevertheless, shares dropped 6 percent during the regular trading
session. Shares fell further in the extended session after Merck
(NYSE:MRK) said it withdrew a marketing application for a cancer drug in
Europe.

MATHISEN: Well, halfway through earning season, here is where things stand
if you follow these items. According to Thomson Reuters (NYSE:TRI), 74
percent of corporate earnings reports have come in above estimates, 9
percent were in line, and 17 percent got the failing grade. They missed,
and that`s better than the long term average. At this point, the growth
rate of the tech sector earnings has shot up more than 18 percent.

HERERA: Not even hurricanes could keep this economy down. The gross
domestic product, the broadest measure of economic activity, grew at an
annual rate of 3 percent in the third quarter. That was better than
estimates. This is the first time in fact in three years that the U.S.
economy has seen back to back quarters of 3 percent growth.

And this comes as the University of Michigan`s index of consumer confidence
hits a 13-year high.

MATHISEN: A new report from the White House predicts that corporate tax
cuts alone would produce reliable economic growth of between 3 and 5
percent a year in as little as three years. The report also estimates that
reducing tax rates for business from 35 to 20 percent could boost the
overall size of the U.S. economy by upwards of a trillion dollars over a
decade. Democrats debunked those claims. Academic research is divided on
the connection between tax rates and growth rates.

HERERA: Last night, we told you about some questions about Morningstar`s
five-star rating system for mutual funds. So, if the stars alone can`t
guide you, what can?

Tim Maurer is director of personal finance at BAM Alliance. And he`s here
to give us some guidance on that.

Good to see you, Tim. Welcome back.

TIM MAURER, DIRECTOR OF PERSONAL FINANCE, BAM ALLIANCE: You too. Thank
you very much.

HERERA: Let`s start first of all with, you know, the Morningstar
(NASDAQ:MORN) star system. A lot of people use that. If you choose not to
use that system, or if you question it, what other data would you recommend
that investors look at?

MAURER: Well, here`s the interesting thing. The Morningstar (NASDAQ:MORN)
star system, the fact that it is largely defunct is not new news. The sad
thing that came out in “The Wall Street Journal” report was that people
have actually been relying on this, not only individual investors but also
financial advisers.

The good news is that Morningstar (NASDAQ:MORN) itself can be used as an
effective tool especially by individual investors. You just start by
largely ignoring the star system.

MATHISEN: The stars, though, were a very convenient hook, not only for
individual investors to look up and glom onto, but as you point out, for
financial advisers to sell. I`m — here`s a five-star fund, I wouldn`t put
you in a one-star fund. So, it worked very well.

I know you well enough to know, Tim, that you lean toward index funds, and
you believe they are an advantageous bet, not so much because of
performance, but because of the connection between performance and low cost
and low turnover.

MAURER: There`s no question, Tyler. Inside of that report by “The Wall
Street Journal,” there was a subplot that may not have come through. And
it was really proving that indeed active investment managers really
ultimately end up struggling in the long term to beat their benchmarks.
That`s one of the reasons that the five-star funds eventually became two-
or three-star funds.

So, yes, you are correct. My preference is for more passive asset class
management funds, index funds in some cases are going to be the most
appropriate thing for many people. And so, you can still do a good job of
finding those using the portfolio tab on Morningstar (NASDAQ:MORN).com.
You can look specifically at what exactly is held inside of that mutual
fund. So, if you need a large cap fund or a small cap fund on that
portfolio tab, you can use the tool effectively to determine what the asset
class is.

And then as you said, we want to look for lower expense ratios. That`s a
good signs that it is a more passively managed fund and will likely do
better for investors in the longer term as a result.

HERERA: Also, you recommend portfoliovisualizer.com. We just had it up on
the graphic that we showed. Why do you like that particular vehicle?

MAURER: Well, Portfolio Visualizer takes it a step further. It does a
good job at helping you craft a whole portfolio.

That`s one of the problems I have with this report. The message is coming
across that it`s all about the funds, and it`s not. That`s how Wall Street
has been selling investments products for many, many years, saying that
it`s all about the funds.

It`s really all about the asset allocation. Over 90 percent of one`s long
term return has more to do with the asset allocation, that is, how you
construct that portfolio, then exactly what is inside of it. So, I would
caution investors to keep their focus on first things first, start with the
allocation, and then fill that portfolio with the lowest cost fund, which
you may actually find on Morningstar (NASDAQ:MORN). But you can absolutely
put together on Portfolio Visualizer.

HERERA: Tim, thanks so much. Have a wonderful weekend.

MAURER: You do the same. Thank you.

HERERA: Tim Maurer with BAM Alliance.

MATHISEN: And still ahead, it could be the biggest deal of the year, CVS
(NYSE:CVS)/Aetna (NYSE:AET). Our market monitor has a strong opinion about
CVS (NYSE:CVS) shares and he`ll share it in a moment.

(MUSIC)

HERERA: Catalonia`s parliament voted overwhelmingly to declare
independence from Spain. But the story doesn`t end there. Later in the
day, Spain`s prime minister dissolved the parliament of Catalonia and
called for a regional election in late December. It`s the country`s worst
political crisis since the 1970s and puts Spain in uncharted territory.

It began when Catalan leaders held an independence referendum, defying a
ruling that declared that illegal. Spain`s benchmark IBEX 35 index fell
after the vote. And Spanish bonds slid as well.

MATHISEN: Here in the U.S., federal regulators — excuse me, prosecutors
are reportedly investigating foreign exchange trading at Wells Fargo
(NYSE:WFC). According to “The Wall Street Journal”, information from the
bank has been subpoenaed and a few bankers who worked in that unit were
recently fired. The investigation which revolves around a trade made
within the past three years is in the very early stages. Wells Fargo
(NYSE:WFC) has been under increased scrutiny recently because of its fake
accounts scandal.

HERERA: Yesterday we told you about that CVS (NYSE:CVS) Health was
reportedly in talks to buy Aetna (NYSE:AET), a deal that would be the
largest health insurance deal on record. Tonight, Bertha Coombs outlines
why each company might want to see the deal get done and what it could mean
for you.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Most of us know CVS
(NYSE:CVS) as the drugstore on the corner. But it`s more than that. The
firm also negotiates drug prices and manages drug benefits for big insurers
like Aetna (NYSE:AET). Now, CVS (NYSE:CVS) wants to merge with its
partner, believing together, they can offer better value to large employers
and their workers.

GIL IRWIN, STRATEGY& PWC HEALTH CARE PARTNER: What`s important in this
industry is figuring out how we`re going to influence people to get the
right care, to not have too many medical tests that drive up costs, to go
to the right venue, which is the lowest cost venue.

COOMBS: Together, CVS (NYSE:CVS) and Aetna (NYSE:AET) would be a
formidable rival to UnitedHealth Group (NYSE:UNH) which only offers
insurance but is beating the competition by packaging data services to help
firms drive down health costs with all in one pharmacy benefits. And it
has physician groups and outpatient surgery that are cheaper than
hospitals. CVS (NYSE:CVS) and Aetna (NYSE:AET) would have a lot of the
same pieces and something more.

VISHNU LEKRAJ, MORNINGSTAR: One key asset that CVS (NYSE:CVS) has that no
other company in the supply chain has is its retail pharmacy. That`s a key
point here, and an opportunity here to leverage those assets, and also mini
clinics as well.

COOMBS: On the consumer side, the deal would give CVS (NYSE:CVS) more
muscle to fight off the threat of Amazon (NASDAQ:AMZN) entering into the
pharmacy business by offering more value beyond just low prices.

SARAH JAMES, PIPER JAFFRAY: An integrated firm with Aetna (NYSE:AET) and
CVS (NYSE:CVS) Assets would be able to understand where people`s finances
are, what their drug use is, and Aetna (NYSE:AET) has actually been making
a huge push on the artificial intelligence and analytics piece.

COOMBS: Analysts say apart from some overlap on Medicare and drug
insurance plans, there don`t appear to be many antitrust hurdles for
potential deal. But investors may balk at the prices. Sources say CVS
(NYSE:CVS) is proposing to pay $66 billion for Aetna (NYSE:AET), which
would be a record for a health care merger.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.

(END VIDEOTAPE)

MATHISEN: And CVS (NYSE:CVS) is one of our market monitor`s picks this
week. He`s Doug Butler, portfolio manager at Rockland Trust.

Doug, welcome back.

Let`s start with CVS (NYSE:CVS). A down day for the stock today. But you
like it, you liked it before the deal, I take it you like it even more
after. Explain the thesis.

DOUG BUTLER, ROCKLAND TRUST PORTFOLIO MANAGER: We very much like the deal.
And we think that management has had a fantastic week, even though that
hasn`t been reflected in the stock price. The stock is down about 10
percent this week. But management really made two huge moves this week.
The first one they did was they acquired the business of Anthem from
Express (NYSE:EXPR) Scripts, which they had to do before they made the
subsequent move to make a move on Aetna (NYSE:AET).

And that really allows them to, you know, become the full service, the top
to bottom, the vertically integrated health care provider with insurance,
with PBM, and then with that retail pharmacy that we heard about a moment
ago. We think that really is a great move, and it helps Amazon
(NASDAQ:AMZN)-proof them to some degree, to get not just focused on the
retail and the PBM side of things.

HERERA: The next stock is Alphabet. And earlier in the show, we detailed
the fact that it has had a pretty stellar week. It`s — Alphabet`s market
cap now tops $700 billion, twice the size of ExxonMobil (NYSE:XOM). You
still like it, though. You don`t think it`s gotten too expensive?

BUTLER: We don`t. This company still makes an extraordinary amount of
money. And the shift from traditional advertising to digital advertising,
that shift is still ongoing. Additionally, I think Alphabet is one of the
better ways to play the data explosion.

We may think we`re late in this game of data coming in from everywhere.
But really, we think that the data explosion that comes not just from
people demanding information on the Internet but really also from once
machines start talking to each other and to everything around us, there is
a coming data explosion, which is one of the reasons why we think Alphabet
is one of the best positioned names to play in the tech space.

MATHISEN: Let`s get to pick number three, which is AT&T (NYSE:T). You
like this space, you like Verizon (NYSE:VZ), you like Comcast
(NASDAQ:CMCSA) (NYSE:CCS) as well. But you`re recommending AT&T (NYSE:T).
It has had a bit of a rough year, down 7 percent. There are a lot of
people who question the wisdom of the Time Warner (NYSE:TWX) acquisition.

BUTLER: Yes, the Time Warner (NYSE:TWX) acquisition, you know, I think
they`re looking to get scale. I think throughout corporate America, you`re
hearing a lot about needing to get scale. And one of the things AT&T
(NYSE:T) does have, especially with this Time Warner (NYSE:TWX) deal, is it
has increased its scale there.

I think we really like Time Warner (NYSE:TWX), in the fact that they are
still adding tremendously to their broadband capacity and capabilities.
And the video losses that are really the headline drivers lately are
probably less important long term than the fact that they are still going
to be the place that everybody turns to for getting information.

MATHISEN: Right.

So we like three stocks, Alphabet, and two others that are all made up of
letters. CVS (NYSE:CVS) and AT&T (NYSE:T).

Doug Butler, it`s a theme — Doug Butler with Rockland Trust.

BUTLER: Indeed, indeed. Thank you very much.

HERERA: Shares of JCPenney hit an all-time low today. And that`s where we
begin tonight`s “Market Focus”.

The struggling retailer slashed its full year financial forecast, saying it
had to heavily discount its apparel ahead of the holiday to get rid of
excess inventories. While the move temporarily lifted sales, the company
said it will report a larger than expected loss in the third quarter.
Shares took a dive, falling nearly 15 percent to $3.12.

AbbVie said strong demand for its rheumatoid arthritis drug Humira helped
that company topped street expectations. It also said it expects to sell
more of that medication by 2020 than previously thought. In addition,
AbbVie is raising its quarterly demand 11 percent to 71 cents a share.
AbbVie shares rose more than 2.5 percent to $91.93.

And the paint maker Axalta was reportedly approached by Dutch rival Akzo
Nobel about a potential merger. Reuters says Axalta is in the early stages
of considering a deal. Shares of the company jumped nearly 17 percent to
$33.15.

MATHISEN: Colgate-Palmolive (NYSE:CL) said increased advertising spending
helped lift sales. Those results were better than expected while earnings
matched estimates. The consumer products giant also said it expects to get
hit with higher charges from its restructuring program. Shares on the day
off a percent at $70.40.

And despite beating earnings expectations, Goodyear saw its shares hit
after the company slashed its forecast for the third time this year. The
nation`s largest tire manufacturer cited weak demand and higher costs for
oil and rubber. Shares dropped more than 4 percent to $32.18.

HERERA: New York is implementing what will be one of the most
comprehensive paid family leave policies in the country. The law applies
to full-time and part-time private employees and it goes into effect
January 1st. But the reaction from small business owners is mixed.

Kate Rogers (NYSE:ROG) reports tonight from Brooklyn, New York.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: At Brooklyn-based
Uncommon Goods, workers bringing home a new child or facing challenges in
caring for a sick loved one don`t have to make tough decisions about
choosing work over family. The company has a paid leave policy in place,
guaranteeing primary caregivers eight weeks off.

CEO Dave Bolotsky says it`s not only good for workers, it`s good for
business.

DAVE BOLOTSKY, UNCOMMON GOODS FOUNDER & CEO: Providing our workers with an
opportunity to balance their personal needs and work requirements is
something that we think is in our business interests as well.

ROGERS: On January 1st, other small businesses in New York State will be
offering similar policies as the state implements what`s being hailed as
one of the most progressive paid leave laws in the nation.

The program, phased in over time, allows up to 12 weeks of paid time off
for a new child, including adoptive or foster children, as well as ill
family members. With a lack of movement on the federal level on a paid
family leave policy, five states, including New York, have passed
legislation of their own.

Critics say the law places an unfair burden on small businesses in New York
state who are exempt from the federal Family and Medical Leave Act which
guarantees unpaid time off to employees at businesses with 50 or more
workers.

HEATHER BRICCETTI, BUSINESS COUNCIL OF NEW YORK STATE: It is the most
expensive and expansive such program in the United States.
Administratively, it`s going to be very challenging for them, and
especially for smaller companies, if it`s a key person or very important
member of the staff, they`re required to permit them take this leave.

ROGERS: And while many on main street are focusing on higher priority
items in Washington like health care and tax reform, experts say paid leave
policies should be on the radar.

FRANK FIORILLE, PAYCHEX: It`s actually very complex with a lot of nuances.
There`s a lot of monitoring, a lot of reporting going on. There`s a lot of
different regulations within each state and jurisdiction. So, I think it`s
something that they do need to be aware of and could be very complex to
comply with.

ROGERS: And while Bolotsky acknowledges those challenges, especially for
smaller companies, he maintains the benefits outweigh any cons, especially
in the long term.

BOLOTSKY: Parents being with their children is actually a good investment.
It`s been proven to help with child development. So, I think it`s actually
a positive in terms of long-term investment.

ROGERS: New York among those states leading the charge to bring about more
flexibility for American workers.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG) in Brooklyn, New
York.

(END VIDEOTAPE)

HERERA: Coming up, the great inheritance. You might not believe the
amount of money that will soon be passed down to the next generation.

(MUSIC)

MATHISEN: The world has a new richest person. Amazon (NASDAQ:AMZN)
founder Jeff Bezos saw his wealth rise to $91 billion thanks to that run-up
in shares of Amazon (NASDAQ:AMZN) that we told you about earlier in the
program. But it was a tight race. Shares of Microsoft (NASDAQ:MSFT) also
soaring today, increasing the wealth of Bill Gates but not by enough to
keep him number one. He is about $3 billion short, probably the only time
he`s been short of cash. Bezos as well briefly passed that of Gates, as
you may recall, back in July.

HERERA: Well, obviously, the world`s billionaires are getting richer. But
they`re also getting older. And all of their money will eventually be
transferred to the next generation. And the sum is in the trillions.

Robert Frank has the details.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It may be the biggest
inheritance ever. The world`s billionaires are about to pass down
trillions of dollars to their kids. And the cascade of wealth could
transform rich dynasties and charities around the world.

According to a new report from UBS and PWC, the world`s billionaires added
$1 trillion to their wealth last year, helped by rising stock market,
stronger commodity prices, and surging values for everything from real
estate to high tech companies.

More than 1,500 billionaires in the world now have combined wealth of $6
trillion, greater than the GDPs of Japan or Germany. And a lot of that is
about to be passed down to the next generation. The report estimates that
$2.4 trillion will be passed down by billionaires over the next two
decades, creating a collective inheritance of unprecedented size. About
two-thirds of that will go to billionaire children and their families and
about a third to charity.

JUDY SPALTHOFF, UBS FAMILY & PHILANTROPHY ADVISORY HEAD: We believe this
is the largest wealth transfer from billionaires either to the rising
generations as well as philanthropic causes and cultural institutions that
they care most passionately about, whether it be private museums or great
philanthropic causes, we`re seeing a great wealth transfer to these
philanthropic causes for people things — things that people are truly
passionate about.

ROGERS: Now, the pass-down will be especially large in the U.S. and
Europe, where nearly half of today`s billionaires are over 70 years old.
The question now will be what those lucky heirs and heiresses and their
charities do with all that new money.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

MATHISEN: And finally tonight, earlier this week, we told you that Paul
Newman`s watch was up for auction. And tonight, we can tell you it sold
for nearly $18 million. That set a new record for a wristwatch sold at
auction, according to the New York auction house Phillips. The timepiece
was given to Newman by his wife, actress Joanne Woodward. Newman is said
to have worn it daily between 1969 and 1984.

The watch came to the auction house by way of James Cox, who dated Newman`s
daughter Nell, and according to “Forbes,” remains a close friend. Newman
gave it to Cox in 1980s when Cox said he didn`t have a watch. The winning
bidder has not been identified and a portion of the proceeds will go to
Nell Newman`s Charitable Foundation.

HERERA: Such a great story.

MATHISEN: Really wonderful. It was inscribed “drive carefully” by Joanne
Woodward because he was such a race car driver.

HERERA: Yes, wow, great story.

That does it for us tonight. I`m Sue Herera. Thanks for joining us.

MATHISEN: And I`m Tyler Mathisen. Have a great weekend. Drive carefully.

HERERA: Yes.

MATHISEN: We`ll 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
of Nightly Business Report, or CNBC, Inc. Information presented on Nightly
Business Report is not and should not be considered as investment advice.
(c) 2017 CNBC, Inc.

 

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