Transcript: Nightly Business Report – December 14, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Losses mount.  The selloff
deepens after weak economic reports out of China stir a fresh round of
selling.

What did J&J know and when did they know it?  That`s what investors are
asking after a report says the company was aware for decades that its baby
powder contained asbestos.

Golf and the glass ceiling.  Women learn thousand play the game to close
more deals.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
December 14th.

Good evening, everyone, and welcome.  Bill Griffeth is off tonight.

J&J lost about $40 billion in market value today.  We`ll have more on that
in just a moment.

But we begin tonight with the broad market selloff.  The three major
indexes have all lost 10 percent or more from their most recent highs,
meaning they are closed in the correction territory together for the first
time since 2016.  The concern is over global economic growth which was
triggered by weaker than expected economic data out of China.  That sparked
the selling and by the close, the Dow Jones Industrial Average dropped 496
points to 24,100.  That is the lowest close since May.  The Nasdaq fell 159
and the S&P 500 slipped 50.

So let`s talk more about that selloff tonight with Patrick Chovanec.  He`s
the chief strategist with Silvercrest Asset Management.

Patrick, welcome.  It`s a great night to have you here.

PATRICK CHOVANEC, SILVERCREST ASSET MANAGEMENT CHIEF STRATEGIST:  Hello.

HERERA:  So tell me what you make of today`s move in particular.  The
volatility has been with us some time now.  But is the market overreacting?

CHOVANEC:  So, it`s interesting.  If you go back to the last three selloffs
before the latest one in October, all three of them were triggered by
concerns about a slowing China.

But I don`t think that you can — I`ve lived in China for a decade before I
came back to New York.  I don`t think that you can draw a direct line
between a slowing Chinese economy and slowing U.S. economy.  In fact, I
think that the result is that a slowing Chinese economy can be bad for some
companies and sectors but good for others in the United States.  And I
think each time it has taken the market in the past time to realize this
and then rebound.

HERERA:  Are the fundamentals though for the U.S. economy and the companies
that do business here and report their earnings, are those still intact?

CHOVANEC:  The U.S. economy is slowing down a bit.  It was really going
strong last summer when the market thought the U.S. economy could do no
wrong.  And now it`s slowing down.  And so, people are focused on the
downside.  But for the life of me, I mean, I`m not a permeable.  I`m not
somebody who always cheers up the U.S. economy or the market and says it`s
always going a straight line upwards.  I keep on looking for signs of an
imminent recession.  And I don`t see them.

The latest economic data is actually relatively robust and relatively
positive.  There are things that could turn to bigger problems later and
there are soft spots.  But I don`t see the economy facing a recession right
around the corner as the market seems to imply.

HERERA:  So, very quickly, would you use days like this or the overall
trend that we have been seeing of volatility and lower prices if you are a
longer term investor, would you add to the positions?  Do you find
valuations compelling?

CHOVANEC:  It`s depends on how long of a term of investor that you are and
how much volatility or uncertainty you have a capacity for.

I would say that somebody who is genuinely long-term it is fairly
attractive now, U.S. shares, compared to the alternative which is still low
interest rates.  But, again, you have to be willing to accept the ups and
downs of the market in the meantime.

HERERA:  Absolutely.  Patrick, thank you so much.  Patrick Chovanec with
Silvercrest Asset Management.

And now, more on China and its weakening economy.  Beijing is working to
halt an economic slowdown which comes as China grapples with the effects of
the trade conflict with the U.S.  That may be one reason why China is
temporarily slashing tariffs on U.S. auto imports.

Eunice Yoon is in Beijing tonight.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  China`s finance
ministry says it will suspend additional tariffs on U.S. made cars and car
parts.  Two hundred eleven items will be affected with China lifting a 25
percent tariff on most of those items.  The decision takes effect January
1st and lasts three months.

The finance ministry posted explanation on its website, saying we hope the
two sides, U.S. and China, will intensify negotiations towards eliminating
all tariffs increases.  Immediately after the announcement, Tesla cut
prices on the Model S and Model X vehicles in China.  Tesla is one of the
few American carmakers that exports whole cars to China.

The announcement came after a raft of data showed the economy here slowing
down even further.  Both retail sales and industrial output missed
expectations.  Retail sales grew at their slowest pace since 2003, and
industrial output expanded the least in three years.  Fixed asset
investment jumped slightly but only because weak earlier in the year.

Part of the slowdown has been engineered as the government cracks down on
lending.  However, trade tensions are weighing on consumer sentiment.
Chinese statistics bureau said, so far, the impact from the trade war has
been minimal, but the bureau expects greater external uncertainties in
2019.  That raised questions here on what policymakers will do next.  The
central bank governor said Thursday that China would keep monetary policy
loose for now and next week, Beijing leaders will meet for their annual
economic policy setting meeting for the year ahead.

Most analysts believe that the pressure will be on to stimulate growth even
further as domestic demand continues to weaken and the clock ticks down on
the traffic truce.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

HERERA:  And now to our other big story tonight, Johnson & Johnson
(NYSE:JNJ).  And a product closely associated with that brand, Johnson`s
Baby Powder.  For years, we`ve report the on lawsuits that allege the
talcum powder causes cancer, something the company has denied.  After every
verdict, the stock barely budged.

But that`s not what happened today when “Reuters” reported that J&J knew
for decades there was asbestos in the powder.  The stock was slammed.  It
fell 10 percent, and that is its worst day since 2002.

(BEGIN VIDEOTAPE)

HERERA:  The stocks stunning drop followed a “Reuters” report based on that
news organization`s review of J&J company memos and other documents dating
back to the early 1970s.  In its report, “Reuters” say J&J execs, mind
managers, scientists, doctors and lawyers worried its raw talc and finish
powders had at times tested positive for asbestos, but they denied all
claims until forced to share thousands of pages of internal reports with
lawyers representing almost 12,000 plaintiffs who claimed that talc gave
them cancer.

LISA GIRION, REUTERS CORRESPONDENT:  We see that historically in the `70s,
`80s, that era, that there were company memos and reports where they are
talking about asbestos, what to do about it, fretting about it, how to
detect it, how to get rid of it.  Is there ever a way we can get rid of all
contaminants?  So, during the era they certainly were talking about it.

HERERA:  J&J disputes the validity of the “Reuters” report, calling it,
quote, one-sided, false and inflammatory.  Simply put the “Reuters” story
is an absurd conspiracy theory, end quote.

The company says its baby powder and other products are safe and asbestos
free.  And “Reuters” reporter Lisa Girion told NBC News that the J&J
testing has shown its products to be asbestos-free for at least 15 years.

But the bigger problem for J&J may be the barrage of hits the reputation
has taken this year.  Trial juries have come down on both sides, some
ordering the company to pay billions of dollars in damages while others
sided with the company.  But all that publicity is now compounded by
questions of trust swirling around one of the world`s biggest and best
known consumer health products brands.

(END VIDEOTAPE)

HERERA:  So does J&J stock continue lower after today`s drop?

Joining us now is Damian Conover.  He is the equity analyst at Morningstar
(NASDAQ:MORN).

Damian, thank you so much for joining us tonight.  What did you make first
of all of the selloff in the stock today?

DAMIEN CONOVER, MORNINGSTAR EQUITY ANALYST:  Yes, thanks for having me.
When we saw the market selloff today based on the news, it seemed like a
major overreaction to see this much market capitalization wiped out in one
day relative to this legal threat I think was overdone.  Now, we did think
the stock price of J&J had got a little bit lofty.  But that being said, we
thought the reaction today was well overdone based on these legal threats
that seem to have always been there but just were elevated through this
article that came out today.

HERERA:  You have a price target of $130 on the stock.  Did today`s action
cause you to change that?

CONOVER:  No.  Today`s action didn`t cause us to change our valuation.  We
have already accounted for a lot of legal charges for J&J not only for the
talc powder but other cases that have gone on unrelated to this.  And we
take that into account.  We think the fair value is $130.  So, the pullback
today put the stock where we think it`s worth.  But we don`t think the
stock price should have moved as much just based on this news.

HERERA:  Now, if this goes the way the other issues with the company have
gone, we are seeing lawsuits and you`re going to see testimony and things.
And you`re going to see jury decisions.  How is the stock do you think
going to take that this time around given the selloff that we saw today?

CONOVER:  You know, it`s interesting.  I`ve never seen J&J react this to
way to litigation concerns.  So, I think going forward, it will be a little
bit more of a volatile name relative to the different verdicts come out.

But generally speaking, what we see not only with J&J but some of these
other major firms that have gone through massive legal suits over many
years is that the investment community focuses in every once in a while
when there is an inflammatory case or inflammatory article.  But after a
while, they tend to get bored of the potential risk, and they pull back
from damaging the stock because of the concerns and you tend to see the
stock to trade more on the fundamentals and less on legal concerns.

And I think that is something that will very likely happen here with J&J
again.  Over time, J&J will litigate case by case by case until a long
period down the road offers some settlement that will be probably not
overly impactful to the overall valuation for J&J.

HERERA:  It`s more the headline risk, right?

CONOVER:  Yes, I think that that`s what we are looking at right now.

HERERA:  All right.  Damien, thank you so much.

CONOVER:  Thank you.

HERERA:  Damien Conover with Morningstar (NASDAQ:MORN).

So, indeed, how damaging is this latest revelation to the J&J brand?

We are joined by Dean Crutchfield.  He`s the CEO at Dean Crutchfield and
Partners.

Welcome back, Dean.  Nice to have you here.

DEAN CRUTCHFIELD, CEO, DEAN CRUTCHFIELD AND PARTNERS:  Nice to be back.
Nice to be back.

HERERA:  How damaging do you think this is?

CRUTCHFIELD:  Well, I think it`s enormous.  I think markets are emotional
and not rational, and the big questions companies ask, is this a close
shave or deep cut?  And clearly, it`s a deep cut.  This is a major calamity
for J&J.

This is a brand that we all know and love.  It`s also a brand as you
clearly say that has the name on the front of the pack.  It`s one of the
brands that defines who J&J are.  Not so much for investors but for the
average consumer around the world, this is J&J, is this children`s baby
powder.

HERERA:  You know, they were the gold standard in handling a corporate
crisis with the Tylenol scare years back.  They seem to be at least on the
surface denying this report by “Reuters”, and also the language that is
being used seems different this time around.

CRUTCHFIELD:  Well, last time they had a tampered product three people
died.  It was 1982, didn`t have the media coverage that you get now.  They
handled it brilliantly.  They took the product off the shelf.  It cost
millions of dollars to do it, but they wanted customers safe, they wanted
their customer to feel confident.

Here we have a situation where it`s totally the opposite.  That crisis is
nothing like the one they got there, because as you said, they`ve been
defensive.  Typically, companies when they face a crisis that they don`t
like, they depend or they tend to defend themselves in overly analytical
manner and they come out with corporate legal puff.  And I think if you
look at the response, very much, that`s what we see right now.

And I think it`s on Gorsky, the CEO, to say how do you deal with the
crisis?  Because this is going to linger, it`s going to continue.  So, this
is where the throat to choke is the CEO, and we want to hear from him.

HERERA:  The language I thought was interesting, the use of the word
conspiracy theory.  If you had to craft a message for them, what would it
be?  How would — how should they go forward?

CRUTCHFIELD:  Well they should look at their vision statement.  It`s about
people living healthier and better lives.  So, it`s really about the
consumer and they need to stand with the side of their consumers with the
concerns that they have.

So, I think the kind of language is to respond boldly, respond with
empathy, have some humanity.  Don`t send your lawyers after me.  Send the
CEO to me who can come up with something sensible to say, including the
fact that you refute these claims.  But I need to hear it from you.

HERERA:  And does this give an advantage, do you think, to other companies
that are in kind of the same field?  We did see the stocks go down today.
Has J&J mishandled it to the point where it works to advantage of the
messaging of the other players in that particular field?

CRUTCHFIELD:  Absolutely.  They`re going to take a major hit on this brand.
People are walking away from it in the millions.  So other competitors can
come in on here and take a position that depositions their brand and the
reputation they`ve got.

I mean, there is four phases to ac crisis program.  There`s the build up,
which has been going on months now, the impact stage which is today losing
40 billion bucks off your value.  Then, you have the chronic crisis stage.
And we haven`t seen that yet.  That`s happening next week and the following
weeks where the media and the gosh and horror and probe is going to unleash
itself.

And what J&J wants is when is the resolution phase?  Does that mean Gorsky
steps down?  That`s my question.

HERERA:  Well, that`s a question will be answered I guess in time.  And
we`ll probably be talking to you about that.

Thanks, Dean, very much.

CRUTCHFIELD:  Thank you.

HERERA:  Dean Crutchfield with Dean Crutchfield and Partners.

In the meantime, investors today brushed off relatively strong economic
reports, including retail sales which rose at the start of the holiday
shopping season.  Sales increased 0.2 percent in November, exceeding
expectations.  Economists say consumers are feeling good about job
prospects helping to lift spending.

A separate report showed a 0.6 percent rice in industrial production which
also exceeded expectations and was the strongest gain in three months.

And now to Europe where British Prime Minister Theresa May spent the two-
day summit of European leaders looking for some concessions on the Brexit
deal.  But in the end, she didn`t get it.  And E.U. leaders said their
divorce agreement was final.

(BEGIN VIDEO CLIP)

DONALD TUSK, EUROPEAN COUNCIL PRESIDENT:  The union stands by in agreement
and intends to proceed with its certification.  It is not open for
renegotiation.

(END VIDEO CLIP)

HERERA:  As we`ve reporting, it`s been a turbulent week for Prime Minister
May.  She survived a no confidence vote on leadership after she postpone
the final parliamentary vote on her Brexit deal.

Time to take a look at some of today`s “Upgrades and Downgrades”.

Cisco (NASDAQ:CSCO) was downgraded to neutral by — from buy at Instinet.
The analyst there says I.T. spending may start to soften in the New Year.
The price target is $50.  The stock fell about 3.5 percent to $45.82.

Walgreen`s rating cut to sell from neutral at Goldman Sachs (NYSE:GS).  The
analyst says challenges in the pharmacy business have intensified.  The
price farther is $68.  The stock fell more than 4 percent to finish at
$78.74.

Procter & Gamble (NYSE:PG) was upgraded to overweight from equal weight at
Morgan Stanley (NYSE:MS).  And basically, the analyst there cites an
improving outlook for gross margins.  The price target is as the $106 and
the stock was a bright spot in today`s market.  It rose just a fraction.
It finished at $96.64.

Still ahead, our market monitor is finding some bargains in this selloff,
and he is naming names, coming up next.

(MUSIC)

HERERA:  In Washington, tonight, President Trump has picked Mick Mulvaney
to be his acting chief of staff.  Mulvaney is currently the White House
budget director.  He will replace John Kelly in the New Year.

Well, today`s stock market losses wiped out the gains for the week.  All
three major indexes were lower.  And the selling caused investors to pull
money from U.S. mutual funds and ETFs at a record pace.  According to
Lipper, more than $46 billion was redeemed last week.  The largest weekly
outflow since it started tracking inflows and outflows.

Which brings us to our weekly market monitor.  He has some names of
companies he says investors need to get into.  They`re getting for a great
price in this market and they`re names that you`re going to want to own
over the next year.

Joining us is Hank Smith, chief investment officer of equities at Haverford
Investments.

Hank, welcome.  Nice to have you here.

HANK SMITH, HAVERFORD INVESTMENTS CIO:  Good evening, Sue.  Good to be with
you.

HERERA:  You picked some large scale names here in a very diverse field.
So, let`s start basically with your first one.  It`s DowDuPont, why do you
like it?

SMITH:  Well, first of all if you don`t believe that there is going to be a
recession, you`ve had this big selloff in a lot of the cyclical names like
DowDuPont.  And we think this company is extremely well-positioned.
They`re going to be splitting into three different companies this spring.
The history of spin offs is very positive one.

They have taken $3.5 billion of costs out of the company prior to spins.
All spins will be investment grade.  They all pay a dividend.  And I think
this selloff that we have seen in the past five months in DowDuPont
represents a real opportunity, particularly with our forecast of no
recession in `19 or `20.

HERERA:  OK.  Next you have a stock you call best in class, and that is
JPMorgan (NYSE:JPM).

SMITH:  Right.  Well, look, it`s the highest quality bank in the world.  It
has a fortress like balance sheet.  And it is returning money to
shareholders in both share buybacks and big significant dividend increases.

And so, again, if you don`t believe there is a recession, there`s 20
percent pullback in JPMorgan (NYSE:JPM) is a wonderful opportunity at a
very attractive valuation of under ten times earnings.

HERERA:  And we`re going to finish up with Apple (NASDAQ:AAPL).  The stock
has been hit quite hard.  And it`s in bear market territory.  But you think
it`s also kind of a best in class stock.

SMITH:  Yes, absolutely.  It`s one of the greatest brands ever created.
And look, Apple`s stock price has a history of these kinds of significant
corrections with o, bear markets as you corrected pointed out both in 12
and 13 and then again in 15, `16.

So, it`s had a major run up, a big pull back, it`s probably been overdone.
But for any new money coming in, you`re buying one of the great brands at a
below-market multiple, and again a company with prodigious amounts of cash
to buyback stock and increase dividends.

HERERA:  All right.  On that note, Hank, thanks.  Hank Smith with Haverford
Investments.

And to read more about his stock picks, head to our website, NBR.com.

A Dow component is paying you back.  That`s where we begin tonight`s
“Market Focus”.

Pfizer (NYSE:PFE) hiked its dividend by about 6 percent.  The drugmaker
also approved a new $10 billion share buyback program and that, of course,
is in addition to the nearly $5 billion remaining under the company`s
current plan.  The stock, though, fell more than 1.5 percent to $43.80.

Nucor (NYSE:NUE) is forecasting 2018 profit above analyst estimates.  The
largest U.S. steel producer expects strong demand and higher average prices
next year.  And that lifted the stock more than 1 percent to $56.39.

Starbucks (NASDAQ:SBUX) issued a conservative growth forecast.  The world`s
biggest coffee chain also said same store sales growth would remain steady
over the long-term even as it expands delivery options and expands in
China.

(BEGIN VIDEO CLIP)

KEVIN JOHNSON, STARBUCKS CEO:  We are growing in China in the mid-teens.
And we outlined that China right now is in a different stage of market
development than the U.S.  China is all about store expansion, new unit
growth, so that we can create a first mover advantage and establish the
Starbucks (NASDAQ:SBUX) brand in more points of presence in city that we`re
in and in more cities that we`re not in.

(END VIDEO CLIP)

HERERA:  Starbucks (NASDAQ:SBUX) shares finished down 2 percent to $65.34.

Endo International shares fell ahead of a “60 Minutes” report on the opioid
crisis.  The report focuses on data collected by opioid distributors on
amounts and destinations of pain killers.  Attorneys are planning to use
that data against opioid distributors like Endo.  And that sent its lower
by more than 8-1/2 percent to $10.19.

Coming up, women are taking a swing.

(BEGIN VIDEO CLIP)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: And I`m Jane Wells at
Westlake Golf Club in Westlake Village, California, where women executives
are trying to break the glass ceiling with a little white ball.

(END VIDEO CLIP)

(MUSIC)

HERERA:  General Motors (NYSE:GM) is offering some details on its
restructuring plan.  The automaker said that most of the 3,300 factory
workers slated to lose jobs will be able to find employment at other
factories.  That does mean, however, that some employees will have to
relocate.  GM still plans to lay off about 8,000 white collar workers and
another 2,600 factory workers in Canada.

(END VIDEO CLIP)

HERERA:  Well, the golf course is has always been thought of as a place
where business relationships are formed and where deals are done.  But the
sport is still very much dominated by men, leaving little room for women to
climb that corporate ladder.  So, that`s why one female former pro golfer
is making it her mission to get more women executives involved in that
game.

Jane Wells is in Westlake Village, California.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE:  All right, Pam.

WELLS:  A group of women executives in southern California is trying to
move fore-ward.

A new law in the Golden State mandates the more than 400 publicly traded
companies based here have at least one female board member.  But a lot of
women CEOs, CFOs, CIOs, whatever, realize you don`t get positions like that
just from your resume, but from relationships.

JENNIFER TERRILL, IPAYMENT CIO:  A lot of people golf in business, and I
just felt it was important to do.  It`s actually kind of fun.  I really
enjoy it.

UNIDENTIFIED FEMALE:  Oh, God, that was so good!

WELLS:  Deb Richard is a former LPGA tour player who`s been brought in by
local sponsors to teach this wonderful, frustrating addictive game to women
executives.

DEB RICHARD, FORMER LPGA PLAYER:  If I do quick math, I`ve played with
about 2,000 amateurs just in LPGA sponsored Pro Ams.  I played with about
ten women.  And so, I spent all of my career helping men build
relationships that advance their careers.  I want to do that for women.

WELLS:  Golf makes you vulnerable and it also teaches you about a potential
client or employee while you`re out on the course.  For example, you know,
do they cut corners or — how do they handle the disappointment?

KIRSTEN ANDERBERG, FANTASY COOKIE CFO:  You get to learn about the
frustration level.  What ticks them off.  And, you know, are they really
totally round?

WELLS:  But a funny thing has happened in this group.  The women may have
gone into the program to learn a new which to network with men.  Instead,
they`re starting to network with each other process.

ANDERBERG:  Because I know you communicate with each other and getting
together outside of the events and nothing makes me happier than that.

WELLS:  One report over the last 20 years says golfing CEOs make 17 percent
more money.  So, perhaps these women are not just learning to drive for
show, but to truly putt for dough.

For NIGHTLY BUSINESS REPORT, Westlake Village, California.

(END VIDEOTAPE)

HERERA:  And before we go, here`s a look at the final selloff numbers on
Wall Street.  The Dow fell 496 points to 24,100.  The Nasdaq was off 159.
And the S&P 500 was down 50.  For the week, all of the major indexes were
lower.

And that`s it for NIGHTLY BUSINESS REPORT tonight.  I`m Sue Herera.  Thanks
for joining us.  Have a great weekend.  We will see you on Monday.

END

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Business Report is not and should not be considered as investment advice.
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