ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Corporate shakeup. Boeing`s CEO is out as the fallout from its grounded 737 MAX continues. What it all means for the company and for Boeing (NYSE:BA) investors.
Portfolio makeup. With stocks at record levels, why tonight`s market monitor thinks defensive and income are very important for some stocks that she thinks you should own.
And industry wakeup? What the video game console business is doing to fight off competition from mobile gaming and streaming services.
All that and much more tonight on NIGHTLY BUSINESS REPORT for this Monday, December 23rd.
And we do bid you a good evening, everybody. Sue is off tonight.
Stocks again close at record levels. We`ll get to that shortly.
But, first, another shoe has dropped in the ongoing crisis involving Boeing`s grounded 737 MAX, and this time it fell in the company`s C-suite. CEO Dennis Muilenburg is out immediately. Chairman David Calhoun will take over as CEO next month and investors reacted positively to that news sending shares higher by about 3 percent.
Phil LeBeau, of course, has been following this story all along. He joins us tonight from Chicago.
Why now for the firing of Mr. Muilenburg, Phil?
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Bill, I think there were two things that had happened within the last month that the board of directors finally said, enough. We have to make a change.
The first one being that Dennis Muilenburg was called to Washington, D.C., and he was essentially dressed down by the head of the FAA. The head of the FAA says, you don`t make demands. We call the shots here in terms of when this plane is safe and ready to return to the air. That was a very public meeting. Maybe the meeting itself wasn`t public but it was a dressing down.
LEBEAU: CEOs rarely have that happen.
The second thing happened four days later when Dennis Muilenburg said, we are going to shut down the 737 MAX line at least for a couple of months, or who knows how long — temporarily is the language that they used. That`s unprecedented. For a company of this size with this history to for the first time ever voluntarily shut down a production line —
LEBEAU: — that was enough for the board. They finally said, it`s time for a change.
GRIFFETH: Quickly, does this speed up the return of the 737 MAX, do you think?
LEBEAU: No. I think what it does do is improves Boeing`s relationship with the FAA at a minimum, because already Dave Calhoun, one of his first acts as the incoming CEO was to call Steve Dickson this morning, he said, we welcome rigorous oversight. We want to be regulated. That`s the beginning of changing the tenor and tone that has been a problem at Boeing (NYSE:BA) for some time and in particular during this entire 737 MAX crisis.
GRIFFETH: We should point out — David Calhoun is a veteran in the industry.
GRIFFETH: He`s worked in various other companies in that area as well. What will be his agenda do you think?
LEBEAU: Really three things. One, rebuilding the relationship with the FAA. It`s completely broken. You have to have that rebuilt.
Second, they`re going to do a reset on 737 MAX. That doesn`t mean scrapping all the work, but it does mean sitting down with the engineers, with the leadership, saying, where are we? What can we realistically expect? OK, let`s move forward from here.
And then, finally, rebuilding the relationships with the airlines and the suppliers. Those are damaged. I mean, I talked to one executive at an airline today, Bill, he said Dave Calhoun and our CEO had a long conversation. Our CEO had a look on his face like this is welcome.
I mean, it`s not going to change overnight but this is the beginning of improving that relationship.
GRIFFETH: On what was supposed to be a vacation day for Phil LeBeau, but he came in on a big news day. Thanks, Phil. Appreciate it. Merry Christmas.
LEBEAU: You`ve got it. Merry Christmas.
GRIFFETH: All right. So, what is the change in this leadership at Boeing (NYSE:BA) going to mean for the stock?
Joining us tonight is David Dietze, president of Point View Wealth Management who is a shareholder in Boeing (NYSE:BA), we should point out.
So, what do you make of today`s developments?
DAVID DIETZE, POINT VIEW WEALTH MANAGEMENT PRESIDENT: Well, I think it`s a positive here. As Phil was just mentioning, the relationship with the regulator, the FAA had completely fallen apart.
DIETZE: That is a non-starter, really.
Second of course, you`ve got to inject more transparency into the process of recertifying these 737 MAXes. I think this is well on its way.
And, finally, just a new blood to kind of defuse tensions. I think that`s going to be critical here. So, I think it`s a positive.
GRIFFETH: Do you want to see other change in leadership? I mean, some other executives have already left the company as well but as a shareholder, you welcome David Calhoun but he`s only one person.
DIETZE: Absolutely. This is a short move. Mr. Calhoun is 62 years old. He`s not going to be there for 10 years. He`s also been with the board for close to a decade so it`s not a completely change and so forth.
He`s not an engineer. And I think Boeing (NYSE:BA) needs to listen to their engineers a little bit more. So, it`s not a perfect choice, but I think the fact that, you know, the crisis with the situation, it didn`t have a chance to do a six month search around the industry. And so, I think this is the best they can do and I think it`s a positive.
GRIFFETH: All things considered for what a disastrous year PR-wise and otherwise it has been for Boeing (NYSE:BA). The stock is only down 11 percent to this point, not counting today`s comeback rally of sorts.
What did you make of that?
DIETZE: Well, I think that underscores why we`re bullish over the long haul. Basically, the aircraft business is growing 5 percent per year. Everyone around the world wants to fly. It`s the quickest way to move around. And, of course, there are two companies that are in the business. You`ve got Airbus. You`ve got Boeing (NYSE:BA).
And so there really aren`t a lot of options. And you still see the backlog for the 737 MAX is staying pretty constant here. So, I think over the long haul, given how much experience you need to get certification, you know, based on how much engineering and capital you need to make an airplane, Boeing`s not going anywhere. I think over the long haul ultimately it gets past that that`s why there`s not a bigger selloff.
GRIFFETH: Having said that, though, you`re not adding to positions? I mean, you`re just hanging in there right now.
DIETZE: So, I don`t see a real callous. I mean, we`re down about 25 percent from the all-time high. Having said, you know, I would not urge people to sell. You`ve got an above average dividend. You`ve got a price earnings multiple that`s below the market.
Yet, you have a company that`s one of the standouts. I mean, this is America`s largest employer. This is it`s largest exporter. So, this is really the king of the hill still.
And so, I would hang in there for the long haul. If there`s another big pull back for whatever reason, yes, you can buy into it.
GRIFFETH: I mean, the company really is not out of the woods yet. They still have to get this plane back in the air, and that`s not going — not going to be all that easy, I would think.
DIETZE: Well, I think that`s right. It will get recertified. I think it helps things now that you have a better relationship with your regulator, you`re going to get your calls returned more quickly. There`s always gray areas in this recertification. I think you`re going to get a little bit more of the benefit of the doubt than you we`re going to get under Mr. Muilenburg.
GRIFFETH: David Dietze with Point View Wealth Management — again, thanks for coming in tonight, David.
DIETZE: Thank you, Bill.
GRIFFETH: See you later.
Well, the Dow got part of its lift thanks to the gain in the shares of Boeing (NYSE:BA). You couple that with news that China says that starting January 1st, it`s going to lower import tariffs on more than 800 products and stocks were set for another record close today. The Dow was up another 96 points, Nasdaq climbed by 20 and the S&P was up two.
Bob Pisani has more on the day on Wall Street.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Big volume last week, but light trading today. The S&P moving at a narrow trading range. Still, the markets closed the day at record highs with the Dow rising 96 points. Shares of Boeing (NYSE:BA) led the way, jumping nearly 3 percent after the company ousted CEO Dennis Muilenburg.
Boeing (NYSE:BA) has been struggling with that 737 MAX jet crisis, as it tries to regain trust from regulators and customers. Elsewhere, energy stocks had a big day. Shell driller Apache (NYSE:APA) Corp was up 17 percent after the company entered into a joint venture with Total to develop a project off the coast of Suriname.
Other exploration production stocks like Devon and Hess (NYSE:HES) were up as well. This has been a big month for those oil names. Many up double digits as oil has climbed over $60.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GRIFFETH: And another area of interest to look at, at the end of the year, the emerging markets which have been on a tear recently as trade concerns have come down. And while much of the focus this year has been on the unrest in Hong Kong, there are new risks for investors in this area in the New Year. Namely, the sharp rise in protests and public backlash in places like India, Chile, Argentina and Egypt.
Seema Mody has more.
SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: A number of Wall Street strategists are betting on emerging markets in the New Year, as the risk of a trade war fades and global growth bottoms out. But experts say there is a new risk on the horizon, social unrest. In the past few months, protests have arisen in different parts of the world. Income inequality, concerns of corruption are among the issues of fueling these anti-government demonstration in countries like Chile, Iraq, Argentina, among others.
In India, the protests have escalated in response to a controversial citizenship law passed by the government that has drawn criticism from many Indians. The social unrest witnessed across the country has led think tank Eurasia to downgrade its view on India. Growing political pressures is facing Prime Minister Narendra Modi comes as India`s economy continues to slow down. Unemployment has risen to a 45-year high. And experts caution that the ongoing protests could further weigh on the economy.
Political risks in Hong Kong have hurt its growth picture, now facing its sixth month of demonstrations. Hong Kong`s economy has fallen into a recession as consumer spending and retail sales have plunged.
Strategists say if protests in different countries escalate, the economic risks will likely rise.
For NIGHTLY BUSINESS REPORT, Seema Mody.
GRIFFETH: Let`s turn to our friend Jack Ablin to talk more about the markets, as we head to the end of the year. Of course, he`s founding partner and chief investment officer at Cresset Capital.
Jack, good to see you again. Thank you for joining us tonight.
JACK ABLIN, CRESSET CAPITAL FOUNDING PARTNER & CIO: Nice to see you, Bill.
GRIFFETH: I mean, what a stellar December this has been for the markets, capping off what has been a pretty strong year again.
What do you make of all of this right now?
ABLIN: Yes, I mean, it`s a backdrop of lower interest rates essentially. What we realized was that interest rates were a key driver of not only the economy but certainly the stock market, given the level of debt that has really permeated the corporate balance sheet. The Fed learned their lesson very quickly. Reverse course. Three rate cuts and here we are, 30 percent move in 2019.
GRIFFETH: But we still haven`t had though one of those proverbial 20 percent pullbacks that everybody feels is necessary to clean out some of the dead wood in the market before it can reset and go higher again. We just keep going higher and higher.
ABLIN: That`s it. I mean, you have, you know, with the low interest rates and a friendly environment, you have companies, you know, like Sears (NASDAQ:SHLD) that probably should have been out of business five or six years ago at least still, you know, with more than 400 stores.
So, you know, I think there is some catharsis in a washout. We haven`t seen it yet. My sense is, it will be precipitated by higher interest rates. I`m not sure when that will occur, but given how leveraged we are to debt, so to speak, any higher interest rates will push things lower. I don`t see that around the corner, but if we get some inflation, if we get stronger growth than we expect, that could be a risk to the stock market.
GRIFFETH: Once again, technology was a big leader for the markets this year, and then concentrated in some of those big FANG stocks and a few others as well. Is that where you see growth for next year? Or where do you see opportunity in 2020?
ABLIN: Sure. Yes, I see — yes, I don`t see a repeat of 30 percent growth. Keep in mind that, you know, earnings — the earnings backdrop was only up about 3 percent this year. So, clearly, it was all P/E expansion, valuation extension.
Next year analysts are expecting 6 percent growth in earnings if we get no valuation expansion then we should get around a mid-single digit return next year all things being equal. Remember, an election year is generally a good one. Policy makers don`t want the wheels to fall off the apple cart going into re-election so they`re going to try to stay pretty close to, you know, center lane in overseeing markets. But given what we`ve been, I don`t expect anything in the double digit range for 2020.
GRIFFETH: U.S. versus international. You know, we`ve talked about the slow growth overseas, but there are signs that maybe that`s bottoming out right now. Is that where you look for opportunity as well?
ABLIN: I think so. You know, Seema was just talking about emerging markets and, yes, there are risks. But I will say, if you look, take a step back and look at these demonstrations, near term that is an economic negative if things aren`t getting done, but if you looked at what all of these protesters want, generally, you know, more equal income distribution, that`s pro-growth because $1 going to the lower income is going to be spent. $1 taken away from the highest income will likely come out of savings.
So, that ultimately will be pro-growth. We have a valuation spread between foreign and U.S. as wise it`s been in more than a decade. So, I do think we`re going to see the foreign markets catch up as long as the economic growth continues, and there`s no reason — I don`t see a recession on the immediate horizon.
GRIFFETH: Jack Ablin with Cresset Capital — happy holidays, my friend.
ABLIN: Yes, thank you, Bill.
GRIFFETH: See you later.
On the economy now, sales of newly built homes came in a little light in November. But as Diana Olick explains, builders are still poised for a potentially big year in 2020 if they can change one thing.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Home builders are incredibly bullish on their business right now, thanks to strong demand and a severe shortage of existing homes for sale. Home shoppers in November signed more contracts to buy more homes than they did in October, but October`s numbers were revised down sharply.
Still, sales were up a strong 17 percent compared with a year ago. New homes have been selling at an annualized pace of over 700,000 for five of the past six months, the first time since before the recession. Much of the strength in new housing is being fueled by low mortgage rates, a full percentage point lower than they were a year ago. A new forecast from Freddie Mac says rates will hold where they are not only through next year but also through 2021.
The only thing holding builders back from more robust sales is price. The median price of a new home sold in November was up a sharp 7 percent annually. This shift was due to an increase in the number of homes sold above $400,000 and a decline in those sold below $300,000.
Demand is strongest on the low end of the market as millennials finally move from renting to buying. Unfortunately, that`s not where builders are putting up the most homes.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
GRIFFETH: Coming up, three dividend paying stocks in a tough sector that our market monitor says you need in your portfolio in the New Year.
GRIFFETH: It has been quite a year for California`s largest public utility, PG&E. That company has been reaching multi-billion dollar settlements with wildfire victims and insurers and state regulators. But it still doesn`t have the approval of Governor Newsom to participate in a state wildfire fund, which is seen as crucial to its survival.
Jane Wells takes a look at what`s next.
UNIDENTIFIED MALE: Everything burnt. Everything was gone except for what we took.
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: George and Joyce Meyer lost their home and business when fire barreled through the town of Paradise, California, last year, an event caused by PG&E power lines.
JOYCE MEYER, WILDFIRE VICTIM: Sometimes I wonder if you can put a value on all the memories, like my wedding bell or my mother`s afghan that she made my dad for his first anniversary present. I don`t know how you put a value on that. I couldn`t even imagine how to put a price on that.
WELLS: This is what their properties looked like after the fire swept through. The Meyers are now in line with tens of thousands of other wildfire victims to be compensated by PG&E in a $13.5 billion settlement, shares which were decimated last year rebounded this month with news of the potential payout which was approved by the bankruptcy judge.
Except the settlement, along with billions more, are promised to insurers, regulators, cities — these are not a done deal yet. That`s because PG&E`s reorganization plan needs approval from several parties and there is one big holdout, California`s governor.
GOV. GAVIN NESWOM (D), CALIFORNIA: They`re going to have to be completely re-imagined.
WELLS: Governor Gavin Newsom wants a whole new board for the company and he`s also concerned the current plan does not leave PG&E strong enough financially. Without his approval, California`s largest utility may not emerge from bankruptcy in time to qualify for a new state managed fund to cover the cost of future wildfire disasters. If that doesn`t happen, all bets are off.
MIKE DANKO, ATTORNEY FOR WILDFIRE VICTIMS: Unfortunately, if PG&E is liquidated, and its assets sold off, it`s likely the wildfire victims would get very little if anything from those sales.
WELLS: The Meyers have cleared their properties of debris and they wait for money to rebuild. As PG&E says it`s continuing to talk with the governor about an acceptable path forward.
GEORGE MEYER, WILDFIRE VICTIM: I think a person should be happy if you get back close to where you were.
J. MEYER: Just want to go home.
WELLS: For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.
GRIFFETH: J.P. Morgan upgrades 3M (NYSE:MMM). That`s where we begin tonight`s “Market Focus”.
The Post-It`s note maker was upgraded to neutral from overweight. The bank cited potential growth in 3M`s electronics unit, which produces fluids and abrasives used in the manufacture of computer chips. Price target there now $150. Shares were up nearly 2 percent to $178.47.
JD.com is reportedly considering an IPO overseas for its logistics unit that could raise up to $10 billion. “Reuters” reports that the Chinese ecommerce company is having talkes with banks and targeting a valuation of at least $30 billion overall. Shares rose more than 2.5 percent to $36.26.
Brookfield Infrastructure is buying telecom service provider Cincinnati Bell (NYSE:CBB) and its institutional partners for more than $2.5 billion. Cincinnati Bell`s network serves more than 1.3 million homes. The deal is expected to close by the end of next year. Shares spiked by more than 35 percent on that deal today to $10.45.
And Sarepta Therapeutics has struck a licensing agreement with Swiss drugmaker Roche in a deal worth more than $1 billion. Roche will now have exclusive commercial rights to Sarepta`s gene therapy treatment for Duchene muscular dystrophy outside of the United States. Sarepta rose about 7 percent today, 7-1/2 really, to $135.58.
All week, we were getting you ready for the New Year by bringing back some familiar market monitor guests. Tonight`s guest likes defense stocks. Last time she was on a year ago, she recommended Visa (NYSE:V), which over the last year is up 32 percent, MasterCard (NYSE:MA), up 46 percent and PayPal up 26 percent.
We welcome back Mariann Montagne, portfolio manager at Gradient Investments.
Good to see you again. Welcome back.
MARIANN MONTAGNE, GRADIENT INVESTMENTS PORTFOLIO MANAGER: Thank you, Bill.
GRIFFETH: This time, the theme is energy, which, of course, has been a tough sector this year. It`s underperformed most other sectors and you`re going for the dividend as well.
We start with ExxonMobil (NYSE:XOM) tonight. Why that one?
MONTAGNE: Right. Well, I guess just as a backdrop, as you said, energy has been a tough area, and we like the sector now because we like the defensive types of names.
MONTAGNE: And energy fits in there very neatly.
So, ExxonMobil (NYSE:XOM) is an integrated global energy producer. They`ve had several projects in the work that will come on over the next couple of years to drive cash flow and sustain that 5 percent dividend yield, which some have called into question. We`re pretty comfortable with that. And so, we like ExxonMobil (NYSE:XOM).
GRIFFETH: Then a couple of ETFs — the XLE, the SPDR energy select sector. Why that one?
MONTAGNE: Yes, so that`s a broad-based energy play. We just think the $60 plus oil prices right now are sustainable. We think OPEC Plus, the OPEC group plus others involved will cut back on production pretty much in line with what they`ve already offered to us. So, that`s going to sustain that.
And XLE offers a 3.6 percent dividend yield, probably going higher. A lot of companies have already cut back on capital expenditures to help drive their cash flow and that`s probably bottomed. So we should start to see some more money move into the oil services group as capital expenditures start to turn up.
GRIFFETH: Finally, boy, here`s one with a very attractive dividend yield. The Global X Limited Partnership ETF, 9.7 percent yield right now.
MONTAGNE: Yes. You know, that`s — the sustainability of that income had been questioned in the past.
MONTAGNE: And the valuation was cut in half if you look at it on an EBIT to EBITDA basis. So, it`s now selling at about 10 times forward numbers. And we do think the 9.7 percent yield is sustainable.
So, for people who are looking for an alternative to bonds, really, the — you know, the volatility is going to be higher than bonds but it`s not really higher than the overall stock market. So, to have market type of volatility, 9.7 percent —
MONTAGNE: — income alone we think is very positive.
GRIFFETH: Mariann Montagne, always good to see you. Thank you and happy holidays.
MONTAGNE: Good to see you. Happy holidays to you and yours.
GRIFFETH: Thank you very much.
And coming up, the battle for your video game dollars is getting more intense. Are traditional consoles still the go-to gift for the holidays?
GRIFFETH: As expected, Disney`s latest installment of the “Star Wars” saga, “The Rise of Skywalker” won the weekend box office. It pulled in $146 million.
Now, while that fell short of the opening haul for the two previous movies in that series, it was still one of the biggest debuts of the year.
Finally, tonight, for the last several decades, many a kid, even an adult, has hoped for a video game console for the holidays, but the rise of mobile gaming and streaming has put a dent in the popularity of the traditional console.
Josh Lipton takes a look at now at whether this long-time staple of electronic gifts still has a place under the tree.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Will video game consoles be a hot holiday item this year? Maybe not. Shipments are expected to total 37.5 million units in 2019. That`s a nearly 13 percent drop.
Nintendo fans are still buying consoles but Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) fans are putting off purchases, because they know new ones are on the way. Both companies say their next generation consoles will be available late next year. Gamers expect them to be faster with better graphics. So, which one has the edge? Analysts expect Sony (NYSE:SNE) to sell more new consoles than Microsoft (NASDAQ:MSFT), because it boasts a bigger brand in more markets.
But we can`t know for sure, they say, until the companies unveil price points and gains. The new consoles arrive at an important time for the industry. Analysts say mobile gaming continues to grow strongly and there has been a resurgence in PC gaming and there`s a rise of game streaming services, too, like Google (NASDAQ:GOOG) Stadia, which for $10 a month allows fans to stream high quality games to their PCs, TVs and most Pixel phones. No pricey console needed.
That`s a potential long term threat to the console industry, but it`s one that the companies are well aware of. For example, Microsoft (NASDAQ:MSFT) plans to formally launch its own game streaming technology next year though the company isn`t yet detailing price or an exact launch date.
Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) have long battled in this console market but they now see the advantages of working together, too. Earlier this year, the two companies announced that they were exploring a new partnership, including Sony`s use of Microsoft (NASDAQ:MSFT) cloud services for game and content streaming.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.
GRIFFETH: And before we go, one final look at the day on Wall Street. The rally continued more records. The Dow up 96 points. Nasdaq climbed by 20. The S&P was up 2.
That is NIGHTLY BUSINESS REPORT for tonight. I`m Bill Griffeth. Thank you so much for watching. Have a great evening. See you tomorrow.
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