Ten weeks. But with todays move to the upside in a sector largely exposed to china and ahead of another round of expected tariffs in just a few days, where should investors be looking for protection joining us now to discuss, Oak Mark FundPortfolio Manager bill nygren and nsz capital cofounder, bill slingerlen brad, you have some thoughts specifically around where is a good place to put money at this point. Specifically as it relates to regulation coming down the pike and semiconductors give us a sense, start with semis. Sure. So you know, we think theres no more interesting spot in the tech sector today than in the semiconductor segment, particularly for longterm focused investors. We know theres a lot of noise and a lot of volatility around the trade war and the trade talks that are going on now. We think ultimately, were entering sort of an ai cold war phase between the west and china. But that china and the chinese economy cant exist without cement conductors and frankly, the entire Global Economy now runs on semiconductors everything we talk about thats happening on the innovation front relies on these ai chips from companies such as nvidia, relies on these chips like microcontrollers from a company such as microchip. And these are largely u. S. Intellectual property. And ultimately, china needs these, the world needs these chips. And theyre priced because of the volatility in the market, as though theyre heavy cyclical and not going to grow, but we think thats fundamentally not true with the big growth thats coming for semiconductors over the next decade. And bill, i look at your top holdings i dont see semis having much of a presence youve got more banks, some other types of stocks. You have a different take on where people should be positioned now, i take it . Well, at oak mark, were longterm value investors. And thats not been a fun spot to be the past year or really the past five years. And thats because the spread in market p\es has just gotten wider and wider. Were at almost unprecedented levels now where the lowest p\e stocks are half the market multiple today and that lowest sector is full of banks we have citigroup, bank of america, capital one, ally financial. They sell at seven to nine times earnings they sell under book value most of them are repurchasing a lot of stock dividends are higher than 30year onds we think, as value eventually makes a comeback, the Financial Sector will lead the way bill, that seems to make sense, i guess, on some of those metrics, but if youre looking at Interest Rates potentially going lower, Net Interest Margin cant be too attractive for a lot of those banks i certainly agree with that shortterm but one of the things about the way we invest at oak mark, were trying to figure out what a company is likely to earn five to seven years from now. When you look out that far, i think its fair to guess that Interest Rates will about match the inflation rate our guess is about 2 on that level. And that thats plenty high for these companies to get good Net Interest Margins brad, within the media space. Do you feel like the consolidation in the u. S. Is over now that weve seen cvs and viacom top i think we could see further consolidation in media and media is an area that were very establibullish on for the longterm. We think that the content producers are becoming more important. Theyre taking back control of their direct relationship with their customers through streaming and were entering this period where these consolidation with the media stoid studios, they can both have their cake and eat it too. Theres a manageable decline in traditional tv subscriptions thats being more than offset by directtoconsumer streaming so disney is extremely well positioned we think that combined cbs viacom will also be very well positioned. And we dont think that will come at the expense of netflix or some of the other streaming properties i think consumers have a large budget to spend on video and its not shrinking and theyre getting more and more value for that budget. So its a really positive setup for the longterm for media. Bill, how do you see the narrative in media and distribution playing out i see youve got charter as one of your top holdings our parent company, comcast, as well the combination of media and distribution was a big story over the past few years. Do you expect that to shift over the next five to ten whats going to determine who has the most value well, we think of both charter and comcast as primarily internet providers and they currently have, by far, the most reliable, fastest Speed Internet and we think that will continue throughout our investment time horizon. I think a lot of investors worry too much about cord cutting. Providing video just isnt that profitable for the cable companies. They make their money from providing Internet Service and with the growth in streaming, we also own netflix and alphabet, two of the largest streaming Video Companies and not valued at all as highly per hour watched as the traditional Media Companies. We think streaming is going to keep growing and it will benefit all of those companies all right we will see how this plays out bill, brad, thank you. Thank you now, apple ceo tim cook has long said that china tariffs would hurt his company and a new reuters analysis helps explain why. The report, and examines apples supply chain data shows a company that is increasingly dependent on and intertwined with the chinese economy joining us now to explain, reuters reporter, steven nellis. Thanks for joining us. Thanks for having me. So an increasing dependency in terms of supply chain on china. Gauge for us the numbers and the level with which thats increasing absolutely. So apple has thousands of suppliers, but every year they publish location data for about 750 plus of those. And what we did is went through about five years of that data and analyzed it and found that a little between 44 and 45 of those suppliers were located in china, as of 2015. And then as of 2019, that actually increased to almost 48 . And the really interesting thing about that is while theyve added a few factory locations where they assembled the products in places like brazil and india to do local tariffs, most of the new locations for factories have been in china foxconn alone went from having 19 facilities, helping supply apple to having 29 in that same time period. And thats right around the time where theyve introduced new products like the apple watch, air pods, home pods. So what we see is apple is really relying on china to help it deliver those new products. And that trend hasnt lessened, even as the trade war has heated up but stephen, what portion of that is in terms of the cost of, say, an iphone so 40 to 45 of the supplies by number, but is that of the lowcost parts or the highcost parts. Well, thats an important thing to put the finger on, because only about 2 to 3 of the value of the phone is in assembly and a lot of those really valuable parts, things like screens, things like some of the most important chips in the phone are actually made in places that arent china a lot of the chips come from taiwan some of them are made in the United States in places like texas or colorado, and a lot of the screens come from places like korea japan is also a major country that supplies a lot of these parts. So its absolutely correct to note that while a lot of the number and volume of suppliers are in china, some really highvalued parts are coming from outside of china. Stephen, how thoroughly were you able to dig into how country of origin is determined . The circuit board, i understand, where thats made is a major factor in determining that so even if a lot of the parts are sourced out of china, will it necessarily be determined as a product made in china and subject to the maximum amount of tariffs . Thats right. So throughout the consumer hardware chain right now in tech, everybody is looking at this shall of what constitutes country of origin for the purposes of a tariff, which is actually legally speaking slightly different from what it might say on the box and a lot of things Many Companies are looking at is where are the Circuit Boards made you take a hassle of chips that could be made into anything, and once you affix them to that circuit board, theyve kind of become a product and that could count as what the folk who is do tariffs call substantial transformation, which is the key Legal Standard for deciding whether its going to face a tariff or not. So that has at least some Companies Looking at how they could shift this around. For apple itself, we dont know exactly what theyre going to do we do know that some of their suppliers like foxconn have the ability to make those Circuit Boards in other countries like india. But the thing to remember is that in china, apple is making hundreds of millions of devices a year thats about 600,000 plus iphones a day, only holding on to maybe five days of inventory at a time. Getting the scale and velocity of the supply chain anywhere else but china is going to be difficult, even if apple and its suppliers have the ability to do stuff like make Circuit Boards in other countries and stephen, that brings up an interesting point because, of course, apple does do some manufacturing in india and in vietnam but their point is they just cant scale the volume that is done in china to move any of that substantial manufacturing and thats the manufacturing thats largely for the devices sold in those country, is that right . Thats correct. So in brazil and india, for example, those factories were very specifically opened in response to import duties and tariffs in those markets in the case of india, its one of the last remaining fastgrowing markets where people are adopting highend smartphones like the iphone at a rapid pace apple really wants to be there theyre pretty steep tariffs, though up to 30 in some cases, if you dont source some of your supply within india so, theyve put those factors there to supply the local market, but youve got to remember, their market share in india is tiny, as it is, because the phones, even without tariffs are still very expensive and its still small just one market compared to apples Global Market of hundreds of millions of devices a year and those factories, while they exist, theyre really just meeting local supply stephen, it seems important to note, with the amount of lead time apple has before december 15th in this case, even though tim cook famously hates inventory, thinks its evil, because it just kind of burns a hole in your balance sheet, theyve got time to build inventory if they want to for the sake of serving the u. S. Market that would be subject to tariffs. If they determine that thats a sort of onetime thing that they would want to do and mitigate the effect of these tariffs, right . Thats right. So remember, their fiscal First Quarter encapsulates the Holiday Shopping season in the u. S and President Trump specifically moved some of those tariffs to december 15th on the idea that it would allow u. S. Companies to get most of that inventory on to u. S. Soil. Now, for most companies that dont churn their inventory that quickly, december 15th to kind of the end of the Holiday Shopping season seems like plenty of time for apple, we know, they hold it as few as five days, so you are left wondering whether they would actually be able to get it all in by then but, you know, this is a very sophisticated company. Its a rare case where the ceo himself actually built out a lot of the supply chain and its probably true that if they want to move that up, eat a little bit of inventory cost to respond to this onetime situation in their fiscal First Quarter, which is typically the biggest, they probably can. Right now they are in the big ramp well probably see a new iphone announcement some time in the second week of september so theyre already getting those phones ready and getting those processes ready right now. And its, yes, very possible that they could do a little shifting of how they normally handle inventory to respond to this onetime event in a big quarter for them stephen nellis, thanks for joining us thank you well, when we return, another big day for retail earnings with best buy, an b abercrombie fitch, dolr la general, and dollar tree reporting this morning we break it down stick with us. Squawk alley will be right back well, best buy on pace for its worst day in almost a month and thats after Quarterly Financial results came in mixed. The retailer gave disappointing sales and Earnings Guidance here so joining us now, ubs retail analyst, michael lasser. He has a neutral rating on the stock and his 66 price target also with us, anthony chakumbo anthony, what do you make of the report this morning . It was mixed, there were things to like and things to be disappointed about how do you put it together i feel like bill murrays character in groundhog day. I feel like this happens pretty much every single time best buy reports earnings these were not mixed results, these were good results. Comp store sales came in a little bit light of expectations, but against a very difficult year over Year Comparison epps w eps was up 19 year over year, beat consensus by 9 cents. And the Earnings Guidance for 2019, they raised it so i just dont really see any reason for the stock to be down 10 today. From my perspective, this is a buying opportunity i am pounding the table with both fists okay. Thats a pretty strong answer. Michael, do you think the stock is down because of the exposure to tariffs i know it could be as high as 60 of their cost of goods sold, although ceo cory barry tried very hard on the call to say, look, its not going to be that high we have a ton of mitigation strategies in effect, but is that what the market is reading for this selloff . The market is reading a couple of factors for the selloff one, as you point out, there is a lot of tariff exposure 60 of sourcing from china means it adds a whole lot of uncertainty to the situation, especially for 2020. This tariff uncertainty is going to weigh on 2020, even more so than its going to weigh on the Fourth Quarter of this year. And two, we did see some volatility in the product category trends, particularly in the gaming area. That seems to be softening at a very rapid clip. As a result, they had factored in a bit more caution into their Fourth Quarter outlook i would also offer the perspective that its going to be a very difficult holiday. Were going to be stacking two good holidays on top of each orr. The holiday is actually shorter this year than in the past six days, so these retailers will have to sell more goods in a shorter period of time and were entering the Holiday Season very heavy on inventory thats been a consistent theme across retail reporting. So we could see some of these retailers blink and make it a very promotional Holiday Season, which could impact a retailer like best buy disproportionately anthony, are you unconcerned about tariffs . Well, its not that im unconcerned. Im more concerned about the uncertainty around tariffs than i am about the tariffs themselves one other thing that ill say about best buy is that, look, this is a company with a long track record of underpromising skbroe and overdelivering and they have a new cfo, so clearly they dont want to blow this guy up. They want to have him beat numbers the first couple of quarters out of the gate, particularly during the holiday selling season one thing i would mention during the holiday selling season, its always promotional and always competitive. Thats not new and best buy now has a partnership with progressive leasing. Theyll be able to offer leasetoown during the holiday selling season that will be incremental buying for best buy michael, give us a sense on how best buy is doing in this omnichannel world. The stock has been on a nice run since, i dont know, mid2015, arguably it used to be all about amazons going to kill these guys, target, walmart in the mix, too. All of them have developed strategy to counter that argument and were talking about best buy now having a bad day its actually not about amazon, right . Yeah, best buy is helping to feed the narrative that traditional retailers, the strong, wellpositioned retailers are fighting back. And theyre going to survive over the long run. Best buy, in the quarter, grew its Online Business 17 . It offers a range of fulfillment options including buy online, pickup in store. If you buy right now on thousands of items, you can pick it up within an hour thats a very convenient offer thats tough to compete with for those who dont have the physical locations so i think this narrative that amazons going to destroy all retail is false. The real narrative should be that whats happening in retail is the weak retailers are going away and the strong retailers are Getting Better and interesting to note, as well, on the quarter, the online sales, it was the biggest quarter for a nonholiday quarter, actually, that best buy has put up and that was on prime day. So they did compete well there thank you very much, michael anthony, for joining us today on squawk alley. Markets back up to session highs. All the major indices up more than 1 as we stand. And one of todays biggest winners are the chip stocks. And frank has more on that from the nasdaq as weve seen those headlines about china staying calm in the trade war, investors have gotten excited about chip stocks, especially those with high exposure to china. That includes korvo. Sky works also up more than 2. 5 that chipmaker kbets about 85 of its sales in china. Micron sales up about 3. 5 as wale that Company Getting about 55 of its sales in china. This also helping out transports so