Closing Bell - Closing Bell Overtime: Finding Value In Current Market; Activist Investor Takes On Shake Shack 5/15/23

Episode Date: May 15, 2023

Major averages closed higher, reversing losses in morning trading. Oakmark’s Tony Coniaris on where is finding value in this market. Plus AEI’s Jimmy Pethokoukis and JPMorgan’s Mike Feroli break down the impact debt ceiling talks are having on the market. Shake Shack shares had a strong day after activist investor Engaged Capital disclosed a 6.6% stake; 13D Founder Ken Squire on why there have been so many high-profile campaigns in 2023. Mortgage Bankers Association CEO Bob Broeksmit on the hottest areas in the country. Wedbush’s David Nierengarten on the hottest takeover targets in the biotech sector.  

Well, there's your scorecard on Wall Street, but winners stay late. Welcome to Closing Down Overtime. I am John Forth, back with Morgan Brennan, and the deadline for 13F filings is just over an hour away. We're going to bring you the details of the moves big hedge funds have made as soon as they're reported. Plus, the CEO of the Mortgage Bankers Association on the outlook for housing as home prices climb again, even as mortgage rates remain high.

Let's get into today's market action and tomorrow's implications with our first guest, Tony Canaris from Oakmark Funds. Tony, housing prices are higher. Consumer debt hit a fresh high over 17 trillion last quarter. And we've got retail earnings coming this week. So is all of that perhaps pinching retailers? Is that something that people in the market should be watching? You guys don't hold a lot of retailers. We don't. And thanks for having me. But, you know, at Oakmark, we don't make macro forecasts, near-term macro forecasts to drive our investments. You know, we estimate business value, which means that, you know, we're factoring in the near term macro as best we can and then trying to estimate what a business will do on average over time and then estimate its value and invest if it's cheap enough.

And we really don't have a better guess over the state of the near term economy as anybody else. So then why is Amazon, which does more than retail, but retail is certainly a central theme with them, one of the only retail holdings that you have in the long term, is there some weakness or problem that you see there? You know, I think the misperception on Amazon is that the retail business is never going to earn a fair margin. We've going to earn a fair margin. We've seen it earn a fair margin in the past. We think it's certainly capable of doing it again. It's just the facts and circumstances around the current environment today that it's not showing up. And that's because they built out their infrastructure

to such a significant degree after the significant increase in demand we saw following COVID that right now what they're doing is they're leveraging that increased infrastructure to offer next day delivery and things like that. So we believe the retail business will be profitable and we own it because if you look at the business today, you're essentially getting the retail business for free if you put a normal multiple on AWS. So it's cheap on a sum of the parts, great balance sheet, great management team, and that's why we own it.

Yeah, Tony, I mean, we've seen this rally in the major averages since the start of the year, but so much of it has been top-heavy. It has been led by some of these mega-cap stocks, something like half of the S&P 500 is actually trading below its 200-day moving average right now. You're a long-term value investor. Do you see a lot of value in this market? We do. I mean, the market's trading above its normal range from a PE standpoint, but there's

wide bifurcation in that. And we're finding names selling at mid-single-digit multiples of cash flow today. So what are some examples of that? So ConocoPhillips is a great example of that. It's an exploration and production company, one of the larger ones in the world. And if you look at Conoco, what makes it really unique is that they have this broad, deep inventory and very low-cost inventory, such that if you look at the next 10 years, we believe and management believes that they can generate 133% of the current market cap in free cash flow over a 10-year period and end that 10-year period with a production base that's 50% higher than it is today. So it's sort of like the proposition of, would you be interested, Morgan, in buying a business,

that buying into a business and getting 133% of your capital back over 10 years and the business being 50 percent larger in sales volumes at the end of that? That's a pretty attractive proposition. And that's the proposition of ConocoPhillips today. OK, you also like Capital One in an environment where a lot of financial stocks have taken a beating. What do you think, not just about Capital One, but some of the banks out there, even non-banks exactly, things like Schwab, that have gotten caught up in the mess over the regionals? Yeah, you know, a lot of the financials are being painted with a very broad brush today. The interesting thing about Capital One is, like the other regional banks, it's selling at a significant discount to tangible book value,

forward tangible book value, and a mid-single-digit multiple of earnings. However, Capital One does not have the mark-to-market complications on the balance sheet that the other regional banks have. They just don't have as big of a mark because they didn't take those sorts of risks. Furthermore, unlike the other regional banks, if you mark their loans to market, they don't get marked down, they get marked up. So the discount to tangible book would actually get better. So you don't have the capital and mark-to-market issues

you have that are jeopardizing the confidence of depositors at the other banks, but you have a very similar price on Capital one which makes it particularly interesting to us okay some news for our viewers to check out tony canaris of oakmark thanks for kicking off the hour with us and of course financials were one of the best performing sectors today leading the s p to fractionally higher gains finishing around 41.36 for that average there debt ceiling talks are set to resume tomorrow this This weekend, President Biden telling reporters he's, quote, optimistic that they can reach an agreement.

Meantime, House Speaker McCarthy telling NBC Today, quote, I still think we are far apart. Joining us now are Jimmy Pethokoukis of the American Enterprise Institute and Mike Ferroli, J.P. Morgan's chief U.S. economist. Good afternoon to you both. Jimmy P., I'll start with you. It looks like spending caps, permitting reform, rescinding of some of that COVID money that hasn't been spent yet are very much on the table. Are we actually getting close to a deal here? Is it happening? Yeah, I mean, it's really not that hard, I think, to predict what a final deal might look like broadly. Some sort of you know spending caps Much shorter than what the Republicans said before and some of those other items that you just mentioned

So I think you can I think we can imagine that The fun that the tricky part is I think McCarthy is gonna sound like that up until about 30 seconds before there's a deal He has to he has to sell this deal to his members. He has to sound tough. It has to sound like, you know, the president caved. He needs that for cover. And it's a really good sign, I think, that some progressives are saying that Biden looks like he's caving because Republicans are going to have to perceive this as some sort of win. So I think the news we're hearing right now is actually pretty good. Okay. Mike, how are you factoring all of this into your economic modeling right now? I

mean, consensus is that we're going to get a deal at some point here, maybe even if not this week before everybody starts traveling, maybe at least before the end of the month. But how are you factoring into how you're thinking about the U.S. economy through the rest of the year, which last I checked, I think you were forecasting mild recession. Yeah. So first of all, I'd agree with a lot of the things Jim just said there about, you know, the prospects for the discussions. I would add one complicating factor is that the calendar just got shortened quite a bit

relative to what we thought only two weeks ago, right, when we learned about the April tax payments coming in on the light side. That means the X date or the so-called drop dead date we think could be as soon as June 7th, right? So to get a major piece of legislation like this done in that time frame, I think, just adds to the challenge. In terms of how we're factoring it in, so given, like Jim, we think the most likely scenario is a deal gets done, that means we don't have a technical default in our forecast and in our economic outlook. I think if we did, that would vastly complicate not only the economic outlook, but thinking about it, because we've never had that before in the history of the republic, of course.

So we don't have anything to really benchmark that to. I think we clearly think it would be much, much worse than a government shutdown. I think it's important to distinguish those things. I think even with a benign resolution, you could still see some hit to sentiment like you did in 2011. So even with a resolution,

there may be a little bit of a sentiment hit. And also I think you probably would see some more fiscal restraint. So monetary policy would have to do less because fiscal policy presumably is doing more to hold back spending growth. Okay. Jimmy, all this makes sense to me 10 years ago, but I don't understand why they're such optimism that we're getting closer to a deal in 2023 because the parties aren't operating normally. I have a hard time seeing how Speaker McCarthy gets this narrow Republican majority to go ahead and agree to a deal if it looks like anything short of disaster for the president. And I have a hard time imagining that the president would agree to a deal that looks like a disaster

if he plans to run again. So why all this optimism and this thought that they're not going to run over the cliff when they practically did it with the speaker votes not too long ago? Yeah, well, you know, first of all, you know, right, things aren't operating well. I think Mike actually makes a great point that we're getting this close. I mean, that's a sign of deep dysfunction. And things are far closer to, you know, not happening than what they should be. And again, I think it's a big plus that it's certainly my perception that Kevin McCarthy and other top Republicans don't fundamentally buy into the theory that this is no big deal and we can just

prioritize payments and markets will really like it. I don't think they think that. I think they think this would be a disaster. I think neither side wants to try to play a game where we have a technical default, markets go haywire, and somehow they can win that game. Boy, that is really moving beyond the veil, which we have no idea. I don't think either side wants that, which means they can get a deal. Again, I can conceive of a deal, as we just said, which it looks like the president has conceded and there's pain on the other side that he could get through. But listen, this is far narrower than what it should be, no doubt. Mike, what's your percentage likelihood that there is a technical default

or close enough to one that the markets go haywire? Geez, I think that's a real tough one, but I'd put it maybe around 20%. I think markets clearly have something less than that. If you look at the default, CDS default market is maybe more like 4%. Okay. Yeah. We'll find out soon enough. That's about 19.99% higher than what it should be. Right. But we're going to find out sooner than we'd like, probably. Jimmy, Mike, thanks. Now, CNBC Senior Markets Commentator Mike Santoli joins us from the New York Stock Exchange with today's market dashboard. Mike. Hey, John. Yeah. Looking at bonds, specifically the 10 year Treasury yield, it's one of the many kind of asset benchmarks

that's going really sideways along this shelf, staying above where it was in the prior range before the Fed started hiking. But you see this like three point four ish area has not broken down below that. It looks like maybe the yields have topped. So that means we think the Fed is nearly done. Inflation expectations coming down. But also, it's much lower than short-term yields, which means higher than preferred recession risk out there. I think maybe more relevant than the levels here in terms of how the stock market's acting is the volatility in the Treasury market. Take a look at the so-called move index, which operates similar to the way the VIX does toward equity options, essentially really calmed down. Again, it did launch higher,

much more volatile bond market once the Fed got into tightening mode right around in there. But you see it's kind of settled back to the lower end of its recent range. This has allowed the stock market at least to have some sense of clarity out there that risk-free rates are not going haywire. Now, of course, if we could bounce up from here, if the Fed wants to inject a little more uncertainty into the outlook, and if, of course, we don't have inflation cooperating. But it's a big part of the story as for why the stock market has been able to kind of hug this relatively narrow range near the highs of the year in the last several weeks. Mike, I'm just looking at that big spike to the right. Is that is that the regional banks and SVB and the failures that we saw back in March right there?

You know, it started up when we got really hot economic data in January for January. So the February early February jobs report, all of a sudden everyone said, oh, the Fed's not even close to being done. The terminal rate is going to be six percent. And then, yes, we got into SVB. And all of a sudden, the two year Treasury yield was whipping around by huge amounts every single day. So that settled down from that period. At this point, even though bank stocks, while they bounce today, are not that far off their lows. So, Mike, again, what is the sentiment about further hikes from here? I mean, I keep hearing that the confidence in a pause was easing off, but then, you know, Tudor Jones, I think, still said that he expects a pause. So what, how quickly is that moving around, that expectation?

I think the prevailing consensus right now is that a pause is the most likely scenario at this point for June. And a pause, not necessarily a declaration of victory, as Paul Trudeau Jones said, not necessarily foreclosing upon the possibility of restarting hikes down the road. But if you look at the way the bond market is specifically pricing things, it's a very slight chance of a rate cut, say, by July and then a bigger chance by September. So it's not it doesn't have a tremendous amount of confidence in any path. But right now, pause seems to be the premise. Yeah, pause seems to be the premise. We have another week that is going to be jam packed

with Fed speak. You had Bostick just earlier today on CNBC essentially throwing cold water on the notion that we could see a cut later this year. To go back to bond market volatility specifically, though, historically speaking, when you do see the Fed go on pause after a tightening cycle, do you tend to see the volatility settle down or really kind of depends? And I ask that because we also had Goolsbee on earlier today, and he said we haven't even seen the full impact of the rate hikes yet. So I wonder if something else starts to show signs of breaking, whether you see a flare up. Yeah, well, you would see a flare up if, in fact, it seems like the Fed is not at the right level. So if a pause is in place and

people assume that's going to be where we're headed is sort of steadiness on short term rates. If it doesn't seem like something else is breaking to disturb that, yes, most likely bond market volatility calms down. But then we're watching every incoming macro data point to see if we are closer or farther from recession, in which case, you know, you could see bond volatility go up even when, you know, longer term yields are going down because we're panicking about the imminence of a recession. Mike, it seems like there are so many signals, some of which you've brought us, many of which you brought us, where people are essentially saying could go either way. I mean, you know, you know, I mean, when's the last time we were in this everything range bound, waiting for something to break with various pressures coming to bear type scenario? You know, I would say 2018 and 19, we were in something like this. It might not have seemed quite as dramatic,

but we seemed like we were in a late cycle mode with unemployment low and the Fed feeling as if it might have to engineer a recession for a while in those periods. And we also had things like defensive stocks working. Overall index volatility wasn't that high, but everybody was on edge because it felt as if we were close to a turn one way or the other. All right, Mike Santoli, we'll see you later this hour. We have Berkshire's 13F filing. Leslie Picker has the details. Hi, Leslie. Hi, Morgan. A lot of interesting bank trades for Berkshire Hathaway during the first quarter, revealing in a 13F filing Berkshire noted that it took a new

stake in Capital One Financial, nearly 10 million shares worth almost a billion dollars at the end of Q1. Berkshire Hathaway also giving a slight boost to its city stake and B of A, buying on the dip there most likely to hold about $30 billion worth at quarter end. Also, not all of their trades were bullish necessarily. Berkshire Hathaway sold out of a billion-dollar stake in Bank of New York, Mellon, and U.S. Bancorp. And in other sectors, sold out of RH and Taiwan, Semi, and had kind of an interesting energy trade here, paring back some of its Chevron holding, but buying a little more in Occidental. And just a quick reminder, these are as of the end of Q1. They may have changed in the six weeks since, but some notable trades, especially amid the March turmoil in the banking sector and how

Berkshire Hathaway was positioned there. Morgan. Absolutely. Leslie Picker, thank you. And we know you're continuing to, quote, unquote, whale watch as these 13 F's come out here after the bell. Mike Santoli, psych. We're bringing you back here. You were at the Berkshire meeting just what, a week and a half ago, not even. Want to get your reaction to the 13F filing and specifically all the movement we've seen by Berkshire and Buffett and his lieutenants in the financials.

Yeah, the new position in Capital One is certainly interesting, whether it was Buffett or his lieutenants. Of course, one of those two talk homes was a financial stock specialist before he went to work for Berkshire. Capital One became really cheap. It was a tough stock last year.

People worried about consumer credit, and yet their loss rates have not been that significant. Michael Burry also reported to have perhaps taken a stake in the first quarter in Capital One as well. Now, we did know about the cutting of the stake in Chevron and actually topping up the Occidental holdings. One thing that might be interesting is presumably the Paramount stake was unchanged. People had thought maybe he sold out of that media stock as well. And it does seem as if he's narrowing the interest in financials to the kind of perceived kind of too big to fails, the winners out there with Citi and Bank of America and not as interested in playing too much in the regionals, even a very large, high-quality regional like U.S. Bancorp.

Hey, Mike, quickly, are these 13Fs maybe a bit more interesting because of what we were just talking about, the range-bound sort of? It's not like the markets have gotten that far away from where they were in Q1. Yeah, I do think that's right. So in other words, these transactions happen at prices that are similar to what we're seeing today. So that's probably some more stability. Plus, Berkshire is not really flipping stocks left and right. Yes, sometimes they move around on a quarterly basis.

But for the most part, if it's genuinely a fundamental holding as opposed to an arbitrage or something like that, they want to own things forever. So it's not something that necessarily kind of has a short shelf life once we hear about it now. All right. Mike Santoli, thank you. And of course, shares of Capital One are up about five and a half percent in the after hours trade. We just kicked off the hour talking about we did Capital One COF. All right. An activist investor shaking up shares of Shake Shack after reportedly taking a more than six percent stake in that stock. Up next, the founder of the 3D Activist Fund on whether we could soon see an acceleration of activism on Wall Street. Overtime's back in two.

Breaking news from the Treasury Department. Eamon Jabbers joins us with more. Eamon. John, Treasury Secretary Janet Yellen is sending a new letter to congressional leadership today, just released within the past couple of minutes. She's sticking with June 1st as potentially the X date in terms of the debt ceiling at when the United States government would run out of the ability to fund its obligations. She says that that's a little bit flexible because you can, it's difficult to predict these things. There's a lot of change in the proverbial couch in the United States government.

But she's sticking with that deadline for these debt ceiling negotiations, urging congressional leaders to come up with a deal on the debt limit. And she also says this. She says, we've already seen Treasury's borrowing costs increase substantially for securities maturing in early June. If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests. So a warning there from the Treasury Secretary, John. Yeah. And of course, it comes ahead of President Biden's G7 trip to Japan and, of course, a meeting with the Quad next week, too. So it sort of talks to or speaks to U.S. on the global stage, geopolitical stage as well. Eamon Javers, thank you. Absolutely. Shares of Shake Shack touching a 52-week high today after a report from The Wall Street Journal

said that activist investor Engaged Capital has a more than 6 percent stake in the company, is pushing for three board seats. Joining us now is Ken Squire, founder and president of 13D Monitor. Ken, great to have you on the show. Let's start with Shake Shack, although it hasn't been the only name, even in recent days where we're getting reports of activist investor pressure. Have we seen a market increase to start the year? Yeah, we certainly have seen a market increase to start the year. You know, early on with Disney and Salesforce and Bath and Body Works with Third Point. And now we see, you know, Shake Shack and Goodyear last week. You know, markets rotated from growth to value, which is great for activism.

It's a stock pickers market. And I think the ultimate stock pickers are activists who not only find the best value funds but are themselves the catalyst to close those valuation gaps. Are there certain sectors or industries that are more ripe for this type of activity right now? You know, it varies. Activists really care about two things. They like finding undervalued companies where they think they can be the catalyst to close the valuation gap. But certain activists have certain sectors they're better at. You see Elliott in technology, for instance. Starboard is great with semiconductors, try-in with consumer goods and services. So there's not one industry that all activists

focus on, but they each have their specialties. Ken, it seems like it might be dangerous to chase activists in this environment, too, right? Because you never know how far down things might go or when the when the tides might change. Well, I mean, you know, some activist campaigns are often J curves. You're right. By definition, a lot of times they're going into companies that need changes and need improvements. And it could go down further before it goes up. But they're long-term investors. They come in with a plan. And I think it's more dangerous to chase investors that don't have a plan and aren't going to be their own catalyst to implement that plan. Does it matter, Ken, whether activist investors are successful or not?

Well, for a stock to see returns, I should say. You know, if you want to if you want to maximize shareholder value, if you know, it's it's activists come in and they do all the work and they create value for all the shareholders. So it matters to shareholders that are sitting in stocks that are underperforming and have a management team that's not that focused. They certainly love to see activists come in and hold management accountable. Right. Unless you've got Shake Shack and you want to take it to go. Ken, thank you. Thank you, guys. Up next, the CEO of the Mortgage Bankers Association

on whether he sees signs of a housing rebound despite high mortgage rates and concerns about the economy. When we come right back. Welcome back to Overtime. Let's get a CNBC News update with Courtney Reagan. Courtney. Hi, good afternoon, John. A suspect is in custody after he entered the Fairfax, Virginia office of Congressman Jerry Connolly and attacked two members of his staff with a baseball bat. The two staffers were taken in the hospital with non-life-threatening injuries, according to a release from Connolly's office. The special counsel report into the origins of the 2016 Trump-Russia probe have been released, and its author argues the FBI should never have launched the investigation. Special counsel John Durham, hired by then-Attorney General Bill Barr, said the former president was treated unfairly by the FBI and the investigation came

too quickly. Durham's central conclusions are directly contradicted, however, by a 2019 DOJ report that found the decision to open the probe was justified. And a federal judge has ruled against Tesla CEO Elon Musk and will not roll back an agreement that requires, quote, pre-approval for tweets by Musk that contain information material to Tesla. Musk has been required to have a, quote, Twitter sitter as the CEO's Twitter activity has been the subject of both SEC and shareholder attention in recent years. Those tweets are infamous now. Morgan, back over to you. We're going to hear from Elon Musk tomorrow night on CNBC as well. Courtney Reagan, thank you. Thanks. CNBC senior markets commentator Michael Santoli joins us again from the New York Stock Exchange. He's taking a look at whether small caps are

truly cheap despite their recent under, well not despite, because of their recent underperformance. Hi, Mike. Yeah, exactly, Morgan. So that underperformance, although today it was a little bit of a blip in a different direction, the Russell 2000 up more than one percent as the S&P was up about point three percent. But you see here yet another chart that is long range on a shelf out there just above the pre-pandemic highs. That would be about seventeen hundred for the Russell 2000. We know why. These are lower quality companies in terms of, you know, profitability is pretty spotty, very attached to credit conditions, concerns about financial instability. And just in an economy that has less growth to go around, they don't have as much pricing power or perhaps as

good of a competitive advantage. Now, take a look at the valuations. This would be of the S&P small cap 600, a subset of the Russell 2000, basically, which is screened for profitability, has more reliable earnings estimates. And you'll see it trades, you know, about 12, 13 times forward earnings right now. That compares to 18-ish for the overall S&P 500. And then relative to the 500, you see how cheap it is. The last time we were down here was in the early 2000s. That was after the tech bubble, in the aftermath of that. And small caps really did outperform for years to come thereafter. It was not an immediate kind of gratification story

because small caps didn't go up that much in absolute terms right away. But on a longer term basis, they did outperform. They held their value better. So it's obviously difficult to make this trade when you might be entering a recession. But it's certainly interesting to set up right now. And the expensiveness of the market really is clustered at the high market cap end, guys. And it's also difficult with things like this debt ceiling debate looming, right? Because when volatility hits, the small caps, you know, feel it. Yeah, exactly. They don't have the same kind of strong sponsorship. There's less index money there. And again, it's because they're seen as a little more kind of subject to the whims of the macro economy. Although, again,

there's niches in there that are underfollowed. For stock pickers, maybe it's a ripe hunting ground. But yeah, they're not going to be immune to big macro shocks if we get them. All right. Maybe take your Pepto-Bismol and give it a gander. Mike Santoli, thank you. Little dipper. You see what he did there? Very clever. Well, I'm a little slow. I missed it. We have more 13F filings coming up, though. I'm not going to miss that.

This time from David Tepper, Leslie Picker has more. Leslie. Hey, John. Yeah, lots of interesting big tech moves for Mr. Tepper during the quarter. This is his Appaloosa. Upping stakes in Alphabet and Amazon.

Those are the top two holdings, each worth $200 million at the end of the first quarter. Appaloosa also boosting a stake in Meta worth about $150 million during the quarter. Uber was the firm's biggest buy during the quarter, upping its stake by nearly 400% to hold about 200 million dollars worth of Uber at the end of Q1 as well. Normal caveats. This is as of the end of March. These positions have likely changed somewhat in the six weeks since then. But this is from their 13F filings, which is the most recent snapshot we have of these moves, guys. All right. And we keep getting more of these filings. You keep bringing them to us, Leslie Picker. Thank you. Biotech has been underperforming the broader market this year, but our next guest thinks a wave of M&A could soon hit the industry.

His top takeover targets when Overtime returns. Welcome back to Overtime. Check out shares of Sareptaerepta therapeutics the stock is soaring after an fda advisory panel voted to recommend accelerated approval for its duchenne muscular discryptory gene therapy treatment you can see it up there 30 plus for the day the fda expected to make a final decision on the drug by May 29th. Well, let's turn to our next guest for some reaction to this vote. Joining us now is Wedbush Securities Managing Director David Nearing-Garten, who joins us here on set. Welcome. Hey, thank you. Now, you don't cover streptis specifically, but the fact that we've seen this development,

how does it speak to what we're seeing in gene therapy more broadly and sort of the regulatory environment? Yeah, first of all, it was obviously a bit of a surprise, judging from the market reaction. You know, a lot of people had some skepticism around the FDA's panel vote before. When the briefing documents came out, there were a lot of significant questions that FDA raised. So it was a positive surprise that the panel voted in favor. And obviously, it should lift the gene therapy sector, genetic medicine sector more broadly. We saw some gene editing companies rally along with Sarepta this morning, or this trading day.

And we do expect that that should lead to an approval on May 29th. And I think that would help not only the gene therapy sector, but also put Sarepta probably in, again, the target for an acquisition from a larger pharma. So let's talk a little bit about that, because we had a couple of big multi-multi-billion dollar deals announced today. But in general, looking at biotech specifically, it's been very busy for dealmaking. It has. Year to date, there's over $70 billion of announced acquisitions. And last year, for the entire year, there was under $70 billion, just under $70 billion, but under $70 billion. And so I think this really points to a bottom for the small mid-cap sector. Obviously, it's an attractive valuation for acquirers at this point.

And so I think that they are, the acquisitions will continue. They have been robust year to date. And I think they should continue for the rest of the year. How much of that is just because capital is harder to come by now and some companies with good technology,

good prospects are just running out of runway. And so if investors have a sense of which companies those might be, they might do well. Yeah, that's an interesting point. The companies, though, that have tended to be acquired lately are later stage or they should have less of a challenge at finding capital. They're commercial or they have a drug that's about to be approved. And so those companies actually have tended to have been able to find capital. And those have been the ones that have been acquired

by the larger companies. So I think what it does though, is show that the valuations are more in line with what pharma thinks they should be. And then it should help improve the risk appetite for investors as they start seeing some of these later stage companies go into the pharma hands. So who do you think gets taken out? My next pick is Argenix, ARGX. It's a later stage. It's commercial. They've been launching a drug called Vivgard into a rare disease called myasthenia gravis. It's a

neuromuscular disease. It's had a great launch so far. It did 400 million last year. We think it can do over a billion dollars this year. And importantly they have multiple clinical trials set up to expand the indication beyond myasthenia gravis with a key data for a disease called CIDP coming out in July. Any other names to watch? I think there are several other smaller cap biotechs that could be interesting. One is Blueprint Medicines. They are also a commercial name. They're commercializing a drug called Avakit,

and they have an important PDUFA date for an additional indication, again, talking about expanding these commercial opportunities coming up on May 24th. David Nearinggarten, thanks for joining us here. Thank you. Thanks for having me. We have a news alert on the Strategic Petroleum Reserve. Bertha Coombs has the details. Hi, Bertha. Hi, Morgan. Yeah, the Energy Department announcing that it will purchase up to 3 million barrels

to help replenish the SPR, Strategic Petroleum Reserve, oil today, trading at about $71 a barrel. That's well below, the Energy Department points out, the average of $95 a barrel. It was trading back in 2022, and they've committed to buy it well below those levels. Back over to you. Yeah. So this is a request. Thank you, Bertha Coombs.

This is a request for proposal. Firm fixed price contract. It looks like they're looking for submissions by May 31st. And, of course, John, this is very much what the oil industry has been looking for in terms of a potential buoying of prices. Is it a significant buoying that they're going to get from this? We'll see. I think it marks the start of the willingness of the federal government to begin replenishing those reserves, which are at, what, multi-decade lows or historic lows? I'd have to double-check, but low, low lows.

Yeah. All right. Well, retail earnings taking center stage this week, beginning with tomorrow's report from Home Depot. We're going to discuss the key numbers to watch. That's later on Overtime. Up next, we will discuss what Home Depot's earnings tomorrow could mean for the other big retailers that are reporting later this week. And speaking of later this week, do not miss our exclusive interviews with the CEOs of ServiceNow and NVIDIA.

That's Wednesday, 4 p.m. Welcome back. We have a news alert on Elon Musk and Eamon Jabbers has the details. Hi, Eamon. That's right. A new court filing just within the past couple of minutes reveals that Tesla CEO Elon Musk has been issued a subpoena in the ongoing legal case around J.P. Morgan and Jeffrey Epstein, the now deceased sex trafficker. In this case, one of the allegations has been that J.P. Morgan turned a blind eye to Jeffrey Epstein's wrongdoing because he was referring valuable high net worth individual clients to do business at the bank. What we see here in this filing is from the U.S. Virgin Islands, which is a participant in this lawsuit, saying upon information and belief, Elon Musk, the CEO of Tesla, among other companies, is a high net worth individual who Epstein may have referred or attempted to refer to J.P. Morgan.

The government, it says here, has made good faith attempts to obtain an address for Mr. Musk and to serve him with this subpoena. They say they've hired a private investigator to track down Mr. Musk's physical whereabouts. They've been unable to actually get the subpoena to him, even though they were calling his lawyer and his address at Tesla headquarters. Nonetheless, they say they would like some alternate service routes to be opened up by the judge so they don't have to physically serve Elon Musk with this subpoena. But this is new information. I believe this is the first time we've seen Elon Musk's name surface in this case. And again, the allegation here is that Musk may have been one of the people

that Jeffrey Epstein was referring to J Morgan. And that's why JP Morgan may have turned a blind eye to Jeffrey Epstein's wrongdoing because he was serving up the names of these massively wealthy individuals as potential clients. Guys, back over to you. Eamon Javers, thank you. You bet. And don't forget tomorrow, David Faber will have an exclusive interview with Elon Musk at 6 p.m. Eastern right here on CNBC. Home Depot kicks off a big week for retail earnings tomorrow. Courtney Reagan looks at what to expect from the home retailer. The rest of the industry, DIY versus pro, is going to have a big role in this, I imagine.

Always a big discussion point for Home Depot and some others. Weathers and a moderating home improvement trend, though, are predicted to dent Home Depot's results for the quarter. Earnings expected to fall for the first time in three years, with revenues growing just 1%. Total comparable sales also expected to fall, as it did last quarter. And last quarter marked the first time that we saw comps come in negative in 46 quarters. Data from Placer.ai says Home Depot's store traffic fell an average of 12% in the quarter over last year. SimilarWeb says its U.S. online traffic and conversion fell, too. Home Depot shares down 10% since it last reported.

Worse than competitor lows, but better than the XRT retail ETF. HD fellow Dow component Walmart expected to see key U.S. comparable sales metrics grow, but at a slower rate than in recent quarters, too. The retailer taking a cautious view to the year and has said that the end of the emergency snap benefit allotment will hurt April grocery sales. The street expects only minimal comp sales growth for Target, like Walmart. Target is forecasting with caution. Investors want to know if Target's seeing any softness and discretionary categories, and then, of course, what that says about the health of the consumer. OK. Very, very quickly, mixed messaging. Is that the expectation?

Absolutely mixed messaging, depending on where you participate in the retail front. Even intra-industry, we're seeing sort of conflicting views. We'll see if there's real softness in the consumer or if it's just category by category. If people have to keep living in older houses, is that good for them? It is. Yeah, okay. It is. It is. Yeah, the old housing stock is usually pretty good for Home Depot. They don't see the overall trend being a problem, even if there's some moderation.

Okay. Courtney Reagan, thank you. That's going to do it for us here at Overtime. Fast Money starts now.