Nightly Business Report – February 8, 2019

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

notches seven straight weeks of gains, even with lingering concerns over
trade and growth.  

Amazon (NASDAQ:AMZN) is said to be reconsidering putting its second
headquarters in New York amid a wave of local opposition.  

GRIFFETH:  Price of admission.  One university`s plan to offer free tuition
in exchange for a percentage of your future income.  

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
February the 8th.

HERERA:  Good evening, everyone, and welcome.  

Stocks got a late-day lift to keep their weekly win streak alive.  This
came despite a rise in investor nervousness and lingering concerns over
trade, global economic growth and a slowdown in corporate earnings.  Those
fears dominated most of the day`s trading and resulted in a mixed finish
for stocks.  

The Dow Jones Industrial Average was down 63 points to 25,106.  The Nasdaq
added 9 and the S&P 500 gained 1.  All of the major indexes posted small
gains for the week.  The Dow is now up for seven straight.  

Bob Pisani reports tonight from the New York Stock Exchange.


U.S./China trade war fueled a lot of today`s declines.  First, “The Wall
Street Journal” reported that the two sides don`t even have a trade deal
drafted yet ahead of the crucial March 1st trade deadline.

Global trade related names under pressure, industrials like Boeing
(NYSE:BA), Caterpillar (NYSE:CAT), and semiconductors like Nvidia, and
Taiwan Semiconductor, those stocks also traded lower after Goldman Sachs
(NYSE:GS) warned that chip makers looked expensive, as demands for memory
remains very soft and prices continue to decline.  

Around 11:45 a.m. Eastern Time, CNBC`s Eamon Javers reported that a senior
White House official told him that the key March 1st deadline on trade
could very well be moved.  That news lifted stocks right off the day`s lows
but there still wasn`t a lot of buying volume behind the move.  Finally,
another big red flag has been earnings.  Earnings growth has turned
negative for the first quarter.  That`s the first time we`ve seen growth
estimates dip below zero since the second quarter of 2016.  

Keep in mind, earnings growth for the full year 2019 is still positive but
even that is slowly trending towards zero, thanks to slower global growth
and rising raw material costs.  

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


GRIFFETH:  Matt Maley joins us right now to talk more about the markets, as
we head down the road here.  He`s equity strategist at Miller Tabak.  

Matt, thanks for joining us tonight.  Good to see you again.


GRIFFETH:  When we started this day, we thought we were three weeks away
from the deadline to get a trade agreement with China but now, we hear the
deadline may move.  

What does that do to the markets do you think and their expectations?  

MALEY:  Well, you know, the market did bounce back when that news started
to filter through Wall Street here.  But the one thing that concerns me is
that it`s just — we`ve created a situation again, I think, where this is
the uncertainty over this issue will be with us for quite a while.  Because
listening to what, you know, the people — people, real insiders are saying
and especially the geopolitical experts who look at what China has done in
the past, they`re saying that this is going to be something, this
intellectual property issue is not going to be settled for quite some time,
many, many months.  

So, even if we get a small deal, even if we kick the can down the road a
little bit with a small deal and push the tariff to 25 percent tariff
increase out for several months, it`s just — it`s going to be a while
before we have any kind of definitive agreement on this.  So I`m very
concerned about it.  

HERERA:  And the one other thing that is very real is economic growth
globally is slowing.  

MALEY:  There`s no question.  I mean, one of the things we saw in the
second half of last year is that people were hoping, geez, Europe has
really turned down but maybe the worst is behind us and we`ll get kind of a
trough growth in Europe and Asia in the fourth quarter.  And, obviously,
with the estimates coming down just in the last couple of weeks and growth
slowing, especially in Europe, it looks like we`re going to be — that the
worst is not behind us.  And we start to worry about, geez, is the U.S.
going to hold everything up or is it going to follow the rest of the world

GRIFFETH:  Before we let you go, you`re starting to scare the kids here.  
Are you worried about our market here in the United States right now as a
result of all of this?  

MALEY:  Well, you know, I am a little bit, but again I`m more cautious than
bearish.  I just think after the 16 percent rally in just five weeks, we
need to take a little bit of a breather here.  And with the Fed on the
sidelines but not adding quantitative easing, we have to look at the
fundamentals.  With them looking a little bit weaker going forward, we want
to avoid chasing the market and look to buy on weakness rather than

GRIFFETH:  Very good.  Matt Maley with Miller Tabak, always good to see
you.  Have a good weekend.  

MALEY:  You too.  Thank you.  

HERERA:  And now to one of the most valuable publicly traded U.S.
companies, and that is Amazon (NASDAQ:AMZN).  It is said to be
reconsidering its plan to open a second headquarters in New York City, a
proposal that was expected to bring 25,000 jobs to the area.  As first
reported by “The Washington Post (NYSE:WPO),” executives had internal
discussions to reassess the situation, which has been met by local

Today, New York Governor Andrew Cuomo pushed back, saying New York needs
Amazon (NASDAQ:AMZN) and that the incentives offered make sense.  


GOV. ANDREW CUOMO (D), NEW YORK:  You know what the incentive package was?  
We get $27 billion in revenue, they get $3 billion back.  We get $27
billion, they get $3 billion back.  I would do that all day long.  



HERERA:  We are joined now by Scott Cohn, who as you know has been covering
this story for us all along.  

Scott, it`s great to see you.  One of Amazon`s main criteria for this new
headquarters site was a, quote, stable, business friendly environment.  Did
the company miscalculate New York or did New York maybe misrepresent

imagine, Sue, that New York didn`t put its best foot forward, maybe put a
rosy picture on things, so maybe there`s a little bit of that.  But on the
flip side, it`s hard to imagine that Amazon (NASDAQ:AMZN), with everything
it knows about all of these cities that have bid on this project didn`t
realize that New York is a big diverse city, it`s a union town, and that it
was going to hit some speed bumps potentially in actually closing the deal
and getting this facility in Long Island City, Queens.  

So, a little bit of both.  And there`s also, no doubt, a fair amount of
posturing here on both sides.  


COHN:  This is bargaining that`s playing out in public.  

GRIFETH:  Exactly.  But assuming they do ending up going someplace else,
you have visited all of the other possible locations Amazon (NASDAQ:AMZN)
was considering.  If it`s not New York City, who do you think it might end
up being?  

COHN:  Well, first of all, let`s be clear that Amazon (NASDAQ:AMZN) is not
saying that it is pulling out.  

GRIFFETH:  Right.  

COHN:  But certainly, there`s talk about maybe entertaining that option.  
If anybody knows all the different options available, it`s Amazon
(NASDAQ:AMZN).  Remember, there were 238 cities that bid on this project,
20 finalists.  So, the company knows all of that and knows all of the data.  

But at the same time, it doesn`t realistically have a whole of options
because, remember, they couldn`t ultimately decide on one place reportedly
because there weren`t enough workers, high-tech workers to fill all of the
jobs.  So, they may have to stay in New York.  

And one option for them is to do things kind of the old fashioned way, and
that is to pay for it for themselves.  Don`t give up control to New York by
taking the subsidies.  This is, after all, about a $180 billion a year
company that`s haggling over $3 billion in subsidies, so they could do it
that way.  

HERERA:  Yes, absolutely.  Scott, thanks so much.  And, stick around,
you`re doing double duty for us tonight.  We`ll see you a little later in
our program.


GRIFFETH:  Now to another hot topic, and that would be drug prices.  
Johnson & Johnson (NYSE:JNJ) revealed this week it`s going to begin showing
the list price of drugs in television commercials starting with its popular
blood thinner, Xarelto.  Those commercials will begin airing in late March.  
But is transparency like this a good idea or will it just create more
confusion about an already confusing issue?  

Joining us tonight, Robin Feldman, who is professor at the University of
California Hastings Law.  

Robin, thanks for joining us tonight.  

to be here.  

GRIFFETH:  This is something the Trump administration has proposed
companies should do.  Johnson & Johnson (NYSE:JNJ) will be the first.  What
do you think, good idea, bad idea?  

FELDMAN:  Well, I give Johnson & Johnson (NYSE:JNJ) a great deal of credit
for getting out front.  After the administration proposed its regulations,
the industry had its own list of regulations.  Johnson & Johnson (NYSE:JNJ)
is the first one to put it on the line.  

HERERA:  Now, what will this do for the consumer?  Will it help or hurt the
consumer, because you`ve got to read all that fine printing, correct?  

FELDMAN:  The problem will be what`s actually in the ad and can anyone read
it.  I don`t know about you but I don`t read all the fine print that comes
through in those ads.  If it`s simple, if it`s clear, consumer may learn
something about the prices that are out there.  

GRIFFETH:  But if they`re going to list the list price, that really means
nothing when you consider the different ways that we pay for drugs, whether
the insurance companies are involved, the different pharmacies that are
involved, the pharmacy benefit managers.  I mean, is it going to be a bit
misleading to list one price or what you`re expected to pay when you go to
the pharmacy?  

FELDMAN:  You`re absolutely right.  The question is what numbers go into


FELDMAN:  The list price matters, because many people do pay that list
price.  They pay it if they have got a plan in which they have to pay up to
a certain amount before the plan kicks in.  Many of us have those, or they
pay in co-insurance or other ways.  Those are based on the list price.  But
that`s not the only price that matters.  

Now, Johnson & Johnson (NYSE:JNJ) has said they`re also going to list a
typical price.  What`s a typical price?  A typical price may be something
that you and I never see.  

HERERA:  You know, the cynical part of me thinks that the insurance
companies will just find a way around this and prices will not benefit the
consumer in the long run.  What`s the likelihood of that?  How are the
insurance companies going to handle the fact that there now will be either
a list price or typical price that the consumer can see?  

FELDMAN:  So, this alone will not bring prices down.  It`s a great
proposal.  Consumers should know what`s out there.  But it`s going to take
a lot of changes before you and I pay a different amount when we walk into
the pharmacy.  

GRIFFETH:  We will see.  Again, the commercials start airing late March.  
We`ll see what happens after that.  

Robin Feldman with University of California Hastings College of Law —
thanks again for joining us tonight.  

FELDMAN:  Thank you for having me.  

HERERA:  It is time to take a look at some of today`s “Upgrades and

Fiat Chrysler was downgraded to equal weight from overweight at Barclays.  
The analyst there calls the automaker`s 2020 targets aggressive.  The firm
also cited disappointing NAFTA region sales.  The stock fell about 2
percent to $14.93.  

HERERA:  Kellogg (NYSE:K) was downgraded to hold from buy at Pivotal
Research.  The analyst cites the company`s disappointing earnings and weak
guidance which we told you about yesterday.  The price target is $62.  The
stock fell a fraction to $55.36.  

GRIFFETH:  Archer Daniels Midland was upgraded to a buy from hold at Stifel
Nicolaus.  The analyst says that the market is undervaluing that company`s
earnings growth potential.  The price target is now $52.  Shares rose a
fraction to $41.76 today.  

Grubhub was upgraded to buy from neutral at Bank of America (NYSE:BAC)
Merrill Lynch.  The analyst said the recent investments in marketing should
drive that company`s growth going forward.  Price target now $108.  And
shares rose more than 4.5 percent today to $86.08.  

HERERA:  Still ahead, the average college grad has $30,000 of debt, but
we`ll show you one school that`s trying to help out.


HERERA:  Time now for our weekly market monitor who likes stocks that he
says are leading the digital transformation and names you should own longer
term.  This is his first time on the program.  

Joining us is Michael Lippert, portfolio manager of the Baron Opportunity

Welcome, Mike.  Nice to have you here.  

having me.  

HERERA:  Let`s get right to your picks, as we said.  Leading technology
companies, Guidewire Software is the first one.  Why do you like it?  

LIPPERT:  Yes, they sell software to the property and casualty insurance
company, a massive industry.  This industry is still on green screen
technology and they`re going to shift to modern digital software,
interacting with customers in a different way.  

Guidewire is dominant in this space.  They have never lost a customer.  So,
very few businesses that can say that.  So, the shift to the cloud for them
is very, very beneficial.  Their deals will be two to three times as large
as their current deals are today, and the profits will be at least one and
a half to two times.  

So, the shift to the cloud is very beneficial with them.  

GRIFFETH:  I`m seeing a trend with your three picks tonight.  The second is
very familiar, Adobe, but you mentioned the cloud.  And that`s been —
that`s where they are now as well.  

LIPPERT:  Yes.  I think this shift has happened all across software.  You
don`t have to load the software on your computer, manage it yourself.  Now
your provider like Amazon (NASDAQ:AMZN) or Facebook (NASDAQ:FB) is
providing the software, services and analytics to you.  Adobe does the same
thing and they`re participating in big trends.  Producing and distributing
digital content, marketing and advertising over digital means.  They`re one
of the big players there.  

You know, what`s incredible about adobe is they`re a very high-margin
business.  And everyone at home knows they can turn almost 40 cents of each
dollar of revenue into cash at the end, at the bottom line.  That`s really

HERERA:  And Microsoft (NASDAQ:MSFT) is your last pick.  You said you
weren`t quite sure they were going to be able to transition and kind of
turn — reinvent themselves, but they managed to do it in your assessment?  

LIPPERT:  Yes, I think for a long time there was debate whether or not they
would get out of the Windows and PC generation to the cloud generation.  I
think Satya Nadella as the CEO has really done for that the company.  

You`ve seen a lot of legacy software businesses, tech businesses never
cross.  Microsoft (NASDAQ:MSFT) has.  They`re now one of the two dominant
players in the cloud, along with, you know, Amazon`s AWS and Microsoft`s
Azure business is still growing about 75 percent.  And their total cloud
business, which includes Office 365, is growing over 50 percent.

So I think Microsoft (NASDAQ:MSFT) has a long runway of double-digit growth
and also generating great profits and free cash flow.  

GRIFFETH:  Very quickly, we hear from so many money managers who like
companies because of their participation on the cloud.  How much is left in
the cloud growth strategy?  

LIPPERT:  Yes, I really think we`re in the very, very early innings of
that.  I think the way we could capture data, the way we could deliver
software and analytics, we`re just starting to move to the cloud.  Most
information technology spending is still done the old way.  And I think
when you think about the transitions like this or the generations like
this, this will honestly last 20 or 30 years.  We`re 5 to 10 into it, so we
have a long ways to go.  

HERERA:  All right.  Mike, thanks so much for being with us tonight.  

LIPPERT:  Thank you.  

HERERA:  Mike Lippert with the Baron Opportunity Fund.

GRIFFETH:  Well, there`s trouble in toy land and that`s where we begin
tonight`s “Market Focus”.  

Because Hasbro (NYSE:HAS) reported profits that missed Wall Street`s
forecasts and its quarterly sales fell by double digits.  The CEO said
today that Hasbro`s business was disrupted by the liquidation of Toys “R”
Us, but analysts believe this has a promising pipeline of new toys for this
year.  That seemed to cap the stock`s decline for a time today.  Hasbro
(NYSE:HAS) was down more than 10 percent, but it finished the day down
about 1 percent to $89.39.  

Electronic Arts (NASDAQ:ERTS) quietly released a rival to the wildly
popular “Fortnite” game this week.  EA said today that 10 million people
have already played Apex Legends in the past three days.  We should point
out it took “Fortnite” two weeks to hit that same mark.  Electronic Arts
(NASDAQ:ERTS) admitted its surprise to do an unannounced launch was risky,
but so far it seems to be paying off.  The stock rose 16 percent to $97.60.  

And Goodyear`s earnings fell below expectations and sales were down 5
percent in the most recent quarter.  The company blamed currency headwinds
and weakness in Brazil and China which offset growth in Europe.  Goodyear
fell 9 percent to $18.69.  It touched a 52-week low in the process.  

HERERA:  The aluminum parts manufacturer Arconic said it plans to spin off
one of its two main businesses and slash its dividend.  The move comes
after Arconic rejected a $10 billion buyout saying shareholders would
benefit more from a restructuring.  The company also abruptly replaced its
CEO.  Arconic was down 3 percent to $17.10.  

Sony (NYSE:SNE) is buying back its own stock for the first time ever, a
little more than $900 million worth.  It is the second major Japanese
company to unveil a buyback this week.  Softbank made a similar
announcement earlier in the week.  Sony (NYSE:SNE) shares rose just about 3
percent to $44.29.  

Wells Fargo (NYSE:WFC) says most of its online and mobile banking services
are back up and running.  Smoke at one of its facilities yesterday
prevented customers from accessing those services.  The bank did say,
however, that there are continued problems with direct deposits and some
credit card and mortgage balances are still not available.  Shares were off
almost 1 percent to $47.65.  

GRIFFETH:  For thousands of high school students and their families, the
wait is on.  Applications to the colleges of their choice have been
submitted, and now fingers are crossed.  But most are also scratching their
heads about how to pay the price of admission.  With America`s student loan
debt soaring, some new alternatives are cropping up.  

Scott Cohn is back with us now from West Lafayette, Indiana.  


education major in our third year at Purdue University.  She knew going in
the math was not on her side.  

and I won`t make a whole lot of income in the future.  

COHN:  How to pay for her education without drowning in debt.  Purdue
offered an alternative.  Instead of taking out loans, Savannah will pay a
percentage her income for 10 years after her income for 10 years after she

WILLIAMS:  If I would have gone with a traditional loan, I would have had
to pay it all off.  You know, who knows how long that would have taken.  

COHN:  It`s called an income-sharing agreement, the latest attempt to
tackle America`s college debt crisis.  

That crisis is massive.  A $1.6 trillion drag on the economy, affecting
people`s ability to buy a home, buy a car, start a family, for years after
graduation.  Purdue`s president says the program now in its third year
shifts the risk away from the student.  

some protection and safety.  They`re not going to have that much money
borrowed piling up, compound interest, whether they`re doing well or not.  

COHN:  If the graduate doesn`t work, she doesn`t pay.  And if she does
really well, her total payments are capped.  

2017 graduate Charlotte Herbert who got a job as a technical writer making
about $32,000 a year financed her senior year with the program.  

between you have to pay for school and keeping people from decades and
decades of unmanageable debt.  

COHN:  Purdue says it`s the first four-year college to offer income
sharing, but the concept is taking off elsewhere in higher education as
well.  In San Francisco, Austin Allred co-founded the Lambda School which
teaches computer coding, free up front in exchange for 17 percent of your
income for two years if you make $50,000 a year.  

AUSTEN ALLRED, LAMBDA SCHOOL CEO & FOUNDER:  If your job at a school is
effectively promising a job, it doesn`t make sense that a student pays you
a bunch of money and it doesn`t work out on the other side.  Schools don`t
want to do that for obvious reasons.  

COHN:  It`s too soon to tell if it will be the way everyone pays for
college in the future.  The programs are unregulated so far, and they still
leave graduates with an obligation not that much different from student
loans.  But this is one way some schools are trying to bending the curve of
the price of admission.  

For NIGHTLY BUSINESS REPORT, I`m Scott Cohn in West Lafayette, Indiana.  


HERERA:  In an age of high-tech combat, guess what`s making a comeback?  


in Lima, Ohio, at the Joint Systems Manufacturing Center.  It is the last
remaining tank factory in America, and it`s experiencing a renaissance.  
We`re going to be talking tanks, coming up on NIGHTLY BUSINESS REPORT.


HERERA:  The FDA chief is increasing the pressure on e-cigarette maker Juul
and Altria.  The agency is accusing the companies of not following through
on their promise to combat vaping use among teens.  The commissioner is
calling on the companies` CEOs to explain their strategy and he also
threatened to pull the products if more isn`t done, something that he has
threatened to do before.  

GRIFFETH:  So when you think of the modern military, you probably think
cutting-edge technology — high-tech drones, precision-targeting missiles.  
But there`s an unlikely weapon that`s making a comeback.  Good old-
fashioned heavy armored battle tanks.  

Morgan Brennan is in lima, Ohio.  


UNIDENTIFIED MALE:  We come up here, we have additional robotic welding
machines up here on the right.  

BRENNAN:  They come in as rusties, battle worn steel hulls dating back to
the `80s and sent here to Lima, Ohio, for a second life.  

UNIDENTIFIED MALE:  It`s about a five-month process by the time it arrives
here and it`s delivered to the Army.  

BRENNAN:  New armor, new electronics, new capabilities.  The upgraded 70-
ton M-182 Abrams tanks are an Army comeback story.  

facility was down at the lowest production levels, the majority of that was
for military sales.  We relied heavily upon foreign military sales.  That
actually kept this facility alive.  They did an industrial based study and
determined that we needed to make sure this facility was operational to do
exactly what we`re doing right now with these tanks.  So from that study
came the funding out of Washington.  

BRENNAN:  This facility, the U.S. Army joint systems manufacturing center,
is the only remaining tank plant in America.  Last year, the federal
governmental allocated $1.5 billion for upgraded tanks and this year, more
than $2 billion.  

This plant which is operated by General Dynamics (NYSE:GD) but owned by the
government was turning out one tank a month as recently as 2016.  Today,
six.  And next year, as many as 34 per month.  

has been one of our franchise programs.  It`s a significant piece of our
overall production.  We have production on the tank.  We have production on
strikers and a few other vehicles that we`re doing.  It`s a pretty
significant portion of our business.  

BRENNAN:  Enough orders have been guaranteed to take production to 2021, a
big reversal from five years ago when the Army even considered idling

What changed?  The geopolitical threats, and Major General Cummings, a
high-ranking Army official involved in the project, said tanks will be
crucial to military operations.  

tank is still the main platform that we have in our formation and our
fights that we need when we`re fighting (INAUDIBLE) and we have other
tanks, and continue to have overmatch over those.  

BRENNAN:  Their new demand has been a boon for local jobs.  Three years
ago, 300 people worked here.  Today, that`s doubled.  And it`s expected to
reach nearly 1,000 employees by next year.  

It`s significant for Lima, population 38,000, a manufacturing town that`s
lost an estimated 8,800 defense industry jobs since the mid-`90s.  

So, this is a military modernization story.  It`s a manufacturing story,
but it`s also a people story.  And in terms of that, the stakes couldn`t be
any higher.  

MARCK:  I tell folks I take this personal, because not only was I a
soldier, I have sons who are soldiers.  And, you know, luckily they have
all come back from Afghanistan and Iraq safely.  But everybody in this
facility and everybody that worked for me understands the end game, and
that end game is soldiers will die if we make mistakes.  

BRENNAN:  For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan, in Lima, Ohio.  


GRIFFETH:  That is an amazing —

HERERA:  It really is.  

GRIFFETH:  — increase in the number of tanks.  I mean, just the fact that
the need is there, that they`re reverting back to the good old-fashioned
armored tanks, the Abrams.  But that`s an incredible step-up in production.  

HERERA:  It really is.  And I know Morgan will continue to follow that
story for us, so we`ll keep you posted.  

Before we go, here`s a look at the final numbers on Wall Street.  The Dow
was down 63 points, Nasdaq added 9, S&P 500 gained 1.  For the week, all of
the major indexes posted some small gains and now, the Dow is up for seven
straight weeks.  

And that will do it for NIGHTLY BUSINESS REPORT tonight.  I`m Sue Herera.  
Thanks for joining us.  

GRIFFETH:  I`m Bill Griffeth.  Have a great weekend.  Hope to see you again
on Monday.


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