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tv   Nightly Business Report  PBS  May 9, 2014 7:00pm-7:31pm PDT

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this is "nightly business report" with tyler mathisen and susie gharib brought to you in part by., featuring stephanie link who shares her investment strategies, stock picks and market insights with action alerts plus, the multi-million dollar portfolio she manages with jim cramer. you can learn more at music to apple's ears? apple reportedly in talks to make its largest acquisition ever in the music business. the company that created itunes and ipod, why do they need this deal? and calling off their $35 billion merger, and other deals may also run into trouble. and bargain hunting, with the dow closing at a record.
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our market monitor has a list of cheap stocks that he says could soar 50% in the next year or so. we have all that and more. good evening and welcome, what a finish to the week, the dow average closes in record territory more on that in a moment. but first, it looks like apple may sing a new tune, the company reportedly close to a deal to buy the headphone maker beats electronic. founded by rapper dr. dre and the record producer jimmy ivine, apple investors not taking a shine to the news sending apple shares nearly half a percent lower today and that is raising questions about what apple is really after in this acquisition? is it the high end headphones or the digital downloads with itunes flattening out a bit. maybe it is beat's new streaming, or maybe joining
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forces with a hip-hop mogul and a record producer, morgan brennan has more on what apple may really be after. >> dr. dre may be most famous for his music but it is his beats by dre headphone that is could make him the richest man, that is because apple may buy it for as much as $3.2 billion. if the deal goes through it will be the most apple ever paid to acquire the company. so what is beats? the company makes high end headphones that already retail at apple stores for billions. in january they launched a streaming service that competes with apple's itunes radio. it may be more about the talent. namely dr. dre's co-founder, jimmy ivine, one of the earliest adopters of new platforms. he reportedly is in talks with apple in a creative role.
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>> if you take it a step further and think about the -- what it adds to their management team it starts to make sense, albeit a very expensive hire. >> this typically builds its own hardware internally rather than acquire it. talent or not, analysts are skeptical. but beats did put in a reported $1.2 billion in revenue last year. and the brand is not just recognizable among consumers, it is even considered cool. >> i think it is very dope. >> i think it is very exciting news. apple is a great company. and the combination of the two will be awesome. both companies. >> i just hope that doesn't mean prices go up. >> apple, it will still be in the same position, i will still be broke, so yeah, i'll try to save up for it. >> reporter: but a deal is not done yet. sources say an official announcement could come as soon as next week. but negotiations could also still fall through.
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for "nightly business report," i'm morgan brennan in santa monica, california. and scott kessler sees plenty of harmony between apple and beats. scott, you know, this subject all day was getting debate on both sides. either you love the deal or hate the deal and you just heard jean munster saying it was a bad deal, so why do you love the deal? >> yeah, i don't know if i love the prospects of the deal, susie, but i do see a lot of positives. most notably, apple is already in the business that beats is focused on, or at least beats electronics is focused on as well as beats music. so first of all you have the accessory business generating about $1.3 billion in revenue for the march quarter. and obviously that beats bread and butter. they make headphones and speakers and apple felt a lot of those. so obviously we're moving the
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kind of middle man from that process, makes those products more profitable for and -- apple. but more importantly on the product side is beats streaming service that you referenced. it is newly launched but something that apple is looking at closely. they're very interested in kind of trying to better pursue and successfully execute on a non-download digital music strategy. itunes radio has gotten mixed reviews. >> all right, be honest now, would steve jobs do this deal? >> i tend to doubt it, tyler. i believe this is the type of deal in the last year or two where it seems apple lost its kind of cache brand perspective even from a product perspective. we believe that is why they are kind of consideration a transaction. when you think about apple and beats, what apple has been doing
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the last year, they hired the former ceo of yves st. laurent, and the former ceo of burberry. so they're trying to get the company letter aligned with luxury clients and greater visibility across celebrities. them and i believe beats helps them do that. >> susie and i are available for a lot less than $3 billion. >> you should get in touch with them. so scott a lot of people are watching apple stock trying to wonder what is the best thing. it crossed over $6 million this week, everybody was so excited. it pulled back a little bit. there is a developer conference coming up next month. will anything come out of that whether it is an iphone or a new product that amps up the stock? >> right, the way we think about the next couple of months for stock for apple, initially we
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completely acknowledge that the worldwide developer's conference that you referenced is coming. it is only weeks away really at this point. but that is really more a gathering focused on software and services. and so you could see new operating systems announced. you could see new features to various apple offerings announced, like apps, for example. and new enhancements. but we don't see actual new hardware products being announced at this confab. however, we do expect in the next couple of months that apple may make three key announcements. one will be a new iphone, we expect it to have a bigger screen. people are looking for that. number two is practically new ipads. we believe people are looking for a refresher on that product. and we look for apple to announce its entry into the wearables category, perhaps something most of us would think
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of as an iwatch. >> okay we're all waiting, scott. thank you very much for coming on the program. scott kessler, thank you. and stocks wrapping in an up and down week with all the major averages seeing modest gains, that was enough to see it at an all-time close, the nasdaq and s&p finishing a little lower. let's look at the markets. the dow gains 32 points, closing record high of 16,583, nasdaq up on the momentum stocks and the s&p added a modest two points. allergan shares mayóññyóñ'1a $46 billion takeover from ñr valiant pharmaceuticals. they could turn down the offer as soon as monday. if that is the case it would be a big blow to allergan. lot of talk today on wall street about a cross border mega
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merger in the advertising world that was just called off just as the fate of two other deals hang in the balance. the business world may be flatter. but rising sensitivities may keep the deal from getting money, mary thompson has more. >> reporter: when they announced the merger vehicles last july they expected their size and scales would help them to compete with google in the fast digital world of advertising. nine months later, omnicom ceo said the products took down the deal. >> if i summarized in a tweet, it would be corporate, and time. >> the ceo maurice levy had a different take blaming it on omnicon. >> one purpose is there would be equality in the management team. this has not been the case in the proposal.
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and i was going back and forth to try to convince them that we ó5f>wrvíiw72çyó equality. and it is possible to get the equality.  would have created the world's largest ad agency with co-ceos in paris. it was to be headquartered in the netherlands, with tax revenues in the more favorable u.k., the deal fell apart, the attorney downplays politics as a problem. >> every deal has political challenges, even if you do domestic deals there are regulatory issues, sometimes political issues. but those really are not the factors by and large that determine whether or not deals get done. >> still, two other cross border bids are fanning the political fires these days. pfizer's $100 billion offer for british rival astrazeneca, raising fears from the
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corporates in the u.s. this cites the deal as an advantage in saving billions in taxes with the headquarters in the u.k. rather than the u.s. although any debate about whether this deal gets done is whether or not pfizer will raise its low-ball price. meanwhile, ge's bid for a deal unleashed concern. the ceo doesn't see it scuttling ge's bid. >> we've done a lot of deals in europe over time and are pretty experienced in this type of stuff. we have a good offer. it will be executed. >> politics may make great theater, but in business, that drives the report. we have another wrinkle about pfizer's proposed proposition on rival drug maker astrazeneca, turns out the number of people who could lose
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their jobs if the deal goes through. the governors want them to know the impact, astrazeneca has more than 2 million employees in delaware, pfizer has more than 3,000 in maryland. and stocks closing in on correction territory. is it a warning sign to investors that a broader pullback is near? the labor department says the number of job openings ticked slightly lower in march to just over $4 million, but the share of workers who left their jobs rose possibly for a better one, analysts say that is a sign
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of strength in the job market. and ralph lauren posted an earnings beat but the retailer offered a disappointing outlook. that is why we begin focus, the company expects global revenues to rise 6 and 8% next year but warn operating margins would decline as it spends money to build up the network of stores and that overshadowed an otherwise good report. shares of hilton worldwide up after the hotel operator announced earnings and revenue that topped estimates. first quarter estimates tripled thanks to higher rates, hilton also raised the full-year forecast as it expects more in business travel. that pushed stock up to $23.07. and traffic decreased at the outback steak house restaurant chain. like so many companies this earning season it blamed it on the harsh winter weather. also a shift in holiday
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timing negatively affected the quarter with shares fallingñi 2 and a half percent to $20.89. and vivas is facing threat from drug maker activist, the company plans to market a drug that will move to enforce intellectual property rights. shares fell to 22, activist down to 196.18. and radio shack scaling back its plan to shuttle as much as 1100 stores because it was unable to reach an agreement with lenders, the current loan clause has them closing stores up to 9% each year. shares fell to $1.33. and netflix raising prices by a dollar a month for new customers and giving current subscribers a break. the company announced they would raise rates last month, we
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didn't know how much, now, we do. shares are at $22.55. and a day when stocks closed at a record high, smaller cap stocks in the 2000 index have gotten hammered lately. and as dominic chu warns this is hurting investors. >> reporter: small investors point to a small sign that could have a big impact in the coming months, looking at small cap stocks that are defined as ones that have a market value as a little over a billion rough average. it has had a rough go over the last couple of months, since hitting record highs now it has fallen close to 10% in value. what many traders call a market correction. small cap stocks are important because they're geared as a possible leading indicator for where the rest of the stock market is headed. the big concern is that the drop in small cap stocks could lead to a drop in other parts of the
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market. take a look at the chart of the russell 2000 versus the large shot s&p 500. they trade pretty much in tandem. but now they're not and some estimates blame it on economic worries. >> are the markets now saying the feds are done easing and that the economy has to carry the ball and in that environment there is less margin for error, so small caps are going to struggle more until the economy shows signs of growth. >> reporter: among some of the harder hit are well known names like luxury auction house sotheby sotheby's, losing a quarter of its value in 2012 alone. and artic cap losing a third of its value. and arrow pospal cut in half. the latest market declines may have created an opportunity. and there is not as much fear that the selloff will have the ripple effects in the market.
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>> i'm encouraged that this has not spread to the broader market, doesn't look like it will, personally because we don't have the pharmaceutical catalyst to do that. >> the tug of war between the bulls and bears are continuing and for now the bulls are winning the battle. but small caps remain a key part of the market to keep a watchful eye on. for "nightly business report," i'm dominic chu. our -- patrick, welcome, good to have you with us. you just heard dominic's report, he pointed out that smaller stocks have rolled over. do you think they represent the better values or the big guys? >> well, i think the large cap stocks which my team at brandi wine works on the most, i think the small caps have gone from tremendously over-valued to slightly over-valued, perhaps, so we still think the bigger
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higher quality companies offer the highest, more attractive returns. >> it seems like the running theme is that you're looking for bargains. top of the list is toyota, you say this is one of the cheapest stocks in the world, make your case. >> yeah, absolutely, so toyota today is about $108/109, one interesting thing is $40 net cash on the balance sheets, so you are really only paying 60 or 80 for the business, earnings are 11 to 12 dollars, you're really paying five and a half to sick ti six times on earnings. the number one audit company in the world, tremendous balance sheet, very conservative management. as we look forward with the cash there in a year we believe they will buy back stocks. you can make 50% more easily, if you're a long-term investor. >> you have a $30 price tag on
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city. how soon could it get there. this is a stock that seems like a very, very risky choice. >> yeah, well, so it obviously is a fact in the headlines, a lot of times the best opportunity for investors are things that nobody likes. the things that people think are not going to work. citigroup has been in the news, we think that 40 or 50 a share you're paying seven times earning power share. citigroup is the only major bank trading below book value, so tremendously cheap against other banks and against the market. >> let's talk about met live. the stock is pretty much trading today at where it was in january, it has been kind of flat for the year. what is your target on this stock and why should investors put fresh money into met? >> well, the three as i mentioned we all think they have 50% upside in the next 12 to 20
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months, met, cheaper in the market, a lot of dricontroversy lot of funds. it has not been buying back funds because they're waiting to see what the federal reserve will put back for insurers. it is trading at book value again, not a lot of down side, we think. again, very cheap relative to the market. we believe that once there is certainty out of washington that they will begin buying back stock and it will be a tremendous opportunity for investors. so all three of these stocks again very cheap. some controversy, but that is really where i think investors can find the opportunity. >> you want to exploit those headlines, don't you patrick? >> we absolutely do, that is one of the things we do here at brandywine, stay with high quality names that people know. >> takes steely nerves to do that. you must have some view on
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economic growth and interest rates, would you share it with us? >> right. yeah, absolutely, when you're buying big companies the single biggest determiner of their economy is how much conviction we have in our research. when we look at the economy and interest rates especially for the two financials we think long-term interest rates, particularly long-term interest rates rise. that is very good for city and met life. we believe the economy is going to grow at a modest pace. there is a lot of debate, was it a winter slowdown. right before i came on the air i saw that the federal reserve loan data, it appears that commercial and industrial loans are accelerating. commercial loans are accelerating. we believe the economy is gaining momentum. and so while we have had this debate in the market where it is a choppy period, side ways overall. we think it resolves itself. we don't think it is one of those years where it is sell in may and go away.
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we believe that as people become convinced that the economy is doing well and picking up speed that the market will do better in the second half of the year. >> patrick, do you have disclosure on toyota, city and met? >> as a firm we own shares in all of them, i invest in brandywine, they didn't have banking relationships. >> and coming up, role reversal. at home, more women will become the bread winners. at work, more will take over the corner office. ahead of mother's day, a look at how the trend should shape the economy for years to come. that is next. mother's . u.s. postal service delivering more bad news last
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quarter despite severe cost cutting the agency still lost nearly $2 billion. the volume of first class mail continued to fall and the federal government was unable to offer any financial help. a new interim ceo for the l.a. clippers, dick parsons, former chairman of citigroup. he will be in charge of day to day operations of the team. this comes as the nba is trying to force long-time owner donald sterling to sell the team after making racist comments. and a new memo coming out next week, former treasury secretary tim geithner admitted he considering stepping down after the financial crisis and suggested that hillary clinton succeed him. tim geithner said that obama
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nixed the suggestion and he remained for another three years. and now, in time for mother's day, we're looking at the work place and women. >> what seems unstoppable is that women will be leading more than men and the question is how companies will respond and the country, especially when it comes to/&ñ@o;uiórñm97bfçg÷m0ói talk to them about balancing their jobs, they are most attracted to those women.
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they are choosing employers willing to make the changes. >> according to the department, the u.s. is only one of eight out of 180 countries in the world with no mandated pregnancy leave. the u.s. family and medical leave act passed in 1994 mandates 12 weeks of unpaid maternity leave but only covers about 59% of workers who have access to the law. google offers generous leave. some argue the marketplace will make changes even better than the government will. given the growing trends of educated women, that seems certain. some say the national leave law would be preferable and cheaper to give out than 50 separate ones and it could make good economic sense.
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for "nightly business report" i'm steve liesman. >> i could talk for hours with you about that story. will we see more women ceos in the next decade? and also we have to figure out the work balance stuff. >> definitely, i think women are the not so secret weapon of the u.s. economy. we have more women engaged in the economy. happy mother's day, by the way. >> thank you. >> you bet i do. >> that is "nightly business report" for tonight, i'm susie gharib, thank you for joining us. happy mother's day to all of our mothers watching the show. >> and for me, i'm tyler mathisen. did i say have a happy mother's day? have a great weekend.
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>> drought, flooding and the challenges of climate change. plus, the supreme court on prayer. the u.s. in nigelia. and is the tea party fading? tonight on "washington week." >> this isn't something in the distant future. climate change is already affecting us now. >> temperatures are rising. streets are flooding, and washington's debate about climate change has reached a fresh crossroads. >> this debate shouldn't be about alleviating the guilt complexes of liberal elites. gwen: will a dire new report make the difference? in nigeria -- >> we want our girls back now! gwen: the fate of hundreds of missing school girls sparks debate around the world. >> they are basically a group of bandits that are hiding among populations, and it's