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Liesman, Dina Gusovsky, John Harwood, Eamon Javers, Jane Wells>
Affairs; Economy; Stock Markets>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Change at the top. Google`s parent Alphabet rise above profit report to a new title, world`s most valuable company, supplanting Apple (NASDAQ:AAPL). Henry IV said, uneasy lies ahead that wears the crown.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Wild card. Will Russia be the one to really change the path of oil prices?
MATHISEN: Big week. Why next few days could answer a key a question for the market, just how healthy is the American economy?
All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, February 1st.
HERERA: Good evening, everyone, and welcome.
A major milestone for Google`s parent, Alphabet. It`s taken over Apple (NASDAQ:AAPL) as the world`s most valuable public economy. It crossed that mark briefly today and solidified that position after recording solid fourth quarter earnings. It`s first report as Alphabet lifted by a strong sales of online ads and tighter cost controls.
The company whipped expectations earning $8.67 a share. Wall Street was looking for $8.10. Revenue was also better than expected at more than $21 billion, an increase of 17 percent from last year. The result sent shares of Alphabet higher in initial afterhours trading. This was also the first report to separate Google`s main search business from its riskier investments like self-driving cars, fiber and glass.
Josh Lipton has more on Alphabet`s quarterly results.
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JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Six-point-eight billion dollars, that is one big number from the recent Alphabet report. It refers to operating income at Google (NASDAQ:GOOG) core -- and remember, that refers to search, maps and YouTube, the real business drivers of Alphabet.
What`s different now is that the company is breaking out this number, stripped away from its other bets such as Nest and Fiber and all those moon shots. So, investors have a much cleaner look.
Sameet Sinha of B. Riley, an Alphabet bull, calls that $6.8 billion a massive number that beat his forecast. The number he says suggests that despite the competition from rivals such as Facebook (NASDAQ:FB), the company continues to perform well in its core businesses, a display advertising, mobile advertising and YouTube.
From NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.
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MATHISEN: That profit report for Alphabet, and last week`s equally impressive one from Facebook (NASDAQ:FB) tees up a great debate. Which company deserves the poll position in your portfolio?
Scott Kessler likes Facebook (NASDAQ:FB) and has a buy on the stock. He`s deputy global director of equity research at S&P Capital IQ. And Max Wolff favors Google (NASDAQ:GOOG). He`s chief economist at Manhattan Venture Partners, an investment firm based in New York City.
Gentlemen, this reminds of those high school essay tests where they say Google (NASDAQ:GOOG), Facebook (NASDAQ:FB), discuss. And that`s really the whole mission here.
You know, Scott, why don`t you take it first? It`s not necessarily that you don`t like Google (NASDAQ:GOOG). You just think Facebook (NASDAQ:FB) has maybe a little more going for it and maybe a better price, I guess.
SCOTT KESSLER, S&P CAPITAL IQ DEPUTY GLOBAL DIR., EQUITY RESEARCH: Right. So, Tyler, I don`t think you can go wrong with either of these names. But I`ll give you a few reasons for why we like Facebook (NASDAQ:FB) more.
First, we have a lot more growth. If you look at Facebook (NASDAQ:FB) and what they deliver in the fourth quarter, I think it was a top line gain of 52 percent, if you adjust for currency, 60 percent, and that`s really without any help from acquisitions or anything like that.
Second is they have a number of levers for future growth. So, think about video, Instagram, WhatsApp, even Oculus. So, we think the growth story has a number of years to go.
And, third, is that they haven`t really started the process of, say, allocating that capital to shareholders. Google (NASDAQ:GOOG) started. Alphabet started last year with a $5 billion buy back. Facebook (NASDAQ:FB) isn`t even close to that process. So, that`s going to be another lever to generate shareholder value in the years to come.
HERERA: All right. Max, take the other side in Google (NASDAQ:GOOG). You say Google (NASDAQ:GOOG) is basically the next new thing.
MAX WOLFF, MANHATTAN VENTURE PARTNERS CHIEF ECONOMIST: Yes, so, look, I agree both of these are great names. Both of these should be portfolio elements to people who want growth with really consistent earnings.
I think the next little while is Facebook (NASDAQ:FB). Facebook (NASDAQ:FB) is the now company. I think Google (NASDAQ:GOOG) is the next thing. Facebook (NASDAQ:FB) is now the thing, and I think usually, depending on what your investment style is, you want the next thing.
So, I think what Google (NASDAQ:GOOG) has show us is, Google (NASDAQ:GOOG) is a portfolio of the most likely to be successfully executed on start ups with the lowest multiple, while still throwing off enormous cash, ala the most recent report.
I do think that Google (NASDAQ:GOOG) is closing in on one of the hardest things to do and one of the things that only companies are built to last have ever done, which is keep that engineering culture, keep plowing profits and earnings not just into the next corner or the next year, which Wall Street tends to favor, but really the deep money ideas, those are self-driving cars or balloons providing Internet.
So, I think Facebook (NASDAQ:FB) is a great name. I think it still has more margin than Google (NASDAQ:GOOG) for a while. But I think that Alphabet owns the bigger piece of the future because they take those chances, because they`re more diversified, because they`re more mature, they can sort of take chances that Facebook (NASDAQ:FB) couldn`t get away with, and that means they`re better long term bet.
MATHISEN: Max, let me just push back just a little bit. I was speaking earlier today to someone who took the view that some of the things within the Google (NASDAQ:GOOG) or Alphabet portfolio that as you call them, out of money ventures right now, are sapping capital from the company and that the capital allocation -- not to use a fancy word -- t might be a little inefficient as a result.
Do you see that as weakness or a strength?
WOLFF: So, it`s definitely true. I don`t think it`s a weakness or a strength. I think it`s called innovation, right?
So, if you`re not willing to spend a lot of money on a whole bunch of dreams many of which won`t come true, come true, you`re not really in the innovation business. One of the hardest things to do is be a big behemoth company with huge revenue and stay creative and nimble, without just buying things.
MATHISEN: Right.
WOLFF: And I think it`s hard to do. But I think there`s a good chance Google (NASDAQ:GOOG) will be one of the few companies that does it. And that means built to last, and I love that for a portfolio.
HERERA: Scott, what about Instagram and its role at Facebook (NASDAQ:FB)? I mean, it seems to me that that is probably one of its most valuable assets right now, because it goes across all different age groups, whereas Facebook (NASDAQ:FB) does not necessarily do that.
KESSLER: Yes. So, I think that`s fair, Sue. I remember, what was it, maybe a year or so ago when Facebook (NASDAQ:FB) was talking about concerns from a demographic perspective, because younger users weren`t flocking to Facebook (NASDAQ:FB) and weren`t staying on Facebook (NASDAQ:FB). Now, they have an answer, and Instagram has become really arguably the biggest and most important social network for that younger demographic, say for teenagers.
And so, they`re just really starting the process of monetizing Instagram. They are using new features and functionality to draw people in and to engage them and then they`re pricing advertising accordingly. We think that`s an exciting new opportunity that`s going to last years to come.
MATHISEN: All right. Gentleman --
WOLFF: WhatsApp, too. WhatsApp is big with the younger crowd.
HERERA: Oh, yes.
WOLFF: And they have a major opportunity to monetize.
MATHISEN: Are they making money off of WhatsApp? Quick yes or no, guys?
WOLFF: Not yet.
KESSLER: No, they haven`t really even started that process.
MATHISEN: That`s the question there. They paid $19 billion for it. I like it, are you making money or not?
Scott, thanks very much. Max, great discussion. We appreciate it.
WOLFF: Thank you.
KESSLER: Thanks a lot.
HERERA: A new month, February started out fairly calm, especially compared to January.
The major averages were down more than 1 percent early in the day. But then they climbed back. And when the closing bell rang, stocks were basically flat. The Dow Jones Industrial Average fell 17 points to 16,449. The NASDAQ rose six, rather. The S&P 500 was fractionally lower.
But what lies ahead for February especially after the worst January performance since 2009?
Deirdre Bosa looks at the past for a few clues about the future.
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DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good riddance, January. Hello, February.
Falling oil prices and worries over China`s economy gave stocks their worst start to the year since 2009.
But as investors look to a fresh month, history may be on their side. Over the last decade, February has been a better month for markets. The S&P 500 and the blue chip Dow Jones Industrial Average have been positive seven of the last ten. And the best time to get in may be at the start of the month, according to Kensho, a data analytic platform for financial markets.
Stocks reliably moved higher and see better returns during the first two weeks of February.
ART HOGAN, WUNDERLICH SECURITIES: I think investors will start finding that we`ve created some bargains in the first month of the year.
BOSA: The best performing sector has been technology, followed by materials and consumer discretionary. After typical weak Januarys, they tend to make up lost rounds during the first 10 trading days of the new month.
DAVID SPIKA, GUIDESTONE CAPITAL MGMT: Overtime, consumers, if they believe oil price are going to stay where they are, they`re going to be encouraged and they`re going to be wanting to spend that money on discretionary items, whether that`s restaurants, or leisure or clothes -- whatever the case may be.
BOSA: There may also be opportunity in commodities. It`s been a rough start to the year for oil. But if you think the floor is in, crude has been a good bet this month. Oil has moved higher eight of the last ten Februarys and returned nearly 4 percent on average.
Past performance is no guarantee of future results, but knowing the history may help wash out some of that noise from January as investors look to a fresh month.
For NIGHTLY BUSINESS REPORT, Deirdre Bosa, Vancouver, Canada.
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MATHISEN: Well, the month started with a number of multibillion dollar mergers. Abbot Labs to buy diagnostics company Alere (NYSE:ALR) for nearly $6 billion. The acquisition makes Abbot a bigger player in the rapid testing space, which helps physicians speed up treatments.
Stryker (NYSE:SYK) is acquiring the privately held medical products firm Sage for more than $2.5 billion. Stryker (NYSE:SYK) also raised its earnings guidance for 2016.
And the power producer Dominion Resource to acquire the natural gas utility company Questar (NYSE:STR) for more than $4 billion.
HERERA: It is a big week for the economy. It started today with new reports on how much Americans are spending and saving, and it will end Friday with a look at how many are working.
And as Steve Liesman reports, the new information will tell us a lot about where things stand.
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STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a week full of data that bulls hope will show gathering strength in the economy. But they got off on the wrong foot. Personal income reported for December today was OK, but spending came in below expectations and construction spending in December also missed the mark with only a slight gain.
The first data for January was also disappointing. A key survey showed manufacturing contracting for the fourth straight month.
STEPHEN WOOD, RUSSELL INVESTMENTS: We don`t see a recession is being our best case for 2016, but we don`t see really strong growth either. So, it`s really chugging alone that square root shaped long term sub-trend growth that we`re in right now.
LIESMAN: There`s still hope for the data this week. Auto sales on Tuesday and important report on the sector on Wednesday could yet show the U.S. economy is withstanding its considerable challenges. They include weak overseas growth, low prices that have devastated the nation`s resurging oil industry, and a strong dollar that`s translated into pain for U.S. manufacturers.
A top Fed official today offered a hint that the Fed could ease back on its hiking plans because of recent developments in oil prices and the dollar.
STANLEY FISCHER, FEDERAL RESERVE VICE CHAIRMAN: Further declines in oil prices and increases in the value of the dollar for an exchange value of the dollar, suggested that inflation would remain low for somewhat longer than had previously been expected before moving back to 2 percent.
LIESMAN: Less inflation and forecast means the Fed that doesn`t have to move as quickly as previously thought to hike rates. But Fisher remains optimistic about job growth. Markets will see if that optimism is well- placed beginning with the ADP employment report on Wednesday and with the Friday jobs number from the government.
The forecast fact calls for gains of 185,000 jobs in January. That`s a mark cool down from the near 300,000 in December, but it`s still enough to keep the unemployment rate unchanged or even edge it down below 5 percent.
The key test for the week is whether the data show the weak fourth quarter growth continuing into the first and if where mostly foreign troubles are increasingly U.S. domestic concerns.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
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MATHISEN: Oil prices suffered their first decline in five sessions. Here we go again. Soft factory data out of China raised concerns about the outlook for energy demand. And that pressured crowd which settled down nearly 6 percent at $31.62 a barrel.
HERERA: That low prices of oil is hurting the finances of Nigeria, a major oil producer. Africa`s largest economy has reportedly asked the World Bank and the African Development Bank for emergency loans, totaling $3.5 billion. According to "The Financial Times", the request will help fund a $15 billion deficit.
MATHISEN: The Russian economy also getting hit hard by the low price of oil. And lately, there`s been a lot of talk out of that country about meetings to potentially support prices. But is that all it is, just talk? Or is Russia a real wild card in the energy market?
Dina Gusovsky reports.
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DINA GUSOVSKY, NIGHTLY BUSINESS REPORT CORRESPONDENT: As oil prices continue to go south, Russia has been at the forefront of trying to figure out whether or not some action, like a production cut, could be implemented in order to support and stabilize oil prices. An OPEC official recently even stated that it`s all in the hands of the Russians now.
So, could Russia be holding a powerful card here?
HELIMA CROFT, HEAD OF COMMODITY STRATEGY, RBC: We think Russia is a wildcard because if you look at 2015, they really surprised many analysts by being up several hundred thousand barrels. And the question for this year is, are they going to be up or are they going to be down.
If they are up again this year, everyone is going to have to take their oil forecast down. What I think is interesting now is you are for the first time getting some Russian producers, principally oil, coming out and saying, you know what, maybe we should consider cutting production.
GUSOVSKY: But some say it`s much easier said than done.
REVA BHALLA, STRATFOR GLOBAL ANALYSIS VP: I don`t really see Russia being the one that`s more willing to cut production on its side. And you have a lot of disagreements amongst Russian energy firms as well.
GUSOVSKY: Several analysts we spoke with say Russia`s role in a potential oil production cut is really just a sideshow, and that Russia is simply just trying to talk up the oil markets. Even if it does want to cut production without Saudi Arabia`s cooperation, it will be all talk and little action, with geopolitics complicating things quite a bit.
BHALLA: When it comes to Russia trying to compel a Saudi cut, there`s a lot of distress there. And I think the Saudis are going to be much more focused on U.S. production than they are in coordination talks with Russia.
GUSOVSKY: But some argue Russia has reason to do whatever it can to get other country`s cooperation, perhaps now more than ever, like New York- based attorney Edward Mermelstein who advises high net worth individuals investing in Russia and the former Soviet Union.
EDWARD MERMELSTEIN, RHEEM BELL & MERMELSTEIN: The price heading down into the 20s is going to impact Russia`s economy even more significantly than where it is today, which is in dire straits.
GUSOVSKY: Russian President Vladimir Putin himself has admitted that low energy prices have led to dangerous revenue losses, since Russia relies in oil and gas exports as the main drivers of its economy. That and rising (INAUDIBLE) economic sanctions has caused Russia`s GDP to contract significantly.
For NIGHTLY BUSINESS REPORT, I`m Dina Gusovsky.
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HERERA: Still ahead, the big money behind the race for the White House.
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HERERA: Iowa voters will caucus tonight. It`s the first presidential nominating contest in a race like few we`ve seen before. There won`t be any lines for voting booths but rather public meetings.
John Harwood tells us why it could be an historic night in the Hawkeye State.
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JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: We have finally reached the point in the American presidential campaign where it`s not up to pollsters, it`s not up to pundits, it`s not even up to campaign speeches. Tonight, the voters begin to have their say in Iowa with the caucuses.
And sometimes, we forget that despite all the complex policy papers, and issues stances that the candidates take, it sometimes for voters comes down to simple gut reactions to the candidates that they see in front of them.
Let`s take a look at a few that we`ve picked over the weekend in Iowa.
UNIDENTIFIED FEMALE: Voting for Clinton, pragmatic progressive.
UNIDENTIFIED MALE: Marco Rubio because he can unite people.
UNIDENTIFIED FEMALE: Ted Cruz, constitutionalist.
UNIDENTIFIED MALE: Bush and honesty.
UNIDENTIFIED MALE: Carly, confident, strong and she has a blue print for America.
UNIDENTIFIED FEMALE: Trump. Wall.
UNIDENTIFIED MALE: We love you, Donald.
DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: I love you too.
(CHEERS)
UNIDENTIFIED MALE: Hillary. Seniors.
UNIDENTIFIED FEMALE: Bernie, approachable.
UNIDENTIFIED FEMALE: Hillary!
UNIDENTIFIED MALE: My status right now is still undecided.
HARWOOD: Now, those voters did get stark rhetoric especially on the Republican side at the tail end of this fight. Listen to this back and forth between Ted Cruz and Donald Trump, the two leading Republican contenders.
SEN. TED CRUZ (R-TX), PRESIDENTIAL CANDIDATE: Both Trump and Marco are attacking me. They are attacking me with all their might. And we`re drawing contrast.
And the contrasts are clear. The contrasts, by the way, are substantive and policy-based. A vote for Marco Rubio is a vote for amnesty. And a vote for Donald Trump is a vote for Obamacare.
TRUMP: Ted Cruz is a total liar. I am so against Obamacare. I`ve been saying it for two years in my speeches. I`m going to repeal and replace Obamacare.
I don`t know where he gets this, but he`s a liar.
HARWOOD: Trump comes into caucus night with a five-point lead in the last Iowa poll. But Ted Cruz is believed to have a stronger organization.
On the Democratic side, Hillary Clinton has a three-point lead in that last Iowa poll over Bernie Sanders. But she`s believed to have the stronger organization. So, she`s considered the favorite going into tonight.
The results here, however they come out, are going to shape the contest as we move forward to New Hampshire which has the primary in eight days, then Nevada and South Carolina after that. And then the race goes national.
For NIGHTLY BUSINESS REPORT, I`m John Harwood in Des Moines, Iowa.
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MATHISEN: Well, the money is rolling in to the presidential campaigns. Total contributions for the fourth quarter have been filed. We`ve got the numbers, giving voters a look at the financial health of each candidate`s war chest.
Eamon Javers has been going over the data.
What do the numbers show, Eamon?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes. Hi, Tyler.
This is much different than what we have seen in past years or past quarters here. It`s such a different race this time around. Let me walk you through numbers starting on the Democrat side of this campaign.
We see Hillary Clinton topping the list with $38 million raised in the fourth quarter, also Bernie Sanders with $33.6 million.
On the Republican side, Ted Cruz, $20.5 million. Marco Rubio, $14.2 million. There`s Donald Trump at the bottom of this list, $13.6 million for Donald Trump.
What`s astonishing is this is not the kind of race we have seen before. We got a guy in this race who is leading this campaign and self-funding his own campaign. So, contributions matter less to Donald Trump than the other candidates who will depend on them like oxygen to keep going after the Iowa caucuses today.
HERERA: He`s made that point that he doesn`t need money, but people are still giving money despite the fact he`s a billionaire.
JAVERS: Yes, that`s what`s astonishing here, Sue. You see a lot of small donations here going to Donald Trump, $50, $100, lots of those donors, even though the guy is a billionaire and says he`s` going to write his own checks anyway.
What don`t you see in the Donald Trump`s case is a lot of people maxing out, giving the total maximum amount of money to the Donald Trump campaigns. That means a lot of the big money people in traditional politics are not writing checks to Donald Trump. A lot of smaller people are. That`s a measure of enthusiasm for the Trump campaign.
MATHISEN: Quick thought here. I saw -- I was stunned how close Bernie Sanders was to Hillary Clinton. Can he keep it up and raise establishment size money?
JAVERS: Yes, he`s definitely hitting his marks. So far, he`s raising enough money to stay competitive. Hillary Clinton`s got all these big outside groups working for her, so she`s got a big advantage. But Sanders is definitely in there in this money race right now.
MATHISEN: All right. Eamon, thanks very much. Eamon Javers in D.C.
JAVERS: You bet.
HERERA: Twitter gets a lift on takeover speculation. And that`s where we begin in tonight`s "Market Focus".
A report by tech website The Information said investor Marc Andreessen and private equity firm Silver Lake Partners have, quote, "considered some sort of deal with Twitter." But then a follow up by "Fortune" reported that Silver Lake has no interest in buying, quote, "even a slice of Twitter". Nonetheless, shares were up more than 6 percent today to $17.91.
Lumber Liquidators will pay more than $13 million in fines and penalties for importing illegally sourced wood. In October, the hardwood flooring retailer pleaded guilty to felony and misdemeanor charges. Under its plea agreement, the company will also face five years probation. Shares of Lumber Liquidators were up 3.5 percent today to $13.36.
The Centers for Disease Control and Prevention is closing its investigation into the Chipotle E. coli outbreak, saying the concern appears to be over. But the CDC was unable to determine the cause of that contamination, saying that it was likely because of a, quote, "common meal item or ingredient", end quote. Chipotle expected to report its four quarter earnings tomorrow. Shares rose more than 4 percent to $472.64.
MATHISEN: Fourth quarter property at the health insurer Aetna (NYSE:AET) up nearly 40 percent. Thanks in part to membership growth in its government based business that sells Medicare and Medicaid plans. It did however issue a downbeat outlook for 2016, citing an expected drop in enrolment and a rise in medical costs. Aetna (NYSE:AET) shares up 1 1/2 percent today to $103.37.
The activist hedge fund Hudson Executive Capital has taken a small stake in CIT Group (NYSE:CIT) and wants the firm to break up. That according to "Wall Street Journal". CIT Group (NYSE:CIT) provide commercial lending and insurance services and also owns planes and rail cars it leases out. The lenders exploring a spin off of its commercial air business. Shares of CIT up nearly 2 percent today to $29.86.
And Mattel (NASDAQ:MAT) beat fourth quarter earnings target, pulled in $2 billion in sales. That revenue number also better than expectations. Strong sales for its Barbie dolls and Hot Wheels toys lifted those results. It was Mattel`s first rise in revenue in more than two years. And just like the new Barbie, Mattel (NASDAQ:MAT) shares plumped up on the news in extended hours after falling 3 percent during the day to $26.76.
And coming up, we go a different direction. The marijuana industry is growing quickly, and so are the headaches when it comes to paying taxes.
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HERERA: Legal marijuana sales both recreational and medicinal are hitting a new high of nearly $5.5 billion last year. A new report predicts sales this year will grow 25 percent. And by 2020, sales are expected to hit about $22 billion.
MATHISEN: But for those who sale marijuana legally, filing business taxes is anything but simple.
Jane Wells takes a look at this growing issue for a new crop of entrepreneurs.
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JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s tax time in the cannabis industry. And for many new in the business, their IRS bill could leave them dazed and confused.
DEREK PETERSON, TERRA FITCH CEO: Companies are paying anywhere from 40 percent, 50 percent, 70 percent depending on what demographic they happen to be on.
WELLS: Even though marijuana is illegal at the federal level, the IRS still insist these companies pay income taxes. At the same time, the agency bars them from making most normal business deductions.