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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Fizzling finish. The Federal Reserve`s number two signaled that maybe a September to remember for interest rates and that took the wind out of stocks sprinting.
Sprinting higher. His fund is up twenty-five percent this year, easily outperforming the market. Find out what stocks are market monitor is by now.
Budding opportunity. Why startups usually associated with Silicon Valley are turning to one of the oldest of professions, farming.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday August 26.
Good evening, everyone. I`m Sue Herrera. Tyler Mathisen is off tonight.
The door is open, open to an interest rate hike. The head of the world`s most powerful central bank says the labor market is solid and so is the outlook for economic activity and inflation. That according to Janet Yellen means the case for a rate rise has strengthened in recent months.
But as she usually does, Miss Yellen hedged her comments in such a way that nothing is definite and investors seem to like that sending stocks higher after she spoke this morning in Jackson Hole. But then, her number two, Vice Chair Stanley Fischer, was a little more direct and said that Yellen`s comments were consistent with a possible September rate hike.
And that changed the mood, stocks reversed course and the gains of the morning were gone. When all was said and done, the Dow Jones Industrial Average lost 53 points to 18,395, the NASDAQ added 6, and the S&P 500 was off three.
Steve Liesman reports tonight from the annual meeting of central bankers in Jackson Hole, Wyoming.
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STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: After taking in the best at the foot of the Grand Tetons in Jackson Hole, Federal Reserve Chair Janet Yellen took to the podium at the Feds annual meeting and suggested the Fed is perhaps ready to raise interest rates.
She said in her speech, "In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months. Of course, our decisions always depend on the degree to which incoming data continues to confirm the committee`s outlook."
Even though today`s GDP report showed sluggish growth just about 1 percent, Federal Reserve Vice Chairman Stanley Fischer in an exclusive CNBC interview dismissed GDP as a backward-looking measure and echoed yelling that the US economy is reaching maximum employment.
STANLEY FISCHER, FEDERAL RESERVE VICE CHAIR: We want to be looking ahead when we make this decision, not backward, reasonably close to what is sort of a full employment and inflation rate this year is higher than last year`s, it`s still not up to two percent. But it`s been growing.
So, you asked whether the big numbers we look at the big numbers or are better than they have been for some time and then we`re getting some feedback as some reinforcements from what`s been happening on a monthly basis.
Asked if markets should prepare for a possible September hike, it may be two this year, Fischer said, yes, if the data cooperates.
Next week`s August jobs report will be critical to the rate hike case for the Fed, barring any signs of weakness in the data, Cleveland Fed president and FOMC voting member Loretta Mester also left a September rate hike on the table. Just when growth could rise from one percent to three percent in this year`s final two quarters.
LORETTA MESTER, CLEVELAND FED PRESIDENT & CEO: I think we`ll have some strength in the second half of the year, yes. I think the economy is on a good track. I think the employment numbers of a lot -- you know, show that. I think the inflation numbers are coming up slowly, there below our target still, but they`re moving in the right direction.
LIESMAN: Among the gathered Fed officials, there seem to be fairly good agreement that rate hikes were near, but also that rate hikes would be gradual.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman, Jackson Hole.
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HERERA: More now on the gross domestic product report that Steve just mentioned. Overall economic growth for the second quarter was trimmed to just a bit more than one percent. But a key measure of corporate profits rose for a second straight quarter. The report also showed that personal consumption rebounded sharply but the business investment remains soft.
Americans are not feeling as optimistic about their finances. A gauge of consumer sentiment posted its third straight monthly decline. According to the University of Michigan, the index fell to its lowest level since April. Consumer sentiment had been supported by steady hiring, lower interest rates and the declining price of gas.
And although gas prices are still relatively low, they`ve started to inch higher following the path of oil which is gained 10 percent during the past month. But whether crude continues to make gains, depends mostly on what happens in country`s halfway around the world.
Jackie DeAngelis takes a look at the global flashpoints.
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JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The recent move higher in crude oil prices comes from the belief that there may be supply constraints in the second half of the year, but that may be based more on fear than fact. According to OPEC`s latest monthly report, Iraqi production is more than 4 million barrels a day and slowly increasing. That`s up nearly a million since 2014, when oil prices traded around a hundred dollars.
Around production is more than 3 million barrels and close to pre-sanction peaks. Libya producing about 300,000 barrels a day, maintenance on key export facilities there suggests that numbers could be on the rise shortly.
Nigeria has been a big concern. Production is about a million and a half barrels per day, but a recent ceasefire in the region bringing some optimism back for that country, too.
Venezuela could be the biggest wild card, it`s producing just over 2 million barrels a day, but could see shortfalls as turmoil continues with little relief in sight the takeaway here the trouble spots too appear to be that stressed, which could mean the oil glut will continue to weigh on prices into the second half of the year, or the situation creates more incentive for OPEC producers to cooperate and implemented a freeze at their upcoming meeting in late September.
ALAN HARRY, HARRY RE TRUST CEO: If they do a freeze, they`re at max capacity were coming off. The reason why is there a max capacity, they`re producing a lot of output, it allows for a lot of producers in the U.S. to now start producing because they stabilize prices could go higher up, they now start producing quite a bit of crude oil.
We now have even a bigger glut than when we started with, very short term I`m bullish, but the longer-term, I`m very bearish, and I think we`re going to see the mid thirties when the next several months.
DEANGELIS: For the moment, oil is range-bound, stuck between $45 and $50 a barrel, but industry insiders say a big move is coming, they`re split however on which way it will take the market.
For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.
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HERERA: Still ahead, our market monitor tonight has a hot hand. His fund is up twenty-five percent this year, and tonight, he`s sharing a few stock recommendations.
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HERERA: New funding for Amtrak`s Northeast Corridor. Vice President Joe Biden said the government will make a nearly two-and-a-half billion dollar loan to Amtrak to buy new trains and upgrade tracks. The Department of Transportation is making the loan, which it says is the largest single loan in its history.
It has been a long haul for the trucking industry this year. The sector has hit a number of bumps in the road, including new regulations and weak economic growth. But there`s one big bright spot and that caught the attention of executives from the biggest fleet in North America, at the great American Trucking Show.
Morgan Brennan reports tonight from Dallas.
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MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Every August, 30,000 people descend upon Dallas for one of the biggest trucker inventions of the year. In 2015, U.S. truckers hold more than 10 billion tons of freight, representing a record $700 billion in revenue. But what a difference a year makes. In 2016 so far, truck tonnage has tumbled, thanks to high inventory levels, low commodity prices and weak economic growth.
Making matters worse, many companies have expanded their fleets, meaning there are too many trucks for too little demand.
DONALD BROUGHTON, AVONDALE SENIOR ANALYST: Companies are going to see less utilization, fewer miles, they`re gonna get paid less for those miles and their expenses are still up.
So, it`s going to be lower margin, it`s going to be lower profitability, lower earnings for the publicly-traded carriers.
BRENNAN: But there are bright spots. Ecommerce continues to surge, representing a huge growth opportunity for companies like Covenant Transportation Group (NASDAQ:CVTI).
DAVID PARKER, COVENANT TRANSPORTATION CHMN & CEO: It`s our fastest-growing segment of our total business. We`re doing about $700 million, $750 million a year revenue. It`s about thirty percent all related to ecommerce. That number is basically going up about fifty percent a year.
BRENNAN: As Amazon (NASDAQ:AMZN), another retailer, ship more products, newer players are entering the package delivery market as well. Take Trans Force, a top Canadian trucking and logistics firm that`s rapidly expanding its US presence.
ALAN BEDARD, TRANSFORCE CHMN & CEO: We have one customer that just 18 months ago, I mean, we`re basically doing nothing with those guys. And today, if we look at this statistic of what we`ve been doing today for this same customer we will probably do more than 35,000 deliveries.
BRENNAN: And consumers increasingly want goods immediately that pressure to deliver the doorsteps fasters, spurring the adoption of new technologies, to gather data, monitor weather patterns and make the business more efficient and safer.
But all the technology in the world can`t help the industry`s most pressing need, new hires.
PARKER: Drivers are the number one challenge, and it continues to be -- the age continues to get older and you don`t have as many of the youth coming in. A lot of millennials are not wanting to drive trucks and so we got to figure that out.
BRENNAN: And that makes trucking conventions like this one all the more important.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan, in Dallas, Texas.
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HERERA: Herbalife (NYSE:HLF) is caught in the middle of two billionaire investors again, and that`s where we begin tonight`s "Market Focus".
Late today, billionaire investor Carl Icahn said he purchased another two million shares of Herbalife (NYSE:HLF), and that he never gave an investment bank in order to sell any of his steak. But that`s contrary to earlier reports that indicated Icahn was considering a sale to a group that includes fellow hedge fund manager Bill Ackman, who has a big short position in the company. So, shares of Herbalife (NYSE:HLF) rose initially in after-hours trading following the Icahn statement. The stock fell during the regular session on the earlier reports.
The mega merger between beer makers Anheuser-Busch InBev and SAB Miller is expected to result in job losses. Anheuser said about 3 percent of the new company`s total workforce may be laid off in the three years following the acquisition. Shares were down marginally $125.74.
Cloud company Rackspace is going private. Apollo Global Management will buy the company for about $4 billion. The offer represents a premium of about thirty eight percent to the company`s closing price on August 3rd, which was the day before reports surfaced of a potential transaction. Rackspace shares rose four percent to $31.50.
And, Big Lots (NYSE:BIG) saw profits rise more than expected in the latest quarter, prompting the discount retailer to raise its guidance on earnings for the year. But sales disappointed, as fewer stores in operation heard results, and the company also said same-store sales are expected to grow in the low single digits for the year. So, as a result, shares fell nearly four and a half percent $50.57.
Our market monitor guest tonight like stocks that he says are undervalued. Last time he was on in January, he recommended EnLink Midstream, which is up 62 percent, La Quinta, which gained six percent, and Spirit Airlines, which is 11 percent lower.
Joining us tonight, Craig Hodges, portfolio manager of the Hodges Fund, which is up twenty-five percent so far this year.
Welcome. Nice to have you here.
CRAIG HODGES, HODGES FUND PORTFOLIO MANAGER: Thank you, Sue. Good to be on.
HERERA: And congratulations on the stellar results for the fund.
HODGES: Well, thank you. We got to make sure we cross the finish line, though.
HERERA: I know, I know. This is part of the year right, right?
HODGES: That`s right. That`s right.
HERERA: Let`s start first of all with the news of the day, and that is the Federal Reserve and specifically the statements from not only Stanley Fischer, the second in command, but also Ms. Yellen which the market interpreted as indicating that a September rate hike maybe on the on the table once again.
What did you think of her remarks?
HODGES: You know, I think everyone is kind of coming to the same conclusion is that they`re waiting for the proper data in order to raise rates. They want to do it. They have signal they need to do it, and, you know, I don`t think there`s a political motivation to do it before the election or after.
I think once they have the data that that backs up what they can do, they`ll do it. Now, they`ve had -- I think they`ve had a couple times but then if you remember like a year ago, you had the Chinese situation, then you had, you know, a couple of a -- you know, European --
(CROSSTALK)
HERERA: Brexit, and things like that.
HODGES: Yes, Brexit is another great example. So, you know, I think if nothing bad happens, as far as I`m concerned, then they have the data they want, I think it`s coming.
But I don`t think the market is it that obsessed with it anymore. I think everyone knows it`s going to happen. You know, you may have a 10-day or two-week upset market, one way or the other. But its factored I believe at this point.
HERERA: Yes, one analyst I talked to today said he has Fed fatigue. He`s just happy he`s putting it to the side right now.
HODGES: Yes.
HERERA: You know, you mentioned data. The GDP data came in a little weaker than most people were expecting. What did you make of that and do you get the sense that the economy is as strong as some people think it is?
HODGES: You know, no, I don`t think it`s particularly strong. At Hodges Capital, we do about 3,000 company touches a year. That`s everything from listening to conference calls to personal management visits, to them coming to our office.
So, we really do amongst are seven analysts and three portfolio managers have a real feel for how companies are our kind of saying how things are, and it`s good but not great.
And, you know, there`s slight growth, but there could be -- it could be a whole lot better. So, it kind of tells you a little bit about the market. I don`t think the markets incredibly expensive, but it`s not incredibly cheap either. So, you have to almost be a stock picker. You have to look amongst the individual stocks and find the ones that are growing, that aren`t showing -- that aren`t expensive, and that`s what we try to do.
HERERA: Yes, and we`ll get to your picks in just a minute, but back to the market briefly before we do that. You know, you said it`s not incredibly cheap, but it`s not incredibly expensive. It still seems to me though that it`s basically the only alternative globally if you want to invest stock -- if you want to invest in equities, were still, you know, probably the safest and best place to invest overseas -- from overseas.
HODGES: I think you hit the nail right on the head. There`s not a lot of alternatives and, you know, you`ve had seven years of money coming out of U.S. stocks and into bond and bond funds. I mean, that`s unprecedented.
And at some point, rates will go up, and I believe that money will come back out of bonds, where can it go? There aren`t that many alternatives. You`ve heard the acronym TINA, for "there is no alternative".
So, you -- stocks are kind of the only game in town, and I think what you`ll see over the next three to five years is money coming out of bonds trying to find a home and really us large-cap, you know, inexpensive dividend-paying stocks or where I believe that money will find a home.
HERERA: Well, you gave us three picks, and as we said in your introduction, you like to find stocks that you feel are undervalued.
U.S. Concrete, a company I`m not all that familiar with, was one of your picks. Why do you like it?
HODGES: Yes. Yes, U.S. Concrete is that it`s not a big company but they`re in great markets. They`re about 40 percent in Texas. They`ve got about 28 percent of their business in New York and New Jersey. They`re doing the ready-mix work for the -- for the airport there, and then in the kind of the San Francisco area.
But this isn`t a business which has extremely high barriers of entry. The stocks down from the mid-seventies down to around the mid-fifties, but they`ve got a big future. They -- like I mentioned, they`ve got limited competition and they were hurt by some short-term weather issues in Texas and that`s, you know, more or less not a big deal. They will -- they will make that business up.
So, I can see that that -- that stock going back into the high seventies this year, and then, you know, a couple years out, it could be a hundred dollars.
HERERA: Let me tell you if they`re doing the same network for LaGuardia Airport, they`re going to be easy for a while.
HODGES: They are. They`re in some great markets.
HERERA: JCPenney is next on the list.
HODGES: Yes. JCPenney`s -- it`s not -- people don`t get that excited about it, but I`m telling you, it`s one of the best turnaround stories I`ve ever come across in my 30 years.
They -- you know they had the bad management group, you know, three or four years ago that just almost wrecked the company, almost bankrupt it. This new group -- a lot of more from Home Depot (NYSE:HD) are doing a fantastic job of getting the business turned around. We see them earning about a billion dollars of EBITDA this year.
We think earnings could get to the dollar eighty, two dollars a share within a couple years. So, the stock around ten dollars are actually below that. We think could go into the twenties.
HERERA: OK.
HODGES: And that the encouraging thing is they don`t have to have a big increase in sales in order to do that. They`ve got this low hanging fruit of just fixing the stuff that the last management group messed up so bad. So --
HERERA: Let me go on in the last 30 seconds that we have, to WisdomTree.
HODGES: Yes, kind of -- it`s basically the largest independent ETF and if it`s been obvious how a big the ETF business has become. And we think this company is probably I likely acquisition candidate. The stocks come from the mid-twenties down to around ten. There`s been some insider buying and probably be acquired at some point.
HERERA: All right. On that note, Craig, thank you so much for joining us today.
HODGES: Happy to be on. Thank you.
HERERA: Craig Hodges, have a great weekend.
Coming up, betting the farm. You`ll never guess what high tech innovations are cropping up on America`s farms.
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HERERA: Silicon Valley startup Theranos plans to appeal a decision made by regulators last month that barred CEO from running the company for two years. The Centers for Medicare and Medicaid Services last month also said it would revoke the company`s license to operate a lab in California. The blood testing company late last night filed its intent to appeal.
The family farm looks a lot different today than it did just a few years ago. Technology is making them more efficient as farmers look for ways to produce higher yields.
Aditi Roy is in Salinas, California, where farmers are sowing the seeds of innovation.
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ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The rumble of equipment trolling through the fields is a familiar sight on America`s farms, but here in Salinas, California, just an hour south of Silicon Valley, this is the sound of innovation.
The machine is a water jet knife spouting razor-like streams of water to snip heads of lettuce. The cutting edge technology is part of Taylor Farms` dedication to innovation, which includes lasers to remove impurities from their salad mixes and robots to pack produce.
BRUCE TAYLOR, TAYLOR FARMS CEO: Innovation has been very helpful to be helping people become more efficient and lets us pay them more, makes for a better job for them and better results for us.
ROY: Third generation farmer Bruce Taylor is the founder and CEO of Taylor Farms, which isn`t just using technology, its investing in it the company`s headquarters houses an incubator run by the Western Growers Association, 15 startups are there now.
One of them, HarvestPort, known as the Airbnb of farm equipment. It lets farmers rent out their equipment so they don`t sit idle.
Tim Koide founded the startup.
TIM KOIDE, HARVESTPORT FOUNDER: Here in the United States alone, on the shared economy narrative, at any given time, there`s upwards of $6 billion of capital equipment sitting idle. So, it`s -- there`s huge opportunities here in agriculture.
ROY: The ag tech industry is flourishing, with 307 deals and $1.8 billion invested already this year in the sector.
The number of investors has risen 52 percent. Some of them are farmers.
TAYLOR: We collaborate. We can -- we can move the needle faster. We can come up with innovations and get it implemented and get the benefit sooner. And the benefits, of course, you`re using less water, you`re using fewer pesticides, fewer herbicides, and using less labor to get higher, higher yield.
ROY: But there are barriers with some farmers still hesitant to adopt new technology. But the numbers could be on the upswing, with the American Farm Bureau reporting that 75 percent of farmers say they plan on investing in technology in the next three years.
For THE NIGHTLY BUSINES REPORT, I`m Aditi Roy, in Salinas, California.
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HERERA: It is the busy summer holiday travel season, with many vacationers making trips around the world. And despite terrorist attacks and economic slowdowns in some countries, tourism is still expected to grow and grow more than forecast.
Susan Li tells us where travelers are headed.
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SUSAN LI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Travel and tourism is a big contributor to global economies, and over $7 trillion to global GDP, employing 1 in 11 people on the planet. The busy summer travel months are crucial to the industry and in 2016, some places are more popular than others.
South Asia is a standout, being driven by interest in India`s economic prospects, drawing in the visitor numbers. Elsewhere, despite all the headlines of slowing growth, China is still attracting holidaymakers to Northeast Asia with China tourism growing at a strong pace of over six percent. Tourism to Southeast Asia growing at 4 percent.
Asia as a whole has really benefited from their weaker currencies versus a strong US dollar. North America is also performing well so far, expected to grow over three percent this year.
Experts say that the technology revolution is another big factor fueling the travel trend.
LUKE BUJARSKI, RESEARCH DIRECTOR: Companies that are really ahead of the head of the curve, they`re really doing an amazing job in democratizing travel creating platforms that -- platforms and experiences and tools that really help the consumer go to places that they would have never really imagined.
LI: So, where are travelers avoiding?
Tourism to Brazil is still expected to contract this year and Latin America as a whole is also expected to see falling travel. Concerns over the Zika outbreak is another factor deterring tourists.
Europe is still suffering. Terrorist attacks in Paris, Nice, and Brussels have scared away travelers with the world`s biggest tourist destination. Paris reporting a big drop of over nine percent so far in 2016. Business is suffering so much in the City of Lights that four and five-star hotels have cut their rates by as much as 45 percent.
Also suffering from terrorism is Turkey. Terrorist attacks, along with headlines of a failed coup and the country`s proximity to the Syrian border have dampened tourist interest.
And what about the impact from Brexit, the much-talked-about UK vote to leave the European Union? Brexit has not had an impact with the U.K. holding up as a travel destination in 2016. The weaker currency has made the country a more attractive tourist spot, welcome news for the country`s new government and its economy.
For NIGHTLY BUSINESS REPORT, I`m Susan Li.
(END VIDEOTAPE)
HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herrera. Thanks so much for joining us. We want to remind you that this is the time of year your public television station seeks your support, and we appreciate that support.
Have a great weekend, everybody. We`ll see you on Monday.
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