ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Know your ABCs. Google`s
parent, Alphabet, reports strong revenue growth but costs rise, and that`s
raising some questions.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Beyond stocks. Not convinced
that the market`s bounce will hold? Maybe it`s time to consider
GRIFFETH: Cashing out. A new start-up will buy your home so you can rent
it back. And a growing number of people are doing it.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday,
February the 4th.
HERERA: Good evening, everyone, and welcome.
Alphabet is a Silicon Valley heavyweight and tonight, it reported better
than expected earnings. At first glance, the results are somewhat of a
relief, given the decline in the stock price late last year. Sales rose
despite mounting public pressure over issues like privacy and the company
authorized an additional $12.5 billion in share buybacks.
But costs rose as well and that is not sitting well with investors. Here
are the numbers. Alphabet earned $12.70 a share, easily topping
expectations. Revenue was up more than 20 percent from a year ago to $39
But those cost concerns sent the stock lower in initial afterhours trading.
Josh Lipton has more.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: $27 billion, that was
a big number in Alphabet`s latest earnings report. First, a revenue from
Google (NASDAQ:GOOG) properties, the core properties that this company owns
and operates like search and YouTube, Erin Kessler of Raymond James says
that beat his estimate growing at 21.5 percent.
On the other hand, though, Kessler did note some disappointing metrics too.
Gross margins lower than expected and all of the expenses were up $800
million, higher than what he was looking for.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.
GRIFFETH: Daniel Flax joins us now to talk about these numbers and his
take on the stock. He is senior research analyst at Neuberger Berman.
Dan, good to see you. Thanks for joining us tonight.
DANIEL FLAX, NEUBERGER BERMAN SENIOR RESEARCH ANALYST: Great to see you
GRIFFETH: Any red flags for you, these expenses or anything else?
FLAX: Bill, I think overall, the business appears to be healthy. The core
search business was on target, YouTube is seeing strong growth. The Google
(NASDAQ:GOOG) cloud business appears to be doing very well.
What people are a little bit disappointed by is, of course, the margins and
obviously the level of expenditure in some of the other bets but I think if
we step back and think about what`s going on with this company, this is
really a longer term focused company that is putting money into newer areas
like Waymo, for example, with autonomous driving.
So, overall, we think it was a solid report. We understand the — some of
the concerns but I think the business remains on track.
HERERA: You like the stock for the next one to two years. Do you have a
specific price target on the stock?
FLAX: We can`t speak to specific price targets but what I would say is
that I think if you look at some of the key secular trends around the cloud
and mobile and digital, and this really speaks to the transformation of
industries and businesses well beyond technology and Google (NASDAQ:GOOG)
is really sitting in the middle or at the center of a lot of those trends
and empowering others, and that is what ultimately we think drives the
attractive top line growth story and what we think can create additional
shareholder value over the next couple of years.
GRIFFETH: You know, I think about the — there`s been so much skepticism
about Google (NASDAQ:GOOG) over the years going back to its days of the
IPO, people thought it was too expensive but you made an interesting point
in your most recent research report that we are still making a
transformation to a digital age and they`re part of that transition, right?
FLAX: I think that`s right, Bill. And when we speak to customers, when we
speak to people in industry, all of them are really trying to transition
their own businesses towards an age where they have to interact with their
customers, their partners, everybody in a very different way, and they need
a company like Google (NASDAQ:GOOG), like Alphabet, to help them do that.
And the key for Alphabet is to continue to innovate, to invest, not
everything they do is going to work and it`s not always going to work in
the timeline that Wall Street would like, but the feedback and really the
takeaways from our research suggest that the longer term initiatives under
way at the company are really in line with what customers are looking to
do, and that we think is ultimately critical to creating shareholder value.
GRIFFETH: Daniel Flax at Newberger Berman, thanks again for joining us
FLAX: Thank you.
HERERA: On Wall Street, tech stocks help lead the market higher as
additional profit reports trickled in to start the week. The Dow Jones
Industrial Average was 175 points to 25,239. The Nasdaq added 83 and the
S&P 500 was up 18.
GRIFFETH: Well, Wall Street will be watching President Trump`s State of
the Union Address very carefully tomorrow. He`s expected to discuss trade
priorities and specifically the need to pass his new NAFTA, now called the
U.S.-Mexico-Canada trade agreement.
Kayla Tausche is in Washington for us tonight.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The U.S. Mexico
Canada trade agreement was signed in November, but it`s now staring down a
month-long debate on Capitol Hill where Republicans have bristled at its
wage requirements and Democrats feel it doesn`t go far enough to protect
The agreement that was supposed to have something for everyone has ended up
alienating both sides.
Lori Wallach is director of Public Citizens (NYSE:CIA) Global Trade Watch,
a liberal group.
LORI WALLACH, PUBLIC CITIZEN: They didn`t quite finish the job on the
environment and labor standards and unless those get strengthened, jobs
will continue to be farmed out to Mexico to chase $1.50 an hour wages.
TAUSCHE: Gabriela Beaumont-Smith is with the conservative Heritage Group.
GABRIELLA BEAUMONT-SMITH, THE HERITAGE FOUNDATION: Labor provisions and
environmental regulations, it`s not their place to be in a trade agreement.
It`s supposed to be about trade.
TAUSCHE: And then there`s the steel and aluminum tariffs that the U.S.
still charges its north American neighbors. Prominent Republicans have
said they won`t vote on it until those are gone.
Auto tariffs could complicate the situation, as could a report from the
International Trade Commission on the economic impact of the deal. That
was delayed because of the government shutdown and could be pushed back
until April, making the path forward cloudy.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
HERERA: The U.S. is also trying to settle a trade war with China and now
that country is celebrating the Lunar New Year which could show just how
much of an impact the tariffs are having on its economy.
Eunice Yoon is in Beijing.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: It isn`t clear just
how much work is going to get done on trade this week. The Chinese
government is officially closed for the Lunar New Year holiday and the
timing isn`t particularly convenient, given president Trump`s March 1st
deadline, only a few weeks away. Though some officials tell me they are
working at least part of the time.
A tremendous amount of work still needs to be done. Trade Representative
Bob Lighthizer and Treasury Secretary Steven Mnuchin are expected to come
to Beijing for another round of talks. The two sides might have to work
out the logistics of another Trump-Xi summit and negotiators still need to
handle many contentious issues like forced technology transfers.
Because of the holiday, the leadership here will be able to get another
read on the economy, the Lunar New Year is China`s equivalent to Christmas
or Thanksgiving. People go home for big family events and buy a lot of
gifts. Four hundred million people are traveling this year. Economists
use the sales period to gauge the Chinese consumer.
So, this holiday, economists are looking at luxury goods, duty free items,
casinos, jewelry, as well as alcohol. Over the weekend, President Xi gave
his Lunar New Year speech, hailing the economy`s, quote, steady progress
and the Lunar New Year sales will give a better picture of the health of
the Chinese consumer and that could put more pressure on the Chinese
government as the deadline approaches.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
GRIFFETH: Meanwhile, the government played catch-up today, releasing a
group of economic reports that had been delayed by the partial government
shutdown and for the most part, they pointed to a slowing economy toward
the end of year. In one of those reports, factory orders in the U.S. fell
more sharply than expected. That was in November.
In another report, a key measure business investment also fell but there
was a bright spot, a separate report showed that orders for durable goods
rose slightly in November from the prior month.
HERERA: Oil prices today touched a 2019 high, but then they pulled back a
bit. Prices rose initially on OPEC led supply cuts and U.S. sanctions
against Venezuela`s petroleum industry. But that factory orders report
that we just told you about sparked concerns about a possible slowdown in
economic demand and that sent domestic crude lower to about $54 a barrel.
And the shifting prices in the oil market and the sharp bounce back in U.S.
equities have probably left you a bit weary and wondering what is next for
the market and if there are any alternative investment options you should
Jon Najarian is the founder of the Najarian Family Office and he joins us
now to discuss.
GRIFFETH: Welcome aboard.
JON NAJARIAN, FOUNDER, NAJARIAN FAMILY OFFICE: Thank you, Bill. Thank
HERERA: And one of the things you`re looking at is the gold market but a
specific play in gold.
NAJARIAN: Yes, specifically gold coins. Why not own it directly if you
want an alternative to the stock market and this is an alternative, Bill,
that has returned over the past 15 years about 315 percent versus 58
percent for the stock market. So, you could pretty much say, five times
what the stock market returned.
GRIFFETH: But you`re talking gold coins here.
NAJARIAN: Gold coins, yes.
GRIFFETH: And how much should you pay for those gold coins?
NAJARIAN: Well, that is one of the keys. You want to find a dealer who
will sell you as close to — with as small a premium as possible. Most of
them that I looked at that had good business ratings were between 3 percent
to 4 percent. Certainly under 5 percent is what you should expect to pay
so with gold at roughly $313 a share–
NAJARIAN: — or an ounce rather, a one ounce coin shouldn`t cost you more
than about $1,360.
GRIFFETH: Now, when we ask you for alternative investments, you caught us
off guard with the next one here.
GRIFFETH: The Lending Club.
NAJARIAN: Yes, the Lending Club.
GRIFFETH: Peer to peer loans that you can — you put money into this fund
and then they loan it on your behalf.
NAJARIAN: Exactly, and you get to pick the people or the businesses that
you`re lending to. So that`s one of the things I liked about it.
Number two, you get diversification. You`re not saying I`m putting all of
this on Jon Najarian. You could say I`m putting $25, that`s their minimum,
$25. I could put $50, I could $500.
But you`re being the bank. You`re Warren Buffett here. You`re lending the
money out and you`re getting that interest rate. The borrowers come
because they`re getting a lower rate than they`d pay the bank because the
bank might pay them 18 percent.
NAJARIAN: May be you`re getting 11 percent or 12 percent and you`re
spreading that risk around with a bunch of different businesses or
individuals, and the returns have been pretty darn good, especially since
they track all of this for you, Bill.
HERERA: The third one I was curious about. Pay off your bills, that seems
like a no brainer.
HERERA: Right, or borrow from yourself.
HERERA: Borrow from your 401(k) or your IRA.
HERERA: Sharon Epperson is having a pit right now.
GRIFFETH: Yes, I know. She`s spinning right now.
NAJARIAN: Well, and the reason you borrow from yourself is the IRS sets a
minimum that you must pay yourself back the interest rate that you charge
yourself. If you don`t pay it back, of course, you could have penalties as
well as the interest charges. But assuming that you`re a consumer that`s
going to be paying yourself back and paying yourself instead of the bank, I
think makes so much sense because let`s say you`re paying off a loan at 8
percent or 10 percent, instead, you could be here, paying yourself 6
percent or whatever the IRS says set minimum that you can charge and it
makes all the sense in the world. You`re borrowing from yourself.
GRIFFETH: We`ll get you together with Sharon for lunch some time.
GRIFFETH: You can talk about that.
NAJARIAN: Thank you.
HERERA: I want to be a fly on the wall.
Jon, thank you very much.
Jon Najarian with the Najarian Family Office — we all do.
GRIFFETH: Time to take a look now at some of today`s “Upgrades and
We begin with ConocoPhillips (NYSE:COP) which was upgraded to buy from
neutral at Goldman Sachs (NYSE:GS). The analyst says the company`s long-
term growth opportunities including Alaska, Australia, and Qatar are
underappreciated right now and the price target now, $82. The stock rose
more than 1-1/2 percent today to $69.93.
Goldman-Sachs rates Match Group a sell in new coverage. The analyst says
that the stock`s valuation is high relative to its growth prospects. Price
target now is $45 and shares fell a fraction to $54.43.
Meanwhile, Inuit was upgraded to equal weight from underweight at Morgan
Stanley (NYSE:MS) and the analyst says that new products will help that
company to exceed conservative revenue expectations. Price target, $225
and shares rose 3 percent today to $220.91.
HERERA: Still ahead, the big rig indicator.
(BEGIN VIDEO CLIP)
FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT: New orders of big
rigs like these are often seen as an economic indicator, but industry
experts say the latest numbers, they may be misleading.
I`m Frank Holland in Toledo, Ohio. That story coming up on NIGHTLY
(END VIDEO CLIP)
HERERA: Every night, we bring you a lot of facts and figures on the
economy. But sometimes all you have to do is look at the number of trucks
on the road because demand for big rigs can be an indicator of economic
Frank Holland is in Toledo, Ohio.
HOLLAND: Orders of new big rigs like these are often seen as a rolling
STEVE BASSETT, GENERAL TRUCK SALES PRESIDENT: Historically, class 8 truck
orders are a bellwether of the economy.
HOLLAND: Technically called class 8 trucks or simply tractors, these
trucks pull trailers worth of goods all around the country, delivering what
we buy to the stores that we buy them from.
Steve Basset, a truck does he recall in Toledo, Ohio, says 2019 is off to a
BASSETT: On the dealership floor level, we are seeing strong demand. In
fact, I know, I just took down a very significant order just three days
HOLLAND: But something peculiar is happening. A recent report shows a
three-month decline in new truck orders, something you would not expect
given the demand. Historically, it`s data that could drive up concerns and
economic slowdown is just down the road.
KENNY VIETH, ACT RESEARCH PRESIDENT: It`s hard to add water to a full
HOLLAND: But Kenny Vieth of ACT Research says new truck orders are down
shifting, primarily because they reached their record 490,000 last year,
and there is still a 300,000 order backlog now.
VIETH: That unbuilt level of backlog is about twice what the average
backlog-to-build ratio is.
HOLLAND: That means at least a nine-month wait for new trucks. Vieth says
there may be a lot of demand but little incentive for manufacturers to
VIETH: The industry is, you know, reasonably at capacity right now in a
two ship set-up. You know, if you push to three shifts, you don`t get that
many more trucks.
MONICA SOUTHWARD, 1ST EXPRESS PRESIDENT: I think there`s a great demand
HOLLAND: Monica, the owner of First Express (NYSE:EXPR), a transportation
business, says at least right now, she`s focusing on another challenge.
SOUTHWARD: So we are busy, and we do need the trucks. The biggest
challenge is the drivers.
HOLLAND: A shortage of 60,000 truck drivers is forecasted for 2019.
BASSETT: Very cool?
HOLLAND: It`s very cool.
BASSETT: You could get used to it.
HOLLAND: Uncertainty about getting real drivers behind the wheel, an
uphill climb for an industry facing record demand.
For NIGHTLY BUSINESS REPORT, Frank Holland in Toledo, Ohio.
GRIFFETH: Conflicting reports on an activist investor and a major
drugmaker and that`s where we begin tonight`s “Market Focus”.
Bloomberg News reported that Starboard Value had taken a stake in Bristol-
Myers Squib. That sent the stock higher in early trade today, but then a
report from CNBC`s David Farber said that starboard had not yet contacted
Bristol`s management and that sent the stock in the other direction, but it
still closed higher by nearly 2 percent today by $50.85.
Elsewhere, Starboard did strike a deal with embattled pizza chain Papa
John`s. Starboard will reportedly invest $200 million which will reduce
founder John Schnatter`s stake in the company to around 26 percent, and
Starboard CEO Jeff Smith will become chairman of the board of Papa John`s.
Shares to the company rose almost 9 percent today to $41.97.
And Spotify is reportedly in talks to buy podcasting company gimlet media
for about $200 million. That move would diversify Spotify beyond music
streaming and mark the first time it has purchased a content company.
Shares of Spotify rose 1 percent today to $138.60.
HERERA: Tesla is acquiring battery technology company Maxwell Technologies
(NASDAQ:MXWL) for a little more than $200 million. Maxwell makes devices
that store and rapidly deliver surges of energy. Tesla CEO Elon Musk is
said to be a fan of the technology`s potential for speeding up electric car
charging. Tesla rose a fraction to $312.89. Maxwell Tech, which is a
small cap stock, soared 49 percent to $4.59
Newspaper giant Gannett (NYSE:GCI) has rejected a hostile takeover bid from
Digital First Media. Gannett`s board of directors questioned the
proposal`s credibility and said the offer undervalues the company. Digital
First Media, a hedge fund backed company officially known as MNG
Enterprises offered in January to buy Gannett (NYSE:GCI) for $12 a share in
cash. The stock fell 2 percent to $10.97.
Sysco (NYSE:SYY) reported better than expected earnings despite rising
supply chain costs. The food service distributor plans to lay off 10
percent of its workforce, and automate some jobs in an effort to bring down
expenses. The company`s quarterly revenue came in slightly below
estimates. But shares rose more than 4.5 percent to $66.64.
GRIFFETH: Goldman-Sachs may claw back executive pay over the Malaysian
corruption scandal. The bank`s board has approved a provision that could
see former CEO Lloyd Blankfein and other senior executives lose out on
millions of dollars in compensation depending on the outcome of the
investigation. Last year, the Justice Department launched a probe into the
Malaysian fund where $4.5 billion was allegedly diverted to the personal
accounts of various government officials. That investigation is still
ongoing and Goldman-Sachs arranged and underwrote bonds for that fund and
the Malaysian government has accused Goldman of enriching itself at the
expense of the Malaysian public.
HERERA: The banking industry is watching what`s happening in Washington,
especially with the new make-up of the powerful House Financial Services
Committee. The panel is led by Congresswoman Maxine Waters (NYSE:WAT) who
is known for her fiery rhetoric towards Wall Street. But in a recent
interview with John Harwood, she took on a more moderate tone.
(BEGIN VIDEO CLIP)
JOHN HARWOOD, CNBC: At one point during the campaign, you said about
REP. MAXINE WATERS (D), CALIFORNIA: What I`m going to do to you is fair.
I`m going to do to you what you did to us.
HARWOOD: So, you recently met with Jamie Dimon of JPMorgan (NYSE:JPM),
David Solomon of Goldman-Sachs. What did you do to them?
WATERS: Well, first of all, let me just say this. When you are speaking
and you are among friends and you are with an organization that you have
great relationships with, you take the opportunity to have a little fun, to
perhaps describe to them in ways maybe you wouldn`t describe to other
people how are you going to do things and you get them, basically, involved
and understanding what you care about and what you have learned from your
time in office, and you make these kind of quips. So —
HARWOOD: So people shouldn`t take that literally?
WATERS: Not literally, yes. Absolutely.
I have an open door. I welcome everybody from bankers to activists,
nonprofits, from veterans, you know, people involved in the health
industry, even if you know you disagree with the particular industry, you
let them in and you let them talk to you.
HARWOOD: Are there particular issues where you think there`s a very good
chance that you`ll be able to work with those financial institutions?
WATERS: Well, I think the work that I have done already as ranking member
of the Financial Services Committee demonstrates that I`m a strong
legislator and I know how to work with the opposite side of the aisle. I
know when to work with the opposite side of the aisle.
HARWOOD: What role, in your philosophy, does redistribution of income
WATERS: I`m not defined in that way that I believe in redistribution,
because that implies that you want to take some from the rich and give to
the poor. I`m defined about fairness. I`m defined about, you know, in a
way that would create equal opportunity.
(END VIDEO CLIP)
HERERA: Congresswoman Waters (NYSE:WAT) said her goal with Wall Street
executives is persuasion, not legislation.
GRIFFETH: Coming up, revolutionizing real estate one start-up wants to buy
your home so you can rent it back.
GRIFFETH: The one-time bond king is retiring. Bill Gross has announced
he`s planning to accept aside after more than four decades in the world of
finance. Gross cofounded PIMCO back in 1971. He was named the fixed
income manager of the decade from 2000 and 2009 by Morningstar
(NASDAQ:MORN). When he left PIMCO in 2014, the firm was the world`s
largest bond firm with nearly $2 trillion in assets.
But his departure from PIMCO was messy. There were personality and culture
clashes with management. So he went to Janus Henderson Funds where he
could not have the same level of success, and now he`s leaving to focus on
his charitable foundation.
HERERA: The retailer Charlotte Russe has filed for bankruptcy. The
women`s apparel company plans to close about 94 stores. During court
proceedings, it will continue to operate its website and keep open some
stores. It had 400 stores across the U.S. Charlotte Russe is privately
held and backed by a private equity firm.
GRIFFETH: Today`s homeowners are sitting on a record amount of equity but
a lot of them cannot access it, sometimes because they don`t have high
enough credit scores to qualify for a refinancing. But now a new company
is offering a way for them to tap that equity without moving a muscle.
Diana Olick explains.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chris Driskell needed
cash to invest in his real estate business and while he had plenty of
equity in his Gainesville, Georgia, home, he couldn`t access it.
CHRIS DRISKELL, EASYKNOCK CLIENT: If my credit score was a few more
points, or you know, I made the banker happy that day, or whatever, I could
have probably done it for a little less money. But that`s not how the
OLICK: Enter EasyKnock, a barely two-year-old company that will buy your
home from you but let you stay on as a renter. At any time during the
lease, you can buy your home back.
JARRED KESSLER, EASYKNOCK CEO: EasyKnock is a company that`s allowing
people to access equity in their home that have been shut out by the
traditional lending market.
OLICK: EasyKnock makes money through rent and extra fees. At the end of
the lease, which can be up to five years, the tenant has the right to
choose between buying the home back or selling it to someone else. Easy
knock does not want to keep it.
KESSLER: We are not in the business of continuing to own homes.
OLICK: So far, the company has bought about 100 homes in five southern
states, but with a recent infusion of $100 million from investors, Kessler
said he expects to expand to 36 states and 2,000 homes this year alone.
For Chris Driskell, the financial process was pretty easy, but he admits
there is an emotional downside, especially if he`s unable to buy it back at
the end of his lease.
But there are benefits as a renter too, like not paying property taxes,
homeowners insurance or any of the maintenance on the home. For now,
EasyKnock is contracting out its rental management business, but as it
expands, expect to bring that in-house as well.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
GRIFFETH: And to read more about this new away to tap into your home
equity, you can head to our website at NBR.com.
HERERA: And finally tonight, one of Wall Street`s favorite and least
scientific traditions, the Super Bowl indicator. It says the market will
rise during the year after a team from the original NFL wins the big game
and it will fall when a team from the old American Football League wins.
That means with the Patriots` victory last night, stocks should fall this
year but as you know, the Philadelphia Eagles, an original NFL team, won
Super Bowl LII last year and stocks dropped. And the year before that,
when the Patriots won, stocks soared. So maybe the Super Bowl indicator
isn`t so super anymore. We`ll see.
GRIFFETH: If it ever was.
Before we go, a look at the final day on Wall Street the day after the
Patriots win and the stocks went up 175 points. So, we`re at 25,239. The
Nasdaq added 83 points today and the S&P was up 18.
We were at the highs of the session. And more earnings are still to come
HERERA: That`s right. It`s going to be a busy week.
HERERA: So thank you for joining us. I`m Sue Herera, thanks for joining.
GRIFFETH: I`m Bill Griffith, have a great evening. We`ll see you