Transcript: Nightly Business Report – July 30, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
Griffeth.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Market rotation. Tech
stocks tanked again and now many investors want to know if the sectors that
led the market higher will start to lag.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Record quarter. Caterpillar
is caught in the middle of the trade fight, but that didn`t stop the Dow
component from reporting strong profits and issuing an upbeat outlook.

GRIFFETH: Billion dollar listing. It`s the most expensive ever and
doesn`t even include a house.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this Monday,
July the 30th.

HERERA: Good evening, everyone. And welcome.

It was a rough day on Wall Street. The rout in technology stocks that
started last week extended into this one. The Nasdaq recorded its biggest
three-day drop since March, weighed down by names that once led the market
higher like Facebook, Netflix and Amazon.

That decline pressured the broader market. The Dow Jones Industrial
Average dropped 144 points to 25,306. The Nasdaq was down 107 or more than
1 percent, and the S&P 500 declined 16.

The retreat of tech stocks has some wondering if a major shift is underway
a shift that could favor value names over growth.

Bob Pisani starts us off tonight from the New York Stock Exchange.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The market may finally
be gearing up for a big rotation all year long two groups have felt kind of
bulletproof. FANG names like Facebook, Amazon, Netflix and Google because
the growth was so amazing. And then there were small cap stocks because
small cap companies are more domestically-oriented and therefore maybe a
bit more insulated from a trade war.

But something`s been happening in the last few days and everything seems to
have gone, I don`t know, a little bit topsy-turvy. It`s kind of funny, the
FANG names in the Russell 2000, they used to be the leaders they were all
throughout the year. But they`re now laggards and growth stocks like
technology we`ve been dominating, they`re now lagging behind value stocks.

Value is typically bank stocks, energy stocks and retail stocks slower
growth. But maybe it`s not that hard to explain. We know there`s been
major weakness in two of the five FANG names, Netflix and Facebook both got
whacked after earnings and demonstrated that growth was slowing somewhat.
And we all know that a lot of the traders were very long these names and
they were long because they seemed bulletproof and they seemed tariff
proof.

But suddenly, they don`t seem so reliable anymore, and that`s got everybody
a little shaken. Facebook fell almost 20 percent last week. Netflix fell
about 2 percent. Even Morgan Stanley put out a note this morning saying
Friday`s moves were a sign of market exhaustion. That was their phrase and
that a shift toward value could be in the cards fairly soon.

Overall, earnings are still going strong, but the markets are merciless
when they`re not good or when growth starts to slow down. Just look what
happened to Twitter, it`s down 20 percent on its earnings missed.

It`s a bit too early right now to say that some kind of major trend
reversal is in place. There`s not any real panic out there, but the
trading activity indicates traders are definitely more risk-averse.

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

(END VIDEOTAPE)

GRIFFETH: So, what could this potential shift from growth to value mean
for your portfolio if it continues?

Joining us tonight, Jason Ware. He`s chief investment officer at Albion
Financial.

Jason, good to see you. Thanks for joining us tonight.

JASON WARE, CHIEF INVESTMENT OFFICER, ALBION FINANCIAL: Good to be here.

GRIFFETH: Do you buy the premise that maybe the FANG trade for now is
over?

WARE: So, I think we should start by stipulating that this construct of
value versus growth while more of a conversation doesn`t have a whole lot
of practical strategy attached to it, right? I mean, one investment
manager`s growth stock is another investment manager`s value stock, for
example.

So, look like looking at Microsoft, right? Microsoft has done an amazing
pivot to a growth business in the cloud and has been growing earnings north
of 10 percent for the past five years per year, and is trading at a 25, 26
P/E. Well, for most people, that`s a growth stock, and yet if you look at
Vanguard`s largest ETF, it`s the top value holding.

UnitedHealthcare is another example.

So, to be able to put labels on these stocks and think that we can develop
an investment energy from that is something that we don`t subscribe to at
Albion.

HERERA: So, what does the individual investor do then? Do you look for,
quote/unquote, fairly valued stocks with good bottom line? How do you
determine what is going to grow your portfolio regardless of whatever the
definition is by the money managers?

WARE: Sure. So, it`s a great question and really how we counsel clients
is have a well diversified portfolio that`s going to be able to capture
what growth has to offer over the long time, i.e., growth stocks, and what
value stocks have to offer over the long term. You want to segment your
portfolio out among different cap sizes, you know, large-cap, mid-cap,
small cap, all of those have different value components and growth
components over time. Large cap and — large cap growth, large cap value,
there`s not much of a premium there, but in small cap, a tilt toward valued
oftentimes will pay a premium over time.

So, having kind of your bet spread out across a number of different factors
makes sense for the average investor while keeping your costs low and being
able to stay the course through the ups and downs of the market. That`s
really the best way to approach this.

GRIFFETH: Which brings me full circle back to my first question, would you
include the Facebooks and the Amazons and the Netflixes, which have been
lagging recently, would you include those right now in a portfolio of
stocks you think are going to grow from here?

WARE: Fair enough, and I will address that directly. They`ve been lagging
only as of late. So, again, the market loves to extrapolate short-term
moves into longer-term trends. You know — I mean, look at Amazon, it`s up
50-something percent year to date. Yes, Facebook pulled back recently
after outperforming the market before that. Apple`s doing fine. Alphabet
is doing fine, outperforming the market.

Again, we have a couple day decline here but let`s keep that in context.
Yes, they are growth companies. Google`s trading at a reasonable price.
Apples trading at a reasonable price. Amazon, by our measures, is trading
at a reasonable price despite the fact that most say it`s overvalued.

So, we think they are good investments for the long term when we look at
their businesses and we continue to hold those for our clients.

HERERA: And when you say long-term — I mean, it differs for everybody
certainly whether what your timeframe is. But as you`re managing your
clients money, what is long-term for you?

WARE: Right. And once again, just like everything in this business, it
depends on a client`s horizon. If you`re a growth investor, if you have a
long term horizon, we`re comfortable holding these kind of quote-unquote
growth stocks at a reasonable price, so long as the business fundamentals
that underlie those stocks don`t change. And that could be one year, it
could be three years.

But just like Warren Buffett says, the ideal holding period is forever,
although we know that`s not realistic and we have to make active management
decisions as we go. So, more of a buy and monitor type of thing, but — I
mean, we have stocks that we`ve held for years in our core portfolio at
Albion, and we have stocks that, you know, something changes in the
underlying business and we end up selling that stock as well.

So, again, unfortunately, no clean answer but it differs, but ideally, the
period is at least longer than one year.

GRIFFETH: Indeed. Jason Ware with Albion Financial — again, thanks for
joining us tonight.

WARE: Thank you.

HERERA: It is another big week for earnings and a major focus will be on
trade. Today, Caterpillar reported a record quarter despite being caught
up in the middle of a trade war. The Dow component easily topped analysts
estimates and raised its outlook for the year. Strong machinery sales
allowed that company to absorb any increase in costs as a result of the
tariffs. The stock was volatile though, rising early in the session, only
to close lower by about 2 percent.

Dominic Chu has more on Caterpillar`s quarter.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The construction and
mining equipment maker benefited from better demand for its products
worldwide. It was one of the main reasons why Caterpillar beat earnings
and sales estimates, and it also raised its full-year forecast.

ROB WERTHEIMER, MELIUS RESEARCH: Cat`s execution has been extraordinary
really. So, if you look at the last quarter, they had the highest
incremental margins. They got the most margin on the extra revenues of
anybody in the group and they had the highest revenue growth, and that
looks like it`s going to continue this quarter.

CHU: Caterpillar is seen as an indicator for the global economy. The
company said that it still sees strength in big construction markets like
the U.S. and China, as well as energy and mining-related companies. But
much of the story around Caterpillar has focused on the impact of trade and
tariffs. It estimates that materials costs will increase by around $100
million to $200 million in the second half of a year due to recently
imposed tariffs.

JIM UMPLEBY, CEO, CATERPILLAR: On the issue of trade, we urge government
leaders to take actions to remove uncertainty. As a global manufacturer,
Caterpillar has long advocated for free trade because it enhances global
competitiveness and helps U.S. manufacturers grow us jobs and exports.

CHU: The truly global nature of Caterpillar`s business makes it much more
sensitive to trade-related issues, and it`s a big reason why investors will
be paying a lot of attention to any new rhetoric or policy on that front in
the coming weeks.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

GRIFFETH: Tariffs are also giving Tyson a headache. The company today cut
its 2018 profit forecast. The CEO blamed uncertainty over trade policy for
lower chicken and pork prices. Demand from Mexico and China has fallen in
part because of retaliatory tariffs.

And all of this comes at a bad time for Tyson which is also dealing with a
glut of meat on the market, which has put pushed prices lower as a result.
Shares tumbled more than 7-1/2 percent in today`s session.

HERERA: Harley-Davidson another American icon that has dealt with its
share of trade-related issues. And today, the company said it planned to
roll out and expanded a line of lineup of smaller bikes in an international
push for growth.

In an interview with CNBC, the CEO defended the company`s decision to
invest in overseas facilities, a decision that drew criticism from
President Trump.

MATTHEW LEVATICH, CEO, HARLEY-DAVIDSON: Certain commodities like, you
know, grain and soybeans are traded off against other things like
motorcycles in the basket of trade between nations. And so, picking on one
specific thing like motorcycles and assuming it`s going to be easy to
change, that`s where it gets very complicated and very difficult.

The administration is working very hard on this very issue. We have
endured tremendous economic and non-economic trade barriers in our
international growth. We have competed on our merits.

We`ve done very well. We`re in over a hundred countries now around the
world and we`re doing well despite some of these things. We would like a
little bit more of a level playing field because we think we can do even
better.

INTERVIEWER: Do you think will ultimately get that I mean the
administration has signaled that all of this is to get to that place? Does
it happen?

LEVATICH: Yes, I — they are absolutely in line with what we all want —
free and fair trade, both. We`ve been consistent on that point. I think
they`ve been consistent on that point.

It`s a little hard to tell now where the direction things are going, where
it will all land.

(END VIDEO CLIP)

HERERA: Shares of Harley-Davidson are down about 13 percent so far this
year.

GRIFFETH: And from Harley to BMW, the automaker is increasing prices of
American-made SUVs that are then sold in China, responding to the tariffs
that China put on American-made imports. So, prices of the X5 and X6
models which are made in South Carolina will now be increased by 4 and 7
percent.

BMW is the second automaker to raise prices in the world`s largest auto
market following Tesla.

HERERA: The Chamber of Commerce today said that bailing out all of the
industries affected by the administration`s import tariffs could cost
taxpayers $39 billion. The analysis follows the president`s $12 billion
aid package to farmers. The chamber has been a vocal opponent of tariffs
that have been placed on a host of goods, including those from China, as
well as steel and aluminum imports.

GRIFFETH: The CEO of JPMorgan Chase said today that trade in his opinion
is a big risk to the U.S. economy. During an interview, Jamie Dimon said
that he hopes the president`s strategy works, but he`s concerned that Mr.
Trump`s approach, especially with China, could derail some of the economic
growth that we`ve been seeing.

(BEGIN VIDEO CLIP)

JAMIE DIMON, JPMORGAN CHASE CHAIRMAN & CEO: I think there`s been
retaliation. I think if we do it there`ll be another predictable round of
retaliation and there`ll be a mounting uncertainty and reducing investment
and, you know, it`ll eventually slow down the GDP. And, of course, no one
wants that. They`re better — we think they`re just better ways to do it,
but obviously, we want him to finish the trade deal with China that deals
with the important subjects.

(END VIDEO CLIP)

GRIFFETH: Mr. Dimon also mentioned the unwinding of the Fed`s stimulus as
another potential risk to economic growth.

HERERA: It is time to take a look at some of today`s upgrades and
downgrades.

AT&T was upgraded to buy from neutral at Bank of America-Merrill Lynch.
The analyst cites the acquisition of Time Warner as well as better than
expected wireless business trends. The price target is $37. The stock
rose nearly 3 percent to even.

AMD`s price target was raised by Cowen to $25 a share from $21. The
analysts there is forecasting better than expected profit in 2019, and that
AMD`s server chips will gain market share from Intel. The firm maintains
its outperform rating. The stock rose 2-1/2 percent to $19.42.

GRIFFETH: Colgate-Palmolive was downgraded to neutral from outperform at
Macquarie. The analysts there does not expect growth to accelerate over
the next several quarters. Price target: $65. That stock closed just
above that level at $66.46 in today`s trade.

Synchrony Financial was downgraded to equal weight from overweight at
Barclays. The analyst there cited the company`s contract loss with
Walmart. Price target now: $32. That stock fell more than 1 percent today
to $29.51.

HERERA: Still ahead: why a government shutdown may be right around the
corner.

(MUSIC)

GRIFFETH: Shares of American Express came under pressure today following a
“Wall Street Journal” report saying that the company raised some prices for
business customers without warning. The Dow component reportedly increased
currency conversion rates in an attempt to raise revenue and employee
commissions. The practice reportedly occurred until earlier this year and
dates back to at least 2004. American Express said today it is conducting
a review with an outside party, and that report sent the stock lower by
nearly 3 percent today.

HERERA: CBS`s board of directors met today to discuss the fate of longtime
CEO Les Moonves. That`s following allegations of sexual misconduct that we
told you about on Friday. No immediate action was taken but the stock
extended its slide, falling about 5 percent in trading today.

Julia Boorstin has the details.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Les Moonves is
staying in the corner office at CBS, despite allegations in a “New Yorker”
article of sexual misconduct during the 1980s and the 2000s. After meeting
today, CBS`s board of directors issuing a statement saying that they are,
quote, in the process of selecting outside counsel to conduct an
independent investigation. No other action was taken on this matter at
today`s board meeting.

Leading up to the meeting, there was plenty of speculation about whether
the board would ask Moonves to step aside during the probe, would push him
out entirely or whether he would resign. The board also designing to
postpone the company`s annual meeting of stockholders which was scheduled
for August 10th, to date and time yet to be determined.

That meeting was expected to focus on CBS court battle with controlling
shareholder Shari Redstone and her push to combine CBS with Viacom, and
Moonves` attempt to dilute her controlling vote.

Now, as the board hires a firm and starts its investigation, the next event
for CBS is its earnings report Thursday afternoon. Moonves typically
leaves the earnings call, discussing the company`s trajectory and its
future. We`ll see what he says then.

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

(END VIDEOTAPE)

GRIFFETH: Meanwhile in Washington, the president renewed his threat today
to shut down the government over funding for his border wall.

Kayla Tausche has that story for us.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The stakes for a
September deadline to fund the government are being raised, with President
Trump threatening a shutdown if immigration policy isn`t changed.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: If we don`t get border
security after many, many years of talk within the United States, I would
have no problem doing a shutdown. It`s time we had proper border security.

TAUSCHE: With the House on recess for August, that gives lawmakers just 11
days in office, to work out a deal before funding expires at midnight on
September 30th, just about a month away from midterm congressional
elections. The president first brought up the idea in a tweet on Sunday,
along with a wish list of immigration policy items, including funding for a
border wall.

But the president Monday signaled he could be won over.

TRUMP: I have no red line. I`ll always leave room for negotiation.

TAUSCHE: Former CBO director Doug Holtz-Eakin says the president uses
tariffs and shutdowns as tools to advance his agenda.

DOUGLAS HOLTZ-EAKIN, AMERICAN ACTION FORUM: I think one of the lessons he
learned earlier this year is, hey, you can shut the government, it doesn`t
hurt the economy. People always say, oh you don`t want to do that, you
don`t want to disrupt the economy. He did it, economy`s growing real fast,
so he`s like what`s the harm?

TAUSCHE: Last week, Senate Majority Leader Mitch McConnell and House
Speaker Paul Ryan met with President Trump here at the White House, and
according to sources, they agreed to shelve the debate on border security
funding until later in the year. Perhaps one reason why McConnell said
multiple times today a shutdown won`t happen.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.

(END VIDEOTAPE)

HERERA: U.S. Foods goes shopping. That`s where we begin tonight`s “Market
Focus”.

The food distributor said it is buying a number of food businesses from
Services Group of America for just under $2 billion in an effort to grow
its footprint in the U.S. Separately, U.S. Foods reported flat sales
growth for its latest quarter and issued a soft outlook and that
overshadowed those acquisitions. Shares were lowered by more than 17
percent to $33.51.

The restaurant operator Bloomin Brands said higher same-store sales driven
by more customer visits helped overall earnings top expectations. But the
owner of Outback Steakhouse saw a bigger than expected drop in revenue due
in part to refranchising costs. Bloomin Brands also cut its full-year
earnings outlook. So, the shares were off a fraction to $19.51.

GRIFFETH: Texas Roadhouse on the other hand missed estimates even as
customer visits remain strong. After the bell tonight, the restaurant
chain said that it expects same store sales to be positive though for 2018.
Shares were initially lower in extended hours. They also ended the regular
session down more than 2 percent to $66.09.

And General Electric is reportedly seeking a buyer for its digital business
and has hired an investment bank to begin the auction process. “The Wall
Street Journal” said this afternoon the potential sale comes at a time that
the multi-billion dollar business has been facing declining sales. GE
shares rose in another wise down day, was up nearly 1 percent to $13.16.

HERERA: Well, this is a safe bet. You probably don`t think about tin cans
very often, but they`re used in a lot of everyday products. And now,
they`re getting more expensive because of the trade fight.

Aditi Roy reports tonight from Woodlands, California.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The canning machines at
Pacific Coast Producers are buzzing at full speed at the start of tomato
season. The farmer-run co-op produces million cans of fruits and
vegetables every year and sells them the companies from Kroger to Whole
Foods.

DAN VINCENT, PACIFIC COAST PRODUCERS: We had some weather events that`s
hot right now, but in general, I think the seasons coming along pretty
well.

ROY: But CEO Dan Vincent says the weather isn`t the only hurdle they faced
this season. The Trump administration`s 25 percent tariff on imported
steel and aluminum have also been a blow.

Pacific Coast Producers doesn`t make its own cans which are partially made
with imported steel. But Vincent says his can supplier has passed on the
tariff costs, meaning Pacific Coast is paying two and a half cents more for
each can. That amounts to half of the co-op`s annual net income and
Vincent hopes the administration will do something to ease the pain.

VINCENT: We do believe they have a long game which we fully support. Our
concern is we`re being caught up in the short game.

ROY: Vincent remains optimistic, but back in March, Commerce Secretary
Wilbur Ross held up a can of Campbell`s soup and said the impact of the
tariffs on U.S. can makers would be marginal.

WILBUR ROSS, SECRETARY OF COMMERCE: Well, I just bought this can today
that a -eleven down here and a price was $1.99. So, who in the world is
going to be too bothered by 6/10 of a cent.

ROY: In a statement about the Canadian tariffs on U.S. soup, Campbell`s
also acknowledged the impact of the U.S. steel tariffs, saying: Tin plate
is Campbell`s single largest procurement expense and accounting for some 2
billion cans of food annually in North America.

And the Can Manufacturers Institute says the tariffs will add an extra
penny per can or a total of $1.1 billion in extra costs for the U.S. can
industry. That includes major food and beverage companies.

Just last week, the CEO of Coca-Cola said the price of the company`s sodas
will go up as a result of the tariffs and Anheuser-Busch says in a
statement, a tariff on aluminum is a tax that threatens jobs in the beer
industry and has the potential to raise the cost of brewing in the U.S.

Vincent says that if the tariffs stick around long enough, they`ll have to
pass them along to their clients, which could ultimately hit consumers.

VINCENT: Ultimately, it will increase our cost of goods. Ultimately, we
will need to go to our customers and talk to them about these increases.
But we also know that it`s our responsibility is always to do what we can
do to mitigate cost increases.

ROY: There may be some good news. He says plants are performing well,
which could lead to some cost savings down the road. He`s also hopeful
that the administration will either provide relief or grant exceptions.

For NIGHTLY BUSINESS REPORT, I`m a Aditi Roy, Woodlands, California.

(END VIDEOTAPE)

GRIFFETH: Coming up, so is this view worth a cool billion dollars? We`ll
take you to the most expensive real estate listing ever.

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow: Dow components Apple,
Pfizer and Procter & Gamble are due out with their financial results. Fed
policymakers begin their two-day meeting to decide the direction of
interest rates. And we`ll get the latest report on home prices across the
country. And that is what to watch for on Tuesday.

GRIFFETH: That was really interesting.

A number of signed contracts to purchase previously owned homes has risen
for the first time in three months pending home sales increased 0.9 percent
in June, thanks to a slight increase in the supply of homes for sale which
brought buyers back to the table. The increase was broad-based. All four
major regions of the country showed gains.

HERERA: And speaking about real estate, as you know, we`ve been talking
about the housing market a lot lately, as prices rise and inventory remains
near historic lows. But there is one property like none that we have seen
before, especially the billion dollar price tag.

Robert Frank shows us around.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Up this private drive
is the first ever one billion dollar residential listing in America. It`s
called the Mountain of Beverly Hills. The massive 157-acre property is
bigger than Disneyland, but there`s no castle up here. In fact, there`s
not even a house.

This plot of land is being sold by Secured Capital Partners and it`s listed
by super broker Aaron Kirman for billion dollars. Kirman says there are
four reasons why the mountain is a record breaker.

First, the property sits on the highest point of one of the most expensive
zip codes in the world, 90210. Second, the land is zoned for a 1.5 million
square foot residential mega compound.

AARON KIRMAN, AARON KIRMAN PARTNERS: That means that the billionaire who
buys it can build the biggest house in the world on top of Beverly Hills.

FRANK: Third, the views are some of the best in L.A.

And fourth, privacy. This long private road puts your closest neighbor a
half mile away. Bottom line here: location, sheer size, and views like
this or what billionaires love.

But the truth is no matter how rich you are, that billion dollar asking
price is a tough sell, and the property had been shopped around back in
2014, also for a billion dollars.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

GRIFFETH: Friend of mine said he would put $100 down and ask for a 13,000-
year mortgage.

HERERA: Excellent.

GRIFFETH: See if that works.

HERERA: Perfect.

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

GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you
tomorrow.

END

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