The trading day is just about over, but the market action never ends. Julie Hyman and Josh Lipton take investors through the finally trading hour of Friday, July 12, on this episode of Market Domination.
Barclays analyst Jason Goldberg joins the program to talk about banking industry trends potentially outlined in this morning’s second quarter earnings out from JPMorgan Chase & Co. (JPM), Citigroup (C), and Wells Fargo (WFC).
F/m Investments CEO Alex Morris discusses his winners and losers for REITS, or real estate investment trusts, in today’s segment of Good Buy or Goodbye.
Other top trending tickers on the Yahoo Finance platform include Deckers Outdoor (DECK), EVgo (EVGO), Tesla (TSLA), Royal Caribbean Cruises (RCL), and AT&T (T) and Snowflake (SNOW) after the telecom company divulged the details of major data breach from April.
This post was written by Luke Carberry Mogan.
Video Transcript
Hello and welcome to market domination.
I’m Julie Hyman.
That’s Josh Flip in live from our New York City headquarters.
We’re giving you the ultimate investing playbook to help tune out the noise and make the right move for your money.
Here’s your headline blitz getting you up to speed one hour before the closing bell rings on Wall Street.
I think I’m the most qualified person to run for president.
I beat him once and I will beat him again.
Unfortunately, we’re talking about how did Biden do, did he flood?
Name a couple of names?
We’re judging him by that.
If you hadn’t had that debate, you hadn’t had that performance.
You hadn’t had the questions about him.
We’d be talking about how deep his understanding is of foreign policy.
The bulk of revenues for most banks is net interest income.
It is, uh, how, you know, your interest income minus, uh, your, your, your interest expense.
And that is, um, that has been under some pressure for banks more recently in recent quarters while we’ve had recession, like readings on consumer sentiment, retail sales while not really sort of hitting it out of the park actually been relatively robust, both on a real and a nominal basis.
So we’re kind of looking skeptically at consumer sentiment numbers.
Now, we’re seeing in a lot of cases, consumers are sensitive to price levels.
But we know inflation has actually been getting a little bit better over the last few months.
So in general, we don’t think that this is, you know, the bottom falling out for the consumer and the consumer is actually going to hold up pretty well.
We got one hour to go until the market close.
So let’s take a look at the major averages here, Josh, because yesterday, you asked the question, the rotation that we were seeing yesterday out of big tech into interest rate sensitive, would it last?
And the answer is not really, but sort of.
So let me explain what I’m saying.
So we’ve got the dow up right now, almost 450 points more than 1% the S and P up 1.2% and the NASDAQ up 1.4%.
So on the big tech side, we have had those stocks that were, it was just sort of a blip, they back up again.
But the breath is still there, which is interesting.
In other words, the equal weight index and the S and P 500 are neck and neck today, the small caps are also keeping pace.
So it’s not so much that the rotation is stopped, but maybe one side, it’s not a rotation anymore if it’s not going around.
But in other words, people are buying tech again, but they’re still also buying.
That was what’s so interesting.
All the other stuff you could have, NVIDIA is working today again.
A nice move.
But to your point, small caps are also moving higher again.
So it is, it’s just an interesting, you’re right.
I mean, you wouldn’t call it the rotation, but it is just maybe a sign that this bull market broadening in some way, you know, that’s what everybody’s been waiting for.
Right.
So today you’ve got, um, actually consumer discretionary, that’s the best performing group, but it’s followed up by tech.
But let’s also talk about the big earnings story of the day here.
I’m just glancing down on my list here to find our big banks and here they are because we’ve got them reporting today.
JP Morgan Wells Fargo as well as Citigroup over here.
All reporting all down.
Yeah, I mean, uh, you know, to be fair if you pulled back the chart and you know, this Juliette, like a lot of these names had some nice runs into these prints.
Let’s take a look at Jack Morgan is an example of, right.
I mean, if you pull your to date about 20% about, you know, 40% I think over the last 12 months or so.
I mean, so investors, plenty of investors have thought, you know what, um, economy is decent rate cuts are coming.
Maybe those restrictive regulatory proposals won’t be so restrictive.
So they moved in.
So you do wanna how much of this also is kind of expectations games playing out as well?
Yeah, most certainly.
However, it does seem that the theme that we were talking about initially yesterday with some very different types of companies namely Pepsi Can, Agra and Delta about consumer weakness that is also playing out when it comes to the banks here.
And so we are seeing lending activity, we are seeing uh credit card, uh you know, charge offs and things like that.
That’s something that is getting more attention from some of these banks, even as the capital markets business that includes the markets, that includes some deal making activity that’s starting to perk up again.
That did ok for the banks, but it’s their sort of bread and butter that is not necessarily doing as well.
Another point too, you know, sometimes Julie, you’ll hear people talk about big banks as if they’re kind of like a a bellwether for how the market’s gonna perform during the rest of the earnings season.
Now bespoke Paul Hickey, a true market guru uh says that is not true and we are gonna talk to Paul later in the show, find out why that is, yes, it should be interesting to see if others are gonna follow in the same thing.
All right, for more on what to watch this earnings season.
Let’s welcome in now, Eric Friedman, he is the chief investment officer at us Bank Asset Management Group.
Eric, it’s good to see you.
So you, you heard Julie and I were just talking about the big banks, Eric, you, you saw those earnings report just broadly Eric, I’m interested to get your take on just what you made of those reports and any broader kind of takeaways you think uh for the market there, Eric.
Yeah, Josh, thanks so much for having us on and, and I work for a big bank so I can’t get too much into the specifics.
But I’ll just say this, I think one of the things that really, yeah, underscores our bullish thesis is the idea that the consumer is still hanging in there.
You did a good job of covering that in the prior segment.
That’s what we actually heard from these earnings or the consumers are still in fact outspending.
Again, there’s a difference, there’s a divergence across the different cohorts of consumer spending.
But in general, you’re still seeing real incomes get in uh uh inflated inflation adjusted, still hanging in there.
So that says to us that there’s still a good backdrop for consumer spending.
One of the reasons why we think corporate earnings cycle profits will continue and certainly keeps us bullish in the near term.
And Eric, um what does it look like in terms of that bread?
You know, we’ve been talking going into this earnings season, not just about breadth of performance, stock performance, but about breadth of earnings performance.
And we’re very, very early.
We’ve heard just not just from the banks, but as I mentioned, a couple of consumer staples stocks.
So are we gonna get that breadth of earnings growth from other companies?
Yeah, it’s a great question, Julie.
I think that it’s probably early, at least for this quarter to see it really fanning out.
But the great thing about markets is that we anticipate before it happens, at least we try to anticipate before it happens.
So part of our thinking again, we’ve been actually overweight stocks through equal weight and that’s uh that’s a long way of saying that we think the large caps where you wanna be, we wanna be exposed to those sectors that actually have not performed as well.
But also don’t have as much refinancing risk of small caps or have a better profitability projection.
So that’s been really one of our key thesis has been this idea that equal weight will be a good place to add value that has played out over the last couple of days.
But it’s been a pretty slow ride uh since we put it on in late uh late April.
So bottom line is that, you know, for our general thinking that earnings are, are still in a decent spot in terms of spending will probably come in a little bit.
But again, on a real basis, you’re still seeing incomes that are positive.
So I, I think that if you look at sectors that we really like in terms of areas that are more attractive to us, things like energy, uh things like consumer discretion, or we still like tech, we would be at the very least uh market weight technology within again, the fundamentals of A I are still there, that’s going to continue to broaden out.
But there should be, again, a premium placed on companies that don’t have as much refinancing risk and still have decent earnings.
That really leads us to that equal weighted position right now.
Eric, I just want to get your take on small C because they’re higher here.
Again, I’m just curious, Eric, you know why you think um they’re higher, why investors have moved in at this moment?
Is it because they have investors, you know, they’ve decided, ok, the economy is decent and, and cuts are on the way and, and that’s good enough to, to move into those pint sized companies.
Yeah, Josh, I think really the biggest variable driving small cap right now is because interest rates are coming down.
And if you think about the data we got this week, again, your team always does a great job of thinking about and mapping out the week ahead of the week, that’s just happened.
So the consumer price index data yesterday, they produce the producer price index data today.
Those are both relatively benign and it actually was a pull forward and rate cut expectations.
You have to keep in mind that even though people, I only don’t think of it this way that small caps, about 30% of small caps are actually debt financed.
And, and so if you look at, at what that means is that, hey, these are companies that don’t have as diversified revenues as either a mid cap or a, or a large cap stock.
And so they’re very dependent on a product, like they’re also very dependent on interest rates coming down to get their cost of capital lower.
So what that really means is that as you have a pull forward an expectation for rate cuts, that’s more bullish for small caps because of their reliance on debt.
Most people think that small caps are mostly equity finance, they’re not, there’s a lot of debt uh contingency on small caps.
That’s why they’re doing so well.
Um Eric, there’s been a lot of talk about with interest rates where they are.
A lot of people are in cash right now or the equivalent of cash, what is the trigger that might get them back into the market?
And is that gonna be, you know, sort of a, an underpinning for stocks for this year?
Yeah, Julie, I think it’s an important focal point.
It’s something that we see a lot with our client base that clients again are almost nostalgic for uh for higher rates in, in their, their, the cash part of their portfolios.
The same thing that I think will get things, you know, shifted back into a broader allocation of the stocks and bonds and, and alternatives is, is just probably the front end coming down.
We think it’s gonna be a very gradual pace.
And so I think that as people look to refinance and, and even think about laddering C DS and things of that nature, which again, we think there’s a big opportunity cost in being in cash right now.
We would be in other sectors and very happy to talk about those that we like.
But I do think it’s gonna really require the front end to come down.
People tend to be pretty hesitant to move out of cash, they tend to be, again, more focused on, on, on current yield and that’s something that we think is gonna probably change, especially as we start to see that broadening of participation increase, which again, we’re positioned for in our portfolios.
But that would be the other thing that really gets people to think, hey, it’s not just tech, it’s not just com services, it’s not just um you know, discretionary, but other things are working.
It’s time for me to come out and, and get involved.
That could be the catalyst that we see uh draws people away from cash Eric.
Thanks so much.
Appreciate it.
Have a great weekend.
Yeah, do the same.
Thanks for having me.
We’re just getting started here on market domination.
Coming up.
AT&T has said that a hacker stole records of calls and texts from nearly all of AT&T wireless customers.
We’ll have more details on that and the fallout when market domination continues, a complicated start to earning season for the bank shares of JP Morgan.
Wells Fargo and Citigroup are all under pressure after their numbers, Wells Fargo second quarter profit declining from a year ago While JP Morgan and City beat estimates concerns over net interest income has been weighing on those stocks and joining us.
Now, Jason Goldberg, Barclay, senior equity analyst, Jason thanks a lot for being here to help us make sense of what we heard from the banks.
I I wanna um mention a comment from the Wells Fargo CFO um because it seems to be specific, not just to Wells Fargo, but what we’re seeing in the bigger picture and he said, when you really dig into what’s happening across different consumers, the folks on the lower end of the wealth or income spectrum are struggling more.
How much of a problem is that for the banks now and will continue to be, you know, it’s certainly something to be mindful of when you think about the lower end consumer, they benefited the most from all the stimulus activity we saw coming, you know, out of the pandemic and that has certainly um kind of gone away.
And at the same time, you have elevated inflation.
So things like, you know, food energy prices are more and then that cohort tends to rent more and, you know, doesn’t have the benefit of low yielding fixed rate mortgages locked in from a couple of years ago.
So there is, you know, some pressure there as it relates the banks.
Um you know, it’s just not a huge contributor um to revenues while the big banks tend to be big, big in credit card, which is an area to be mindful of.
Um, you know, they tend to focus more on the higher fico’s customer base.
So it’s, it’s certainly something that, you know, weighs a little bit on overall results, but I think not something that overly concerns us in here.
Jason Le let’s stick with city.
Um, you know, Co Jane Fraser, of course, pursue pursuing a, a big turnaround there.
Um You’re on the sidelines though.
Uh Jason equal weight.
How come?
Listen, it just takes a long time to turn a big ship and that’s a very big ship.
And I think, you know, you, you got the news, um, you know, uh earlier in the week that they had a, you know, didn’t fully resolve one of their consent orders way back from 2020 and under kind of increased scrutiny from the OCC now.
And, you know, listen, there’s gonna be some bumps in the road, so they’ve made a lot of progress, particularly under Jane’s leadership.
Um Just more work to do and it’s gonna, it’ll take, um, it’ll take some time, you know, for them to get, even back to a low teens.
Rot ce, I think they’re targeting 2026.
Where earlier today that names like a JP Morgan.
Put up a, you know, a 20% plus rot ce already.
So, when you look across the banks, both who we’ve heard from thus far and who is yet to report, who do you think is best positioned right now?
And what seems like sort of a muddling along environment in some ways?
Yeah, you know, if you look at kind of the trends that we’ve seen, you know, today we saw particularly strong trading and investment banking results.
Um So early next week, we heard from Goldman Sachs and Morgan Stanley and we think they’ll benefit um from those trends on the flip side, you know, loan growth continues to be subdued while you’re seeing upward pressure for both, you know, non-performing assets and, and, and loan losses, um which kind of the regional banks are over exposed to.
So those are kind of, I think the themes that we’ll be paying particular attention to is, you know, more and more banks report over the next couple of weeks.
And Jason, one name that stands out for the Wells Fargo, um I know you like that name.
It is under a pressure in, in today’s trade.
Jason, it looks like, you know, net interest income for Q two missed uh analysts talk and also hear about higher uh expense guidance.
But what did you see in the report?
Jason?
Yeah.
No, I, I think you, you kind of captured it.
Um you know, net interest income was a bit um lighter than anticipated, you know, loan growth has um listen, been soft to start to the year expected to kind of remain soft near term.
They also priced up some of the wealth management deposits um which also adversely impacted results.
And then, you know, on the expense, uh you know, I think a couple of that was really related to some one time ish type items as well as just better than expected fee income.
Um and there’s some compensation of, of revenue related expenses tied to that on which weighed, but, you know, the stock had a strong run last year, um continued to be up, you know, double digits, you know, into the print.
Um and you’re seeing given some of that back today.
But I think overall, um there’s still a ton of opportunities with the name to reduce um expenses.
And if you think about this net interest income, net interest income trajectory after about a 7% drop in, you know, the first half of this year relative to the second half of last year, you know, that should slow closely sort of, you know, 2% in the back half of this year and then trough as we head into 2025.
Um And then, you know, we would look for them to benefit, you know, when the fed ultimately does lower rates, which reduced their funding costs.
And historically has accelerated loan growth.
Um All three of the banks also saw an increase in, um, in the investment banking business, you know, deal activity, picking up a little bit the capital markets, uh, doing pretty well.
Is that something that you think is gonna continue here?
You know, certainly on the, you know, the trading front, um you’ve seen, you know, you saw a year over year increases both from JP Morgan um and Citigroup as they’re just benefiting from increased activity in both the equity um and fixed income markets.
Um you know, volatility is more elevated volumes are higher.
Um And you’re benefiting that with something, you know, if you just think of, you know, just like, think of the recent election activity um and just the surprises we’ve seen across, you know, various countries over the last month or so, and that just drives increased activity and things like currencies and interest rates and equities um across the globe.
So I think the banks are benefiting from that.
And at the same time, you’re just seeing a pick up in IP O activity.
Um you know, debt issuance has been active and ultimately, we think you’ll see an increase in M and A um activity is just, you know, industries continue to evolve and grow.
Jason.
Good to see you.
Thanks for joining us.
Always pleasure.
Let’s get to some training tickers now on Yahoo Finance.
Besides the bank.
First up, we gotta talk about AT&T and Snowflake shares are lower today following the telecommunication giant that is AT&T S disclosure of a significant cybersecurity breach.
And in a press release issued today, AT&T said hackers had accessed and copied customer call logs from Snowflakes cloud platform between April 14th and April 25th, uh 2024.
1 interesting um tidbit uh more of a note from this but that I thought was interesting, Josh is that of course, there is new regulation around how quickly companies have to report these.
So what happened back in April?
AT&T didn’t disclose it publicly because the FBI told them not to, they were they wanted to look into this further.
So there are some exceptions to that sort of public disclosure of these types of hacks.
Yeah, the I see the FCC telling media, Julie the agency has an ongoing investigation.
It’s coordinating with our law enforcement partners and this is being described as one of the biggest breaches of private, private communications data in recent memory.
Um It was interesting because I was reading through the reports and the data does not include the contents of the calls and messages.
So, you know, personal information, social security numbers, birth dates uh but the records do apparently identify the telephone numbers and the LOCA I think there’s location data that is included in this too.
So you can sort of extrapolate where that’s the callers and receivers were.
Um So all of this is interesting.
CNN quoting the Chief Information Security Officer at Snowflake as saying that they didn’t find the evidence that was caused by vulnerability in Snowflake’s platform.
But Snowflake is still down separately.
It looks like um that Piper Sandler cut its price target on Snowflake to 165 from 240.
But they talked about rising macro risk factors and elevated budget battles.
So it’s unclear to me if it has anything to do with what’s going on at AT&T.
Keep watching our next trending tick deckers, the Footwear brand, approving a six for one stock split and also approving an increase.
The number of shares of common stock preferred stock to accommodate the stocks but split is gonna happen after a market closed on September 6th with the new shares being released after a market closed on September 16th.
So that, that was the, that was the headline here.
The board approves a 616 for one forward stock split, put it before the shareholders at the September 9th, an meeting.
We’ll see what they have to say about it.
Yeah, this is the owner of HOA and Ugg Hoos in particular have been very popular and they’ve been on a run.
The speaking of runs, the stock has been on a run.
It’s up over uh 60%.
60% over the past year.
I look, took a little walk down memory lane for this one.
It went public all the way back in 1993 at $15 a share.
And you can see the shares are almost at 900 bucks today.
This is not the first time they’ve split the shares either.
They did a three for one split back in 2010.
So, um, second ever split for Deckers, we’ve had, we’ve talked about splits a lot recently micro strategy just this week.
Yes, I know it’s been ticking up a little bit.
All right, coming up, it’s the latest edition of our series.
Goodbye or goodbye.
Stay tuned.
Much more market domination.
Still to come.
It’s a big noisy universe of stocks out there.
Welcome to, goodbye or goodbye.
Our goal to help cut through that noise to navigate the best moves for your portfolio.
Today, we’re looking at real estate investment, trust us as commercial concerns have made some investors hesitant.
I’m here with FM investment chief executive Officer, Alex Morris.
Good to see Alex.
Thanks for coming in.
Thanks for having me back.
So obviously this is a group that has really been weighed on by interest rates by and large.
Although there’s a lot of other other stuff going on in real estate, but it’s pretty differentiated among the different subsections within it.
So let’s get to it here.
The stock that you like here is called Stag industrial, the share is not much changed over the past year.
We’ve seen a little bit of an increase.
So, let’s get to why you like it here.
So, it’s an industrial re, but you, you said with industrial, it’s sort of well diversified.
So, what does that mean too?
So, we, we think about reeds in general.
They do all sorts of stuff, they own homes, they own, you know, as we’re talking about self storage, this is industrial centers, these are things that collect rents.
This is the, this is business at work, right?
Most people don’t own their factory, they end up renting it from somebody else.
They have a pretty wide portfolio and over the last 68, 10 years, management’s been on a tear of actually trying to do a good job with that and they’ve done that, same store sales are up, they found a way to be very conservative in how they acquire to make sure they’re acquiring creative properties and they’ve really succeeded.
There mean an intelligent diversification.
They don’t own just one sector.
They’re in 41 states.
They’re well diversified across industries, they’re ready for various different parts of the economic cycle.
And when you talk about owning factories as well or the factory facilities, at least there is, of course, this big push for on shoring for near shoring in the United States.
Absolutely.
So as jobs come back, right, every big political election coming up, politicians can talk about bringing jobs to America.
They’re well positioned for supply chain issues from the pandemic.
Some fixed, some, not some realizing they need to be onshore, not elsewhere or closer to us.
They own all of those facilities and they, they own them generally in tier one markets where we think a lot of that action will happen.
So if that plays out, we think it will, they’re gonna be in the right spot.
Interesting.
Ok. And then also, um there’s this focus on sustainable earnings growth and you alluded to that a little bit when you talked about their sort of rational acquisition strategy as well that, you know, they’re sort of not focused on surges but rather of a more steady.
This is the traditional good management story, right?
It’s boring to, to be a good manager, you have to do the boring things from time to time.
You can’t just shoot the lights out, but they’ve done that and they’ve really focused on finding the right properties and the right markets acquiring at the right rates saying no to deals that don’t make a lot of sense.
It’s not gonna just keep growing because it looks like the growth there management’s demanded to know that they will be continued growth over the next 56, 10 years, stag 10 years ago was a different business.
It was the type we said, well, it’s going to be a turnaround story.
Let’s wait and see.
We think that that moment is now interesting.
Ok. And then let’s talk about what maybe could be something that could be a risk here and that’s economic weakness among customers.
Absolutely.
I mean, it risk for every stock is that customers dry up, base dries up.
But in particular, when you collect rents and you’re relying on higher same store sales, which they’ve enjoyed for a long time.
If that reverses all of the thesis, we just had starts to fall apart pretty quickly and maybe in a compounded way, it just seems unlikely given all of the break points they put in as well as the sort of fire breaks they have in their business model and just quickly as well.
I wanna, uh, just allude to rates here as a, as a factor, not just for this company but for reach generally.
Right.
We’ve been seeing, for example, yesterday, some investors come back into res as we saw rates come down a little bit.
What do you expect there to continue to happen?
Well, we’re, you and I are usually talking about t bill rates and what and those are going to come down.
We still think there’s one cut this year, but it won’t actually make its way into the re market and into the actual economy of folks getting loans until that rate cut actually happens.
So whether it’s two starting in September or one in December, it’s really a 2025 story before that really makes it in.
But the stock market is really good at guessing.
Where are we going to be in that, that market?
So now is the time to start putting your bets on and building a position because you’re not going to do it all in one day.
Got you.
All right.
Let’s talk about the stock though that you think folks should avoid within this sector or more sort of the, the subgroup, I guess within res this one sort of representative of that, we’re talking about cub smart in this case, but we’re talking about self storage more broadly here.
And you say there, there’s too much of it, there is and their staffs prove it out their 90% occupancy rate, which sounds like a lot.
They’re used to 100% and being oversubscribed and building new facilities every month, build rates are down, vacancy rates are up and as a result, rents are way down down, 60% 16% year over year, which in the self storage space, this is a short term rent industry.
If you’re not building as much, you can’t push that out and you’re earning less per space.
That’s not a good, good growth story at all.
Yeah, it doesn’t sound like.
And as you mentioned, effective rates are down here are, are they slowing down building as a result of all of this?
They are, I mean, wisely so, but a big chunk of that industry is, this is a first derivative play on the housing market.
Most folks don’t go out and buy house storage just because they want to hold stuff they can’t see or use, they need to move from one place to another and they need somewhere to put their stuff for a short while less people moving means less need for storage, less need for storage means fewer people move and it sort of compounds on itself.
And then also the future.
What does that look like?
You know, because one would think at some point we’re gonna see an improvement in the housing market that might spur things on.
But what does this look like too?
Well, so we do think that will come back, rates will help a little bit there.
Maybe, maybe not, but people are less mobile now than they were before because you’re locked into a pretty good interest rate on a mortgage in most cases.
So we think although this was a great ride now is the time to take a pause because we have a hard time seeing exactly where the growth comes from.
It may, but we just don’t see that linear path.
So time to put our money somewhere else.
Ok. Got you.
Well, when we talk about the risks to the downside, um for stag, let’s talk about the risk of the upside that there’s excess capacity that leaves quicker than expected or if interest rates come down more quickly, if interest rates come down faster.
People move more or now they just have more money to buy more stuff and they need to put their old stuff somewhere.
This obviously wouldn’t work out.
Our theory is though, there’s so much excess capacity in that space today.
Other competitors they have, who have done the same thing and overbuilt that you’re going to have a lot of lag between that and the stock really taking back off.
You’d be able to pick that up in the numbers in a quarter or two and get back in.
We just don’t see that right now.
All right.
Fair enough, Alex.
Thanks a lot.
And do you have any position in, in either of these guys?
Uh So as the firm we’re buying into Stag and we’ve done so with proceeds from our cube position that we’re now exiting.
Ok. Gotcha.
Thanks so much.
Thank you.
Good to see you and thank you for watching.
Goodbye or goodbye.
We’ll be bringing you new episodes next week at 3:30 p.m. Eastern.
All right, let’s get to some calls of the day.
Now, U BS downgrading Tesla from neutral to sell the note saying it’s increasingly difficult to justify valuation for more.
We’re bringing in Yahoo Finance’s pros from Marin and Andras the here was one money line I in the note here.
While Tesla is investing heavily in A I and the tech is making progress, they say investment is costly, pace of improvement may slow and the payoff is long dated, pretty much.
Uh Yeah, that’s pretty much it.
No.
So yeah, so don ready to sell here though.
He though he did raise Jo.
Jo back at U BS did raise his price target to 197 because they were, you know, well, low where Tesla’s trading at right now.
But basically the, the, the call is here, you mentioned valuation the way that they did it kind of some of the parts evaluation here is the auto business was was worth X.
And then there are other activities like energy and robotics and, and FSD worth worth.
Why?
But in this sense, in this sense, they they in their analysis, that other activity stuff was worth was kind of overvalued by the market by a lot by over 60% or so according to their analysis.
So he thinks that there’s some possible room to come down because of the fact that these other activities have high risk long term horizons.
It’s unknown whether they’ll actually pay off.
So this is the concern for, for Joseph’s back and, and U Bs right now, I mean, the funny thing is the stock isn’t down today.
It actually, I mean, initially, I think in pre market trading, when this note came out, it took a little bit of a hit and since then it’s turned higher along with the rest of the market, right, all the ev stocks, all sentiment based sort of trading here today.
And on Friday.
Yeah.
Yeah, definitely.
Well, and speaking of EB based stocks, right, we got another call that’s related to that EB go is this one benchmark in this case is raising its price target on the company which is an electric vehicle charging network, um, from $3 to $5.
That’s where they are now.
And the firm’s reiterating a buy on the stock.
Josh always knows when you see a small company like this take a huge gain.
I also look at the short interest which is pretty high on EV go, but nonetheless, uh still a little more bullous around the network.
Yeah, I mean, these EV charging stocks are just, they’re a hard trade uh these days because of the fact that high high capital intensive business, you don’t have the sort of amount of ev charging uh users out there that you’d like to use.
This is a bet for the future.
And I think with this note benchmark saying that by 2027 they see that eb a positive sort of pay off there and you know, down the line here.
But, but they note that hey, uh one, they have, they’ve seen high utilization for the chargers for ev go ego’s footprint is in very high DC charging uh usage location.
So they’re in the right spots.
Um They have the right utilization but like I said, to make it to, to create a DC fast charge a couple $100,000 per charger.
It’s not cheap at all.
So you need a lot of users to defray that cost.
And that bet is, is, is still a long term bet.
You know, we saw this quarter in Q two, uh only 8% market share for EVs of all vehicles sold in the US.
So there’s still a long way to go.
It’s a bet for the future.
I think they like the financial, they like the sort of presence of where V goes.
And I’ve used EV go a few times and they do have a decent amount of, of fast chargers.
Yeah, the analyst does, he highlights some risk that, you know, he tells his clients to think about before piling in and adoption rates, government regulations and more specifically with this name, you know, low stock price, low flow cash needs, but that’s obviously not his base case.
He’s a fan, right?
Uh I was, I was gonna ask you also pro so somebody who’s used this stuff, um, remind me when you charge, do you, do you join it as a member?
And then you get a certain amount of charging?
Do you pay like you do for gas or you just pay for whatever charge you get?
I mean, so you, you pay as you go, you can do that and that’s what’s, what’s painful about that is you have to download the app, put your, your information inside, then you have to actually find the charger and they have different weird names and you gotta find the charger.
I’m using the Rory, the Charger.
Rory.
I love some weird name and they gotta add it, hit it, set it up, plug it in, wait for it to actually start charging and then it goes and it’s not gonna ask for each charging.
Exactly.
Right.
So you got an even go one and you got a Tesla one or whatever else.
Well, it tells you you don’t need anything.
You just plug the thing into the car because it’s, you have to find it still, I guess through the Tesla.
Yeah.
Yeah.
Yeah.
But once you go there you just take the, the NASA and stick it into your car and it’s all linked to your car.
If you have, if you have a Tesla, if you don’t have a Tesla, you still have to do all that other stuff.
Yeah.
But then with Ford, with the new Ford joining the N A CS that’s gonna, I’ll soon allow that to be like we need an updated guide on how to do all this stuff from you.
I’m your next assignment.
Maybe you should come with me.
Oh, there we go.
All right.
I’m giving myself, let’s go.
We’ve given ourselves an assignment.
I’m good.
I’m good.
You guys report back.
All right, let’s get our next mover as well.
Based on a call it’s Barclays raising its price target on Royal Caribbean from 165 to 185.
That note, citing plenty of potential upside for the cruise line and for the industry more broadly, they also raised earnings estimates for, um, Norwegian cruise lines.
But, um, I think what stood out to me was, um, the, the sort of last part of the note here on cruises or where Brandt Montour, the, uh, the analyst said how this cruise demand continue to outperform broader consumer, including restaurants and other experiences.
The simple answer is price and that’s what we’ve heard from the cruise lines themselves, right?
They’ve said we offer value to people.
That’s what we try to land based travel particularly.
They’ll, they’ll always hammer, right?
And so that, so I guess that’s what, you know, people are buying that.
Yeah, like likes this name.
Um By the way, we also told clients, he expects the company to announce a capital return program before the year out.
Potentially even earlier cliffhanger there rates them an overweight target 185 not as enthusiastic.
It doesn’t look like.
Um Julie, by the way on, on rival Norwegian, the there he’s equal weight but on RCL estimates on RCL, he li he likes the look of it.
Um Meanwhile moving on Goldman Sachs releasing a new report about its top 25 tactical trades earning season.
A note saying that 2024 is gonna be known as the year of the stock picker.
We have one of the authors behind that report joining us right now, John Marshall, head of Derivatives Research, John.
I it’s good to see you.
Um maybe just start actually big big picture question I have for you John because I know you’re tracking options, you know, options positioning as we head into the kind of the thick nap earnings season, John.
I was just curious if if you’ve noticed, have there been any kind of big big changes, new changes, John that you, you would call out in terms of just trends and themes?
Yeah, thank you very much for having me.
I’d say there’s two really big themes that are happening right now.
The first is extremely low correlation between stocks correlation.
You know, people talk about the mag seven and how much they’ve dislocated from the other 493 stocks in the S and P 500.
But when you look at all 500 you calculate the correlation, it’s been only one third, the level of normal and this is near an all time low and options markets are telling us that we’re gonna remain in this low correlation environment for the rest of the year.
What the disparity that that’s causing is we’ve got a Vix that’s at 12, which is at an extremely low level and we’ve got earnings day moves for single stocks of 4.8% which is at a 14 high.
So it’s a very uncorrelated market that we’re in and that’s why we’re so focused on picking stocks because the bottom line is, it really pays off to be right in this market when you’re surrounding earnings.
So, what you guys went and did you looked at your most out of consensus calls from your big team there of, um, sell side analysts?
And I picked some interesting ones.
Chipotle’s on your list.
Starbucks N Phase energy on the List.
Bank of New York Mellon, which reported, um today a firm.
So it’s a pretty diverse list here, Microsoft’s on the list as well.
Ho how do you go about figuring out which are the most out of consensus calls?
And then what’s the best way for people to play these guys?
Yeah, it’s a great question and it’s something that we’ve honed for years.
We’ve published this list in exactly the same format for the last 12 years each quarter.
Uh talking with our analysts analyzing their estimates relative to consensus.
And what we found with all of our studies is that analysts have a powerful amount of information in their estimates.
And when our analysts are significantly above consensus or out of consensus, the stocks tend to rise on average and when they’re below consensus, they tend to fall.
And so we’re very focused on that sort of trend as we are uh doing this analysis, we start out with 1000 stocks under coverage.
We whittle it down with quantitative methods to get it down to about 500 then even further to get to this list of 25 by speaking with our analysts and understanding the drivers behind their views, you know, as, as we were just shown there, John, I mean that’s a lot of different names, sectors, industries, any any kind of um broader underlining threads that are connecting these.
It’s a great question.
Our approach is very idiosyncratic.
We’re looking for where analysts identify things that are special about the stock that are going to drive an unexpected move in earnings.
However, I would say underlying many of the calls is this tug of war between prices and inflation.
Inflation has driven up expenses for many companies and prices are just now starting to come up.
Allstate is a great example.
The cost of repairing a vehicle or replacing property that uh people have insured has been rising and they’re just now able to catch up on the rates that they’re able to charge uh their, their customers for auto and home throughout the country.
And that is what our analyst is picking up as an idiosyncratic opportunity.
We’re seeing similar things for uh Chipotle and for Starbucks where we think that the growth can return.
John.
There’s also another um measure that you guys have been watching that I wanna dig into a little bit.
This one’s a little wonky.
So I’m gonna ask our viewers patients for a moment.
You guys are looking at single stock options as a measure of positioning that is here.
Um I believe in the purple line.
The blue line um as well is a high retail sentiment basket.
Where are retail traders excited about right now?
That’s what that line shows.
Uh And basically what we’re seeing now is that the retail sentiment has diverged, it’s higher than those single stock activity.
So what, what is this telling us looking at this chart and, and how can people use it going into this earnings season?
It’s a great question and this is the number one chart that we focus on.
Uh as we approach earning season, single stock options have become a very valuable indicator because they tell you about the enthusiasm level of retail and hedge funds.
So most single stocks are when, when people trade single stock options, they are buying 1 to 2 week call options.
And so the volume in single stock options is really telling you about this enthusiasm level.
And when that enthusiasm level wanes, the stocks don’t drop immediately.
But the stocks see pressure.
After that, we saw this heading into last earning season from March 8th to uh early in, in April, we saw a decline these option volumes.
And then sure enough in the first week of earnings, we saw a pullback of about 4% in the S and P. Now it’s not our call that the S and P is necessarily going to decline here.
But weak stocks, stocks with weak fundamental stocks that have high leverage.
We think hedge funds are gonna be more emboldened to short those stocks as we’re entering earnings season because there’s less of that threat of a short squeeze from retail and the options market.
And John, you know, you mentioned you, you all published your support for for a long time years now, John, so I’m just curious um what’s the its track record in terms of just performance?
Yeah, so we we tend to look at this just, just as a gut check relative to the S and P and a couple percent above the S and P annualized is what we’ve been running at.
Um That’s just how the the math works based on our published uh ideas.
All right, thanks so much John Marshall.
Good to see you really interesting stuff for people to chew on going into earnings.
Appreciate it.
The health care sector could be headed for a turnaround.
The ETF that tracks the S and P 500 health care sector today touching an intraday record.
That’s its first since February.
I guess the turnaround is already in place after several consecutive quarters of earnings declines.
Our next guest expects a return to growth this quarter.
We’re looking at how to navigate the big picture with the Yahoo Finance playbook and joining us now is Dan I Fort Pitt Capital Group, Chief Investment Officer.
Indeed, it looks like these stocks are anticipating some return to growth here, Dan.
So what’s driving that.
Yeah.
Well, I think, um, I think we are really in an, in an inflection point, you know, it hasn’t just been a, a few quarters, we’ve had actually six consecutive quarters of, of earnings declines from the healthcare sector really is as these companies normalize after the dramatic pull forward from uh from COVID.
So we, we think we’re at an inflection point.
Uh, analysts are expecting very strong earnings growth for this quarter and the picture should even improve in the in the coming quarters and into 2025.
And the the sector trades at a very reasonable valuation, a pretty significant discount to the overall uh S and P 500 is as well.
Uh You know, another big theme here, Dan in this sector, of course, has been M and M and A. I’m just curious if you expect that that trend to continue.
And if so, Dan, you know, would there be any acquisition targets, possible ones on your radar?
I do expect it to continue, especially in the, in the Pharma space where we have these, these companies that generate a tremendous amount of, of free cash flow.
And uh you know, most of those are looking to bolster their, their pipeline through both both organic R and D and also through uh inorganic um acquisitions as as well.
But we tend to focus on, you know, some of the cleaner stories in the, in the space and some of the companies that really have the uh the cash position to actually do the acquisitions.
Um There’s also, of course, the demographic trends that are maybe supportive of health care broadly here.
Um So when you try to pick stocks within health care, do you try and look at those that are trying to benefit from those demographic trends specifically?
We do and I think those, those demographics are extremely favorable for the healthcare sector.
Um You know, if we look back about about 10 years ago, you know, we had about 14% of the, of the population above age 65 today.
That’s, that’s above 21%.
If we look at health care spending, um you know, 50 years ago, that was 5% of, of GDP today.
It’s, it’s closer to uh to 17% and, and rising.
So we think that just creates a very strong fundamental backdrop for a lot of pharmaceutical companies as well as health care insurance and Dan I, I let’s get some, some names as well.
Merck, for example, I think you noted is you actually your top pick in the pharmaceutical space.
How come?
Well, Merck just has a very solid top line revenue growth profile.
They’ve grown revenue at about 7% a year over the last five years, looks really attractive compared to their peers.
And we think that they can do it going forward.
A lot of that growth has really come from their Blockbuster Cancer drug, Kat RDA.
And they’re currently working on an injectable version of that drug which could extend patent protection well into the 2000 and uh and thirties, the company also has a really strong pipeline of drugs that they’ll be bring into the market over the next 3 to 55 years.
And a lot of players in the farmer space just can’t say that company that generates a lot of, of free cash flow, which gives them a lot of flexibility and optionality to do some of the things like I talked about, look at M and a opportunities raise the dividend and uh increase their buybacks.
One of the things that Merck isn’t necessarily um exposed as to is, is the G LP one trend right now.
Um or at least they don’t have anything out at the moment.
And, and I’m wondering why, you know, if that was sort of a conscious move on your part not to pick one that, that uh is, is leveraged to that or what you’re thinking around.
That whole theme is, well, I would say it’s, it’s certainly something that, that Merck is, is looking at.
And um you know, I think if, if we were to see uh an acquisition, maybe that’s one of their, their targets.
But I think when you look at at valuation, uh much different picture with, with Merck that only trades about 13 times next year’s earnings estimate.
So there’s not the, the amount of, of froth or over optimism, I would say with, with some of the, the ones that are more exposed to the gl one space which is, is certainly becoming more competitive.
And Dan, another thing I, I wanna get your take on United Health.
Um, stock has not done much this year.
It’s actually down about 3% but earnings on deck they report next week.
What, what do you expect to hear, Dan?
Yeah, I think the real focus for UN H this quarter is gonna be on the medical loss ratio.
That’s really what’s put a, put a hamper on the, on the stock.
They’re having to pay out a higher percentage of their insurance premiums in medical costs.
We think that that’s really a, a hangover from, you know, the COVID environment where everybody delayed um medical visits and, and procedures.
But over the over the long term, this is a company that’s grown their earnings per share and bid to high teens.
That’s right in line with their medium term guidance going forward.
We think that’s very doable and uh we’re really looking at the name as a, as a growth company that’s trading at a, a value, multiple stock only trades at about 16 times.
And if they are growing earnings, you know, in the mid teens, that’s a very attractive set up in our view.
Uh I’m wondering, um, you know, there were recently reports that the FTC was looking into suing the uh pharmacy benefit managers, is that a risk that you’re looking at in, in uh this sector at this point?
Are you trying to avoid some exposure to that?
Well, I think we just realize in, in general that um you know, health care stocks tend to be the, the punching bag sometimes in uh in the political season.
And um it’s just, you know, it seems like it’s very popular for, for the politicians to uh to point the finger at, at uh PB MS.
But when you dig into the business, I mean, these are extremely low margin businesses.
It’s all driven by, by volume.
So I think the more that, you know, you really, you really dig in II, I don’t think it’s, it’s very easy to, to say that they’re out there gouging the, the consumers.
Dan, great to have you on the show today.
Thanks so much for joining us.
Thank you.
And while wrapping up today’s market domination, don’t go anywhere.
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Closing Bell.
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