Transcript: Nightly Business Report – November 12, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Stock routes. The Dow
tumbles 600 points to start the week as the wave of selling spread from one
sector to the next.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Tech wreck. Apple
(NASDAQ:AAPL) tanks and brings the rest of the sector down with it. What
will it take for tech to regain its footing and what happens if it doesn`t?

GRIFFETH: California burning. Fires are spreading, cost estimates are
rising and state utilities are coming under scrutiny.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Monday, November 12th.

HERERA: Good evening, everyone, and welcome.

It was an ugly day on Wall Street. Stocks fell hard, led lower by a
selloff in technology. But there was more to it, a lot more. The declines
quickly spread throughout the market and the end result was a broad selloff
that took down just about everything.

Let`s get right to the final numbers for you. The Dow Jones industrial
average slid 602 points to 25,387, the Nasdaq was down 206 points or 2.8
percent and the S&P 500 fell 54.

Bob Pisani reports from the center of it all at the New York Stock
Exchange.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a sea of red
today on Wall Street with the Dow plunging more than 600 points at the
close. The markets boxed in because of worries about global growth and the
Federal Reserve. That`s the principal problem.

Today`s decline in tech can`t be blamed exclusively on Apple (NASDAQ:AAPL).
There was a supplier, Lumentum, one of their facial recognition suppliers,
that reduced their outlook for the quarter. They cited reduced shipment
requests from one of their biggest customers. Everybody assumed that was
Apple (NASDAQ:AAPL).

But that`s not the only problem. FANG names like Facebook (NASDAQ:FB) and
Amazon (NASDAQ:AMZN) were down 2 to 3 percent. The industrial energy
sectors were one and a half percent each, pointing to a big problem. U.S.
growth seemed strong, that`s good news, but the global growth picture in
Europe and China is generally weaker.

Another problem is the strong dollar. With the Fed raising rates, worries
about Italy, the U.K. leading to a weak euro. China slowdown concerns,
that`s all pushing the dollar up.

The dollar in turn is hurting commodities. There`s been double digit
declines this year in copper, and aluminum and lumber, again, global
slowdowns. This recent decline in oil we see, it`s being blamed on
oversupply issues, but concerns about a down on demand are also a factor.

So, the bottom line is this: there`s lots of questions about global growth
and what the Fed`s going to do in 2019.

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

(END VIDEOTAPE)

GRIFFETH: Bob just mentioned Apple (NASDAQ:AAPL), which got a lot of
attention today from investors. The stock fell 5 percent, making it one of
the worst performers among the Dow 30 components.

Josh Lipton takes a closer look at why there is so much focus right now on
the largest U.S. publicly traded company.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Worth nearly a
trillion dollars, Apple (NASDAQ:AAPL) is the most valuable public company
in the world. But today, its stock got whacked on news from one of its
pint sized suppliers. Lumentum slashed its second quarter forecast saying
that a large customer cut orders. Now, it didn`t name that customer, but
investors drew their own conclusions as the small laser maker`s technology
enables the iPhone`s face ID feature, and that caused new worries about the
health of Apple`s bread and butter, its iPhone franchise.

In the past, Apple (NASDAQ:AAPL) CEO Tim Cook has emphasized that his
supply chain is big and complex. His point is that it`s hard to
extrapolate trends from just a handful of data points. In other words,
it`s not just Lumentum that Apple (NASDAQ:AAPL) relies on other companies
like Finisar (NASDAQ:FNSR) and II-VI (NASDAQ:IIVI), which recently
announced a merger. Analysts estimate those two companies account for
about 50 percent of this critical laser technology to Apple (NASDAQ:AAPL).
Both companies also traded lower today.

Still, the bears came out in force today saying this news reinforces their
view that iPhone shipments are declining. Even bulls on Apple
(NASDAQ:AAPL) like JPMorgan (NYSE:JPM) are now forecasting year over year
declines in iPhone shipments.

On the other hand, Citi`s Jim Suva says this Lumentum news is a concern but
he was never counting on a big jumping in iPhone units anyway in the
quarters ahead. He`s more focused on how much money Apple (NASDAQ:AAPL) is
making on each phone that it sells.

JIM SUVA, CITI INVESTMENT RESEARCH MANAGING DIR.: Is we believe that the
average selling prices are going to be much bigger than expected. And with
that comes the opportunity to have more profitability. Now, the costs of
goods sold or the memory costs known as NAN and DRAM going into it keep
falling. That means on the same given unit, Apple (NASDAQ:AAPL) is going
to make more and more profits to drive more revenues and EPS and cash
flows.

LIPTON: That bullish view was in short supply today, however, and it`s
been a tough couple weeks for Apple (NASDAQ:AAPL) since the iPhone maker
last reported earnings results on November 1st. Its stock is down more
than 10 percent.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.

(END VIDEOTAPE)

HERERA: It`s not just Apple (NASDAQ:AAPL). Investors are also concerned
about the threat of potential regulation on Internet companies, something
we`ve been telling you about. And that`s just one of the concerns that
drove media stocks lower today.

Julia Boorstin picks up the story from there.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Social stocks
struggling today as investors continue to question the long-term potential
platforms whose user growth is stagnating.

Snap shares ending the day down over 2 percent. Today, the company losing
yet another senior executive, V.P. of content Nick Bell. He oversaw all of
the partnerships Snap has with media companies which has fueled the growth
of Snapchat`s discover section. Bell is just the latest in a series of
executive departures and changes at the top.

And Facebook (NASDAQ:FB) shares losing nearly 2.5 percent. The company
saying it`s partnering with France for a six-month investigation into hate
speech on the platform and how to prevent it.

Veteran investor Ann Winblad saying this is just one of Facebook`s myriad
challenges.

ANN WINBLAD, HUMMER WINBLAD VENTURE PARTNERS: Facebook (NASDAQ:FB) is
another story. I mean, Facebook (NASDAQ:FB) has trust issues. We`ve
talked about that in the past. They have saturation. They have revenue
per user issues, and they can`t seem to come up with an encore, either to
their trust issues or to products themselves.

BOORSTIN: And Twitter also facing concerns about the spread of fake news
and hate speech. Its shares losing 6 percent, giving up some of its gains
following its earnings report last month.

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

(END VIDEOTAPE)

GRIFFETH: Let`s turn to Paul Meeks right now to get more on the technology
selloff and what it means for the overall market. Paul, of course, is lead
portfolio manager at The Wireless Fund.

Welcome back.

PAUL MEEKS, THE WIRELESS FUND LEAD PORTFOLIO MANAGER: Great to see you.

GRIFFETH: How much longer do you think this lasts? And what are you
watching to tell you how much longer you think it will last?

MEEKS: Excellent questions. I think that we`re not near the trough but
maybe we`re getting within a quarter or two of a potential bottom in the
tech sector. You know, one of the things that most average investors don`t
realize about the tech sector is it`s highly cyclical.

And when you take a look at the U.S. markets, the U.S. markets are divided
into 11 economic sectors, technology being just one, it is a 20 percent
weight of the market. So, a very big influence. A cyclical markets and
there are concerns not about U.S. growth but about growth abroad.

GRIFFETH: Yes.

MEEKS: The tell that I`m looking for in technology is kind of interesting.
A big portion of technology is the semiconductor industry, and what we`re
hearing from a number of the major semiconductor companies is that their
companies have — or their customers, excuse me, have too much inventory of
chips. We call that in the industry an inventory correction and when we
get some semblance of a balance and the customers start drawing back that
inventory and they start ordering again, that is the biggest tell for a
turn around in the fortunes of the tech companies and these stocks.

HERERA: You also say that you need to at least see some progress or change
or development in the U.S./China trade negotiations.

MEEKS: Yes. This is a very significant issue and some of the leading
forecasters, particularly in China, think this might be a problem that
lasts for several years. In the meantime, I`m chomping at the bit to buy
shares of some of the leading internet companies in China, like Alibaba
that just posted monster sales on their Singles` Day over the weekend, but
I can`t really step in until we clear up some of this geopolitical mess.

GRIFFETH: Before we let you go, Paul, very quickly, some of the
opportunities you see.

Would you show them on screen here?

Companies like Boeing (NYSE:BA) and Visa (NYSE:V) and MasterCard (NYSE:MA).
Why those?

MEEKS: Interesting. I want to play some defense, and I think particularly
payment processors, ala Visa (NYSE:V) and MasterCard (NYSE:MA), are good
relatively defensive tech plays. I do consider them tech stocks.

Also, Boeing (NYSE:BA) is very interesting because the most captivating
part of Boeing`s story in my view is not the assembly of aircraft, it`s
their services business which is very high tech, very high margin. I can
hide in some of those companies until the smoke clears for the rest of tech
and, of course, I already have a relatively high proportion of cash to keep
some powder dry for better opportunities.

GRIFFETH: Very good. Paul Meeks with the wireless fund. Always good to
see you. Thanks again for joining us tonight.

MEEKS: Thank you.

HERERA: Goldman Sachs (NYSE:GS) saw its worst one day drop in about seven
years. The selloff follows a report that former CEO Lloyd Blankfein was
the unidentified high ranking executive referenced in court documents
related to a 2009 meeting with the former prime minister of Malaysia who
was involved in the 1MDB scandal.

GRIFFETH: Meantime, shares of GE fell below $8 a share today, its lowest
level in nearly a decade. During a wide ranging interview today, the
company`s new CEO said he`s focused on bringing down the company`s debt
levels.

(BEGIN VIDEO CLIP)

LARRY CULP, GENERAL ELECTRIC CAIRMAN & CEO: We need to bring the leverage
down, and I think we`ve got plenty of opportunities through asset sales to
do that. In the last six weeks, it`s my six — marks six weeks on the job,
I`ve heard from lots of people across our markets, people who have interest
in GE assets, and I think that`s confirmation that we have quality
franchises and frankly that we have options.

(END VIDEO CLIP)

GRIFFETH: Mr. Culp (NYSE:CFI) emphasized that he will not rush this
process even though he is feeling pressure to move quickly. He also said
that GE has no plans to raise additional equity in the stock market. He
thinks the power business is getting close to bottoming out and he`s
looking to streamline GE`s corporate structure in order to save money. The
stock today closed at $7.99.

HERERA: Oil prices which started the day higher settled below $60 a
barrel. Domestic crude marked a record 11th straight session decline and
it follows weekend discussions by major oil producers to potentially cut
production.

GRIFFETH: Time to take a look now at some of today`s upgrades and
downgrades.

We begin with some airline stocks. JetBlue and American Airlines initiated
with a buy rating in new coverage of Goldman Sachs (NYSE:GS). In general,
the analyst expects the airlines to expect strong revenue next year. The
firm also sees a bigger focus on cost controls. Shares of JetBlue fell a
fraction today to $17.99. American Airlines shares rose more than 1
percent to $36.86.

L brands was upgraded to outperform from market perform at Wells Fargo
(NYSE:WFC). The analyst sees L Brands as the next retail turn around
story. Price target now $55. Shares rose 1 percent to $37.02.

HERERA: Starbucks (NASDAQ:SBUX) was upgraded to buy from hold in Argus
Research. The analyst cites the potential for continued revenue growth,
new store openings, stock buy backs and dividend increases. The price
target is $79 but the shares fell in an overall down market by 1 percent to
$67.91.

Cheesecake Factory was downgraded from under weight to equal weight at
Barclay`s. The firm cites headwinds and the stock`s valuation. The price
target is $47 and shares of Cheesecake Factory fell 4 percent to $50.15.

GRIFFETH: Still ahead, California`s scorched and the cost is climbing.

(MUSIC)

GRIFFETH: Well, the California wildfires are still spreading and only a
small portion has been contained so far. Fires are being whipped by strong
winds burning thousands of acres of land. Homes, businesses on both the
northern and southern part of the state and tonight, state utilities are in
focus.

Aditi Roy is in southern California, Camarillo, for us tonight.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: California is burning on
both ends, with wildfires ravaging northern and southern California. Up
north, the Camp Fire is now the most destructive fire in California
history, decimating an entire town called paradise.

UNIDENTIFIED MALE: It was such a beautiful place.

ROY: The Camp Fire also matched the record for the deadliest fire in the
state`s history. Between this blaze and southern California`s Woolsey
Fire, the two infernos have scorched more than 200,000 acres, destroyed
nearly 7,000 homes and evacuated 250,000 people.

UNIDENTIFIED FEMALE: I was just coming up the street to see my neighbors
and I didn`t realize my house was gone too.

ROY: Beyond the tragedy of lives lost, homeowners are bracing for damage
estimates. Core Logic says the total reconstruction value of the more than
48,000 homes in extreme or high danger in the two fires is about $18
billion and Zillow reporting that the nearly 22,000 homes in the Woolsey
and smaller Hills Fire in Thousand Oaks have a combined value of $42
billion.

According to one estimate, in 2017, home and farm insurers lost $16
billion, quadrupled from the previous year. Some industry insiders say
that could result in a slow creep of fire insurance premiums in some areas.

Meantime, two California utilities say they suffered outages minutes before
the fire started. Their stocks falling sharply under scrutiny, as concerns
mount that the companies could face billions of dollars in potential
liability.

This as firefighters braced for yet another day battling fierce flames
fueled by high winds.

UNIDENTIFIED FEMALE: It`s just a roar. It`s a roar in your ears that
you`ll never forget.

ROY: As homeowners wait and watch nervously, we also know that travelers
insurance in its last earnings call had also warned investors about
upcoming wildfire payouts and that was before these November wildfires.

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

(END VIDEOTAPE)

HERERA: A deal making Monday. That`s where we begin tonight`s “Market
Focus”.

SAP is buying the software form Qualtrics for $8 billion. The head of SAP
says the acquisition will bolster that company`s offering. Qualtrics had
filed for an initial public offering last month, hoping to raise about $200
million. SAP shares fell more than 6 percent to $101.42.

And another software to tell you about. Apptio is being taken private by
Vista Equity Partners for nearly $2 billion just two years after it went
public. Apptio helps companies manage and understand their cloud spending.
Shares popped more than 51 percent in an otherwise sharply down market to
finish at $37.65.

Athena Health is being acquired for $5.5 billion by two private equity
firms, Veritas Capital and Elliott Management. Athena Health said in June
that they were going to consider strategic alternatives around the same
time its founder Jonathan Bush stepped down as CEO. Shares of Athena
Health rose more than 9 percent to $131.97.

GRIFFETH: A “Wall Street Journal” reports that the FDA want to ban the
sale of menthol cigarettes sent shares of tobacco companies lower today.
Menthols represent 55 percent of British American Tobacco U.S. sales by
volume and about 20 percent of Altria`s cigarette shares. Altria`s shares
were down 3.5 percent today to $61.20. Shares of British American Tobacco
were down 8 percent to $38.08.

And a strike has been avoided at UPS freight after the company reached a
deal that covers more than 11,000 workers and prevents what would have been
that company`s first work stoppage since 1997. Last month UPS`s small
package division which employs more than 240,000 workers also reached a
tentative labor agreement. UPS shares fell more than 1.5 percent today to
$107.72.

And Kellogg`s said late today it is looking to sell its Keebler, Famous
Amos and Fruit Snacks business, all in an effort to focus on its core
products in North America. Kellogg (NYSE:K) will consolidate its
breakfast, snacks and frozen food units into one. The stock was halted
late today. It finished the regular session down 1 percent to $64.30.

HERERA: Lawmakers will return to Capitol Hill this week for their final
session of the year. They`re expected to tackle a number of issues that
could determine whether a partial government shutdown can be avoided next
month.

Ylan Mui has the roadmap for investors.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s back to work in
Washington as Congress returns to Capitol Hill tomorrow. There is still a
lot to do in the lame duck session. House Democrats pick their leadership
this week. And so far, no one is challenging Nancy Pelosi for the top job.

After Thanksgiving, House Republicans will elect their party leaders.
California Congressman Kevin McCarthy is expected to win, but he`s fending
off a challenge from the right by Ohio Congressman Jim Jordan.

And with December comes another deadline to keep the government running.
About 25 percent is still not fully funded and there are some serious
sticking points in the negotiations. Democrats want the spending bill to
include protections for special counsel Bob Mueller and his investigation
into Russian meddling in the presidential election.

Meanwhile, Republicans want money for the border wall. McCarthy sponsored
a bill that would give the White House the full $25 billion. Keeping the
government open will require compromise from both parties and the incoming
freshmen in Congress say that`s their goal as well.

REP.-ELECT ELISSA SLOTKIN (D), MICHIGAN: We need people of integrity on
both sides of the aisle. We`re never going to be a one party country.
That`s not our history. That`s not how we work best. So, I will be
looking for anyone I can work with across the aisle, including in my own
Michigan delegation, to get some real work done.

MUI: We`ll see how long this bipartisan spirit can last.

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.

(END VIDEOTAPE)

GRIFFETH: Some sad news to share with you tonight. A powerhouse of the
superhero business has died. Marvel Comics legend Stan Lee was credited
with revolutionizing the comic book industry. He created some of the most
well-known superheroes of the 20th century, including Spider-man, the X-
Men, Ironman and Thor. His work as a writer, editor, publisher and
Hollywood executive helped make Marvel an international success.

That company was purchased by Disney (NYSE:DIS) back in 2009 for $4
billion. Stan Lee, himself a real life super hero to the comic book
industry, was 95.

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow.

We`ll see how rising mortgage rates and slowing housing growth is impacting
Home Depot (NYSE:HD) when it reports its earnings. OPEC`s monthly report
will be in focus given the slide in oil prices and we`ll find out how small
businesses are coping with the tight labor market with the release of the
NFIB survey and that is what to watch for on Tuesday.

GRIFFETH: Well, this increase in market volatility has many investors
searching for stability in quality stocks, but which companies fall under
that category and what does this rotation mean for the broader market?

Mike Santoli takes a look.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Investors are
increasingly willing to pay up for quality in a turbulent market. Shares
of high quality companies began outperforming even before the broad market
hit a rough patch starting in late September. Quality in this case means
companies with stable businesses not dependent on a strong economy, little
debt and strong cash flow.

This preference can be seen in the likes of McDonald`s (NYSE:MCD), Walmart,
Walt Disney (NYSE:DIS), Starbucks (NASDAQ:SBUX) and Merck (NYSE:MRK)
trading their record highs. Health care is the top performing sector for
2018, another example of investor`s rewarding steady cash rich companies.
Quality stocks are not quite the same as value stocks. Those cheaper
looking companies that frequently are geared tightly to economic growth
rates and tend to carry a good deal of debt.

Wall Street is increasingly preoccupied with just how much the economy and
profit growth might trail off next year after a strong 2018 which makes 30
brand name stocks more appealing. And with the Fed`s interest rate
increase it`s making debt more expensive, investors want to bet on a strong
balance sheet.

While the market`s message is never perfectly clear or predictive, this
kind of rotation towards quality is something that tends to occur later in
economic cycles as the market turns towards a tougher, more volatile path.
Might this be the market`s way of hunkering down to a way to solid signal
on whether U.S. growth will hold up in 2018, perhaps an encouraging deal
with China on trade or more accommodative tone from the Fed could refresh
investor appetite for riskier stock. For now though, quality is in style.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

HERERA: So our next guest is here with some quality names that you may
want to consider in this volatile market. Joining us tonight is Eric
Marshall, president of Hodges Capital Management.

Good to see you, Eric. Welcome back.

ERIC MARSHALL, PRESIDENT, HODGES CAPITAL MANAGEMENT: Good to be here.

HERERA: You think we`re about 2/3 of the way through this particular
correction so maybe don`t go defensive but definitely go to quality?

MARSHALL: Yes. It`s hard to hit defensive when we`ve seen the market
correct as severely as it has. No one knows where the bottom is, but I
think this is the time where you`re going to start seeing new leadership
emerge in the market. And, you know, recently, over the last year or two,
it`s really been about those a lot of those fast growing companies that
trade at very high multiples and carried with them a lot of momentum, we
think you could see a rotation back into some of the more value areas of
the market. So, not only would we be focusing on quality companies but
also very focused on valuations here.

HERERA: You gave us four names, we don`t have time to highlight all four
of them necessarily, but they are FedEx (NYSE:FDX), Agco, Nordstrom`s and
Cinemark. What`s the common them other than just quality. What is it you
like about these companies?

MARSHALL: Well, all four of those are areas of the markets that have been
kind of ignored and forgotten about, transport, ag equipment, consumer
names like retail and a movie theater company of all things.

GRIFFETH: Right.

MARSHALL: And these are areas that have been ignored. They have very
positive cash flow. They pay good dividends and they trade at very
reasonable multiples that we think have very limited down side from here.

HERERA: How important is the dividends? I mean, in a market that`s
volatile, how would you rate it? Obviously, you want a good balance sheet
in a company, a good brand, but how important is the dividend to you?

MARSHALL: Well, I think the dividend does represent some stability in the
company`s cash flow because they have to generate cash flow to look at
dividend every quarter, but we do think that companies that have very
stable earnings, stable cash flow do pay dividends and it can protect you
on the down side.

GRIFFETH: And are these the kinds of companies you want to own even as
interest rates rise. I mean, you know, the Fed is in the midst of the
whole process of trying to normalize rates. So, are these the kinds of
companies you like in that environment?

MARSHALL: Well, like I said, these are areas of the market that you
haven`t seen outpace a lot of the more higher growth areas of the market.
They tend to be some of the more boring areas, and I think valuations are
so compelling right now that even in higher interest rates, we may see the
valuations of what the market`s willing to pay for those earnings, not go
up anymore, but we still think these companies have the prospect to see
further earnings growth next year —

HERERA: Sometimes boring is good.

MARSHALL: — in a lot of these areas.

HERERA: Eric, thank you very much. Eric Marshall with the Hodges Capital
Management.

GRIFFETH: And before we go, it was one of those days again on Wall Street.
The Dow fell by more than 600 points, the Nasdaq dropped more than 2
percent and the S&P was down 54 points. Shares of Apple (NASDAQ:AAPL) fell
by 5 percent pressuring the broader technology sector today.

HERERA: Quite a day. That`ll do it for us tonight. I`m Sue Herera.
Thanks for joining us.

GRIFFETH: I`m Bill Griffeth. See you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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and commentators are their own and do not necessarily represent the views
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Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.

 

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