tv Power Lunch CNBC August 16, 2016 1:00pm-3:01pm EDT
>> that's what you're saying. >> when everybody starts to get on the same trade it gets me worried. but i don't think everyone's still there yet. >> that's what i'm saying. >> 115, if it gets past that, you're technical, isn't that a big number, 115 or something like that. >> i don't know, made that up. bye-bye. power starts now. all right. i'm brian sullivan. health care topping your power menu today because there's another big blow to obamacare, why aetna is now saying it cannot make any money on the president's plan. plus, rolling the dice on clinton. you're going to hear from one vegas ceo who's crossing the aisle because of donald trump. and a look at our exclusive power city indexes, is your city topping the list of the best performing stock markets this year? you got to stay tuned to find out as "power lunch" starts right now.
welcome to "power lunch." i'm melissa lee. all three major averages in the red. nasdaq lower for the first time in four sessions. among the biggest losers on the nasdaq 100, activision. ty. >> welcome everybody. i'm tyler mathisen. shares of hain celestial, an accounting probe. much more on this story straight ahead. we're seeing a big move in oil once again. crude touching its highest level in a month or so, back above $46 a barrel. and a trump campaign shooting down reports that former fox news chief roger ailes is advising the trump campaign specifically on debate preparation. the "new york times" reported earlier today that the two were working together ahead of the presidential debates.
michelle. >> tyler, i am michelle caruso-cabrera, and we begin "power lunch" with another big blow to obamacare. one of the nation's largest health insurers is pulling out in all but four states. cnbc's bertha coombs is working that story for us. she joins us with the details. bertha. >> michelle, it's a sharp reversal from aetna. they announced a couple weeks ago during second quarter earnings that they would be re-evaluating their participation in the obamacare exchanges. now they say they are slashing that participation by 70%, going from 15 exchanges this year to just four states next year. the states they will be in include delaware, iowa, nebraska and virginia. the reason, they are losing money. they booked $230 million in pretax losses in the second quarter. so when you look at the picture, the fact that humana's also pulling back, united announced a big pullback, you're going to see united in just about three states, maybe three, that's down
from more than 30. you're going to see aetna in four, down from 15, humana in 11 down from 15, anthem so far says they're staying put. so that would mean if they stay put they'll be in 14 states next year. but that means in many states you could see hundreds of thousands of people having to switch plans because their insurers are leaving. the insurers today are lower on that news. nonetheless, analysts say for aetna trying to stanch the bleeding is actually good for the bottom line. now, federal officials say they'll still be plenty of competition in states like georgia and texas. there's still plenty of other insurers left. but in some cases you are going to see some counties in this country in areas of north carolina, south carolina where they'll just be one plan. and in arizona where united and aetna and even the blue cross/blue shield of arizona have said they're pulling out, they will have none at the moment. so officials there are
scrambling to find coverage. >> yeah, they're going to have to figure something out in those counties. thank you, bertha. let's bring in senior research fellow and health care policy with george mason university. and doctor of the university of pennsylvania also involved with the health care act. when you read aetna's statement, they say, listen, the pool that we're insuring is a lot less healthy than we expected, sicker than we expected, more elderly than we expected. brian, in the insurance industry they call that adverse selection. the people who need the insurance the most are buying it so they're more costly. this wasn't supposed to happen. young people were supposed to join. the pool was supposed to be bigger. why is this failing? >> thanks so much for having me onto discuss this important topic. when the law passed, the experts anticipated there would be about 24 million exchange enrollees in 2016. and the way the law's complicated structure worked is
insurers needed adequate number of those enrollees to be young and healthy, to offset losses that insurers would face on older and sicker enrollees. and it turns out that the coverage available through the exchanges is really only attractive to people who either receive large subsidies to purchase the coverage or who are relatively sick and expect to incur large medical expenses. >> but there were fines, brian. i thought if i don't sign up for health care, i will be fined. don't those fines incentivize people to buy it? >> the fines incentivize some people to purchase coverage, but the fines are relatively small compared to the price of the premiums and the large deductibles that we're seeing purchased for exchange plans. and what we're seeing is that most individuals are making the economically rational choice not to purchase the coverage because the coverage isn't worth it. >> dr. emanuel, what do you say to this situation? should the fines have been bigger? i'm seeing the fine is $1,000.
but some premiums are $5,000 or $6,000 a year. >> let's back up to the aetna case. i mean, it's very hard to know what the truth is of the aetna case. in february and then again in april you had the ceo saying, look, we've got a million people. he specifically said that he thought that the going into the exchanges was a good investment. and then in may you had one of the aetna spokesman saying we have no plans to withdraw from our 15 markets. as a matter of fact, we might expand to new jersey and indiana. now, maybe then they were trying to butter up the department of justice to approve their merger with humana, now to when the government has opposed the merger they are saying, well, you know, we've got such losses it's not such a good investment. it's very hard to know what the truth is. it's also very hard for us on the outside -- >> so are you saying -- >> wait. >> you're saying it's not true the $ 00 million in losses are not true, that in fact this is perhaps politically motivated because they're angry at the doj
for not allowing the merger? >> again, i think we simply don't know. and remember, there are lots -- >> do you deny adverse selection? first off. is that happening? >> no. we do know that the pool coming into the exchanges in general has been sicker than the government expected. and i think brian pointed out correctly that the number of enrollees has been less. i think there have been several reasons for that. one is obviously the initial bad publicity around the rollout. a second is i think that the website wasn't as good as it should have been. and the third thing was we haven't had the penalties kicking in yet. so as pointed out, people haven't really until this year begun experiencing the penalties. and the government i don't think has adequate -- the government hasn't adequately made clear to people that they will pay a big penalty if they don't go in. >> -- the centers for medicare and medicaid saying that the per month cost per patient has
remained the same from 2015 and 2014, essentially meaning that the pool has remained as sick as it was in the beginning. and we also have united health and we also have humana saying we're going to scale back as well. why is it so hard to believe aetna's case in pulling out of 11 states? >> i think that's a really good point. we're not -- >> doctor. >> this has to be a long term investment for people. you've got to educate people who haven't had insurance. >> but why does it have to be a long term investment for a publicly traded company? >> i do think the government needs to do a better job explaining to people the nature of the subsidies and make it much clearer to people that there is a serious penalty coming in if they don't get it. i think that as a part of an advertising campaign is going to be critical. i do think we need to improve the pool. there are still millions, tens of millions of people who haven't been insured who are eligible who need to be insured.
and that is partially a marketing campaign, partially a campaign of showing people how much it actually costs, not the sticker price that they're seeing. >> you know, brian, first off this deal thing, i understand what the doctor's saying. we've heard this from others. united health they did the same thing not involved in a deal being challenged by the doj. may be a red herring, who knows. maybe the doctor could answer this as well, brian, we're talking about how to pay, how to pay, how to pay, why are we not talking about why more, a, a hospital stay in the united states costs double the next highest nation. and also, why do we consume so much health care as a nation? >> yeah, i mean, i think those are really important questions. one, to put the aetna decision in context, we've seen humana withdraw from 88% of the counties where it was participating. united health care exit 30 of 34 states where it was participating. and 16 of the 23 health insurance cooperatives started with funding through the health
care law have collapsed. so it's not these large losses aren't isolated to one insurance company. they are systematic, they are occurring across the country. and we can have upwards of 1,000 counties next year where there's only one health insurance company offering coverage. >> let me make two points in counter to brian. first, united, and it was well covered, was a very late entrance and a reluctant entrance into the exchange and never actually did a lot of work to prepare themselves. their exit was actually not that big a surprise. humana, remember, they're the other half of the aetna deal. and so it's quite clear. let me also answer -- >> don't say it's clear. what are you accusing aetna of lying saying their losing out not $200 million? >> i think there is a political -- well, as i said, we don't know the truth and there may well be a political motive. >> i think that's what you think. by now you've said it so often i think the audience believes you believe there's a political motivation. >> there's also political
pressure on the other side. >> let me go to the other half of your question about the health care cost. >> please. >> because under obamacare for the last six years we have seen a tremendous slowing of health care costs. as a matter of fact, in the last few years both for medicare and medicaid we've actually seen on a per person basis negative growth. that is we're saving more money. there's plenty to do in the country to save more money. we know that, for example, drug costs have been abnormally high for the last few years. there's money to be saved there. we also know that hospitals have actually begun increasing utilization and prices have begun increasing. there's plenty to do. and the government is doing it. the affordable care act gave the government powers to change how it pays to incentivize doctors and hospitals to improve the quality -- >> why can't these companies that are pleading poverty here that they're taking these big losses, why are some staying in
presumably they're either making money or the losses are not so significant that they feel the pressure. let me -- i'm asking brian, doctor, and i'll let you get in in a moment. why can't -- why are some staying and either making money or having low losses? and why can't the companies that are getting out raise their premiums to mitigate the losses that they are incuring? >> that's a very good question. one, i think the loss we should put in more context. insurers have received enormous back end subsidies the first three years and making losses even receiving these large subsidies. we have seen some insurance companies being profitable selling exchanges. most experience with medicaid managed care, and they're selling extremely high deductibles and narrow networks with few providers and hospitals. let me go back to the point dr. emanuel raised on health care costs. he's right health care costs have slowed down, the rate of
growth has slowed down, but that's happened across the entire globe. and most economists attribute almost that entire effect to an extremely slow economic recovery. and the evidence on medicaid spending is actually the opposite. medicaid spending per enrollee is actually 50% higher than the government expected just last year. that was in a new report released last month. >> yeah. i guess, doctor, i thought you would agree with my point because what i'm trying to say is it's not a political statement. 60% of americans are on a long-term prescription drug, 30% of americans are either severely overweight or obese. why aren't we diving -- instead of fighting over how do we pay, why don't we argue more about how do we prevent people from getting sick in the first place so we don't have to pay? where's that discussion? everyone wants to compare us to europe. you've been to europe many times, i'm sure, go to europe, okay, portions are smaller, people live differently. >> the affordable care act was largely about -- >> that was for the doctor. >> yeah, brian -- >> okay. >> i would say i'm 100% in
agreement with you. and i think the essence of getting us to really work with people to keep them healthy, keep them out of the emergency room, out of -- decrease hospitalizations, actually take their medications reliablely, get on a diet, the key to that is changing how we pay doctors and hospitals to incentivize them to actually focus on health care, not just taking people when they present with illness. and that change is something the government is working on. these new releases that you've heard about, bundle payments, accountable care organizations, they actually do change the incentive for doctors and hospitals. and they are making a difference. and the recently the medicare has actually announced they're doing a lot more bundles because they are turning out to actually change how people practice. and that change in practice, which you've just stated, is the key to long-term success. we can't look at this thing every quarter. we've got to look at it over a decade. >> thank you, gentlemen. we're going to leave it there.
dr. emanuel and also brian blase. >> thank you very much. >> thank you. now to a market flash with seema mody. >> hey, melissa, bring the health care discussion back to markets because hospital stocks taking a hit as insurers cut obamacare plans. big components like hca holdings and universal health down between 1% and 2% today tracking for worst day this month. amsurg, tenet health down 1% or more with amsurg on pace for sixth negative consecutive session. both down 8% over that period. >> seema, thank you very much. to josh lipton we go to a news alert. >> tyler, i'm here at intel's big annual developer show in san francisco where the company just introduced project alloy. now, this is an all-in-one virtual reality headset. all in one means walk around in virtual worlds untethered. projects should be in the market
by the back half of next year. also new partnership just introduced between intel and microsoft to bring windows holographic to mainstream pcs running windows 10. intel stock not doing much today though up about 15% in the past three months. guys, back to you. >> all right, josh, thank you very much. on deck, a lifelong republican ceo is now prepared to check the box for hillary clinton. we are going to find out why. but first, your next guest says this is one of the most undervalued stocks he has ever seen. the name and the reason he's making that bold call next.
welcome back to "power lunch" everybody. i'm tyler mathisen. the markets taking a bit of a breather right now after a trifecta of record closes yesterday for the dow, the s&p and nasdaq. here to chat about the broader markets scott wren, senior global equity strategist with wells fargo investment institute, and joining us onset is steven denicolo who manages $9 billion, just $9 billion? at fedderated kaufman funds. equity markets for the past however long has not been because of a dynamic earnings growth scenario but rather multiples have expanded.
people are willing to pay. you're nodding, right? people are willing to pay more for every dollar for the lack of earnings that there are. do you see it that way? >> well, i'll tell you, tyler, it took a long time for us to get to fair value, at least based on the work that we're doing. and now what you've seen is, you know, if you look at first call earnings, 16.7 has been the median 30-year number going back. you know, we're in about 18 or a touch over right now. and what's pushed it up over that median hasn't been, you know, a lot of fundamentals and things like that. i mean, things are slowly improving. we'll see better earnings growth in the third or fourth quarter, but a lot of it has just been a sense that, hey, the u.s. economy's not going to fall off a cliff here. we're moving slowly in the right direction. it's a little more dependable, so i would argue that multiples are pushed a little bit beyond the median, not far. valuations are not stretched. and it's been largely due to a little bit more confidence out there on the part of investors. >> steven, talk to me about that point that we were just
discussing here. it would seem to me that it would suggest that if i can actually find companies that are growing earnings nicely, i ought to be really chasing after them and willing to pay up for them. >> sure. so it's a fundamental question, philosophical even. what do you pay for flat growth? if you look at the best performing sectors year-to-date, it's utilities. what are the biggest? southern companies, duke energy, if you're buying duke energy, you're buying lowest dividend yield since it went public in 1978. for the first time ever investors are focused on actual earnings growth. the way we look at stocks is the way we're looking for companies that can create their own shot, create their own offense in any market and grow regardless of whether gdp is zero of 1%. >> it's price has gone up and dividend hasn't risen commensurately. >> correct. >> we have a case and point of one of these companies that you
want to talk about here. we're going to call it a mystery chart. i want you to describe the company. it is already up 84% year-to-date. you think it can double from here describe the company and then we'll put a name on it. >> sure. this is a company that not a lot of people on wall street cover. they've had a lot of drama over the last few years. it's a specialty chemical company that had the highest margins in the sector and the lowest valuation. >> wait, the highest margins and the lowest valuation. >> right. that's a good start, right, brian? >> even i got it. sounds good. >> right. so in the past they've tried to merge with another company, it has failed. they've had high capital expenditures. they've had oil volatility. okay. and in addition in the beginning of this year they bought a company that doubled their size. so the punch line is there's a lot of reasons why you can ignore this company. >> and here's another hint, they're all about adding elasticity to things, tires, asphalt, rubber. i'm all about the latex here, steve. >> right. >> so what is the company?
>> the company is -- i'm sorry. >> threw you there, didn't i? all perspiring a little. it just got a little uncomfortable. >> the ticker is kra. i have never seen in my career a company where the management is jumping up and down saying that they have these cost synergies out there and the street is not recognizing it. the company's laying out a scenario they're going to save $100 million in profit over the next two years. >> bring up the intraday. bring up the minute by minute chart if we can on cnbc. i know you're a long-term investor, steve, and not looking for short-term trades or pops, but you've turned the stock 2.5% around in 20 seconds. >> in 20 seconds just on the reference to latex. scott, i want to get to you. what do you think of latex? no, i'm just kidding. >> we'll take that off camera, tyler. >> let's get to something much more prosaic and that would be interest rates. people are saying today that one
of the plausible reasons why the market's taking a breather other than the fact it wants to take a breather is that people are thinking that there might be an interest rate hike in september or december. what do you say? >> well, officially we are not looking for anything from the fed, but in my opinion the market, i don't think it's going to happen in september, but i think the market would give the fed one here in december. what you need to worry about, and we just talked about this this morning is if the fed starts to hint we're not just going to do one here, we're going to do a few, something like that, i mean, that's not what the market is expecting. like i said, officially we are not expecting anything this year. but i think you could make a rational argument we see a decent gdp number in the third quarter that the market would give the fed one increase if they did it in december. >> all right. scott, thank you very much. steven, thank you very much. where else do you get a conversation about the fed and latex all in one? nowhere else.
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within the united states. a man from el paso, texas, traveled to south florida where local mosquitos have infected about 30 people. when he got sick a blood test confirmed he had been infected with the zika virus. a breakaway taliban faction in afghanistan has appointed a new leader. mullah monsour the nephew of the long-time leader who was killed last year. fire crews gaining ground on the massive northern california wildfire that has destroyed 175 structures and charred nearly seven square miles, the clayton fire is now 20% contained. roughly 1,600 firefighters are battling that blaze. and audaudie is debuting tellin how long it will take a traffic light to change from red to green. wirelessly links vehicles to traffic management computers in certain u.s. cities.
audi says it will announce which cities those are coming up very soon. that's the news update this hour. back to you, ty. that might make me more impatient. >> i want a button that changes it from red to green. >> i know, who doesn't, right? >> that's what i'm looking for. that's my kind of autonomous vehicle. we got more on that actually coming up in the next hour. >> oh, good. >> thanks, sue. >> sure. give you a quick market check, shall we, as the dow, the s&p and the nasdaq retreat by about 0.5% each from triple threat of all-time highs set yesterday. the dow industrials off 74, the nasdaq down about 9.3 and the s&p down 9.3, if i said nasdaq i didn't mean to, nasdaq off about 26. michelle. all right. to the bond market rick santelli standing by tracking the action at the cme. rick. >> well, michelle, if you just look at intraday chart, you could clearly see rates moved up and it was logical today. we had some pretty good data. good enough, well, 3.6 versus
3.5 for third quarter at least through the scenario of atlanta gdp now. but if you look at a chart starting on the 23rd, we haven't settled above or anything with a 1-6 handle, meaning under 160, since brexit. it's been a pretty tight range. that's been a wall of resistance. if you look at the dollar/yen on a one-week chart, that's the story everybody's talking about breaking 100. pretty big deal. hasn't happened since around thanksgiving 2013. back to you. >> all right. rick, thank you very much. buddy, we'll see you soon. the last tower of las vegas' iconic riviera being reduced to rubble overnight. this was the first high-rise on the vegas strip and for years one of the city's most famous casinos hosting headliners from liberace to dean martin. there it goes. once cleared of debris the site will be used to expand the las vegas convention center. melissa. speaking of casinos, lifelong registered republican
and chairman and ceo of mgm resorts international is making his first-ever public endorsement of a presidential candidate. jim murren penning an op-ed in usa today this week saying, i'm crossing the aisle to back clinton. jim joins us now in a first on cnbc interview. jim, great to have you with us. >> well, thank you for having me. >> i read through this and you had many reasons as to why you're backing secretary clinton. but really, jim, was there a final straw in the donald trump campaign which pushed you across the aisle? >> well, there was a series of incredible events that i believe don't reflect the values of america. criticizing women, muslim americans, the handicapped, war hero in senator mccain, i just couldn't bear the fact that every day there was a new outrage of vitreal in a country that is so celebrated for its
diversity and inclusion. and as a person who runs a company that is diverse, the majority of my employees are from a diverse background, i just couldn't sit by any longer. >> i have to ask, mr. murren, because mr. trump has been in the same business as you are in. he's run casinos and hotels in las vegas, in atlantic city, have you ever crossed paths with him? is there any personal collision or animosity between the two of you that you've experienced? >> you know, i don't know mr. trump well. i've met him a couple times socially. and we have not crossed paths professionally. we are in the entertainment, hospitality and gaming business. obviously mgm resorts dominates the market here in las vegas. we are by far the largest player. and trump is a non-event in this market. in atlantic city he long ago went bankrupt there well before i became the ceo of mgm resorts.
we're the proud owner of borgata, which is a stunningly successful resort in atlantic city employing 6,000 people. so our paths don't intersect. he's in a different zip code in terms of hobnobing billionaires i'm working for. >> hi, mr. murren, this is michelle. does this mean you like hillary clinton's economic policies as a lifelong republican? >> i like a lot about the policy. i like the fact that it has been thoughtful and is a beginning of a conversation. you know, i've done a lot of deals as a business person, not a politician. but i do realize that you can be a winner and the other person doesn't have to be a loser. and i think there's some common ground in these policies. particularly as a guy like me that spent 14 years on wall street, i know that the markets love stability and predictability. and they absolutely hate unpredictability. and that certainly is what we would get with donald trump.
in the case of hillary clinton, you know what to expect. you know that she'll veer, i think, to a more centrist position. >> you agree she's moved farther to the left than she was years ago. >> yes, i think she has moved farther to the left to consolidate the democratic party, of which hooi'm not a member. i'm a republican. but i believe in office based on her past experiences as a first lady, as a senator, as secretary of state, she's equipped to do this. and i think she's motivated to work across the aisle. >> will you help her raise money, number one? and number two, do you think she will win in the state of nevada? democrats have carried nevada i believe in the last two elections, but it is not necessarily a reliable blue state. >> right. i'm not a fundraiser.
i'm an employee. so i don't expect to raise money for any candidate. i never have. as relates to nevada, this is a tough race here. and i think it's still a jump ball. i think that the key issues of our state, immigration being first and foremost, diversity, is going to carry the day for secretary clinton, i think. but it's going to be a very, very tight race. it always is in nevada. all i've tried to do here as the largest employer in the state is take a view that please get out and vote. because these are very difficult issues. and we have extremely divergent opinions on both sides of the aisle. i've never seen this before, particularly in a presidential race where i'm typically very close to and admire deeply the republican candidates. that's certainly not the case in this instance.
>> if we can, let's switch gears and talk about mgm's stake in mgm china, which was announced today. you now hold 56% of shares of mgm china. so first of all you already had control of mgm china, so why would you increase your shares right now ahead of what could be a major release of inventory in macau? >> so we believe at mgm resorts that macau is going to be up as a market in 2017 and up further in '18. and our situation with mgm china is the only way i can increase my stake in mgm china is to acquire shares from pansy ho. we have the bare minimum that's trading on the hong kong exchange right now. so over time i hope to own more and more of mgm china. and the only source of those shares will be pansy. and like i said earlier, you know, i've done a lot of deals. and you need both sides to agree to a deal. i think it's good for pansy to
own more of mgm resort stock. and certainly good for mgm resorts if you agree with me that mgm china over time is going to do better. and i think so. >> for you, is it a way to better your relations within the chinese market by getting closer to pansy ho? because the traders out there will take a look at this transaction on pansy ho's side of it and say she's getting less long china and more long the united states. so questioning why you're on the other side of that trade. >> so i don't want to speak for pansy, but i could say that if i were in her position and i was a billionaire and i had most of my net worth tied up in one security, i would diversify as prudently and as quickly as possible. i think that's what pansy's doing. from our perspective, yes, it's very important to me to strengthen my ties with the central government of china and the local macanese government. we're doing that in multiple ways. we're building hotels in
mainland china right now with the chinese government's hospitality arm. i believe in this bridge building -- again, it's a philosophy that i have that is counter to the republican candidate. but squarely within mind, which is building trade relationships both in asia, where i'm doing that in china and in japan. and in the middle east where we're also active and throughout north america. >> all right. jim, a pleasure to speak with you. thanks so much for joining us. >> thank you, it's my honor. >> jim murren, chairman and ceo of mgm resorts international. up next, a look at our exclusive power city index. is your city topping the list of the best performing stock markets in america this year? what are we rocking out to? find out ahead, plus, a ping-pong punch in rio. you got to see this. our very own andrew ross sorkin gets a lesson on what it really takes to be an olympic
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all right. welcome back. here on "power lunch" we have built what we call the power city index. index composed of the 12 biggest market cap stocks in various cities and metro areas around america. kind of an exclusive way to see what areas are doing well. so let's start it off counting you down from three to two to one. coming in as the third best city for the stock market, again, just so far this year, is indianapolis. that's right. their stock market based on our pci is up 18% this year led by gains in cummins engine, duke retailer, interactive intelligence group also up big on top of a possible sale of the company. the second best performing power city index this year, austin, texas. it's market is up a cool 20% so far in 2016 it's been led by big
gains in parsely energy, cirrus logic and usa compression partners. and a bit of a surprise, as of today the single best performing city for the stock market this year, pittsburgh. that's right. the steel city. looking rock solid. the index up 21%. nine of 12 stocks higher this year and being led by nice gains in rice energy and eqt, both energy names that have rebounded as well as american eagle and dick's sporting goods. so congrats, pittsburgh, give yourself a pat on the back there, steel city, you are so far the top performing city for the stock market based on our power city indexes this year. and sometimes in television you just get lucky. because until we ran the numbers today, we didn't know pittsburgh was doing so well. and dick's sporting goods is a big part of that story. the stock rising again today. shares are now up 67% this year. joe feldman is senior managing
director with tulsey advisory group, he has an outperform on the stock. joe, welcome, i know a lot have been made of sports authority bankruptcies and i get it less competition unless you want to consider a company like amazon competition, it's got to be more than just about those bankruptcies, isn't it? >> oh, it definitely is. i mean, dick's sporting goods is executing really well. and they're going out battling every day. and they do have really good job merchandising the store, they have all the products people want. it definitely helps that sports authority has gone away. it's their number one competitor and already starting to pick up some market share reflected in the earnings today. >> joe, we saw the same story play out when linens and things went out of business and that benefitted bed, bath & beyond, how long does this tailwind last for dick's? >> this could be a while. at least get you through 2017, probably into 2018. i mean, if you look at when linen and things went away,
circuit city, best buy and bed, bath & beyond benefitted for probably two, almost three years. it's a nice tailwind. what's interesting is it's not just the stores that go away, it's the stores that won't be open in competitive environments. >> who else competes with them nationally? anybody? >> you're talking like you said amazon, walmart, there's others. obviously, you know, vendors going directly, but there's no real number one competitor. now it's really mostly regionals, mom and pops, academy sports is very good competitor in the south in texas and oklahoma. but they kind of own the space at the moment. >> and i guess if you want golf, there are golf specialty stores that would compete with them. if you want running, there are local running gear stores that would compete with them. but the national playing field apart from the ones you mention, which is amazon and you kind of got to know what you want, or walmart, and they're not as massive in terms of selection as dick's obviously.
>> correct. >> go ahead. >> no, i was going to agree completely that that's absolutely right. i mean, there's not a lot of space -- competitors in the space. i think that's one of the things very attractive about the stock right now. >> what's the primary reason people go into the stores? is it sneakers? is it because they've gotten a flier, what's the biggest driver of sporting goods right now? >> they do very well with team sports, athleisure is a hot trend. i know dana's been on talking about that before. whether it's athletic footwear, athletic apparel, people wearing it for more than just spofrting activities. so that's big part of it. but they do really well with team sports. think about every time, you know, little johnny or susie needs new cleats for soccer, they grow every year. kids grow constantly and there's always a need and new gear and athletic competitions ongoing, it makes sense. there's a lot of room for dick's to play in the space. >> how important do you know are firearms and hunting equipment
to them? >> to dick's it's probably somewhere in the mid-single digit cat area. outdoor as a category is probably around 10%. so firearms portion is smaller percentage of that. it definitely helps. that category in particular has been very hot lately, and we know cabela's and others have been competing well there. but at dick's sporting goods the outdoor category in general has been a little softer. but within that firearms has been a good katd goir. unfortunately political situation drives that sometimes. >> you sound really bullish on the stock, joe, and you have an outperform rating but price target is below where the stock is trading right now. what happens next? is the stock range bound or higher in your target? >> no, i think it's going to go higher. our numbers are under review. we're updating our model today after the earnings. right off the bat you're going up to 305 or so per share this year. slap a 20 on that you're at least around $60. so i think it's got more to go. and you'll see price targets increasing overnight.
>> all right, joe, thank you. joe feldman. >> thank you. speaking of sports, let's head back to rio, andrew ross sorkin had his olympic moment. you were looking good in that tease there, andrew. >> you guys know i like to think of myself as forrest gump with a paddle when it comes to ping-pong, we're going to show you my efforts to take on an olympian when we return here on "power lunch" live from rio. guys, what's happening here? hey nicole, this is my new alert system for whenever anything happens in the market. kid's a natural. but thinkorswim already lets you create custom alerts for all the things that are important to you. shhh. alerts on anything at all? not only that, you can act on that opportunity with just one tap right from the alert. wow, i guess we don't need the kid anymore. custom alerts on thinkorswim. only at td ameritrade. narrator:kubo: est place come on, this way.e... narrator: ...is in the forest. kubo: wow. narrator: so grab your loved ones
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there of course have been no shortage of great moments in rio including our own andrew ross sorkin who got a lesson in ping-pong. i have one bit of advice, you're supposed to use the paddle. you don't try and catch the ball. >> i know. i know. you know, you're going to see this. >> okay. >> it's a little bit better than it looks in the tease. i should note table tennis, also known as ping-pong, there's still a debate about that, made olympic debut in 1988 when the games were in seoul, south korea. now, i do like to consider myself something of a contender when it comes to the sport. but of course when i went up against an olympian, all bets were off. i will be forrest gump today, and we're going to play
together. >> all right. >> can i -- can you let me have one point, do you think? >> we'll see about that. >> these are like pro. this is serious. >> yeah, don't break it, dude. >> i do a thing where it's like a head fake. i look there but then i serve it over there. that's my move. you're so bouncy. whoa. wow. now that i know what you're capable of. >> all right. >> i'm going to get serious. >> awe. >> okay. this is for real now, people. >> so you serve first. >> i'm serving first. >> okay. >> oh, nice. you're lucky. >> was that a winner? >> that was good, yeah. >> we can just stop now.
>> oh, so close. oh. >> thank you. >> yes. >> thank you so much. >> thank you. he put up a good fight, you know. got to prepare a lot for that match. >> i do want to have a chance to go up against her again in tokyo in 2020. so i'm going to mark it down. this is not the end for me. it is not the end for me. lily zhang was a great sport. the ball's a little bouncier. i want everybody to know. this is not like, you know, the ping-pong you play in your garage or basement. the paddles $300, $400, $500 paddles we were playing with. they have a lot more bounce and a lot more spin going on. but i hope you guys appreciated there was at least one significant rally there.
>> yeah, you had some respectab >> did you notice she had the paddle in her left hand for that rally? >> i like she has a kind of serve where she tucks the paddle up under her shoulder. that's bizarre. >> yeah. what do we call it? pent hold. it's different than what they call the shake hold. there's a number of different sort of fancier holds than most of us laymen are used to. >> andrew, what we're really looking forward to, you shot a tae kwon do story, and we know this because there's this photo now on twitter from usa. you're in a helmet. thank goodness. >> he's in full body pads and a helmet. >> we've been kind because we cut off the bottom of the photo. >> what's on the bottom? >> i don't want to -- >> he's so much thinner than this guy. it's insane. >> i want to be modest and humble here, but i don't want to tell you the endsing of this.
i'm still here. you know how this ends. i'm still here. i don't know what i can say about the other guy, but we will show you that video a lot later in the week. but it's been a lot of fun out here in rio. >> you're a good sport. you are a good sport, sir. >> thank you. i appreciate it. >> that was fun to watch. >> and those pads were only after the ping-pong game. that wasn't even in preparation for tae kwon do. based on the beating lily gave him. that was just for the game. last two balls. >> thanks, andrew. >> great stuff. pizza is on the menu at the top of the hour. the ceo of domino's pizza will join us exclusively ahead. plus, major pain for ha hirin. stock down 27% on accounting issues. more on that story coming up.
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we've just been hearing you're a digital company, yet here you are building a jet engine. well, ge is digital and industrial. like peanut butter and jelly. yeah. ham and cheese. cops and robbers. yeah. nachos and karate. ahh. not that one so much. the rest were really good. socks and shoes. ok, ricky...
i'm melissa lee. we've got pizza on the menu this hour. the ceo of domino's joins us exclusively straight ahead. plus, major pain for hain. more on your disaster du jour. plus digging into berkshire's big new bet on apple. the second hour of "power lunch" begins right now. and with two hours to go to the closing bell, here's how your money is doing right now.
not great, not down a lot. the dow is off 64 points. that's only 0.3%. nasdaq and s&p though are also down. retail one sector that is heading lower as a group. tjx out with strong earnings but disappointing guidance. dollar general, ross stores and urban outfitters all lower as well. tyler. brian, thank you. i'm tyler mathisen. in the headlines this hour donald trump will get a classified intelligence briefing tomorrow, it will be from the office of the director of national intelligence. and it will take place at a secure fbi location. a persian gulf opec delegate says there will not be a deal to cut production without iran. and since iran isn't likely to go along, there won't be a deal. and team usa continues to lead the medal count at the rio games, 78 in total. 27 of those, michelle, are gold. thanks, tyler. we're going right to phil lebeau with breaking news. >> michelle, this is significant news from ford, which has long been viewed as being too slow when it comes to developing
self-driving vehicles. well, now the automaker is putting a stake in the ground and point in the future when it plans to deliver a self-driving car. it will roll out by 2021, according to ford. but here's the catch, it will be for commercial ride share use. we'll talk more about that in a little bit. it will be fully autonomous according to ford, that means no steering wheel, no gas pedal, no brake pedal. ford is also doubling its palo alto staff. we talked about this earlier today. as it expands its presence in the silicon valley investing and partnering with four tech firms. earlier this morning on "squawk box" we had a chance to ask mark fields, the ceo of ford, about this idea that's been floating out there in the auto industry that ford is moving way to slow when it comes to self-driving cars. >> we've taken our time to talk about our autonomous vehicle plans because we're not in a race to make announcements, but we are in a race to do the right thing for our customers and our business. >> quickly let's look at shares
of ford and general motors over the last year. they typically trade in tandem. the reason we're looking at this is because gm has a 9% stake in the ride-share operator lyft. ford currently is not investing in a ride-share operation. it does have a pilot program for ride-share companies in england, but not here in the united states. but, guys, this is significant. ford is saying it will have a fully autonomous vehicle on the roads by 2021, no steering wheel, no brakes, no pedals. >> so only for lyfts and ubers, not for individual use? >> most of the people you pointed out driving uber and lyft, you pointed out contracting with the company but use their own cars. this sounds like ford will either operate its own ride-sharing company in the future or will find somebody who has designs on a commercial
operation, let's say in an urban area. that's what it looks like they're targeting at this point. >> okay. now what about this news from audi which is going to allow their cars to communicate with traffic lights? >> yeah. well, this is going to happen in about seven cities around the country starting this fall, depending on whether or not you have the software in your vehicle that allows your vehicle to communicate with stoplights in those cities. basically comes down to this you will know when sitting at a stoplight how long before the red turns to green. you might be saying to yourself do i really need that, i can pay attention and when it's green i can go forward. but the important part of this announcement, michelle, is that it sets up the future when we will have more vehicles communicating with stoplights, stop signs, that's the transition that we're going to see the industry head towards where vehicles will stop on their own. and they will know that they're going to be approaching a light that is going to be going to yellow and then to red. or it's going to be transitioning to green. this is the beginning of that transition. >> how does this work in terms
of the software side of it? i mean, do automakers have to be on a certain operating system and so do the municipalities in order for all of this to work? >> correct. correct. >> yeah. >> there's a technology company that is partnering with audi and with five to seven municipalities around the country. this is going to be a pilot program at first. but we were out in las vegas at the consumer electronics show and we saw how delphi is working on this same technology, working with technology companies. we tried it out at a couple intersections there at ces. it's interesting technology, but it is the future. it's called vehicle-to-infrastructure communication and we're going to see a lot more of it. >> can't drive a car without insurance, phil. where's the insurance industry stand on this? seems like the auto industry's moving at one speed and the insurers at another. >> they're going to have to figure things out. we hear this question all the time. listen, we've had insurance executives on cnbc and all of them say, yeah, we'll be ready when it's there. but they have not exactly mapped out exactly what the plan is when it comes to insuring
vehicles, drivers, liability, all of that has to be worked out. >> huh. i know. so many questions. i can't wait. thanks, phil. >> you bet. well, ford one of only two traditional automakers ranking in the new kensho autonomous vehicle index. the sector volatile over the last year -- don't give me that look, melissa. what's your issue? >> i'm not. i have no issue. it's fascinating. >> an index -- >> 99% of what i say on the show is off the cuff. i'm reading this one. despite controversy around tesla's autopilot. melissa. >> thank you, brian. moving onto disaster du jour, it's hain celestial stock down after delaying annual report due to accounting issues. susan lee joins us with the details. >> melissa, worst day in the history for the maker of earth's best organic baby food and blueprint juice losing close to
$1.5 million in market cap today. what are these accounting issues? it all goes back to concessions given to certain u.s. distributors and whether or not to count the sales and products are shipped to them or recorded when the distributors actually sell the goods onto retailers. hain says it will delay now its earnings release until it has completed an independent review. the company has applied for a 15-day extension to file itself 10k report, so september 13th is the day they need to file by. now, hain has also and this separately by the way said it will miss its fourth quarter sales and profit guidance. and we should note earnings and accounting are two separate issues both having an impact on the stock today. and hence you see massive declines. now, number of brokerages this morning have come in to downgrade the stock, but j.p. morgan interestingly enough reiterating its overweight after speaking to hain cfo irwin this morning. earnings may or may not have to be restated and the company seems confident that the accounting issues will prove to be isolated. back to you. thank you, susan lee. a slew of analysts downgrading
or reducing price targets on hain including oppenheimer's he took down from $52 to $45. why are we learning about this now? did the not appear to you until the company announced it was concerned about internal practices? >> yeah, so as i look back to q-3 and prior to that there's no evidence they had any accounting issues. the company went quiet period in the middle of june and this is really the first announcement we have received for them. >> okay. so how confident are you at this point in terms of reducing your price target? i mean, it has been, you know, really not an easy year for hain. i mean, it's gotten more competition on the baby food front, for instance, and saw some slowing sales growth there. at the same time we're in this mince of consolidation within this industry which really helped bid the shares higher. so in terms of ratcheting that down, how much of it is down because of that embedded premium because it was expected that it be a takeout target. and how much of that is because of this accounting issue which
makes it more difficult to actually evaluate the balance sheet? >> look at hain shares today about 20% of the decline or so is related to embedded m&a premium. remainder i would say is split between a weakening fundamental outlook and the accounting issues. you know, ahead of this announcement last night we expected some weakness in hain's report. as you look around the grocery landscape, all the grocery retailers have missed comp trends lately and natural organic industry has become more challenged the past few months. >> did you know when they counted revenue? i ask because nearly every accounting -- i'm not getting scandal, issue, we've ever covered at cnbc seems to be related to when do you count the revenue? at what stage of the distribution chain? you can name company after company when this becomes an issue. did you actually know when they were taking revenue and were you comfortable with it? >> if you look at 10k,
disclosure is around revenue recognition, and for most suppliers they recognize revenue when they ship product whether it's supplier or distributor, but we don't have insight into any specific details with some of the larger players. so from our perspective there's not enough disclosures out there to evaluate each individual distributor contract. >> what's the best case scenario here? >> yeah, so i think the best case scenario is a couple weeks get an update. able to quantify the impact of this accounting issue and investors can again focus on what's happening in their business. if you look at hain, yes stock's down significantly today. i think a lot of it is due to the runup on the m&a. >> do you believe they have a good business but bad management? is the core business good? or is there a serious problem with the actual corporation? >> no, i think the core business, you know, there's clearly some challenges in the core business as the industry continues to change and as there's more competition. as you look at the hain product portfolio, they're in a number of attractive categories where they have a number one or number
two position. and if you look at food retailing environment right now, the area that suppliers need to do better on is on the fresh side of the business. and over the past few years the company has navigated portfolio towards fresh offerings like blueprint juices and hain pure protein. now about one-third of that business is in the fresh category. >> what's the risk though? when they count the revenue right now they send it to a distributor, do we think there's piles of supply sitting out there and the risk is that it gets sent back and they're going to not make that money? i mean, have you worst case scenarioed this? >> it's very hard to worst case scenario. how i'm thinking about it is it's really a timing issue when they should recognize revenue. either they could have recognized revenue too early and that may have overstated revenue in the past. >> so they're either pulling it forward or pushing it out in your view. >> yep. that's correct. in this case, yeah, we don't -- you know, they're still coming up with their own conclusion on whether the accounting treatment is incorrect. but, yeah, the risk here is that they could be pulling further
revenue. >> you look back on this rakesh, you see in march, i believe, they appointed a new head of accounting and a new cfo a year prior in the fall, does this start to add up? >> typically when you have a new cfo, new accounting officers, those are sometimes red flags for the company. but at the same time, you know, when you have new eyes looking at financial statements, they bring new ideas in terms of i guess how to implement some of the accounting standards out there. so it could have been a new pers pektsive that identified these errors or challenges they're facing right now. >> thank you so much for joining us. we appreciate it. >> thank you for having me. let's get down to bob pisani on the floor of the new york stock exchange. he's got more on today's trading. hi, bob. >> hi, tyler. modest weakness in the major indices but the underlying trend is very much intact. look at where sectors are today. energy stocks, which have been recent leaders as the oil's been over $45. steel stocks, material stocks have also been doing well. at the same time we see general
weakness in the dividend payers and the more defensive names like utilities and telecom. this has been a trend for a couple weeks now. so the underlying trend is intact even if the market major indices are to the downside. so here's where we are in terms of the markets in the middle of the day. two-to-one declining to advancing stocks. we have seasonally light volume, but bear in mind there's more volume going to stocks on the upside, so people are buying those winners, those energy and steel stocks and not selling them in any great extent. so this means that the underlying trends, the uptrend is still largely intact. a lot of people asking me about the vix, when is it going to come off of 11. it was there for a while. the vix hasn't been there in a while. it's been generally moving up in the last couple weeks and generally we're moving up towards 12 and 13. that makes sense. this is a seasonally weak period in terms of volatility and things will improve in september and october. take a look at the vix futures for september, october and november. remember, the vix is 11 or 12. 15 for september, 16 and 17 for october and november. the bottom line here, guys, is
the markets are anticipating more volatility in the next few months. back to you. >> all right, bob, thank you very much. so, america, are our taste buds changing? is the burger trend ending? and will pizza get hot again? or is it already hot enough? got a lot of questions for the ceo of domino's pizza. he's going to join us coming up. plus, the s&p 500 up nearly 7% so far this year. pretty good, right? but we're going to talk to a fund manager who has doubled that return, "power lunch" will be right back. they may want the latest products and services, but they demand the best shopping experiences. they're your customers. and by blending physical with digital, cognizant is helping 8 of the 10 largest u.s. retailers meet their demands with more responsive retail models... ones that transcend channels and locations, anticipate expectations... creating new ways to engage at every imaginable touch-point. it's a new day in retail, and together, we're building the store of the future.
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this has not been the best of times for many restaurants, especially burger chains. some calling it a restaurant recession. but there's at least one bright spot and that would be pizza. shares there are sizzling and shares of domino's pizza are up nearly 30% so far this year outpacing the s&p 500. here for a cnbc exclusive is patrick doyle, the ceo of domino's. mr. doyle, welcome back to cnbc. we're glad to have you with us. why are pizzas working when so many other quarters of the restaurant business aren't? >> you know, i think there are a couple of reasons. first of all, pizza tastes great. people love pizza. it's good value. if you look at it on kind of a per person basis. >> i agree on all of these points, by the way. preaching to the choir here.
>> oddly enough i'm coming out pro-pizza on your show today, you know? but i think the other thing if you really look at what's been happening in the industry, the national players and i think led by us have figured out technology and how to bring technology in. so there's a lot of discussion across the restaurant industry on how to bring technology into the industry, how to do it at tabletops, order ahead into some places. the pizza industry and domino's in particular has figured it out it's the majority of our business, it's making it more convenient for the customers. and that's been a big part of driving our business the last few years. >> you're now making what 50% or more of your sales digitally, which would be through computers and phone apps? >> that's exactly right. it's over half of our business now growing very fast. that's allowing us to consolidate what is a very fragmented category within pizza. there are a lot of regional
chains, mom and pops, this is the most fragmented category within the restaurant industry. so there are shares for us to take. if we're giving a better experience, that's allowing us to grow. >> patrick, you've been at the forefront in adopting technology to increase efficiency at your restaurants and essentially been a standard for the industry at this point. how much more in savings or margin can you reap from investing in technology at this point? where else do you see introducing technology to improve those metrics? >> yeah, you know, melissa, there's a little bit of opportunity within margin, but it's really more about sales. it's really about driving customer counts. it's a much better experience for the customers. and as we look at the economics of technology, that's where the majority of the effect is is on driving traffic. and, you know, the latest thing that we've done with that is we launched loyalty now almost a year ago. you know, our second quarter results we came out and said
loyalty's definitely working. it's driving volume for us. so there is some margin improvement from technology, but the big part of it better customer experience, more accurate orders for the customer driving higher frequency, higher retention of those customers. >> you ever consider some day you might buy an autonomous vehicle company? because that would get rid of your -- i mean, the labor -- >> and i was going to ask you read my mind there, i was going to say the phrase pizza drones. >> right. eventually eliminating the human in some way. >> with pizza drones and wine drones. that's what i want. >> synergies. >> well, we'll probably stick to the pizza equation though i'm sure the wine guys may have a different view of it. but, you know, absolutely we're looking at everything that's going on in the transportation world happily we are located in ann arbor, michigan, ford motor company is nearby. we are absolutely looking at that. we've experimented with it.
>> you have? like how? how? how? >> we've already built our own vehicle within the last year launched those. it's coming. there's no question. >> you were a delivery guy? >> i was. at 16 in my toyota pickup truck i was a pizza delivery guy. i drove so fast as a teenager the pizza got there before they ordered the damn thing. >> would you consider using a drone to deliver pizza at some point? >> we are looking at everything. we are absolutely looking at everything. and i am sure that if you look out five or ten years you're going to be seeing us doing things in different ways. >> what does that mean? are you like jeff bezos and actually experimenting? or you get some drones sitting around in the office and you look at them? what does that mean you're looking at everything? >> we are absolutely looking at -- you may recall, you may have seen something out of australia recently with a little autonomous robotic vehicle. we actually we're doing some work with drones a number of
years ago. if you look at autonomous and connected vehicles, you know, we think there's absolutely going to be an opportunity there as you look down the road. so absolutely we are looking at it. again, we built it and launched our own vehicle now about a year ago. you know, with our dxp, we've been advertising it. so we are absolutely thinking about transportation and how we're going to get our pizzas to our customers. >> i don't want to be boring here because this is a pretty fascinating discussion, but how about this, patrick, leave it three times sales, 29 times forward earnings, tell our audience, aka your investors, why your stock is not overvalued? >> well, if you look at the growth curve, i'm going to let the investors figure out what the right price is to pay for the growth we've had, but we've had terrific growth both domestically and internationally. same-store sales growth have been, you know, pushing 10% last quarter domestically. very strong 7%, 8%
internationally. accelerating store growth. that's flown through -- has gone through to the bottom line. so, you know, we feel very good about our business, the momentum in the business, domestically, internationally. and we're pretty confident going forward. >> last question, patrick, why doesn't domino's do breakfast? that's the bright spot in the industry. that's one of the fastest growing segments. you came on "fast money" a few years ago and couple months later you had a test rollout in college campuses. whatever happened to that and can't you expand your day by getting into breakfast? >> we have looked at it. honestly, we've got a lot more growth still in lunch. and we think that's a more logical place for us to grow our business. the issue with breakfast particularly if you think about delivery is the window for delivering pizza for breakfast is very small. so our ability to do that, to staff stores and to hit somebody's window for when they need their breakfast is very
precise. but we think the bigger opportunity honestly is continuing to grow our lunch day part. we're already there, but it's much smaller than dinner, so that's where our real focus is going to be. >> patrick, thank you very much. pizza drones and we'll handle the wine drones. it will all be good. thanks a lot. >> what a combo. >> it's a deal. coming up, the good, the bad and the ugly. and the ugly stock had a quarter the ceo calls not acceptable. plus, your view of the ocean gone with the windmill. major fight over the construction of a wind farm, that's next on "power lunch."
welcome back to "power lunch." i'm melissa lee. to the good, the bad and the ugly. cintas hitting lowest level on record a $2.2 billion deal to buy rival gnk services. on to the bad walmart, shares under pressure. warren buffett cutting stake in retailer by 27% last quarter. and it is an ugly day for advanced auto parts. the stock one of the worst performers in the s&p 500. and this after the company reported an earnings miss. advanced auto's ceo says the quarter was not acceptable. brian. well, it's been a pretty good year so far for the s&p 500
up nearly 7%. but coming up, we're going to speak with manager of a fund who's return has doubled that. oil rising today to its highest level since mid july. you will get the oil closing price when "power lunch" returns. miles per hour.r is traveling0 to win, every millisecond matters. both on the track and thousands of miles away. with the help of at&t, red bull racing can share critical information about every inch of the car from virtually anywhere. brakes are getting warm. confirmed, daniel you need to cool your brakes. understood, brake bias back 2 clicks. giving them the agility to have speed & precision. because no one knows & like at&t. (ee-e-e-oh-mum-oh-weh) (hush my darling...) (don't fear my darling...) (the lion sleeps tonight.) (hush my darling...) man snoring (don't fear my darling...)
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nchtsz hi everybody. i'm sue herera. here's your cnbc news update at this hour. pennsylvania attorney general kathleen kane announcing her resignation effective tomorrow. it comes one day after a jury convicted her of perjury and obstruction of justice for leaking sealed grand jury materials. she said she was honored to have served the people of pennsylvania. washington, d.c. police chief kathy lanier is stepping down after ten years on the job, she will oversee security for the national football league. she was a 26-year veteran of the city's metropolitan police department. after record setting rainfall, flood waters are starting to recede a bit in parts of northern indiana. south bend received nearly 9 inches of rain overnight. shelters have opened for people and animals displaced by the flood waters. speaking of flood waters, take a look at this. russian wake board riders seizing the moment in moscow's streets following torrential
rains on monday. you see that guy, he's in a wet suit being towed by a jeep. demonstrating various jumps and tricks, the level of rainfall in moscow actually broke a 130-year-old record. moscow's streets are cobblestone, i don't know. you don't want to fall. that's the news update. michelle, over to you. show you what's going on in the markets right now. the dow jones industrial average, nasdaq and s&p all in negative territory. after coming off that trifecta. we'll show you what's going on with oil. it's closing for the day higher by 95 cents, $46.69. speaking of energy, many people are in favor of finding alternative energy sources, like wind, it's a little harder to find people who want a giant wind farm near their house. so why not shove them out in the ocean? that's why we have jackie deangelis live in rhode island
where the first offshore wind farm is set to open. jackie. >> reporter: good afternoon to you, michelle. that's right, this is a very important step in the future of alternative energy. as you said it's the first, it's the first one here in the united states. it's a $300 million project. and it's south of block island. now, this project is five turbines, nearly 600 feet tall. and they're going to be able to serve the needs about 17,000 homes on this island and even a little bit more. meantime, green energy projects like this near popular tourist destinations they're not always welcome. just a few years ago a large wind project off of martha's vineyard was shut down with the help from the kennedys, some other wealthy families that didn't want to look at it. now, like that project this one has also been met with some resistance from homeowners who say that the turbines are an eyesore and they lower property values. >> i think that's one of the huge concerns that the property values could be a lot less now because you've got this structure, these structures you're looking at instead of a
beautiful view of the ocean. >> reporter: so why did this project succeed where many others failed? well, because many on the island do support it. the turbine shifts block island away from its current source of fuel, which is diesel, and that's good for the environment but also good for homeowners paying among the highest energy costs in the nation. now, they can see about a 30% reduction in what they're paying now. so deep water is also running a new fiberoptic line along the sea floor to improve internet speeds on the island, though the town here still needs to find a provider to set up and run the network. but that is an added benefit. one thing certainly for sure when this offshore wind farm is operational this fall, block island will have some winners, some losers, you can never please all the people all the time. and of course this is just part of the larger conversation as we start to see these wind farms pop up here. now, you mentioned crude prices, that's an important piece of it as well. with these relatively lower prices, many people are
questioning the need for alternative energy investments right now. back to you. >> all right. jackie, some very cool stuff there. we appreciate your reporting. thank you. all right. with many stocks at record highs, it's been fairly easy to have a decent year as a fund manager. but it's been very hard to have a pretty great year as a fund manager, which is what your next guest has done. franklin rising up a cool 13% plus this year. joining us onset don taylor, thanks for joining us. >> thanks for having me. >> before we get to some of your ideas and cintas in the news is one of them, we were having a conversation in the commercial breaks about dividends, and you argued that because i was saying the so-called smart money, a lot of big-time hedge funds are underperforming good old fashioned stock pickers and you said they don't think enough about dividends. how important are they? >> there's many investors that really need a cash income stream. and the problem is right now you really can't get that to the degree that they need to in the
fixed income market. think about sovereign bond yields, practically zero. even in the u.s. the 10-year is 1.5%. and credit spreads still very narrow on top of that. even taking credit risks you don't get that. so to think about the equity market as a source of income rather than capital appreciation is something that's really become a lot more important in the last couple years than it has been throughout my whole career. >> but the idea of a bond is that you're supposed to basically have no risk to your capital. so you're not getting a lot, but you have safety. dividends are supposed to compensate you for taking some risk. >> so clearly -- >> how much risk is there in the market now? >> well, clearly with stocks it's junior to bonds. and i think the right place in the market for this to work is higher quality type names. another risk that's out there is even though interest rates are low, there's a very real possibility that they go up from here. but if you can find stocks that have a decent yield, 2%, 2.5%, is kind of our sweet spot, but we think can grow dividend 10% a year, year after year after year, you get an ever increasing
income stream rather than a fixed income stream. >> how many of your companies do that? in other words, the hurdle is 10% a year, year after year after year, do all of them do that? >> that's ideal. not all of them. we screen historically for companies that have doubled over ten years. >> what if one falls and passes on a dividend or doesn't make that 10% hurdle, do you throw them out? necessarily? >> we don't necessarily but we often do. it actually doesn't happen very often. you know, most of them are mid to high single digits to 15% year after year increases. over the last ten years our portfolio the existing names have compounded dividends about 12% rate. >> what's the turnover? >> very low actually. it's less than 10% the last couple years. >> so you hold a stock for nine, ten years. what do you do during the day? >> well, i'm constantly on the look out for -- you know, i'm looking for a set of criterion in companies that i think can get this. and i have to be skeptical of that.
i have to make sure that i continue to have the high degree of confidence that it's in the kind of business, the kind of management that they're going to get the kind of results that enable them to have the annual increase. >> the dividend payers are considered to be the most vulnerable if and when we see interest rates go up because then there's competition for them, as you alluded to at the beginning. how much do you worry about that? >> so i think a lot of equity investors are investing for yield, kind of miss that point. they're focusing on the current yield rather than dividend growth. you know, we need companies that, you know, companies that can grow their dividend significantly can offset a lot of that. you really need some companies with some economic activity. so the environment interest rate's going to rise a lot is an environment where more economically sensitive companies are going to have better operating results that actually make -- >> because presumably they're going up because the economy's stronger. >> yeah. that's an important element of the portfolio. >> we showed some of your top holdings. last stock recent stock you fell in love with is what? >> recent stock i fell in love
with, well, you know, with my turnover it's not like last week i'm talking about. >> eight years ago i -- you're like a penguin. you're mating for life. we understand that. but you look around once in a while. >> microsoft in the last couple years has hit our screens. >> microsoft? my new love. semi new love. >> so i'm looking for companies with ten years of dividend increases. they have 12. i think next month it will be 13 almost certainly. but that's a fairly recent within the last couple years. >> a long time, you got to wait ten years. >> microsoft is a new one. hot new young thing, gret ta garbo, boy she's something. >> i've been running the fund for 20 years and names i put in that first year that -- >> what's been in there 20 years? >> beck and dickinson great example november of '96 i put into the portfolio. it was paying 29 cent dividend, i believe. and annually now it's $2.64
annually. >> it's working. you're up 13.06% this year, almost doubling the s&p, so, don taylor, thank you very much for joining us. we appreciate it. interesting discussion. >> thanks. i enjoyed being here. >> see you soon. >> thanks. programming note, we're going to be highlighting more of this year's top performing fund managers. don is right up there. we're going to try to bring them all, michelle. all right. which state in the union has the most freedom? why do we care? because it matters economically. the bottom of your screen is a big hint, the answer next on "power lunch." ♪ mapping the oceans. where we explore. protecting biodiversity. everywhere we work. defeating malaria. improving energy efficiency. developing more clean burning natural gas. my job? my job at exxonmobil? turning algae into biofuels. reducing energy poverty in the developing world. making cars go further with less. fueling the global economy. and you thought we just made the gas.
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on what matters to you. morgan stanley. the united states often referred to as the land of the free. however, according to a new study from the kato institute, some parts of the country have more freedom than others. the study examines how well each state's public policies promote fiscal, regulatory and also personal freedoms within the state. joining us now is one of the study's authors, william ruger, good to have you here. >> thank you for having me. >> i wanted to have you on because i grew up in what you call the freest state, according to your survey, new hampshire is the most free state in the united states. live free or die on the license
plate. i guess that makes sense to me. why does it matter? >> indeed. why does it matter? >> yeah. >> well, it matters because freedom matters for its own sake. people like to be left alone by a government, generally speaking, and to be able to live their life project as they see fit. but it also matters in terms of economic growth and other indicators of kind of desirable outcomes. in particular economic growth what you've seen is that across the range of freedoms that we measure in the study, that correlates with basically that kind of personal economic outcomes that you're seeing that individuals need to have to flourish. >> less regulation, but also personal freedoms. you're talking about freedom to marry whoever you want, perhaps drug freedom as well? >> yeah, exactly. a whole range of things from like you said, you know, marijuana to marriage to things like education to things like gun control. even things like raw milk sales. >> new hampshire, alaska, oklahoma, indiana, south dakota. one, two, three -- those are the
five freest states in the united states. they seem to be the less populated states in america. the more populous the state, the less free. why is that? >> well, i'm not sure that's necessarily the case. because you do have states that are quite populous that do quite well. if you think about states like arizona, colorado, and then even though nevada's not that populous relative to its size, it is quite urban. and yet they do quite well in the study. >> do we see any correlation between freedom and economic growth? >> there is indeed. particularly when it comes to regulatory policy. so states that really kind of stifle business innovation, business growth as well as stifle the conditions in which people really want to engage in all kinds of new innovations. we're really seeing economic growth fall off relative to other states that are more free that don't have the kind of restrictio restrictions. >> what about -- you say economic growth and freedom are correlated, what about affluence
or wealth? >> well -- >> as i look at the map there, i see in black new york, california, new jersey. i see in blue connecticut. there's a lot of wealth in those states as in minneapolis and in illinois. >> right. well, what i think that shows actually is these were states that used to be engines of growth largely because they were relatively free. if you think back to the history of new york or california, california used to be that place people went to live a free life. those are places that grew and did quite well. unfortunately these states have become quite sclo rottic, new york for example has really high state and local spending. it has really high taxes. it has a lot of business cronyism, so it's the kind of things that have stifled and made the kind of body politics scla rottic. >> and the wealth may migrate.
>> exactly. one of the things we've seen is a place like new york has lost 11.2% of its citizens since 2000. going to other places. and this is a statistically significant relationship even when you -- >> prominent not in south dakota. i'm not guessing too many new yorkers are going to south dakota. >> william, that was great. thank you. >> thank you very much for having me. >> "power lunch" will be right back.
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welcome back to "power lunch." i'm jane wells in los angeles. lockheed martin stocks off today. they closed an i.t. division. now, the reason why the stock is off, it is a complex transaction but to make it tax free lockheed repurchased 9.4 million of its own share, the street expected it to repurchase 10 million. therefore, the closing of the spinoff will boost eps less than expected. and that's why the stock is down. in fact, one point today at the lows. it's not seen since february. so that's what's going on, guys.
i hope that made sense. back to you. >> it did. less good is the new bad. >> wow. exactly! >> you're welcome. jane wells, thank you. >> okay. all right. time now for "street talk." first stock, marathon oil. bank of america merrill lynch upgrades to a buy, calling it quote one of the more levered big oil cap companies and before it moves just based on oil prices and now, though, the analyst convinced a stronger balance street and capital flexibility made it more attractive even outside of some big rally in oil. they nudged the price target up to 21. hey, 40% upside. this is part of a bigger call and they added devon oil. i saw you tweet about it. >> energy stocks overall overweight for bank of america. a market perform after a massive run of february lows. now full valuation and cut to market perform saying there's
not enough upside to keep it at outperform. both of the banks analyst points out that we are six years into the positive side of a credit cycle and will weaken. head winds ahead. that's right. my timing is off here. next stock, positive note of drexel of the earnings. saying cisco to meet consensus revenue estimates and continue to deliver on margins despite the muted i.t. spending environment. new partnerships will give them a bumper. cisco with a 3.3 dividend yield. >> just the guest talked about. the yield more than doubled that of the 10-year bond on cisco. finally, your fourth stock today is shen don with a. it's from market perform to overweight. there you go.
this after downgrading the stock back in june. that was a good call. sharyls are down 30% over a month and the analyst says the valuation is simply too good to pass up and thinks the recent three-way deal was largely misunderstood, maybe leading to that 30% drop. his target is $33. that's 11% -- not a lot of upside and they got -- i highlighted it because they had it right and then now time to buy the stock. "street talk" and seacrest out. time now for "trading nation" where trade earls trade better. today. apple, berkshire hathaway upping the staff. david, first to you, are you buying this berkshire bounce on ap snl. >> look. he bought it at the sweet spot. the average is cost bases $97.50
and below $100 you buy and trade it up and trade it in a range of $100 to $125. i believe's about and we said this, 2017 a 17 story. that's when you want to own it going into '17 with an old installed base to upgrade and a new phone with a new screen and better technology. seeing a cycle to facilitate a move higher and 125 level i'd be a seller of the stock. >> but you're bullish here. >> at these levels, yes. we are bullish here. establishing a full position at the levels? no. we want to wait until the fall and jump in head first for a massive ramp with the upgrade cycle to facilitate the stock or help it catapult up a little bit. we have $125 target on this thing. >> larry, not to knock them, obviously, you know, some of the successful investors got it
wrong. are you buying into this apple trade? >> i would agree with david. near term it's extremely overbought f. you look at the new ownership of apple the last nine months, you have 52 million shares that were purchased by central banks and sovereign wealth funds reaching for yield. the apple dividend's gone from 2.61% to about 2%. so, there's a premium in apple that's been bid up because of the dividend and looking at the new ownership, a lot of central banks and sovereign wealth funds are new owners of apple shares. >> does that worry you? >> yeah. i mean, the fact that if you look at the programming this afternoon, when you're bringing on dividend players and dividend funds as kind of all-star investors, i mean, this is like literally back to the '90s. the dividend producing investors or asset managers are the heroes today. that's a sign of an extremely crowded trade.
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it is time for "check please." time to get the check and get out of here. before we go, i don't have to pick up the check today but you guys do. what did you find out? >> my check please is mgm coming out saying essentially i'm going to cross the aisle. there's been a series of missteps by donald trump and i cannot vote for him even though i'm a lifelong republican and interesting to see how many ceos and republicans follow suit. >> kra, our fund manager, stock down half a percent when he came on. made a strong case. stock up 6% right now. >> elastic and rubber that. >> and etna's decision to exit the obamacare -- >> huge. >> the doctor about what -- what
are they going to do about the fact not enough people are signing up that are healthy enough? >> yeah. it feels like it's unraveling. >> yes. >> got to say. >> shh. >> i don't know. thanks for watching "power lunch," everybody. "closing bell" starts right now. hi, everybody. welcome to the "closing bell." i'm kelly evans at the new york stock exchange. >> and i'm bill griffeth. backing off of yesterday's record closing high amid hawkish comments or so they seem from fed officials and could be a rate hike as early as next month coming up. we'll talk about how a move by the fed could affect what has been this quiet, unloved bull market we have had here. >> the trifecta yesterday again. record closes across the major averages. shares of hain celestial