Transcript: Friday, February 14, 2014

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you in part by —


SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Solid gains. Stocks have their best weekly performance of the year after a rocky start to 2014. Is the recent pullback over?

Weight Watchers, one of the best-known names in weight loss, lost a big chunk of its market value today as people flocked to new technologies like apps and fitness bands to shed the pounds.

HERERA: Market monitor. Looking for stocks that pay dividends and do well in a slow-growth environment? Our guest tonight has some recommendations.

All that and more on NIGHTLY BUSINESS REPORT for Friday, February 14th.

And, good evening, everybody. I`m Sue Herera, in this evening for Susie Gharib.

MATHISEN: And good evening from me as well. Well, I`m Tyler Mathisen, by the way.

All right. For stocks today capped the best week so far this year.
The Dow, NASDAQ and S&P 500 all gained more than 2 percent for the week.
NASDAQ, in fact, touched its highest level in nearly 14 years and ran its win streak to seven consecutive sessions — the longest such streak since last July.

Now, all 10 of the S&P 500 sectors were positive for the week led by utilities, health care and materials. Investors shrugged off a drop in industrial production data and today at least said, snow what, to winter weather. The Dow gained 126 points. The S&P 500 rose more than 8, and the NASDAQ picked up 3. Gold was higher by $19 an ounce closing at $1,319.

In the process, it broke through a key level and traders say look for gold to rise now in small increments.

HERERA: So, let`s turn to Chris Gaffney for his market analysis. He joins us and he`s senior market strategist with EverBank.

Welcome, Chris. Nice to have you here.


HERERA: We posed the question at the start of the show whether or not this correction is over after such a rocky start to the New Year. What do you think?

GAFFNEY: We think it is over. We certainly had a rocky start to the New Year. But since hitting the bottoms, stocks have recovered. As Tyler stated in the beginning of the show, we`re back to levels that were pretty much at the beginning of the year. So, we do think it`s over.

MATHISEN: What changed, Chris?

GAFFNEY: Well, I think sentiment changed. The drop was mainly due to fear. We had an emerging markets crisis, a couple of emerging market countries had currency crisis. We had a slow-down in China. The combination of those two created a lot of fear and negative sentiment. I think the market was primed for a pull-back.

So, we got what we wanted. And I think we`re establishing a base to move higher now.

HERERA: Yet on the other hand, we`ve seen a number of the big houses on Wall Street cut their GDP estimates because of the bad weather that we`ve had. What`s your sense of the economy as a whole? And whether or not this recent spate of bad weather might derail the economic recovery, to a certain extent the recovery on Wall Street?

GAFFNEY: Sure. I think that going into 2014, many investors and many of the investment houses had an exaggerated expectation of what 2014 would bring as far as the U.S. economic recovery. Recent data has certainly brought us back to reality. We think that you`re going to see continued slow growth here in the U.S. but it is going to be growth. And we will see some volatility.

As far as the markets, we do think that we`ll see some volatility continue and some pull-backs as we have seen. This probably won`t be the last of 2014. But we are looking better now.

MATHISEN: How would you deploy your money? Let`s say you had
$100,000 worth of incremental cash that you wanted to put to work. How would you apportion it sort of between stocks, bonds, precious metals, real estate, and so forth?

GAFFNEY: Well, diversification is the key. At EverBank wealth management we have well-diversified portfolios. And in fact, we have pretty good positions in both currencies and commodities. And these are more defensive positions, if you will.

But we like to have a very diversified portfolio across all asset classes that are non-core related. So when the market goes down you`ve got other parts of your portfolio that are moving up.

HERERA: What worries you about the market, if anything at all?

GAFFNEY: Well, I think the weather as you pointed out earlier, Sue.
It`s a worry. I think it`s going to be a drag on the U.S. economy during the first quarter. While earnings in the last quarter of 2014 came in basically positive, we saw a lot of negative forward guidance.

So, I do think that we will see the weather impact GDP in the first quarter. But, you know, what can you do about the weather?

MATHISEN: Very quickly, are your — are your positions in some of those nontraditional asset classes, like currencies, like commodities, relatively higher right now then they would typically be — very quickly?

GAFFNEY: No. We keep a fairly stable asset class diversification.
So, we really — we bought some more into precious metals at the end of last year with the big drop that we saw there. So, we did reallocate a little bit. But they`re fairly typical.

HERERA: All right, Chris, thanks so much for joining us. Chris Gaffney, senior market strategist with EverBank, have a great long weekend.

GAFFNEY: Well, thank you.

MATHISEN: And more evidence that the unrelenting cold, stormy weather this winter is impacting the economy. Factory output in the U.S.
unexpectedly fell by 0.8 percent last month, the most in more than four and a half years. The Federal Reserve said the bad weather curtailed production.

And although the Philadelphia Fed`s quarterly survey did not blame the weather per se, economists do expect the economy to grow at a rate of just
2 percent this quarter. That`s down from a half percent from the last estimate, but economists there did raise their full year growth estimate by
0.2 percent to 2.8 percent.

HERERA: Well, believe it or not, traders and investors are talking about something besides the weather. Remember stock pickers? They`ve seemed out of style in recent years as momentum stocks and broad industry ETFs have taken over. But with the bull market maybe moving at a slightly slower pace and a lot of volatility predicted this year, it may be time to go back to the basics.

Dominic Chu explains.


DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Back to normal again. That`s how many traders are describing this market because stocks now trade more on company fundamentals and not as much on just large swings in investor sentiment. That happened during the financial crisis when everything was either down or up in tandem.

STEPHEN WEISS: But now we`ve got a real difference in the market.
Stocks that are shorts are actually going down. And stocks that are quality that are based on quality companies are actually going up. So, this is why they call it a stock picker`s market and that`s more true this year than it was last year or in years past.

CHU: That means there`s an opportunity to do some research and actually outperform the broader market. Even within specific industry groups, we`re already seeing divergence in the way some stocks trade against others. Take for instance, the pharmaceuticals industry. Big drugmakers like Merck (NYSE:MRK) and Pfizer (NYSE:PFE) have similar lines of business.

But so far this year, Merck (NYSE:MRK) shares have gained 11 percent.
Meanwhile, Pfizer (NYSE:PFE) shares have risen by just 4 percent.

A similar story is playing out in the world of high-tech computer chips. Shares of memory chipmaker Micron Technology (NASDAQ:MU) are up 14 percent. Meanwhile, shares of Intel (NASDAQ:INTC), the world`s biggest maker of chips for personal computers, well, they`re down 5 percent. These types of performance discrepancies are allowing some professional money managers to earn bigger profits for their clients, and this kind of scenario could be here for the foreseeable future.

ROBERT LUNA, SUREVEST WEALTH MANAGEMENT CEO: I think this year you`re going to finally see for the first in five or six years rapid management does outperform. So, whether picking individual stocks yourself or looking for the mutual fund managers who are able to do that for you, I think that`s where investors want to be.

CHU: That`s not to say things can`t and won`t change back to the way they were during the crisis. But for now, stock pickers will take normal and be happy.



HERERA: And we will be getting some stock picks from our market monitor guests coming up a bit later in the program.


MATHISEN: Well, Weight Watchers used to be the gold standard for shedding unwanted pounds, the food plans, the meetings, they all work wonders. But the company well, it may be oh so yesterday. Weight Watchers stock fell nearly 28 percent today, its worst loss on record.

Josh Lipton tells us why.


Weight Watchers is a company focused on helping consumers cut weight.
Today, investors cut their positions in the stock. Weight Watchers nosedived in today`s trade, losing one-quarter of its value.

The company told investors on its conference call that 2014 will be a challenging year. Part of the problem, they say, headwinds coming from new technologies. Instead of attending weight loss meetings, people are using free apps, such as My Fitness Pal and Lose It, to track weight loss.

Weight Watchers is also dealing with increasing competition of wearables, where tiny computers that track activities and calories which consumers wear on their wrists.

R.J. HOTTOVY, MORNINGSTAR: I think overall, if the company doesn`t improve its entire technology platform, and that includes its own mobile apps, its online platform, its wearable technologies, I think it`s going to be left in a difficult position. I think that consumers have fully embraced the idea of using smartphones and wearables to manage weight loss programs. And I think that the company has to embrace that.

LIPTON: There`s a lot of buzz about wearables, specifically for fitness enthusiasts. Canalis, the tech research firm, predicts smart bands will reach 8 million shipments this year and jump to 23 million by next year. The leaders in wearables include Nike (NYSE:NKE), Fit Bit, as well as Jawbone, maker of the up wrist band which helps you understand how you sleep, move and eat and costs about $150.

Big-name investors are moving into wearables. Re/code, the tech news site, reported just his week that Jawbone is poised to complete a new $250 million round of funding valuing the company at more than $3 billion.
Analysts say the wearables market will continue to evolve over the next few years, adding new functions for consumers.

ROB ENDERLE, ENDERLE GROUP: They`ll continue to improve on not only telling you what you`re eating, how you`re exercising, but how you`re doing physically at any given point in time. There may be an alert out if you`re going to have a heart attack, or might have a heart attack. And, of course, other things like people tell other people where your location is if you`ve got a medical problem. So, they continue to advance kind of on this health vector.

LIPTON: Wearables pose a real threat to companies like Weight Watchers.

(on camera): Analysts say even if they figure out wearables or risk becoming obsolete.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.


HERERA: And still ahead, one of the biggest Ponzi schemes of all- time. Nope, not Bernie Madoff, but Allen Stanford. And five years after he was accused of bilking investors out of billions, why are his victims still suffering?


HERERA: Are subprime mortgages making a comeback? Well, not quite yet but Wells Fargo (NYSE:WFC), the largest U.S. mortgage lender is moving that way. The bank is looking for ways to stop its revenue decline as overall mortgage volume has fallen since the subprime bust, banks have lent only to the safest borrowers. And if Wells Fargo (NYSE:WFC) loosens even a few of its tight loan requirements, other banks may follow, which could boost demand for homes.

MATHISEN: Toyota (NYSE:TM) is recalling more than 261,000 late-model Lexus and Toyota (NYSE:TM) vehicles here because of various safety systems that could stop working. These include stability control and anti-lock brake systems in the cars and trucks are all 2012 and `13 models.

HERERA: The United Auto Workers is trying to build support among workers at the 17-year-old Mercedes plant in Vance, Alabama. Union organizers following the same route that they used to reach this week`s vote among workers at the Chattanooga, Tennessee Volkswagen plant. That voting ends tonight.

The UAW has been working with German unions and the labor management group at Mercedes` parent Daimler.

MATHISEN: Investors are taking interest in General Motors (NYSE:GM).
That is where we begin “Market Focus.”

According to regulatory filings as of the end of December, Jana Partners added to its position in the automaker, upping it to nearly 8 million shares. Leon Cooperman of Omega Advisers opened a stake in the largest U.S. automaker, buying more than 1 million shares. That sent the stock up 2 percent today, to $35.95.

VF Corporation saw fourth quarter earnings climb 10 percent on sales growth in its outdoor brands like the North Face. But results fell short of estimates because of declines in some of the company`s units like its jeans business. And that contributed to an outlook off (ph) in a pair of well-worn Wranglers. Shares tumbled 5 percent to $56.85.

J.M. Smucker (NYSE:SJM) also missed earnings estimates. The maker of Folgers Coffee took a hit because of competition in its peanut butter issues, as well as currency related issues. Health-conscious consumers didn`t help business since many are avoiding artificial sweeteners. A weak outlook topped off the bad report from Smuckers. Shares fell to $90.51.
That`s almost a 5 percent decline.

HERERA: However, this miserable winter hasn`t been so bad for Campbell`s Soup. More Americans bought soup which sent profits up more than 70 percent. And the late Thanksgiving holiday also helped by pushing shipments to retailers into the company`s last quarter.

The food maker reaffirmed its outlook as well, so shares rose 5 percent to $43.01.

After a series of back and forth buyout offers with Mens Wearhouse, retailer Jos. A. Bank said it would buy Eddie Bauer in an effort to stay independent. Bank is buying the privately held company for about $800 million because it said the deal provided better shareholder value than buying or selling to Mens Wearhouse. The chain upped its share buy-back plan. The stock rose slightly to $55.12.

And there are reports that the U.S. Speed Skating Federation is requesting to switch the team`s suits which are designed by Under Armour (NYSE:UA). The team is trying to make sense of its poor performance and now the speculation has turned to the competitors` new high-tech suits.
The uniform was designed by the sports retailer with help from defense contractor Lockheed Martin (NYSE:LMT).

Shares fell more than 2 percent for Under Armour (NYSE:UA), to $106 even.


MATHISEN: And our market monitor says big companies aren`t the only ones the that pay attractive dividends that grow over time. Small and medium-sized companies do too.

She`s Jill Cuniff, president of Edge Asset Management.

Jill, welcome. Good to have you with us.


MATHISEN: Why are dividends so important to you?

CUNIFF: Dividends are a sign of a company`s strengths. And a company that pays a solid dividend, as well as grows that dividend over time, shows a commitment to shareholders. We believe that`s a big driver to total return.

HERERA: It`s also the search for yield, is it not, in a relatively low interest rate environment, so far in 2014 and all of 2013?

CUNIFF: Absolutely. If you think about what`s happening across the world and aging demographics, yield is very important. And we`re also in a very low-yielding environment with interest rates. So, given that stocks have run and investors are looking for places to go, dividend-paying strategies are great alternative for investors for income as well as the potential for total capital appreciation over time.

MATHISEN: Let`s get to some of your stock picks. One that doesn`t have all that high a dividend but is going to capitalize, at least from your point of view, on the growth in domestic energy production. Tell me about Marathon Petroleum and why.

CUNIFF: Marathon is definitely benefiting from that team of the U.S.
energy independence. The U.S. is generating about 83 percent of its domestic oil needs right now. And that`s going to continue. So, what`s happening is that production and that infrastructure around that needs to be built out.

And Marathon, as one of the largest independent refiners, has done a very good job of capitalizing on that opportunity. They made a smart acquisition last year. They have a strong balance sheet.

And the yield is about 2 percent right now. As you said that`s not all that high, but what`s important is that they grew it by 20 percent last year. So, not only the yield and the good, strong fundamentals of the company, but that growth of the dividend is important to Edge.

HERERA: And, Jill, another thing, you don`t always go to the larger cap companies, you look for small and medium-sized companies that as you say may not have a large dividend but grow that dividend by a large percentage basis.

And I would assume that your next pick Calumet Specialty Partners fits under that umbrella?

CUNIFF: That`s absolutely right, Sue. And at Edge, we look for companies that may not be tracked by Wall Street, overlooked by the average investor. So, Calumet Specially products is about a $2 billion market cap company. And you may not have heard of them but they`re very good at what they do. They make over 35 hydrocarbon products that go into things that you do know, like baby oil and cosmetics and WD-40 (NASDAQ:WDFC).

So, their specialty and focus really distinguishes them. And they do pay a very healthy dividend of just under 10 percent right now. So, good, strong company and good, strong dividend.

MATHISEN: All right, we`ve got two sort of oil or petroleum-based companies. The third one is anything but — Alexandria Real Estate Equities (NYSE:ARE). Why that one?

CUNIFF: Well, it`s important to have diversification. And at Edge, we focus on dividend-paying strategies. And Alexandria is a specialty REITs. We like specialty REITs versus large-cap REITs because we believe large cap has been a bit overpriced.

So, this is a different way to play that space. And what Alexandria does is lease lab space to people like big pharmaceutical companies or biotech or universities. And the biotech segment of the market has been on fire. So, this is a slightly different way to play that space. And they`ve consistently grown their dividend over time.

MATHISEN: And a yield of about 4.1 percent.

Jill, thank you very much. Do you have any disclosures to make with respect to these stocks?

CUNIFF: I don`t hold any of these personally. But we do hold them in our dividend-paying strategies at Edge Asset Management.

MATHISEN: All right, Jill. Have a great weekend.

CUNIFF: Thank you. You, too.

MATHISEN: Jill Cuniff, president of Edge Asset Management — Sue.

CUNIFF: Well, Ty, five years ago Monday, a massive Ponzi scheme shocked the world. We`re not talking about Bernie Madoff. Allen Stanford, a globe-trotting multi-billionaire from Texas, was accused of bilking investors out of $7 billion. His scam gets overshadowed, though, by Mr.
Madoff`s, which broke a couple of months before. But five years later, Stanford`s victims have fared considerably worse.

Scott Cohn has the story.



SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Allen Stanford exuded the American dream, a self-made billionaire from rural Texas who became a royal knight in the Caribbean nation of Antigua and an international booster of cricket.

UNIDENTIFIED MALE: The mastermind and funder of the whole project, Sir Allen Stanford.

COHN: Investors, many of them retired oil workers, ate it up —
28,000 people, 10 times the number of investors in Madoff, bought certificates of deposit from Stanford`s Antiguan bank, assured by his U.S.
sales force that the CDs were every bit as safe as those in the U.S.

Angela Shaw Kogutt and her family lost millions. Like other victims, she feels abandoned by the government.

ANGELA SHAW KOGUTT, STANFORD VICTIMS COALITION: I do have to say that Stanford victims do feel like the stepchildren in the Ponzi world.

COHN: In sharp contrast to Madoff, Stanford`s investors have recovered next to nothing. Many still believe Stanford got a pass for years, thanks to connections, never proven, that he alluded to in a 2009 interview.

INTERVIEWER: Were you helpful to the authorities in the U.S.?

STANFORD: You`re talking about the CIA?

INTERVIEWER: Well, you tell me.

STANFORD: I`m not going to talk about that.

COHN: Even the federal judge overseeing the Stanford case wondered aloud in court last month why the Justice Department went after Bernie Madoff`s main bank but not, so far, after the five banks implicated in the Stanford case. No comment from the department.

(on camera): For his part, Allen Stanford still insists he`s innocent. From a federal prison in Florida he`s appealing his conviction and 110-year sentence. But with all his assets frozen and having fired the last of more than a dozen attorneys, he`s representing himself.

(voice-over): Filing legal briefs from prison in longhand. “I or any American citizen deserves better than this,” he writes. “The presumed innocent part of our Constitution is only a myth in America today.”

His victims are unimpressed.

KOGUTT: Of course, we`re happy Allen Stanford is behind bars. But there are so many other injustices in this case.

COHN: Ralph Janvey, the attorney appointed by the court to recover funds for the victims, says in a letter marking the anniversary, he will continue working tirelessly but the process is difficult, lengthy and expensive, and a race against time. Since the scandal broke in 2009, 176 of Allen Stanford`s investors have died.



MATHISEN: Coming up, more people across the globe are eating chocolate and not just on Valentine`s Day. Will that translate into higher prices when you feed your sweet tooth?


MATHISEN: While doing business may get easier for the legal pot shops in Colorado, a Justice Department official says the administration is preparing written guidelines for banks that would let them set up accounts for the licensed marijuana stores if the banks cooperate with regulators on issues like money laundering. The pot shops now typically deal in cash only.

HERERA: Mmm, a cup of hot chocolate topped with whipped cream and a box of chocolates. OK, but hey, it`s Valentine`s Day. Hang on to your wallet, however, because such warm indulgences may soon come at a much hotter price.

Morgan Brennan has more.


Nothing says Valentine`s Day like a box of chocolates. The National Confectioners Association says chocolate sales this Valentine`s Day will hit nearly $800 million, just in the U.S. So, it`s no wonder chocolatiers prepare months in advance.

JACQUES TORRES, JACQUES TORRES CHOCOLATES: Valentine, it`s the single, biggest day of the year. So, we are getting ready.

BRENNAN: But people are consuming more chocolate during the rest of the year as well. So much so that some analysts expect cocoa supplies to fall short of global demand by more than 100,000 tons this year. And euro monitor says chocolate sales are set to grow faster than any other confectionary treat over the next five years.

Globally, it`s a lot to do with emerging markets. India is one of the faster-growing markets in the world right now. It`s a lot to do with the fact that their incomes are getting to a level where they can start affording chocolate in their diet. So, that`s really pushing up the overall demand for cocoa and chocolate.

BRENNAN: Changing tastes are leading to tighter cocoa constraints.
Here in the U.S., more consumers want dark chocolate as studies tout health benefits. All of this means more demand for cocoa beans, which comes largely from West Africa, a region impacted by harsh weather and political instability.

It`s all pushed prices higher. Cocoa futures have climbed 9 percent since the start of 2014, trading near a two and a half year high. Higher prices mean higher costs for gourmet candy makers like Torres.

TORRES: So, a bag like that is about $350, $250. So, the room that you saw is basically our bank. A pallet of chocolate costs a lot of money.
A pallet will be more than $15,000.

BRENNAN (on camera): Jacques called this room a vault. With 4 1/2 tons of chocolate stored here, it`s the heart of the operation. Each one of these pallets weighs a ton and can cost $15,000. The higher of the cocoa level, the higher the price.

(voice-over): Still, consumers won`t feel the cocoa pinch just yet.
Big companies like Hershey`s hedge their supplies and locking in prices up to two years in advance. Gourmet chocolatiers like Torres — Valentine`s Day preparations started months ago, meaning cost won`t impact consumers until at least Easter. Even then, it will be the difference of pennies.
But with offerings like champagne-filled bon bones and dark-covered orange peels from Provence, customers might not mind.




MATHISEN: Yum. Indeed.

HERERA: That`s it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.

MATHISEN: And I`m Tyler Mathisen. Thanks for watching. Have a great weekend. Happy Valentine`s Day. We`ll see you on Monday on Presidents` Day, with a special holiday edition of NIGHTLY BUSINESS REPORT to help you pay less tax.



Nightly Business Report transcripts and video are available on-line post broadcast at The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests 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) 2014 CNBC, Inc.

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