Closing Bell - Closing Bell: Overtime: Cowboy Ventures Founder Aileen On Finding The Next Wave Of Unicorns; Nuveen CIO Gives Her 2024 Playbook 01/18/24

Episode Date: January 18, 2024

Stocks closed near session highs and powered higher throughout the final hours of trading; RBC Head of US Equity Strategy Lori Calvasina on if the early-year mini-swoon is over. Humana’s worst day since June 2023 after warning its costs would be higher-than-expected; Mizuho’s Jared Holz on what it means and how to play the sector. Nuveen CIO Saira Malik, who oversees $100B+ in AUM, talks her 2024 playbook. Cowboy Ventures’ Aileen Lee coined the term “unicorn” for private companies in 2013; now she’s back on what the next decade will look like. Plus, former Fed Vice Chair Alan Blinder on the Fed’s next moves and Citi’s Drew Pettit on playing fintech names. 

Well, green across the board for the major averages, particularly strong day for the Nasdaq. That's a scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort. Morgan Brennan is off today. Stocks staging a late session turnaround led by the tech sector, which continues to outperform the broader market. Coming up, Nuveen Chief Investment Officer Sarah Malik reveals her 2024 playbook and the opportunities she sees in this choppy market. Coming up, Nuveen Chief Investment Officer Sarah Malik reveals her 2024 playbook and the opportunities she sees in this choppy market. Later on, a rare interview with the venture capitalist who coined the term unicorns to describe the startups valued over a billion

dollars. Cowboy Ventures founder Aileen Lee discusses rising valuations and why companies are staying private now longer. But let's dive into today's action with our first guest. Joining us now is Lori Kavasina from RBC Capital Markets. Lori, NASDAQ having a strong day here. Jobless claims down. Is good news good news? Well, I think at least for today it is. I do think it depends on what lens you're looking through. If you're a proponent of the mega cap growth stocks, if you're a proponent of the broadening out thesis. I think what we've really seen is there's been an ongoing debate about what do you do with these big cap tech stocks? The MAG7 comes up in just about every meeting I would say that we have and continues to be a source of our incoming call volume. And what we've really noticed is that the broadening out in the U.S. equity market that we saw at the end of last year really happened as people got more optimistic about the Fed. As 10-year Treasury yields peaked

and moved lower, that really seemed to breathe some life into the idea that this market could see a transition in leadership. And of course, we've seen yields headed back in the other direction. There's been a lot of talk about how Fed expectations for a March cut are too aggressive. We've been seeing a lot of pushback. Fed expectations for a March cut are too aggressive. We've been seeing a lot of pushback. So it makes sense to me that this broadening out of the market that we saw is taking a bit of a breather here to start the year. Yeah, to your point, the S&P shot above 4,700 in early December has been bumping around there since. And meanwhile, the Russell 2000 is right about where it was a year ago and two years ago and three years ago. So if things aren't continuing to broaden out, what do you do with small and mid caps here? So I think the broadening out trade,

even if it does take a bit of a pause, I do still think that's an interesting theme on the year. And I do think small caps are actually a really interesting place to be this year. So we actually give them an edge over large cap, even though, you know, frankly, it felt, John, like everybody I talked to in my December meetings was bullish on small cap. And so we looked at all our data and we said, you know, there's still room for the small cap trade to run. But just the level of conversation, it may actually need this pause to digest just because it had become so overly consensus at the end of the year. We'll see if it's the pause that refreshes. Meanwhile, you guys at RBC like utilities here. Sounds like while somewhat optimistic for 2024, a bit defensive. Why utilities? So it's interesting. You know, we made a number of changes.

This was really the only thing that we took up to a new overweight. We've been neutral utilities for quite some time. When we got to the end of the year, we found that valuations had improved on our work for the sector. We also found that there are not a lot of sectors seeing upward earnings revisions in the market right now, at least in the S&P 500. But utilities is one that has returned to slightly positive revision territory. So we liked those two dynamics. The other thing, frankly, John, is that when I look at my sentiment work, whether it's the CFTC data on institutional positioning and U.S. equity futures, or the AAII net bull bear data point that comes out every week, a survey, we're basically seeing indications that this market should have a bit of a pullback. And so we liked the idea of having a bit of defensiveness to start the year, really just

to get a little bit of insurance in the portfolio. And we also just thought even on its own, utilities was making a stronger case for itself than it had, say, six, nine months ago. It maybe speaks to this kind of in-between sense. Things are pretty good, but how long can they stay that way? I think you say that utilities as a sector tend to outperform when 10-year yields are falling. We do see that. I mean, there are actually other sectors that show a greater tendency to do that. So things like communication services, consumer discretionary communication services, of course, has a lot of tech in it, but also has a lot of consumer oriented names in it as well. And so we actually upgraded the consumer discretionary sector, which we'd been underweight last year. We actually pulled that up to a market weight. And again, the valuations are sort of reasonable here. It's not a super cheap sector, but we do like the idea that if interest rates come down a little bit, and I don't think that's what we're seeing in the market right now, but that is in the forecast for later this year, that is a sector that traditionally should benefit a bit. So with both the utilities upgrade and the discretionary upgrade, we really gave ourselves a little bit more exposure to the idea that if we

get a little bit more moderation in interest rates later on in the year, we'll be able to capture that with some of these sector moves. All right. That's a good look at today and the broader strategy. Lori Calvisina, thank you. Now, let's zero in on Humana. That stock had its worst day since June 2023 after saying its fourth quarter numbers might come in lighter than expected in a filing today. The company is citing an unexpected increase in inpatient medical care demand among older adults. Damage there spreading to other managed care names, including UnitedHealth and CVS. Joining us now on the news line is Jared Holtz, health care strategist at Mizuho. Jared, first to understand the issue for Humana. We heard something similar from UnitedHealth a few days ago. What was so unexpected about the amount of inpatient care needed and the costs associated? Hey, John, thanks for having me. Yeah, so this was largely expected in terms of

the direction. I think the magnitude of the miss is what caught investors off guard this morning. The stock has come back a little bit throughout the day, but it's still, as you alluded to, one of the worst days in a year at least. I think what it comes down to is the amount of utilization that is being seen across the healthcare spectrum broadly could not be accounted for or dealt with by Humana, by United quickly enough where they could set increased expenses on the healthcare benefit line with decreased costs across the rest of their segments across the business. So not enough near-term leverage in the model. That's why you're seeing the EPS numbers coming well below, and that's kind of where the risk is now for 2024. So my first thought when I saw this headline was,

oh, reminds me of UnitedHealth last week. My second thought was, if patients are unexpectedly inpatient getting stuff done, somebody's got to be benefiting here. Intuitive Surgical, Zimmer, Boston Scientific, Medtronicronic what do you think yeah totally agree um it reminded me a lot of united um the magnitude a little bit worse i think the the utilization we're seeing is really across the board it's inpatient it's outpatient but on the inpatient side yes there's a clear beneficiary i think that's why you're seeing a lot of the medical device stocks trade so well intuitive Intuitive Surgical had a very, very good quarter. They had pre-announced that last week. Stryker, Zimmer, Medtronic, Boston Scientific, these are the larger device manufacturers. And if other insurance companies kind of echo what we've seen out of United and now Humana today, I would venture to guess that we're going to see a pretty

strong earning cycle out of, you know, most of the medical device companies, some of which have already given us numbers last week and into the year. Which leads to my final question, is that already priced into those stocks now, especially given that some of them were beaten down from the GLP-1 stuff in the summer and have bounced back quite a bit, like Intuitive Surgical? Yeah, the valuation aspect of this trade is probably the most confounding, given how well the stocks have recovered. They performed kind of well in absolute terms anyway. I mean, Boston Scientific, Intuitive, Striker are all trading very close, if not at all-time highs. I think a lot of this is priced in.

We really need to see companies beat numbers and then put out guidance ahead of the street in order for near-term numbers across, you know, most of the analyst community to go higher and therefore lift stocks. So I think a lot is priced in, but if you do get beaten race cycles coming up in the, you know, in the earning season over the next couple of weeks, they can probably go a little bit higher from here. Well, if you bought the device stock sales in the summer, you're sitting pretty now. Jared, thank you. the device stock sales in the summer, you're sitting pretty now. Jared, thank you. Anytime. Thank you. Now, we've got a news alert on Amazon.

Kate Rooney has it. Kate. Hey, John. Yeah, so some leadership changes at Amazon, AWS specifically, and then in operations. John Felton will be taking on a new role as AWS chief financial officer and SVP. He's reporting to Amazon CFO Brian Olsavsky. John has been with Amazon for about 19 years, it says, including the last 12 years with operations. With that transition, they're also announcing that Udit Madan will take over leading worldwide operations as well. So two key leadership changes there, John, for Amazon.

Back over to you. All right. At a time when a lot of tech companies are looking very closely at operations, trying to keep a lid on costs. Kate, thanks. Now it's time to bring back senior markets commentator Mike Santoli from the 3 o'clock hour. He's got a look at commodities. Mike. Yeah, John.

Commodities, I mean, not so much in focus, but they're actually making as a group about a two-year low. If you take a look here, the DBC is basically a broad commodity index exchange-traded product. And you see that huge spike. That obviously was associated with the invasion of Ukraine, what happened with oil and other agricultural commodities. And you've done a full round trip. So at a time when people are getting a little bit concerned about shipping rates going higher, maybe causing some stickiness and broad inflation gauges, commodities at least are disinflationary at this point. At some point, I guess you can look at this and say, does it say something a little bit scary about the industrial cycle globally or something else? Unclear. Obviously, we don't know

what that threshold is. Agricultural commodities, though, are a big part of this downside. That usually is net good news for consumers. Now, take a look here at Taiwan Semi. It's kind of another bellwether of global economic activity of a different sort. A huge jump today. And this is compared to the XSD, which is a more equal weighted semiconductor ETF. And you've seen a couple of these jumps, these sprints higher in Taiwan Semi. And it seems to usher in a period of strength for broader semis. So it's maybe a slight leading and coincident indicator of perhaps the semiconductor cycle starting to firm up here a little bit. And you see, of course, over the course of this four-year span, essentially at the same spot, point to point. But they have kind of gone in these kind of trading-off leadership positions.

So maybe a decent sign tactically for the group. Mike, let me ask you to zoom out in a way on that first chart. Maybe not literally, because I know you got two years in there. But you show those two years, people might be tempted to think, oh, well, that's at a two-year low. Maybe that's great. If you zoom out to maybe five years, it looks like the DBC is still quite high compared to where it's been since 2014. So what has sort of happened there to bring overall those commodity prices so much higher to the point where even though they're down on a two year basis, they're still a lot higher than they used to be. I mean, oil is clearly the single largest factor here, not the only one.

Now, I mean, some metals as well have been higher in price over that period of time. It's not necessarily if you're talking about annualizing this five year move, it's not that significant. But it does show you there was a step function higher in terms of absolute price level. It's happened across the economy. And I would argue that basically we haven't really worked that off. But time helps you kind of lap those numbers. And I say over long periods of time, things like agricultural commodities, really no net upside. I mean, they just don't trend. It tends to be more productivity helps us out and keeps prices in check. Great to know. Mike Santoli, thank you.

See you in a bit. Meanwhile, J.B. Hunt earnings are out. Kate Rooney back with those. Kate? Hey, John. So it's a mixed quarter here for J.B. Hunt. Let's start with earnings. This is $1.47 for the quarter.

That's looking like an 8 cent miss, rather. Street was looking for $1.75 there. Revenue pretty much in line, $3.3 billion. Street was looking for $3.28 billion. We've also got intermodal revenue down 7%. That's a key segment. And operating income there for that segment down 28%. You also got volumes here.

Intermodal volumes were up 6%. I was helped by easier comparisons and then better seasonal activity as well. But they are seeing some pricing pressure. Prices were down 13% for the quarter. At the last hour, J.B. Hunt also announced a $0.01 quarterly dividend increase from $0.42 to $0.43. John, back with you. All right. Interesting. Rare to see pretty much a revenue meet and then an EPS miss in the stock going up. We'll see if it stays there and what the commentary is. K. Rooney, thank you. Up next, Nuveen Chief Investment Officer Sarah Malik on how to protect your portfolio with uncertainty about the economy and interest rates. Plus, Reddit is reportedly planning to launch its highly anticipated IPO not long from now in March.

Coming up, venture capitalist Aileen Lee, who coined the term unicorn, on whether more tech startups could be ready to go public after sitting on the sidelines for a while. Overtime's back in two. Welcome back to Overtime. We've got breaking news on Macy's. Kate Rooney has details. Kate? Hey, John. So Macy's plans to cut about 2,300 jobs, 2,350 jobs specifically.

Spokesperson confirming this, that's about 3.5% of Macy's workforce. The Wall Street Journal first reported this news. Journal also reporting that Macy's plans to cut five stores. That is according to Wall Street Journal on those store closures, but they are officially cutting about 3.5% of their workforce. John, back to you. All right. Kate, thanks. You are doing everything in this show. I don't even remember the first, J.B. Hunt, Macy's. You'll be back for PayPal in a moment. I'll be back. Yes. Meanwhile, on the flip side, some good news. This is not retail. It's

super micro. You might remember that's a company that is a big customer of NVIDIA building high performance computing systems. You've heard from the CEO here on Overtime, that company giving an interquarter update, taking up the expectations for revenue and EPS, now saying that for this current quarter, the net sales expectation is $3.6 billion to $3.65. Prior guidance was $2.7 to $2.9. Non-GAAP diluted net income per common share is going to be $5.40 to $5.55. The prior guidance was $4.40 to $4.88. And you can see that stock higher by about 6% right now in overtime. Well, the market's finishing the day in the green. The Nasdaq's seen the biggest gain, up more than a percent in the session. But the S&P struggling to break through to the $4,800 level. Joining us now with her investor playbook for 2024, Sarah Malik, Nuveen's chief investment

officer. Sarah, welcome. So the consumer keeps spending, maybe not at Macy's, based on what they're doing over there. But what does that signal about how the market is positioned and expectations for rate cuts? Well, hey, John, good to see you. You know, I'd say don't bet against the U.S. consumer. We saw that with retail sales yesterday, very strong holiday season. Consumers keep spending, and that's what is keeping this economy chugging along. But there are three issues that cause the markets to stumble out of the gates as we entered this year. That's geopolitics, Fed commentary, and inflationary data. Geopolitics are causing uncertainty for the markets. Fed commentary, the Fed speakers are walking a fine line to push back on some of the six rate cuts that are priced

into the markets. We don't think we will see six rate cuts this year. And then, of course, inflationary data. Because of all that consumer spending, we saw CPI come in hotter than expected. We entered this year with S&P valuations about 20 percent higher than where they've been on average since 2010. And that's a tough place for the markets to start, given all this uncertainty. And given that, it sounds like you're saying you expect rates to stay relatively higher for a relatively longer period of time. And that's going to slow down economic activity. And so investors should tweak their portfolios. How?

Well, first of all, exactly on economic activity, you're seeing that with the Empire State manufacturing data and ISM, which has been weaker. So we're moving to more of a defensive positioning. You even saw that today with tech stocks that tend to be a little bit more defensive. We think they'll be the key driver to earnings growth year over year. But other areas such as infrastructure, this is a very resilient sector during economic slowdowns because its components are waste management and utilities, which tend to be acyclical. Also, dividend growers, companies that focus on growing their dividend over time, give investors income. And these companies have strong balance sheets and free cash flow, which also make them more stable during an economic slowdown.

In a way, though, flying in the face of this, I know it's not a blanket statement that applies to everything. We're just talking about Supermicro taking up its guidance in a way that the stock is up six plus percent after hours. And this is one of those high flyers trading, you know, above 300 bucks a share. It's, you know, a year ago, it was down in the hundred level because of this AI stuff. So how should investors position themselves to either take advantage or continue to take advantage of that important trend? Well, technology sucks. I think you need to be selective. Make sure that you differentiate between the ones that are cyclical with, for example,

heavy advertising exposure and the ones that have real tailwinds, which artificial intelligence is one of those. We think that will continue. It's not just hype. These tech companies, if you look at the earnings leaderboard, I think they will be the leaders with earnings growth year over year and eventually take fourth quarter earnings to year over year growth. We like software companies, which are more resilient during an economic slowdown. Companies like Microsoft and NVIDIA with their head start in the artificial intelligence segment. I think they'll continue to win because they're so far ahead as it is. What about consumer staples? They haven't been doing great.

Yeah, they struggled last year because of the diet drugs. You know, if we go into a very deep recession and people become very defensive, I think that's when consumer staples tend to work. They have been underperformers, but I think that they're still in a challenge position right now. They're not our top pick of a sector. We like areas that either can continue to grow during a recession or even REITs, which tend to do well not only during periods of rate cuts, but during periods of rate pauses. They'd underperformed for the last couple of years because of the commercial real estate issues. But if you look at a REIT benchmark, commercial real estate is less than 5% of that benchmark. Ah, yeah. Important to keep in mind. Finally, what about travel-related

stocks? And I would put transports in with those. We've seen what's happened with Boeing, but people were very excited about travel for quite a while. Yeah, and everyone's been expecting the consumer to roll over, and that would be negative for travel stocks. But we just haven't seen that yet. The consumer has continued to spend during this higher interest rate and inflationary period. I think much of that is due to the stimulus that was given to the consumer during the pandemic and the era of very low rates that we just had, you know, in the decade before, which of course seems like such a long time ago at this point. So if the consumer keeps spending, I think that's good for travel stocks. But we are becoming increasingly cautious on the consumer.

Over 20 percent interest rates on credit cards. We're seeing higher delinquencies in consumer credit card and auto debt. And so I am becoming concerned that eventually the consumer will run out of steam. Yeah, that's been eventually we've been looking for for a while now for the consumer's sake. Individuals, we hope that doesn't happen. Sarah Malik, giving us a lot to think about. Thank you. Thanks for having me.

Up next, a rare interview with venture capitalist Aileen Lee, who came up with the term unicorns about a decade ago. She gives us her outlook for tech startups over the next 10 years and the growth of super unicorns in an interview you don't want to miss. Over time, we will be right back. Welcome back to Overtime. The term unicorn, you know it. It refers to startups worth at least a billion dollars. Aileen Lee, the founder of Cowboy Ventures, came up with it 10 years ago.

Back then, it was pretty rare. Only 39 companies on the original list. Now, there have been 532. That's according to Lee's new report on the biggest startups and where venture capital is going from here. Aileen joins us now. Aileen, welcome. Thank you. I got to start by asking, the unicorn concept arguably went too far. Not your fault. Became a marketing thing. Startups schemed to get unicorn valuations. So what's the new bar for prestige if it's not a billion dollars?

Well, I mean, given that multiples have shrunk so much from 2021, I think a billion dollars is pretty great to achieve in 10 years. So I think maybe a couple years ago, people thought it was too easy and it was common. But the reality is it's hard to build a billion dollar company. And in today's environment, you probably need to get to at least $100 million in revenue for that. So I'm getting there in less than 10 years. I think it's pretty special. So is it more about the revenue now? Is it some version of sustainability within the business model as well? I mean, I think for building long term success, it always has been multiple measures. Right.

And so, you know, valuation is a convenient way to take a snapshot of where companies are. And yes, I think in a period of lots of interest rates were low. Right. Venture returns historically had been amazing. And so lots of capital poured into the private markets, especially when interest rates were low and tech companies were trading at all time highs. And so I think the venture industry and founders and companies raised a lot of money and broke records in terms of how much they raised in valuations. And we're getting, you know, so I think we were working through a bit of a hangover right now in the tech industry, but we're working through it. And, you know, for people who are kind of sick of these fast growing tech companies that

build so much value, like I think we're just getting started. So, and that's part of what's in our report is that they grew 14X in the past 10 years, which I don't think we could have imagined. And it's about a 30% year-over-year growth rate, which is, I think, pretty amazing. And so maybe it'll be a little bit slower with rates higher. But we anticipate over 1,000, maybe 1,400 in the next 10 years. Something else in your report is the geographic shift in some of these unicorns. 10 years ago, it used to be it was rare to see a significantly sized tech company in L.A. or even in New York. How has that changed? Yeah. So I think COVID effects in particular and distributed work really changed the nature of

who can start a company, where they start a company. So, again, in the original set, we had 39 companies and San Francisco really was unicorn headquarters. The next largest hub was New York, and they only had three companies. First of all, kudos to New York. They have grown pretty significant in terms of being a tech hub. Now, unicorns are based in New York. But there are an increasing number in Denver and Boston and Austin and Chicago and San Diego. At Cowboy Ventures, we're investors in a number of companies that are actually not based in either California or New York. Some of our healthiest, fastest growing companies, one called Drada and Security is based in San Diego.

Guild, which is an upskilling company for hourly workers of enterprise companies, is based in Denver. And they're finding great talent. It's a great quality of life. So I think that's one of the positive things among, like, kind of while we're getting over this hangover, I think tech is becoming a little bit democratized in terms of who co-founds a company and where the company is. Or at least it was. And I say that because now with AI, it seems like more of the center of gravity is moving back west towards Silicon Valley, San Francisco, and also towards Seattle. And tell me if I'm right in that. It also seems like fintech is part of what pulled up New York and sort of the presence

of this core big company that's investing in R&D. Yeah, I mean, so 40% of the companies in New York on our unicorn set, and again, our unicorn set is U.S.-based only. So usually the whole set is about 50% U.S. and 50% international. So we're just looking is U.S.-based only. So usually the whole set is about 50% U.S. and 50% international. So we're just looking at U.S.-based companies. We also just look at companies that are 10 years old or less. So these are the companies that were started and funded for the first time starting in 2013 through 2023. And yes, about 40% of the ones in New York are fintech companies. And I think San Francisco, there's a lot of people, especially in tech,

have been pretty vocal about how quality of life, cost of living has changed in San Francisco. And a lot of companies became distributed. So I think it's going to be a combination of the weather, four of the most valuable unicorns in our data set. And also a lot of the AI headquartering in the Bay Area, I think that the Bay Area has a shot at maintaining its unicorn headquarter status. Now, let me ask you about a factor that's not on your list because it is about U.S. companies. But I think it's important for the ecosystem overall, and that is China. Part of what's happened over the past 10 years is the rise of TikTok and the rise of concern about China as a threat, both from a cybersecurity point of view and from an AI point of view. To what degree is that driving the types of innovation that investors are funding here? Maybe the types of companies that public market investors should expect to see come public in the next decade? Well, I think, look, we're so fortunate to have such incredible educational institutions here,

which basically were kind of the font of where a lot of founders went, especially in our first set in 2013. You know, the elite institutions that were U.S. institutions were basically where a lot of the founders got educated. And that's still the case, but less so. Also, a democratization of the backgrounds of the founders in terms of where they went to school, what their jobs were. And immigrants have always played a really big part in who the co-founders of these companies are. So I certainly think that's really important for us to actually be able to attract smart people from other countries and allow them to be able to stay here so they can continue to build great companies in the U.S. But, I mean, when you just look at 14x growth from 39 to 532, I don't think we have to be worried about whether we've got enough innovative minds here in the U.S. starting companies.

And, I mean, I think one thing that is growing is enterprise security. So that's a big category that was basically barely on our list in 2013, and now there's a lot of security unicorns because it's become an increasingly insecure world in many cases because of globalization. All right. Aileen Lee from Cowboy Ventures, mother of unicorns. Thank you for having me. Time for a CNBC News update with Kate Rogers. Kate. Hey there, John. The judge overseeing the racketeering and election interference case against Donald Trump in Georgia has set a date to hear allegations of misconduct against the district attorney in charge. In court filings, a co-defendant in the Trump case alleged that Fulton County District Attorney Fannie Willis and the special prosecutor were in a romantic relationship and that should be removed from the case.

The hearing is set for February 15th, and the judge has directed the DA's office to respond by the 2nd. As the Olympics draw closer, French police protested on the streets of Paris today demanding additional bonuses for working during the summer games. Police have threatened to disrupt airports during the Paris games if their demands are not met. And in a few moments, the SpaceX Falcon 9 rocket will launch from Kennedy Space Center. The launch was already delayed once, but once they get into orbit, the crew will conduct a two-week research mission at the International Space Station. John, back over to you. All right. Sad Morgan's not here for that one.

Also, the police protesting in France. We don't see that in the U.S. too often. We don't. Kate, thanks. PayPal, meanwhile, no longer a darling on Wall Street, the stock falling more than 20 percent over the last year. Up next, Citi's director of U.S. equity strategy tells us why PayPal is one of his top picks for 2024 when Overtime returns. PayPal is a top performer in the S&P today, but the stock's gotten pummeled over the last year as online shoppers turn to Apple Pay and Zelle. Kate Rooney, yes, that Kate Rooney, is back.

PayPal used to be a jewel in eBay's crown, Kate. Yeah, it's really interesting, John. PayPal once dominated online checkout really since the early internet days. You're absolutely right there. But they're not as dominant with people shopping on their phones. Now, users say the experience with PayPal is a little bit clunkier. That may be eroding market share. Mizuho cites Apple Pay as the main culprit in PayPal's declining market share of checkout. It also cites things like autofill and that feature where your card information gets saved on websites. Also, buy now, pay later. And then demographics are a factor.

Mizzouho surveys show younger shoppers just prefer Apple. Data from Caden also backs that up and shows Square's Cash App is actually by far most popular with Gen Z or those under 26. PayPal's Venmo, which has really been seen as the company's crown jewel, is now lagging behind the bank-owned competitor, Zelle, where volumes are compounding at an annual rate of about 40%, at least over the last three years, gaining momentum in things like rent payments and merchant acceptance. Finally, there's Amazon. That pay-with-Venmo option was recently removed from Amazon's checkout

since the tech giant also has its own one-click checkout options. Buys no longer make up the majority of ratings on this stock. Drastic shift, John, from 2020 when nearly 90% of analysts were bullish on PayPal. Back over to you. All right, Kate. Thanks for that perspective. So with that, PayPal is one of Citi's 30 recommended stocks to buy in 2024 and here to break down the rest of those picks and the six themes guiding the strategy is Drew Pettit, Citi's director of U.S. equity strategy. Drew, let's start with fintech there. Not Square or Bill or Intuit, but PayPal.

Why? So it's all about operating leverage. And admittedly, if we were to do this report and think about these themes two, three years ago, we're probably thinking about top line growth. We're probably thinking about share, but we're not in a zero interest rate world anymore. So with that, companies have to think about how they convert sales into actual cash flows for investors. And with that, a name like PayPal starts looking a little bit more attractive. Okay. I'm looking at Applovin, which is also one of your picks here in the same category as Unity and Roblox. And what's funny to me about that is Applovin was looking to be taken out by Unity about, what, a year plus-ish ago, but now its valuation is higher than Unity. So why do you like both of them? So look, digital leisure has been very interesting. So there's some obvious names in the streaming world that people might go to. But when you start thinking about where there's more leverage, again,

back to operating leverage, where can I turn sales, top line growth into EBITDA and earnings growth, we're actually starting to see this in different places in the value chain. So a lot of these types of stocks that are helping to create content, get it onto mobile phones, get it onto different platforms and so on, are actually hitting these kind of meta moments where it's not just about top line growth, where they're able to actually translate this into other cash flows. And interestingly, when you're looking for that at a reasonable price, you might have to step away from the MAG-7. You might have to step away from mega cap. And we're starting to find a lot more of that in mid cap and mid cap

growth. Absolutely. I get that. To what degree does execution fit in? Because Unity's been having trouble with it. Some executives shake up lately. Yeah, it's admittedly not all of these stocks are going to do this in a straight line. So look, that's of course execution matters. It always matters. Fundamentals matter. It's just when. But honestly, when we're looking at the transition and where this company is in its growth phase, they're actually going to take top line growth in the mid-teens and finally flip to seeing positive EBITDA growth, positive earnings growth. And honestly, even with, you know, maybe not perfect execution, you can see EBITDA growth more than double that. I mean, I know I have in my personal finances. No. Finally, infrastructure and fossil

fuels. How are you framing that? So this is interesting because a lot of people want to look at just the energy sector, the big names. A lot of them are consolidating. But energy infrastructure build out is really important here. So there's a lot of services names out there that can actually get a lot more productivity out of their assets. And we start to see that in a name like Nove versus some of the bigger competitors. And also GTLS, like we're looking at a company that's manufacturing pieces to go into the energy sector to help these companies drill more, produce more, transfer more, store more energy. So it plays more to just how much oil do I pull out of the ground and how much can I sell it for?

We have to build infrastructure in this country. So it's more about just thinking about the end producers, the miners, something that's more upstream, but actually looking backwards in the value chain right now. So that's where we find, like in the infrastructure space especially, moving backward. Let's build that infrastructure first, and then we'll kind of move ourselves further up the value chain. Okay. Thank you. Drew Pettit, Cities Director of U.S. Equity Strategy. Now we've got a news alert on Square Burgers. Wendy's, Kate Rogers has details. Kate? Hey there, John. Yes, we do have an executive

change over at Wendy's. It will be getting a new CEO as of February. Kirk Tanner is going to be taking over for current CEO Todd Penninger, who's going to be departing in February after being in leadership positions at Wendy's for more than a decade. He took over the CEO role there in 2016. Kirk Tanner is coming from PepsiCo. He was most recently the CEO of North American Beverages, so he's not coming directly from one restaurant chain to another. The company also reaffirming its full year 2023 outlook, said there will be more to come when it reports earnings. On February 15th, Nelson Peltz, who, remember, is chairman of the Wendy's board, saying in a statement, quote, Kirk is a proven operational leader whose customer-centric mindset and broad experience positioning and growing some of the most well-known global brands make him the

ideal candidate to lead Wendy's into its next phase of growth and expansion. You can see the stock is just slightly higher in the after hours here. And Peltz had been pushing for some changes at Wendy's about a year ago, back in March of 2023, including pushing more into digital, streamlining operations, playing a bit of catch up there to some of the bigger competitors in this space, being McDonald's, Yum! Brands and more. John, back over to you. I did not remember that Nelson Peltz was a chairman. And now that he's done pushing at Wendy's, at least on that, I guess he can continue pushing at Disney. Kate, thanks. There you go. Thank you. As we mentioned earlier, consumer staples keep underperforming the broader market. And up next, Mike Santoli is going to look

at whether the sector might be starting to look cheap. Overtime, we'll be right back. consumer staples have been one of the worst sectors today and continues to be least loved but are those stocks in that sector starting to look cheap mike santoli's back with some answers mike yeah john at least based on eight years of history and maybe more than that, they are starting to look cheap on an absolute relative basis. This is equal way to consumer staples, looking at pretty much the lower end of their forward P.E. range over the last little while here, as well as relative to the S&P 500, pretty much rock bottom over the last eight years. We know why these companies generally lost pricing power. They're having a hard time growing earnings again with the top line being challenged. bottom over the last eight years. We know why. These companies generally lost pricing power. They're having a hard time growing earnings again with the top line being challenged. But sometimes the most contrarian parts of the market, you can't really make a great thesis. You just know that the

conditions perhaps are there for a snapback. Similar story being told by the relative dividend yield. So people aren't looking as much stocks for dividend yield because bond yields have been higher. But you see here, especially relative to the S&P 500, staples on an equal weighted basis looking good. By the way, I do equal weighted because Costco, P&G, Walmart are about a third of the market cap weighted staples. They all have premium valuations. They're kind of the elite. This is basically for the rest of the group. Well, that helps us see the full perspective, as you always do. Mike Santoli, thanks. Well, Atlanta Fed President Rafael Bostic says there are reasons to be cautious about committing to the timing of interest rate cuts.

We'll have details and get reaction from former Fed Vice Chair Alan Blinder next. Atlanta Fed President Rafael Bostic speaking at an event earlier today. He is a voting member and he says he believes the first rate cut won't come until the third quarter. That the Fed should also be cautious given geopolitical events and global uncertainty. Joining us to discuss this and more, former Fed Vice Chair Alan Blinder. Alan, good to see you. So which is more significant here, that even Bostick is talking about cuts in the second half or that those cuts might not be coming until the second half? Look, I think what you're seeing on the FOMC now is divergent opinions from a number of quarters. Bostick, I usually think of Bostick as on the dovish side. And here he is downplaying the notion that rates are coming soon. I mean,

the market's getting ahead of itself. And the Fed is aware of that and not thrilled about it. On the other hand, you have Christopher Waller, who I think of as on the very hawkish side, talking openly about rate cuts. So, you know, we're in one of those periods where you don't expect the whole committee to be on the same page, and they're not. How does the strength that we've seen in the consumer, particularly in these December retail numbers, play into this? I think that pushes in the direction of the economy still a little bit on the strong side to make the landing soft. That is, we landed now, might be a little bumpy, so maybe we shouldn't land it yet. You know, that's just one data point.

Every day there's another data point, and some look good for this very soft landing, some look less good. That one looked a little bit less good, but I wouldn't make too much of it. OK, Alan, hold tight for just a moment. I want to get to Emily Wilkins in D.C. with some details on the House vote there. Emily. Well, John, it seems that Congress has yet again avoided another government shutdown. It would have began on Saturday at midnight. But now the House has the vote to pass a stopgap bill that is going to be taking part of government funding to March 1st and the other part to March 8th. The Senate also passed this legislation this afternoon, both of them with bipartisan majorities. It'll be going to Biden desk. But of course,

the big question is, can the government actually get the fiscal year 2024 funding done? Are they going to continue with fiscal year 2023, last year's funding? And if they do, they face that 1% across the board federal cut that could mean billions for defense departments that's just not going to be there next year. That could cause some huge problems. So now it is still a race against the clock. They might have been able to make this deadline, but they already need to start working on the next one. Indeed. John? Yeah, Emily Wilkins, thank you.

Alan Blinder, back to you on this. Talk to us about the impact of this continual can-kicking when it comes to the budget here. On the one hand, it's good news that they've been able to do this, but it certainly affects business leaders' ability to telegraph what they can count on for the rest of the year. Predict it, yeah. I mean, if I was to make a prediction now, I think they're going to do CRs for the rest of the year. But I don't know that that's the case, and neither does anybody in the business community.

The financial markets, I think, are taking this by now as background noise. You know, this stuff happens, keeps on happening. There's no point getting aggravated about it. And as you've noticed, while this has been going on for months now, there are periods that the market soared and there are periods in which the market slumped. You know, more evidence for the fact that they're more or less ignoring it. Some people in some businesses are, you know, on tender hooks waiting to see what the government's

going to do with certain particular spending programs that they rely on. But it's, you know, it's not every business. And as I just said, it's not mostly the financial business. Right. Well, we're sure to get a lot more sound and fury out of Washington, D.C. this year. We'll see if it signifies much. Alan, thank you for more on the economy. Don't miss more on the Fed's interest rate strategy tomorrow when Steve Leisman speaks exclusively with Chicago Fed President Austin Goolsbee. That's on Squawk Box at 830 a.m. Eastern. Well, natural gas falling again today and on pace for its worst week since last May. We're going to look at the fallout for energy stocks when overtime returns.

Welcome back. Natural gas had big gains to start the year, not anymore. It's on track for its largest weekly loss in nearly a year. Pippa Stevens here with the impact on energy stocks, the energy sector not looking so hot. Yeah, it's not looking so hot. And we did have those frigid temperatures that we're still experiencing right now, which did boost demand across the U.S. for NAC gas, which is why we saw that jump in prices last week. But the gains haven't held because we're still working through an oversupplied market. We just had the warmest December on record in the U.S. And so people weren't cranking up the heat, meaning heating degree days or when there's through an oversupplied market. We just had the warmest December on record in the U.S., and so people weren't cranking up the heat, meaning heating degree days,

or when there's elevated demand for nat gas, were below the 10-year average, as you see there on the chart. Now, at the same time, production is hovering around a record, and so there's a glut of gas. Shares of producers, including Cotero, EQT, and Antero, in the red so far this year. And with oil caught in a trading range, energy stocks more broadly are simply out of favor. Both Exxon and Chevron falling to a more than one-year low today.

And, of course, this bad start to the year follows a negative year last year when energy was second to our sector. I don't want to make the mistake of thinking the whole world is, you know, New Jersey. But it's cold this week in New Jersey, like really cold. Could the weather shift have an impact on some of these stocks and these commodities? Well, weather is always the wild card for NatGas, and which is why we've seen such volatility. But the thing is that it was really a buy the rumors, sell the news type event. And so it's still really cold, but we are past peak cold in much of the country, which is why we're not seeing prices stay elevated. And it just really does come back to the oversupplied market. Storage is about 12 percent above the five year average. And so until

there's a meaningful shift there, we're likely not going to see a big response in prices. And how long does a shift like that usually take? Well, it depends on the weather. And so not anytime soon, given that production is at a high, we're expected to see this big demand come forward in 2025 with LNG. And so producers don't want to scale back right now and risk losing that market share, which is why we haven't seen a price response with production still at records. And it is cold in New Jersey. It is cold.

Thank you. Well, that's going to do it now for overtime.