Transcript: Tuesday, August 26, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: So close. The Dow Jones Industrial Average hits an intraday record and the S&P above 2,000. But if you missed the rally, there are still a few stocks one market watcher says are worth buying.

Teaming up. Merck (NYSE:MRK) and Pfizer (NYSE:PFE), two fierce competitors, are now partners with a common goal: combating a certain type of cancer.

And to-do lists. As the kids head back to school, we have a checklist of dos and don’t for your portfolio, whether you’re 20, 40 or 60.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, August 26th.

Good evening, everyone. I’m Susie Gharib. Tyler is off tonight.

Well, Wall Street doesn’t usually get excited about a two-point move in stocks. But today was different, and historic. It took just a two-point gain for the S&P 500 index to cross and close above the 2000 level. Its 30th record so far this year.

There was some euphoria about the Dow, as well. The blue chip average hit a record high of 17,153 in intraday trading, but pulled back by the close.

Some good economic news helped fueled today’s gains. Consumer confidence rose more than expected this month, climbing to its highest level since 2007.

Also driving stocks, an unusually high number for big ticket orders called durable goods. Those orders jumped last month more than 22 percent. But that was skewed by international demand for aircraft and record orders.

Here’s a look at today’s closing digits. The Dow added up 30 points, the NASDAQ up 13, ands the S&P edged up two points to that new milestone, 2000.02.

Our guests watched every move of the S&P today. After all, Erin Gibbs is the equity chief investment officer with S&P Capital IQ and she joins us now.

Erin, so nice to have you with us.

ERIN GIBBS, S&P CAPITAL IQ: Thank you.

GHARIB: All right. So, it looks like the S&P 500 index is on track for its best August since the year 2000. So, 14 years.

How do you see things going between now and the end of the year? The S&P is now at 2,000. Do you see it going higher, going down or just stay the same?

GIBBS: I really expect it to about stay the same for the rest of the year. It’s somewhat dependent on the Federal Reserve. If — right now, Wall Street is expecting the Federal Reserve to raise rates around the second quarter of next year. If they decide to — or indicate that they’re going to raise rates earlier in 2015, we could see a bit of a correction starting at the end of this year.

GHARIB: Because that is the question that a lot of people are wondering, now that it’s gotten this high. Is it time, you know, that we’re going to see a correction. What are the chances of that happening, do you think?

GIBBS: Again, it’s really dependent on the Federal Reserve. And, again, that’s dependent on wage growth and indications of inflations. But overall, the S&P looks very good. Earnings and fundamentals are very strong. And it just — we’re getting close to the top of valuation range. We’re getting, you know, a little pricey. So I think our appreciation for the rest of the year is somewhat limited.

GHARIB: Well, you know, that’s exactly the point that many individual investors are kicking themselves, saying why didn’t I put in money sooner? We have the S&P up 8 1/2 percent so far this year, and they’re wondering, like, has it gotten too expensive and it’s too late for me to get in?

And you say there are still a couple stock areas where investors can make some money for the rest of this year and beyond. One category that you have identified, you call “retailers in transition”. Which is a retailer you’re recommending most right now?

GIBBS: So, one of the retailers that I like that is definitely a value play, it’s trading at only what we call 13 times — 13 1/2 times forward earnings, which is basically just a lot cheaper than everybody else — a lot cheaper than its peers, is Fossil (NASDAQ:FOSL), Fossil (NASDAQ:FOSL) Group. It sells watches, and it’s been struggling this year as it transitions to more online sales, as well as issuing new product lines. They’re doing a lot of watches with designers like Michael Kors and Terry Burke. They’re also issuing some — looking at new smartphone watches.

And so, this has come with some increased cost. But we’re looking for that growth to really ramp up next year.

GHARIB: Another category you have this next group you call high-quality winners that have been returning cash to investors and you talk about Apple (NASDAQ:AAPL). And I hear the stock that is trading at a new record high.

Why Apple (NASDAQ:AAPL)?

GIBBS: So, one, Apple (NASDAQ:AAPL) is a stock you can buy, and I don’t necessarily advocate market timing. That’s very difficult to do. Apple (NASDAQ:AAPL), you can just buy any time. They offer about a 2 percent dividend yield, as well as returning about 5 percent in share buybacks. So overall, you get about 7 percent of the price of the stock returned to you in cash that Apple (NASDAQ:AAPL) buys back in stock and dividends.

It’s also very high-quality. It has a very strong balance sheet. It has lots of cash, which means it can acquire other companies very easily, just like it recently bought Beat Electronics. So it can get growth for those acquisitions.

GHARIB: I’m going to jump in because I want to squeeze in the last one. An area that you call industrials with free cash flow and you say airlines fit this. Southwest Airlines (NYSE:LUV), LUV, is the ticker symbol.

Can you just give one or two reasons why you like this?

GIBBS: Really strong balance sheet, great free cash flows, one of the best balance sheets out of all the airlines. And their acquisition of AirTran has really helped them grow.

GHARIB: All right. Erin, thank you so much for coming on the program. Erin Gibbs of S&P Capital IQ.

Two major drug companies, arch competitors, and also Dow components. They’re teaming up.

Pfizer (NYSE:PFE) and Merck (NYSE:MRK) have agreed to work together to test a new combination cancer therapy. Investors pushed Pfizer (NYSE:PFE) shares up 1 percent, making it the best performing stock on the blue chip index. Merck (NYSE:MRK) rose a fraction of 1 percent.

Meg Tirrell has all the details.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): They’re some of the biggest names in pharmaceuticals, Pfizer (NYSE:PFE) and Merck (NYSE:MRK). Often rivals, they’re coming together now to battle cancer. The companies said today they plan to collaborate to test two drugs in combination — Pfizer’s Xalkori and Merck’s Pembrolizumab.

DAMIEN CONOVER, MORNINGSTAR: As the scientific community learned more about cancer, I think they’re finding new ways to treat cancer. And a lot of it has to do with combination therapy. The combination therapy allows drugs to work on multiple mechanisms of action so that they can have a more effective way of treating the cancer over the long-term.

TIRRELL (on camera): Pfizer’s drug is approved to treat lung cancer. It’s a targeted therapy, aiming at genetic mutations thought to drive the disease.

Merck’s therapy is under review now at the FDA. It’s in a new class called immunotherapy — drugs that harness the immune system to fight cancer. It’s also known by its target, PD-1.

ROGER PERLMUTTER, MERCK RESEARCH LABORATORIES: PD-1 is a molecule found relatively recently that seems to tamp down immune responses. And so, if you block it, under circumstances where there’s an immune response already there, directed against the tumor, if you block that, then you can now reveal that immune response, and the effects can be quite dramatic.

TIRRELL (voice-over): The burgeoning field of immunotherapy drugs also means big business. Morningstar (NASDAQ:MORN) analyst Damien Conover estimates Merck’s therapy can drop $5 billion in annual revenue. And other drugs from Bristol-Myers, AstraZeneca and Roche, he says, could bring the market to almost $20 billion.

Merck (NYSE:MRK) and Pfizer (NYSE:PFE) are building on collaborations already in place, on two other Pfizer (NYSE:PFE) therapies and the same Merck (NYSE:MRK) compound.

PERLMUTTER: The results that we have seen with PD-1 blockade are so remarkable. My view was, we needed to do everything that we could to understand that for the benefit of cancer patients around the world.

TIRRELL: Roger Perlmutter, president of Merck (NYSE:MRK) Research Laboratories, told us that after learning how the drug works on its own, combinations are the future for this technology.

PERLMUTTER: If we can understand how best to use this therapy, we’ll be able to add to that other therapies, not only those we have developed, but those that we can identify that other people have developed, where we can partner with them or acquire those therapies. I think the opportunities are enormous.

TIRRELL: The hope is that in fighting cancer, two drugs are better than one.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.

(END VIDEOTAPE)

GHARIB: Best Buy (NYSE:BBY) didn’t live up to its name. It posted another disappointing quarter, the third in a row. The largest specialty consumer electronics retailer reported lower than expected revenue, down 4 percent. Best Buy (NYSE:BBY) also expects continued softness in mobile phone sales until the newest models come out.

But the company’s profit did beat estimates, thanks to cost-cutting and better online electronic sales. But that wasn’t enough to help its shares, which dropped almost 7 percent today.

Best Buy (NYSE:BBY) also echoed a theme repeated by many other retailers recently. More and more customers are buying online.

So, how do online companies get more foot traffic into their brick and mortar stores?

Courtney Reagan tells us about some ideas which seem to be working.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Traffic — for most of us, it’s a hassle. For retailers, it’s the Holy Grail.

Just getting shoppers in the store has become a feat. While many retailers say a sale on their Web site is just as good, a sale in their stores is technically more valuable, because the high overhead cost of operating a store fleet.

Still, retailers are learning online and mobile presence must be as strong as the experience in store. The web used to be feared by retail. But now, it’s not only embraced, it’s depended on.

(on camera): According to comScore (NASDAQ:SCOR), nearly three in four mobile shopping searches resulted in consumers making a purchase in-store. So, when it comes to driving traffic, retailers are looking to the web and mobile to get consumers to shop in-store.

BILL MARTIN, RETAIL TRAFFIC EXPERT: The good news for retailers and why we continue to see sales improve year over year, is that what’s coming into the store is actually a high-value proposition. Somebody who has already researched the information, has a good idea what they want to buy, and then they’re coming to the stores to execute the purchase.

REAGAN: Best Buy’s CEO Hubert Joly tells me shoppers are browsing online first, so their trips to the store are more targeted. Which means store traffic is going down, but converting trips to sales is going up.

Target (NYSE:TGT) has seen huge growth rates for cartwheel, its app that offers discounts and coupons for consumers on mobile devices or through Facebook (NASDAQ:FB), but requires in-store purchasing.

Nordstrom’s acquisition of online flash-sale site HauteLook is driving traffic to its stores. The department store says shoppers are returning online purchase HauteLook items to Nordstrom (NYSE:JWN) rack stores, noting HauteLook is, quote, “a tremendous traffic driver for our rack stores.”

JCPenney says its Web site sales growth comes in part from dotcom orders originating in the stores. With 30 percent of Penny’s online business, pickup in store, the possibility of shoppers grabbing a couple more items while there increases.

While e-commerce browsing is driving consumers to stores, promotions remain tops when it comes to driving traffic. Macy’s (NYSE:M) CFO Karen Hoguet recently acknowledged the department store sees less traffic when offering fewer promotions. And it’s a retailer analysts mark is best in class when it comes to its Web site and in-store offerings.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

GHARIB: When it comes to shoes, foot traffic has a whole different meaning and discount shoe retailer DSW (NYSE:DSW) seems to understand it. Second quarter profit rose a better than expected 1.8 percent, as net sales and same store sales increased. DSW (NYSE:DSW) also raised both ends of its full-year earnings guidance by 5 cents a share, although it predicts flattish same store sales. Shares jumped 9 percent to $30.99.

And still ahead on the program, the home of the Whopper moves to Canada. And moving with Burger King, one of the most respected investors of all-time. We’ll explain.

(MUSIC)

GHARIB: Burger King made it official today. It will buy Canadian donut chain, Tim Horton’s, for about $11 billion. The new fast food giant will be based in Canada, where the corporate tax rate is less than here in the U.S.

Now, in an unusual twist, Warren Buffett and his Berkshire Hathaway (NYSE:BRK.A) will provide about 25 percent of the financing. In a complicated deal, the legendary investor is expected to buy preferred shares. So, as a result, the U.S. will actually receive more taxes, rather than less, because Berkshire will have to pay full and higher U.S. taxes on the dividends it earns from the Canadian and foreign parent company.

Now, as we told you last night, Amazon (NASDAQ:AMZN) is making a major move into the lucrative video game business. The Internet giant is buying Twitch for almost $1 billion in catch, one of Amazon’s biggest acquisitions ever.

Julia Boorstin explains why Amazon (NASDAQ:AMZN) was eager to snap it up.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Twitch, a platform where people go online to watch others play video games, has been called the ESPN of the future, because the surge of interest in watching game play. Here’s what Twitch co-founder Justin Kan said in June.

JUSTIN KAN, TWITCH CO-FOUNDER: Over a million people broadcast gaming every month. We have over — every — on average, the engagement around that content is extremely high. We have about 45 million people who tune in around the world to the content. And that equals about 13 billion minutes of video watched every month.

So, the engagement on a per user basis is really high. People are tuning in every day for over an hour.

BOORSTIN (on camera): Twitch’s sale to Amazon (NASDAQ:AMZN) comes after Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO)! both showed interest in the company. Though Amazon (NASDAQ:AMZN) will run the 3-year-old startup as an independent subsidiary in San Francisco, it accelerates the Internet giant’s push into video games and web video.

(voice-over): Amazon (NASDAQ:AMZN) has been hiring more gaming programmers and it’s promoting new games and the video game controller it sells for its Fire TV set top box. Now, it has a direct line to gamers, to sell the latest games and consoles.

Twitch investor Ethan Kurzweil says Amazon (NASDAQ:AMZN) will help bring twitch to the next level.

ETHAN KURZWEIL, TWITCH INVESTOR: I think it’s showing their aspirations to be in live entertainment, as well. It’s hard for me to predict exactly what the future holds. I know the Twitch team has some very big plans, and I’d expect under Amazon’s care, that’s only going to speed up. They’re only going to go faster.

BOORSTIN: Twitch could also help Amazon (NASDAQ:AMZN) grow its online advertising business, since it reaches the young male demographic that’s so hard for advertisers to reach, helping Twitch charge much higher prices for that.

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

(END VIDEOTAPE)

GHARIB: Orbitz had a falling out with a major airline, and that’s where we begin tonight’s “Market Focus”.

American Airlines said it’s withdrawing its flights from the travel Web site, saying it was unable to reach an agreement on a long-term contract. U.S. Airways, which is also owned by American, will withdraw its fares on September 1st, but American flights were already pulled. Shares tumbled more than 4 1/2 percent to $8.04.

Movado posted an earnings miss on both the top and bottom lines. Despite the disappointing results, the watch maker does say it expects sales to accelerate in the second half of the year. It also reaffirmed its full-year forecast. Still, the stock fell almost 8 percent to $40.64.

Ann Inc. spiked in today’s session on a “Reuters” report that it hired J.P. Morgan to explore a possible sales. Now, you recall, we told you last night, that two activist investors are urging the company, which owns Ann Taylor, to explore strategic alternatives including putting itself up for sale. The stock popped nearly 5 percent to $41.87.

Well, drones could be making a debut at Disney (NYSE:DIS) World. Walt Disney (NYSE:DIS) has filed three drone-related patents that it says could lead to an era of aerial movie screens and puppets flying through the sky. These drone-powered air shows could be an alternative to the fireworks and light shows at the company’s theme parks. Shares were off slightly to $90.02.

After the bell today, TiVo (NASDAQ:TIVO) reported earnings that beat on strong subscriber growth, but its revenue and guidance were disappointing. Also in that report, the company announced a $350 million share buyback program. Separately, TiVo (NASDAQ:TIVO) says its introducing a new DVR for customers without cable or satellite TV. The device would record both over-the-air broadcasts and streaming online networks.

After the report shares were volatile. During the regular session, the stock was up 2 percent to $13.90.

And Smith & Wesson reported earnings that beat by one penny, but its sales were below forecasts on weaker demand for its guns. Its third-quarter and full-year guidance also came in below estimates. Shares initially plunged after-hours. During the regular session, the stock was off just slightly to $13.10.

Looks like American consumers are doing a better job of paying credit card bills on time. TransUnion, the credit reporting agency, says the rate of payments at least 90 days overdue fell to the lowest level in at least seven years. That good news comes as consumers are using their credit cards more and charging more.

Well, a week from today, kids head back to school, and most Americans return to work. September is a time when everyone, no matter how old you are, buckles down and gets serious about business and financial issues.

So, let’s turn to financial planner, Tim Maurer, for some of the ABCs of smart investment moves. He’s with BAM Alliance.

Tim, we always know whenever the market is doing well and hitting these records that we were just reporting, people get excited but very nervous, am I making the right moves with my investment portfolio and everything I should be doing with my life. And this is one of those times.

It also coincides with the end of summer. So, we want to turn to you for some of the to-do lists of what people should be doing, and as we have learned from you, one size does not fit all. So, we have broken it up no a couple of age categories, starting with the millennials.

What should millennials — these are people in their 20s — what should they be doing right now? What’s on their checklist?

TIM MAURER, BAM ALLIANCE: Well, Susie, everybody wants to tell the millennials what to do, and there’s a lot of apathy reported out there, a sense of entitlement.

I got to be honest with you, having taught millennials for several years, I really enjoy working with them. And here’s one piece of advice that I would recommend. They may have heard you’re supposed to get yourself established and go out and buy a house. Well, as a generation, millennials especially really crave freedom and flexibility.

So, I suggest that they not necessarily go out and tie themselves down geographically with that big asset, and presumably the mortgage to go along with it. I think it’s probably best that they find their direction first, and then make that major purchase. That said, I do think millennials should be stocking up on those retirement plans of tax-qualified dollars to reduce their taxable income, but also to get that savings for retirement going before they get a little bit older. Get themselves established, have a high mortgage, have a couple kids they have to pay for. I think it makes sense to save early for millennials especially.

GHARIB: And — so, you’re talking about like 401(k)s, something like that, and putting in, what, stocks pretty much in those retirement funds, right?

MAURER: Well, that’s the expectation, Susie, is that you’re young, you should be putting everything into stocks, because you can afford to ride it out. Unfortunately, nobody likes losing money, depending — no matter how old they are. So I actually do recommend that millennials have some fixed income that their portfolio —

GHARIB: OK.

MAURER: — because many of the generation before them got hammered in 2008, and they didn’t want to go back for many years.

GHARIB: OK. Let’s move on to the next group. These are the Gen Xer, Xs and Ys, who are in that group, where they maybe are married, they do have kids, they’re in their 30s maybe 40s. What’s your advice there? What move they should be making now?

MAURER: Susie, 30 and 40-somethings have one primary recommendation that they need to hear. If you do not have a will that stipulates the guardianship, the trustee, for your minor children, that is the most important financial planning recommendation right now. Forget 401(k), forget everything else. Go right out, find an estate planning attorney and draft a will. Because otherwise, heaven forbid, you and your spouse go down with the ship, it’s the estate who is going to decide who is your parent — who is the new parent of that child.

GHARIB: OK.

MAURER: Life insurance is another big one, Susie, that I want to mention. It is very important, because it at this stage of the game, if something happens to income earners, they’re going to need — the household is going to need an influx of cash. You don’t have to do anything crazy. I don’t recommend permanent life insurance for folks in this situation. I think 15 times of your income in 20 to 30-year term is going to get the job done for most folks.

GHARIB: OK. Let’s move on to what you’re calling the empty nesters. These are people in their 50s, 60s, they’ve already gotten their kids through college. Their kids are married and grown up. What should they be doing right now?

MAURER: Hopefully, the kids are married, grown up, out of the house, at least past college, right? The most expensive time for parents is putting kids through college. Thereafter, the empty nesters in most cases are going to need to backfill their retirement funding that they weren’t able to fully max out while they had the kids at home.

So, here’s where I recommend maxing out that 401(k), that $17,500 per person, per year, and if you’re over 50, add on another $5,500 per year for those folks in order to back end their retirement planning.

GHARIB: Real quickly, in a few words, what’s the most common mistake that any one of these investment groups do, these demo groups?

MAURER: I think the biggest mistake any of us make at any age is to do anything drastic, especially when we’re looking at market highs. Everybody is thinking, oh, no, I should have gotten in earlier. Maybe I should get out now.

I recommend balance throughout our lifetimes, shifting more and more toward conservatism as we age. That way, no matter what happens, your portfolio would be ready to handle it.

GHARIB: OK. I feel like I’ve got a huge homework assignment. So —

MAURER: Sorry about that.

GHARIB: So, you give me a lot to think about.

Thanks so much, Tim. Tim Maurer of BAM Alliance.

MAURER: Thank you.

And still ahead, what happens when farmers are up to their ears in corn? The answer may be one farm equipment companies don’t want to hear. That’s coming up.

(MUSIC)

GHARIB: Poultry producer, Sanderson Farms (NASDAQ:SAFM), missed earnings estimates in its third quarter. Profits and sales both lower than expected. Sanderson says it processed less fresh poultry than it forecast last spring because fewer birds hatched and the chickens which did hatch weighed less. Shares today were down nearly 6 percent to $89.79.

Meanwhile, down on the farm, they’re getting too much of a good thing. Good weather has led to a bumper crop of corn. And that’s what many are talking about at the nation’s largest outdoor farm show in Iowa.

But as Jane Wells reports, for farmers having too much of a good thing is costing them.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Carol Miller is checking her corn.

CAROL MILLER, FARMER: It’s getting closer to being mature.

WELLS: That means it’s also getting close to harvest, which is expected to set a record. More than $14 billion bushels of corn may be produced in the U.S. this year, a lot more than when we first met Miller two years ago in the middle of the worst Midwest drought in half a century.

MILLER: We probably are going to lose 20 percent to 40 percent on something like that.

WELLS: That was 2012. And now?

(on camera): Now you have too much corn.

MILLER: I can never say too much.

WELLS (voice-over): There is so much corn coming that prices have collapsed to lows not seen in years. Some suggest corn is now selling at below break-even levels.

(on camera): And that means farmers are going to cut back on their spending. Equipment makers at the massive farm progress show in Iowa this week are figuring out how they’re going to weather a downturn, which some analysts say could last years.

MICHAEL COX: I think we’re going to see it across the whole ag value chain. Farmers are going to be looking at ways to cut costs, whether that’s in fertilizer or other inputs.

WELLS (voice-over): Deere laying off over 1,000 manufacturing workers, and rivals hope to grow by taking business from each other, and by offering more software services to help farmers measure growth and improve profitability.

ALISTAIR MCLELLAND: I wouldn’t call what’s going on right now in the agricultural industry anything like a catastrophic downturn. It’s a mild downturn. In fact, if you look at recent history, we’re still going to have farm income levels well above the 10-year average.

MILLER: This is when it is fully mature.

WELLS: Carol Miller was thinking about buying a combine, a used one. But she is holding back until she sees how the harvest goes.

MILLER: It looks like a good year. But then again, we won’t know until we get the combine in the field and get going.

WELLS: For NIGHTLY BUSINESS REPORT, Jane Wells, Boon, Iowa.

(END VIDEOTAPE)

GHARIB: To read more about this year’s potentially record-setting corn harvest and its impact on farmers, go to our Web site, NBR.com.

And that’s NIGHTLY BUSINESS REPORT for tonight. I’m Susie Gharib. Thanks for watching. Have a great evening. We’ll see you tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. 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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