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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Five-week win streak. The market rally rolls on as the S&P 500 joins the Dow in positive territory for the year. And there`s one part of the market that`s outperforming the rest.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Taking stock. The man who runs the top-performing small cap growth fund tells us what stocks he`s buying now.
MATHISEN: Economic renaissance. One city`s unusual revival plan to bring itself back from the brink, leaving it now with the narrowest wealth gap in the country.
All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, March 18th.
HERERA: Good evening, everyone, and welcome.
A solid week for stocks. Today the S&P 500 erased its losses for the year, joining the Dow logging five straight weeks of gains. A rise in oil prices, decent economic data, and the Fed`s decision to embark on a more gradual path of rate hikes helped power stocks over the past five sessions.
Today, the Dow Jones Industrial Average added 120 points to 17,602. The NASDAQ gained 20. And the S&P 500 rose nearly 9. For the week, all of the major indexes rose 1 percent or more.
And it`s not just the Dow and the S&P 500 that are deserving of attention. There`s another group of stocks that`s been quietly outperforming the rest.
Dominic Chu has that story.
(BEGIN VIDEOTAPE)
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The stock market`s made a strong comeback since hitting lows back on February 11th. And that move has taken both the large cap S&P 500 and Dow Industrials back to positive territory for the year. For as much attention as those big guys are getting, it`s the S&P 400 mid-cap index that staged the best performance so far in 2016.
It`s gained more than 2 percent since the start of the year. That`s better than any of the major U.S. stock indices.
Now, some investors look towards mid caps as a possible market sweet spot. They`re bigger and perhaps provide perceived relative safety compared to the small-cap stocks and smaller with more perceived upside potential than large company stocks. So, among the best-performing mid-cap stocks this year, we`re talking about names like Dick`s Sporting Goods (NYSE:DKS), also JCPenney, and U.S. Steel. Some value-oriented investment managers are looking toward specific parts of the mid-cap market for opportunities.
JILL CUNIFF, EDGE ASSET MANAGEMENT: What`s compelling and interesting in the mid-cap space is these companies aren`t necessarily as impacted by slowing global growth, and they also, well-run companies tend to be takeover target busy larger companies. And in a slow-growth environment, large companies are looking for different ways to expand their business. And targeting good-quality companies in the smaller end of the spectrum is one way to do that.
CHU: But while the mid-cap stocks have been outperformers over recent months, many experts don`t necessarily feel like market values should limit your investments.
DAN CHUNG, FRED ALGER MANAGEMENT CEO & CIO: Obviously, with the strategies that are focused on small caps, then we look within that universe, the small cap companies and identify the best opportunities. But, for example, in the all cap strategies, we go with the best company regardless of market cap, you know, in every sector.
CHU: It`s worth noting that over the last 12 months, mid cap stocks have not fared as well as their large lap cousins. So, these trends, they`ve been on the surer term side of things. But it`s still a place where some investors are looking to find both defensive and more aggressive investment candidates.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
(END VIDEOTAPE)
MATHISEN: Well, the market is staging a comeback. You may have noticed that you might own a stock that is underperforming. And it has been a long time since it was a good stock for you. But it`s a little hard to let go.
Mike Holland, chairman of Holland and Company, joins us to discuss when it`s time to sell. We`ll also ask Mike about his view about the overall markets.
You know, Mike, a couple the stocks that have been in the news like Valeant, a stock we`re going to report on later, Aeropostale (NYSE:ARO), they have had precipitous declines. I mean, 80 percent, 99 percent of their value wiped away. How do you know when it`s time to dump a company?
MIKE HOLLAND, HOLLAND & COMPANY CHAIRMAN: You pick two great examples of where people can let their emotions get involved with their decision- making. I think in many cases, people buy companies because they have a great outlook and they think they`ve got great value. And then things change and then emotions begin to get involved.
When things start going down, people`s egos get involved. One of the first things I learned on Wall Street was, don`t lose money. How much can I lose, is one of the first questions that I have learned to ask over the years.
The worst mistakes I`ve made is giving into the emotion. You know, I paid $40 for that stock, it`s still a great company, it`s $25, I think the market is wrong, I think the rumors are wrong, et cetera, et cetera. You make excuses.
The smartest people I know, the most successful people I know on Wall Street, cut their losses, they sell too soon rather than too late.
HERERA: You know, you also quote that classic Wall Street line, "a stock doesn`t know what you paid for it." Therefore, it doesn`t owe you anything, right?
HOLLAND: That`s it. That`s exactly right, Sue.
If people -- you do such a big value for your viewers right now talking about this. When people get into the stock market by individual companies they have to try to be like, member Mr. Spock from "Star Trek". He was totally logical. Totally rational. No emotions when he made decisions.
And when it comes to buying individual companies, it has to be the same way. Whenever I moved away from that, I probably made a mistake and probably lost some money. But I think at the end of the day, the stock doesn`t have any emotion. You shouldn`t have any emotion.
And one of the good things, if you choose a partner in your life, you choose a house, a home, you have emotions from there. And if you change your mind, it becomes very difficult.
In the case of a stock, it`s very easy. You just sell it. It`s such an easy thing to do.
MATHISEN: Yes.
HOLLAND: And there are plenty of alternatives. If you think Valeant was a good company and you want another medical device, or Chesapeake, you want another energy company, you can buy them the same day at the same time.
MATHISEN: You know, one of the things I was talking to another person earlier today, he said when you start seeing any whiff of accounting irregularities, the accounting firm changes, there`s some investigation, that`s a sign.
The other thing I`ve heard said and I believe you agree with this is the idea that you should ask yourself, would you still buy this stock today knowing what you now know about what`s going on in that company?
HOLLAND: You`re speaking, Tyler, to the choir right now. Preaching to the choir. There`s all the things you just mentioned are things that I`ve learned through scars on my back of mistakes that I`ve made.
When a company`s management starts changing, when the accountants start changing, when the accounting methods start changing, watch out. Those are yellow flags. And there`s no question at the end of the day, any of these changes are things -- you also have to pay attention to the Internet, because there are lots of things that we used to have to dig through paper for.
HERERA: That`s true.
HOLLAND: They`re on the Internet, you can learn a lot of stuff very quickly. When you start smelling something and it doesn`t smell right, doesn`t meet the, quote, "smell test", that`s another Wall Street canard, the answer is get out of it sooner rather than later.
MATHISEN: All right. Mike, thank you so much. Have a great weekend.
HOLLAND: Thanks, Tyler, you too.
MATHISEN: Mike Holland of Holland and Company.
HERERA: The president of the St. Louis Fed said interest rates should edge higher.
James Bullard suggests the central bank`s inflation and employment targets have essentially been met and monetary policy should move toward more normal levels. But his comments come two days after the Fed revised lower its rate hike outlook.
MATHISEN: Former Federal Reserve Chairman Ben Bernanke says monetary policy is reaching its limits. But in a blog post, Bernanke added the Fed has not yet run out of responses to a potential slowdown. He also says the probability of the U.S. using negative interest rates in the foreseeable future is quite low.
HERERA: Meantime, consumers are feeling a bit less optimistic. An earlier survey on sentiment said confidence eased in March due to concerns about prospects in the economy and slowly rising gas prices. While consumers are no longer concerned about recession apparently, they don`t expect the rate of economic growth to outperform the past two years.
MATHISEN: Economic concerns are a big part of this election cycle and so are some issues important to business and consumers.
Take the Internet, for example. There`s a big debate over which type of company should control cyberspace, including the speed at which you view videos or download data.
And as Julia Boorstin reports, some of the candidates have different views on the issue.
(BEGIN VIDEOTAPE)
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Obama`s been a long-time proponent of net neutrality, one reason the FCC ruled in favor of a free and open Internet last year, and the range of big media companies are invested in how the debate plays out.
Those in favor want to make sure their streaming video gets to consumers without restrictions. Companies like Netflix (NASDAQ:NFLX), YouTube and Facebook (NASDAQ:FB). Those opposed are the broadband providers, AT&T (NYSE:T), Verizon (NYSE:VZ), and Comcast (NASDAQ:CMCSA) (NYSE:CCS), who want to make sure they can manage Internet traffic most efficiently on their pipes.
MICHAEL NUNEZ, GIZMONDO: This election`s going to matter because whoever becomes president is going to steer the FCC and also net neutrality laws in a new direction, whether that is for more net neutrality or for less.
BOORSTIN: The 2016 candidates are pretty much split on party lines. Democrats in favor of mandating net neutrality, Republicans against, looking to walk back last year`s decision.
Hillary Clinton says that enforcing strong net neutrality rules would protect free and fair competition. Bernie Sanders takes a more extreme approach in his support of net neutrality and criticism of the alternative.
SEN. BERNIE SANDERS (I-VT), PRESIDENTIAL CANDIDATE: Companies with the money will have the access and small businesses will be treated as second or third-class citizens. This is grotesquely unfair.
BOORSTIN: On the Republican side, Donald Trump strongly opposes it, going so far as to say in a tweet that net neutrality would target conservative media, which seems to misinterpret the issue.
Ted Cruz calling it in a Facebook (NASDAQ:FB) post, quote, "The biggest regulatory threat to the Internet and will lead to fewer choices, fewer opportunities, and higher prices for consumers."
Ohio Governor John Kasich hasn`t said much on the issue yet.
But regardless of the election`s outcome, the debate over how broadband providers handle Internet traffic is certain to remain a contentious topic and the FCC`s recent legislation could be entirely reversed.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
(END VIDEOTAPE)
MATHISEN: And Comcast (NASDAQ:CMCSA) (NYSE:CCS) as Julia mentioned is the parent company of CNBC which produces this broadcast.
HERERA: Still ahead, a top-performing small-cap fund manager who`s beating the prodder market this year. He`ll tell us which stocks he`s buying right now.
(MUSIC)
HERERA: The FBI and the National Highway Traffic Safety Administration are warning that vehicles are increasingly vulnerable to hacking. The agency`s issued a bulletin telling manufacturers and the general public to be on the lookout for potential issues. In July of last year, Fiat Chrysler recalled nearly 1.5 million vehicles that could potentially be remotely hacked.
MATHISEN: From hacking, we move to fraud, specifically in the health care industry, such deception is estimated to cost the country tens of billions of dollars every year. It is a disturbing trend. In some cases, medical professionals even putting patients at risk to rake in more cash.
Andrea Day has tonight`s installment of "Crime and Punishment."
(BEGIN VIDEOTAPE)
JUSTIN SHAMMOT, SPECIAL AGENT FBI: We spend trillions of dollars on health care in this country. And we see about $80 billion of that is fraud.
ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: That type of fraud, according to FBI special agent Justin Shammot, is becoming all too familiar.
SHAMMOT: We do depend on our providers and people like these doctors and cardiologists for these extremely complex things, to tell us the truth.
DAY: But that doesn`t always happen. In Ohio, trusted cardiologist Dr. Harold Persaud, recently convicted in a major fraud case.
SHAMMOT: I`m shaken by it. And I see this stuff all the time.
DAY: This time, he says, at least $29 million unnecessarily billed to Medicare and other insurers -- just a small part of a very big reality.
LAMONT PUGH, DEPARTMENT OF HEALTH AND HUMAN SERVICES: It`s deplorable. It`s reckless.
DAY: Lamont Pugh from Department of Health and Human Services says what`s most shocking about it is how patients were put at risk.
PUGH: He examines them more as front of the centers.
DAY: According to investigators, Persaud told patients they needed stents and other high-end procedures, including some bypass surgeries that were not medically necessary.
PUGH: That if they didn`t do these types of procedures they potentially could die. So, he`s creating a sense of urgency.
DAY: And he says Persaud would then falsify the results.
PUGH: To make it appear as though the blockages in their areas were more than what they really did.
DAY: All of it to justify doing the costly work.
Just take a look at this angiogram of one of the patients before the stent was put in.
SHAMMOT: We can`t really identify anything that`s necessarily belong with the artery itself.
DAY: And this is after the doctor inserted a stent into the artery.
SHAMMOT: Relatively no difference.
DAY: And the risks, he says, long-term, including a lifetime of medication. So how can you protect yourself from unnecessary procedures and potentially falling victim to health care fraud?
Here`s some advice from the experts:
First, always ask why. Why do I need this test, or that procedure? Don`t give your doctor blind trust. And get a second opinion.
Your charts are your property. It`s a good idea to look at what`s actually written in them.
And last, if you`re not comfortable, remember, you can always walk away.
Dr. Persaud was in court to learn how many millions he could have to pay back. That hearing will continue later this month. He was already sentenced to 20 years in the case but has since filed an appeal.
I`m Andrea Day for NIGHTLY BUSINESS REPORT.
(END VIDEOTAPE)
HERERA: Luxury jeweler Tiffany`s saw a decline in sales and a drop in profit last quarter. And that is where we begin tonight`s "Market Focus."
The results though were still good enough to beat estimates and the company says it was hurt by a strong dollar. But the upscale jeweler warned earnings will continue to fall in the first half of this year, but it does expect growth in the second half. The news was enough to keep investors happy with shares ending the day up nearly 3 percent.
Starwood is killing its deal to be acquired by Marriott following a superior bid from Chinese firm Anbang Insurance Group. In a deal we told you about earlier this week, Anbang offered $33 billion to the hotel chain which topped Marriott`s bid. Marriott has five days to respond. Shares of Starwood up more than 5 percent to $80.57. Marriott ended up 2 percent to $73.16.
The Food and Drug Administration is asking Eagle Pharmaceuticals for more information about an anti-coagulant drug that it submitted for approval. The company says that it will work with FDA to understand their concerns and figure out a path forward with the drug. Shares falling sharply on the news, ending the day down almost 19 percent to $43.50.
MATHISEN: Bank of America (NYSE:BAC) will buy back another $800 million in its stock. This comes after the bank announced a $4 billion buy-back program just last week. Bank of America (NYSE:BAC) shares up nearly 3 percent on the day to $13.79.
Once a fixture in malls around the country, Aeropostale (NYSE:ARO) says it is seeking strategic alternatives for the company. The company reported its fourth quarter earnings Thursday evening. Trouble is, there were no earnings, only losses, for the 13th quarter in a row.
The company has seen its shares drop sharply, and I do mean sharply, over the past few years. Closing down more than 45 percent to, yes, you`re seeing right, 26 cents a share.
The auto supplier Lear (NYSE:LEA) is looking to relocate jobs back to the United States. The currently in talks with the United Auto Workers Union about lowering wages so the company can fill about 1,000 jobs in a Detroit facility. Shares fell a fraction today to $111.91.
HERERA: Time now to talk to our market monitor who likes small cap tech stocks he says are on the leading edge of next-generation technology. This is his first time joining us on the program. He`s Chris Retzler, top- performing portfolio manager of the Needham Small Cap Growth Fund, which is up more than 6 percent this year.
Chris, welcome. Nice to have you here.
CHRIS RETZLER, NEEDHAM SMALL CAP GROWTH FUND: Thank you for having me.
HERERA: Let`s start overall with the market. I mean, we`ve had such a big turnaround in the market since a really bad start to the year. How do you feel about things in general?
RETZLER: I think things have been getting better. There`s certainly greater focus on value stocks. After a great year for the larger cap, FANG as they know them, there`s been a rotation back to the broader markets. And so, we`re seeing that as money comes into a broader bunch of technology companies that have been really ignored for the past year.
So, we`re confident going forward. We think that`s where the value is. That`s where we`re putting our money. And now, we`re still excited about the remainders of the year.
MATHISEN: You`re looking for 10 percent to 20 percent returns over the next 18 months in the trio of stocks we`re going to mention. You say they are a play on the so-called "Internet of things". I don`t really know what the "Internet of things" is. I`ve heard of it.
I`ve got to ask you what it is and then take us through your first choice, Super Micro Computer (NASDAQ:SMCI).
RETZLER: Yes, great. These are fantastic stocks. What we like to do is invest in companies where it`s kind of selling picks to the minors. When you think of the "Internet of things", the bigger companies would be a Cisco (NASDAQ:CSCO), a Google (NASDAQ:GOOG), an Apple (NASDAQ:AAPL), a Facebook (NASDAQ:FB). But we like to provide investing companies that are selling them the equipment to make that happen.
So, Super Micro Computers, one name you just mentioned, is a great significant insider ownership that makes servers on the higher end. So, really cutting-edge servers. They`re not the typical OEM names you might hear from Dell (NASDAQ:DELL) or HP or IBM, which is now Lenovo. So, they`ve been able to take a significant amount of share from Lenovo which purchased IBM, in picking up business in the United States with federal contracts.
They also have some next-generation storage products, so you hear about things like all-flash arrays, SSDs. They`re a big part of that kind of deployment of equipment.
HERERA: OK. Next on the list is FormFactor (NASDAQ:FORM). It supplies equipment into the semiconductor industry. And you say they`re acquisition integration opportunities.
RETZLER: Correct, they just purchased a great little company called Cascade (NYSE:CASC) Micro Tech. It`s again a theme of M&A that`s returned to small cap companies, and what they`re doing is they`re combining to be a larger company. They have significant synergies. Great management teams have done this in the past and we expect over the next 18 months for them to drive great opportunities on the financials and be a larger company which should get a premium multiple going forward.
MATHISEN: When smaller companies become larger companies that`s usually a good thing, isn`t it, Chris?
Let`s move on to -- quickly, a couple of phrases on MKS Instruments (NASDAQ:MKSI).
RETZLER: Another play semi cap equipment primarily, but also in the medical field. They just purchased a laser company in California called Newport (NASDAQ:NEWP). Anything opportunities there again as they integrate. Both of these transactions need to close and that`s going to happen over the next kind of two to three months.
So, for an investor, it`s a great opportunity to be watching and pick away, if there`s dislocations in the stock prices, because we think the opportunity over the next few years are really great for both companies.
HERERA: All right, Chris, thanks for joining us. I know your join us again soon.
RETZLER: Thank you.
HERERA: Chris Retzler with Needham Small Cap Growth Fund.
MATHISEN: Coming up, we`ll take you to a western city that has a unique strategy to go from economic blight to revival.
(MUSIC)
HERERA: Well, Tuesday`s a big day next week. So here`s a look at what to watch for.
A hearing involving the Justice Department is scheduled in the Apple (NASDAQ:AAPL) encryption case. Also that day, President Obama will deliver an historic speech in Havana about his vision for future relations between the U.S. and Cuba. And Dow component Nike (NYSE:NKE) reports earnings. Investors will be paying attention to what the company says about future orders.
And that`s what to watch next week.
MATHISEN: As we approach the first day of spring, we take you to a city in the midst of a decades-long renewal plan: Ogden, Utah -- once-dying railroad hub, now one of Brookings top metro areas for advanced manufacturing, one of "Forbes" best cities to raise a family. It has the narrowest wealth gap in the country.
Mary Thompson has the story of this city`s economic rebirth.
(BEGIN VIDEOTAPE)
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: On a chilly march morning, Ogden, Utah, lands another company.
UNIDENTIFIED MALE: We could see that they wanted us here.
THOMPSON: Air Medical Resource Group opening a maintenance facility at Ogden`s airport. One employing 15 people with salaries starting at $55,000.
TOM CHRISTOPULOS, OGDEN DIR. OF COMMUNITY & ECONOMIC DEVELOPMENT: The emphasis is trying to get higher and higher wages so people have other opportunities.
THOMPSON: Tom Christopulos is the city`s director of economic development. The city`s goal for the last 16 years: expand the economic base and bring in higher-paying jobs. All part of a plan lit by the Olympic flame.
MAYOR MIKE CALDWELL, OGDEN, UTAH: It really did show the best of what, at that point, was a pretty tired community.
THOMPSON: Launching its renaissance plan two years before hosting the Olympic downhill events in 2002, Mayor Mike Caldwell says the city, home to two rivers and just west of the Wasatch Mountains, used the games to sell itself as a cheap outdoorsy place to work and live.
Ogden`s also been able to get public and private partners to buy into its vision.
When the city takes on an improvement project, entities like schools agree to give up incremental revenue from higher property taxes for a certain period of time. The money is used to tear down blighted buildings and widen roads, all with the aim of making Ogden more business friendly.
President Joe Hunt saw this friendliness firsthand when he told Ogden if Air Medical Resource Group moved, it needed parking.
JOSEPH HUNT, AMRG PRESIDENT: They found a section of parking and leased it to us.
THOMPSON: Ogden has learned to court business the hard way. A former railroad hub, its decline started in the `50s and by 1990, it had lost one- quarter of its population and plenty of businesses.
CHRISTOPULOS: Nobody wanted to live here. And then nobody wanted to work here.
THOMPSON: Taking a risk, the city turned a shuttered military depot into a business park. It`s now home to 6,000 jobs and firms, including Esurance and Hershey. It`s building a lifestyle park for outdoor companies. An industry Ogden sees as one of the three pillars of its economy along with aerospace and advanced materials.
An Ogden native who`s been in this role for nine years, Christopulos knows while there`s been plenty of progress, plenty still needs to be done.
CHRISTOPULOS: It`s a generational project. It will go long after I`m gone.
THOMPSON: Years of small steps needed to make Ogden better in the long run.
In Ogden, Utah, I`m Mary Thompson for NIGHTLY BUSINESS REPORT.
(END VIDEOTAPE)
MATHISEN: To read more about Ogden, Utah`s revival, head to our website, NBR.com.
HERERA: Great story.
That does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
We`d like to remind you, this is the time of year, your public television station seeks your support.
MATHISEN: And I`m Tyler Mathisen. We thank you for your support. Have a great weekend, everybody. We`ll see you Monday.
END
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2016 CNBC, Inc.
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