Closing Bell - Closing Bell Overtime: Teamsters President On Negotiations With UPS; GTCR Co-CEO On Largest Debt Financing Deal Since Twitter

Episode Date: July 10, 2023

Averages close near session highs and snap a three-day losing streak. Wilmington Trust’s Meghan Shue and Barclays’ Venu Krishna break down the market action. Teamsters President Sean O’Brien gives an update on negotiations with UPS. Collin Roche, GTCR Co-CEO, discusses his firm’s purchase of a majority stake in Worldpay from Fidelity National. Plus, KranseShares CIO Brendan Ahern on the rally in Chinese stocks and MOffettNathanson’s Lisa Ellis on her new call on Visa and Mastercard. 

All right, well, gains for the major averages with the Russell 2000 outperforming. That is the scorecard on Wall Street. The action is just getting started, though. Welcome to Closing the Overtime. I'm Morgan Brennan with John Fort. Coming up on today's show, we will talk to the president of the Teamsters, Sean O'Brien, as his union inches closer, perhaps, to a deadline with UPS to come up with a deal and avoid a strike that would have wide-ranging

impacts on the economy. Plus, are China stocks on the verge of a rebound? We're going to talk to the CIO of Crane Shares, which runs the KWeb ETF, about investing in China following Secretary Yellen's trip to Beijing. But first, let's get straight to the market. The major average is snapping three session losing streaks, although still negative on the month after last week's drawdown. Joining us now is Wilmington Trust EVP Megan Hsu and Barclays head of U.S. Equity Strategy Venu Krishna. Welcome to you both. Venu, I want to start with you because you made a new call today. You actually raised your price target for 2023 for the S&P 500 from 3725 to 4150.

But we did close for the S&P at 4409. So that still represents downside. Walk me through it. Yeah. So we did increase the price target and that was driven essentially by us increasing our earnings estimate from around 200 to 218 dollars. But unfortunately, despite sort of using a different approach, some of the parts kind of an approach where we look at the world as tech and then S&P X tech, we still came to a price target of 41.50, which suggests about a downside of 6%. So we do still think that the risk reward is somewhat asymmetric with greater downside from here. So that's where we are. All right. Megan, I want to get your thoughts on the market here,

because you've joined us in the past and you've been cautious. Has anything changed your mind? For example, some of the stronger than expected or I guess more promising than expected economic data we've gotten in recent weeks? Yeah, definitely. The economic data that's come in of late has been very encouraging. We've seen inflation coming down pretty rapidly across goods and services. The Fed seems to be sort of moving the goalposts in terms of which core measure they're preferring at the moment, but really seeing some nice improvement there. The labor market data on Friday was slower, and that's a good thing in terms of slower job gains, but also increase in the labor participation rate.

But I think where we always come down to is looking at what is our economic view. And while we're taking, you know, probably reducing the probability of recession, not taking that off the table, I think you also have to take into account what we've seen from the market so far this year and pulling forward some gains, improvement in sentiment, really all of the market gains being driven by multiple expansion. That puts us at a place where even though our economic outlook might be improving on the margin, we're not really ready to make a change in portfolios. And we still have a slight underweight to equities just because of how much we've already seen in terms of the strength in the market. Let's try to translate that for the viewers at

home. So underweight equities, overweight bonds. So if you're playing fixed income at home, is that because you expect the pricing in bonds to be relatively stable, you can sort of use that both for yield and as a source of dry powder. How should people at home think about that? Yeah, exactly. The move that we've seen in rates, and it's been a little bit of a choppy couple of weeks for bond investors, But with a 10-year yield above 4 percent, cash still yielding very attractive compared to the equity risk premium that you get from stocks and the yield that you get from stocks. We look at the total return for those defensive assets as being relatively attractive while also presenting possible dry powder if we get some turbulence or an increase in volatility in the second half of the year. OK, Venu, you're still, as you mentioned, at 41.50 as your S&P target for end of year. That's quite a ways down from here, not 10 percent, but not far from it. What's going to trigger that kind of a reset in at least valuations if we don't get a recession

that doesn't ever seem to arrive, as some expect? So I think first is the earning season. With positioning having readjusted, the market, as you know, was significantly underweight tech, especially coming into this year. That's no longer the case. Now the focus is primarily on fundamentals. And we think that this earning season is going to be important in trying to find out whether or not we're inching in the right direction. But in terms of catalysts, I think one of the problems we have is there is no meaningful catalyst right now, either to the upside or to the downside. And so that is what we think forces the market to be in a range-bound sort of environment with still an asymmetry risk to the downside because

big picture of the macroeconomic condition still is sort of murky. And earnings, if you look at outside of tech, especially S&P, ex-tech, there the trend is still negative. In fact, the divisions have been negative to the extent around 7%, while more AI-exposed names have seen divisions up almost 7 percent. So I think it is a tale of two cities in terms of how to view this market. And that's one of the reasons why we still struggle. And in fact, we don't think that this rally is going to expand into the broader market. In fact, it is going to remain concentrated for a while, which in itself creates a bigger problem. Megan, just, I mean, looking over the next week, we have a lot of potential short-term catalysts.

I mean, even just today you had the New York Fed's June survey of consumer expectations showing that the median year ahead inflation expectations dropped for a third consecutive month. It was the lowest reading since April 2021. This is ahead of CPI and PPI this week. You got bank earnings on Friday. Everybody's watching that very closely because of everything we saw with SVB. How are you assessing and sizing up and positioning based on some of these different factors that are now going to come into play and sort of help govern the second half? Yeah, I mean, the inflation data still is incredibly important, and that will be the big showstopper for this week and what to be

focused on. But as you noted, Morgan, really the stabilization or even decline in inflation expectations is something that the Fed will like to see. I don't know if we're going to get enough encouragement to forestall another rate hike, but that could be it from the Fed after their July rate hike if inflation continues to decelerate. The key for me turns to what are the prospects for rate cuts and then also shifting to look at the credit markets and looking at things like consumer debt, defaults, delinquencies, things of that nature, because that's really where the lagged effects of Fed policies start to play out in terms of consumer spending and their propensity to continue driving the economy where they've been such a strong

part of the economic outlook so far. All right. Megan Venu, thank you. Thank you. Now let's get to senior markets commentator Michael Santoli at the New York Stock Exchange for a look at the action in the Nasdaq. Mike. Yeah, John. Actually, some forced action of broadening out from the very largest Nasdaq names today. As I was just talking about, there's rebalancing that's on deck for the Nasdaq 100. It's called a special rebalancing because it's in response to just exactly how concentrated the top end of the Nasdaq 100 has become. They have to essentially take some weight out of the top six into the rest of the market.

And that accelerated the effect we've seen to some degree over the last month, which is the equal weighted versions of the Nasdaq 100 as well as the S&P have caught up to the main QQQ. That's the market cap weighted addition. And you have this nice synchronicity where on a one-month basis, they are all up almost exactly the same amount. But you see that sharp comeback today, especially by the equal-weighted NASDAQ 100. So that's not going to be a lasting effect necessarily. We're going to get through this over the next two weeks.

Maybe we price most of that rebalance in today, but it does show you that there's a little bit of capacity for the market to broaden out. Now, let's get to where the Wall Street consensus is right now. That conversation you just had with Venu, he raised his target for the S&P for the end of the year up, but it's still showing below where we're trading right now. Well, on average, this is according to the CNBC market strategist survey. So the average 2023 target is still 4250 ish. That's also the median. That's down a few percent from where we closed today. And that's the high and low. So the most aggressive bullish forecast, 4575 notably would not even get you to the old all time highs. It's also up only like four ish percent from here. And you see thirty nine hundred is still out there

as a potential downside target. So all else being equal, I think skepticism on the sell side isn't that positive for the market. It at least shows you that the handicappers have not necessarily gotten very aggressive and over-optimistic about the prospects for this market, John. And is that because the closer we get to the end of the year, the more revisions we're going to have to see based on that average and median? Well, that's one reason. But also just standard practice on Wall Street is the consensus tends to see five to 10 percent upside. That's the way it is the beginning of the year. That's usually the game. And we're not really adhering to it right now. I think it's because

valuations are pretty challenging by most people's lights. And of course, we had that 20 percent drop and it didn't feel as if that was all there was to go. And so there's been this only grudging kind of migration toward a less negative stance that now I think feels more neutral than bullish. All right. Mike Santoli, we'll see you later in the show. After the break. Teamsters General President Sean O'Brien joins us to talk about a potential strike of his 340,000 members that work for UPS. And what needs to happen to avoid that? Overtime's back in two.

Welcome back to Overtime. The clock is ticking and a strike is looming. The UPS Teamsters contract is up at the end of the month. And if a deal isn't reached, 340,000 workers, or approximately 50% of the UPS workforce, has the ability to go on strike. Joining us now from Washington, D.C., Teamsters' General President Sean O'Brien. Thanks so much for being with us today. We appreciate the time.

Thank you very much. I appreciate this opportunity. So July 5th, we get statements from both Teamsters and UPS saying essentially, accusing both sides of walking away from negotiations. Have you spoken to UPS since? And if not, what is it going to take for you to come back to the table? I have not spoken to UPS since July 5th at 4.15 a.m. UPS knows what they need to do to get us back to the table. We made a lot of progress in a short time. We got into economics and at one point around 4.15,

UPS told us they had no more to give and they chose to walk away. So they know what we need. They can pick up the phone and make the call and we'll get back to the table and get this thing done. Okay. Well, I've heard what, more than 50 tentative agreements between the union and UPS, things like air conditioning and new vehicles, MLK day off. It seems like it's part-time workers that are really the sticking point. Is that the case? Well, it's all the workers. I mean, the majority of the workforce is part-time. But, you know, this company made $100 billion during the pandemic. Our members went out there. Not only did they transport the vaccination when they weren't eligible for it, but they provided goods and services to this entire country, all the while UPS's profits kept doubling. So, you know, our members

felt disappointed. They weren't rewarded for their work. They weren't given any type of bonuses or special pay. And now they want to be rewarded for their work. Sounds like a signing bonus is something that might be in the works in terms of what you want for your workers. No, I think it's more than signing bonus. I mean, we have part-timers working at poverty wages. We've got, and they're the unsung heroes. Everybody loves a UPS driver in the neighborhood, but those packages don't get on those trucks without the hard work of the part-timers

who some are living poverty wages, some are living in subsidized housing, working two and three jobs. It's a tough job, and we need to be rewarded for it. And our members are standing up and they're ready to fight. 100,000 part-timers at UPS make less than $20 per hour. UPS is on this propaganda campaign where they're saying they're making over $20 per hour. That's not true. Yeah. I mean, UPS would say and has said that part-time workers are averaging $20 an hour after 30 days, that they get health care coverage that they don't have to pay premiums for, they get access

to a pension. You're saying that's not the case? No, they do. They do get health insurance, but they have to wait nine months. The turnover ratio because the work is so demanding is astronomical. So a lot of those part-timers that go to work at UPS, they don't last, they don't trigger benefits for sometimes nine months. It is true they do have great health care because we negotiate it. UPS doesn't give that out of the kindness of their heart. We've fought decades upon decades to make sure that our members have the best benefits in the industry. So UPS has not given that out of the kindness of their heart.

So, Sean, the question I think everyone is asking, whether they're in the industry or whether they're a consumer who could potentially be affected by this, If you don't come to a deal, are you going to strike? Well, if we don't come to a deal, UPS chose to strike themselves. We've made tremendous progress through these negotiations, like you stated earlier, and they know what our members' demands are. But more importantly, they need to respect the people that make them a tremendous success and reward them accordingly. Sean, if a strike does happen, it by the number of workers striking would be one of the 10 biggest in U.S. history. And the most recent one that ranked in the 10 biggest was the UPS strike in 1997. It was 15 days. This is the first sort of big strike of the e-commerce and internet era. So how does that factor in to what's important to you here? Well, what's important to us is taking

care of our 340,000 members and their families. You know, UPS has the ability and has the time to shine and be the model employer for this country, you know, and show corporate America how it is to reward their employees that treat them, you know, that make them the success that they are and treat them accordingly. Look, no one wants a strike, but in the reality, UPS is going to strike themselves. In this Internet economy, we've seen the rise of gig work. We've seen the rise of part-time. Largely, unions have been less relevant over the past three decades than they were before. So does that factor into what you need to accomplish here at all?

No, I think we're more relevant now than we are. We've proven what we're worth, especially through the pandemic. Not just in parcel delivery, but providing goods and services. I think we're extremely relevant. We're going to continue to be relevant. That's why we need to fight. We can't negotiate any contract from a position of weakness. We know our value and we're going to demand we're going to continue to be relevant. That's why we need to fight. We can't negotiate any contract from a position of weakness. We know our value, and we're going to demand, we're going to get what we demand. All right. So say a strike does happen, and I realize that there's a lot of time between now and then, between now and the end of the month, but say a strike does happen. That would be hugely disruptive to UPS and to freight volumes across the country, but it's also potentially disruptive to the union members who,

and specifically their incomes. So how are you making that balance, striking that balance in the contingency plan that this is something that goes forward? Well, fortunately, we've got a very robust strike and defense fund where our members will get compensated from day one of the strike. So we're not in a financial position compromised at all. Look, no one benefits from a strike, however it is necessary. Our members are poised that there will be some short-term pain for long-term gain. And look, in the end of the day, hopefully UPS comes to its senses, comes to the table, and gives our members what they deserve. I mean, UPS said it last week, and I think they're sticking to this statement right now, this idea that, quote, we have not walked away.

The union has a responsibility to remain at the table. When UPS made the statement, we have no more to give and chose to leave, then they walked away. And our messaging, if you watch all our interviews, you watch all our media, we have been consistent in everything we've said. UPS has not been consistent. In one account, they say, you know, part-timers make $5 less than $39 an hour. Not true. Then they say average UPS person makes $20 per hour. They don't tell you that over 100,000 UPS part-timers are making poverty wages.

That's the truth. All right. I've got one final question for you, and that is, as these negotiations swirl right now, or at least talk of them and focus on them swirls right now, there are also experts and analysts who are suggesting that perhaps you have another focus behind this negotiation, and that is Amazon and unionizing that workforce. Is that true? Look, this is the truth. We want to set the highest standard in the industry, and UPS has done that. There's no debating that. But in order to organize these Amazon workers who were treated awful, we want to show them, you know, this is what you get when you join the Teamsters Union. This is what you're going to be rewarded with. But more importantly, you're going to be treated

with dignity and respect. So it sounds like that might be something in the works. It is. Okay. Sean O'Brien of the Teamsters, thanks for joining us. Thank you. We've got an earnings alert on WD-40. The stock is jumping in the after-hour session. Diluted earnings per share coming in at 138 per third quarter versus 107 in the same period last year. Company CEO saying in the release quote, after two quarters of flat to down sales, we have returned to solid top line growth. You can see their shares are up 5% right now. Yeah. Coming up next, we will talk to co-CEO of private equity firm GTCR, which just completed what's reportedly the largest buyout financing deal since Twitter was taken private. And as we head to break, check out Kava, the recent IPO jumping

today after a number of bullish initiations on Wall Street, including buys from Jeffries, Stifel, J.P. Morgan, and Piper Sandler. Shares finished up 11%. We'll be right back. Welcome back. Private equity giant GTCR purchasing a 55% stake in payment processor WorldPay from fintech company Fidelity National. It is the largest buyout financing in more than a year since Twitter's go-private deal. Joining us now to discuss, Colin Roche, the co-CEO at GTCR. Colin, welcome. So first on this deal, four years ago, Fidelity National paid $43 billion for WorldPay. You're now getting your stake at an 18.5 billion valuation, a lot less. Why do you think WorldPay won't continue to get beaten by other payments players? Why is it a

good investment here? Well, thanks for having me on the show today, John. WorldPay is a great business, and we believe that this business will just perform better as an independent company. The agility, the innovation that comes from being an independent company is something we intend to exploit. The team there is excellent, but Charles Drucker, who formerly built the business to that state, to the sale, to FIS, he's coming back in. We're excited about his leadership. We're excited about backing him and also partnering with FIS as a co-shareholder. Tell us about what it takes to put together a deal of this size at this particular point where capital is at a premium and there isn't a lot of money, as much at least,

money to go around for these big deals. Yeah. Yeah. Well, it takes an army. It takes an army of people who are committed and focused and believe. And we're very fortunate that a good number of banks lined up with us to support our bid. Certainly Charles and his leadership and the team at the company, their enthusiasm for this transaction. Lots of work came together. I would say to your point on financing, this is the right kind of deal for this market. As you know, there were a number of transactions in the debt markets that really struggled, often very high leverage or very tough free cash flow coverages. Rates went up and a bunch of those deals really didn't perform very well. Some banks took some losses. On the other hand, this is a highly recurring business, and the leverage we're using is very moderate. So we think the combination of a scale recurring business with moderate leverage is something that should be very attractive in the debt market. So, Colin, as somebody who's done a lot of deals over the years and seen a lot of economic cycles, then the enthusiasm, as you just put it, for this transaction from the large banks that are

stepping in to extend loans, is this a one-off or does it perhaps mark an inflection point for what we're seeing more broadly when it comes to lending right now? Thanks, Morgan. I think it's a little bit of both. I do think that there is a resurgence of interest in financing the right kind of deals. As you would probably know, some of the prior deals were just written in a different environment, much more ebullient sense of where the economy was going. Now there's some economic overhang and much, much higher interest rates that come almost close to doubling your interest costs for debt. So taking less debt is a better answer today. The commitments you're going to see are going to have less leverage,

better free cash flow coverage for the interest rate environment that we're in today versus where we were 18 months ago. Does that mean that you see other opportunities? We do. We do. And we're willing to put a little bit more equity in to support that. We'd rather do the right deals now in this valuation environment when we have conviction. And that may mean less leverage. But if we do our job the right way, we take advantage of an environment where things are a little bit softer.

So, Colin, on the fintech space overall, give us your take on where we've just most recently been, where there was a lot of talk about crypto and NFTs, blockchain, et cetera, as defining fintech. To now, it seems like the conversation is taking on at least a slightly different tone about what technology really matters. So whether it's consumer, whether it's SMB, enterprise, how do you see that playing out from here? I think it's about the fundamentals of delivering commerce. If you're a small merchant

all the way through the very largest merchants, you wanna deliver seamlessly in a digital environment, you wanna manage fraud, you wanna manage abandonment, and you wanna process transactions in a way that is a good experience for your consumer. So that's bringing together software, that's bringing together security, anti-fraud technologies, and other capabilities. That's what this business does and does very well. All right, Colin, thanks so much for joining us to talk about it.

Thank you both. Have a great day. Great. Okay, so it is time now for CNBC News Update with Contessa Brewer. Hi, Contessa. Hi there, Morgan. Sweden appears to have cleared the final hurdle to join NATO. Just moments ago, the chief of the military alliance announced Turkey's president has agreed to approve Sweden's membership. Istanbul previously opposed Sweden's bid to join, claiming the country allowed terrorists to take refuge there. NATO leaders are set to meet tomorrow during a key summit in Lithuania. A New York judge ordered former Donald Trump adviser Steve Bannon to pay almost $500,000 to his former lawyers. They claim Bannon stiffed them after they helped him in several legal matters,

including landing him a presidential pardon from Trump. Bannon's current lawyer says he will appeal the judge's decision immediately. And the Air Force is delaying bonuses and pausing personnel changes as the fight continues over the future headquarters for Space Command. In a nutshell, Space Command was originally planned for Colorado, but the Trump administration planned to move it to Alabama. Biden administration officials reportedly want to move it back to Colorado because of concerns over Alabama's abortion laws. Alabama lawmakers are among those in Congress who have blocked funding for the Air Force until there is a public announcement about where the headquarters will be and an explanation

to accompany that decision. A lot going on there, John. Indeed. Contessa, thank you. After the break, Mike Santoli returns with a checkup on the American economy ahead of some key inflation data later this week. And later, Moffitt Nathanson's Lisa Ellis tells us the two payment stocks that she says are sitting at, quote, unusually attractive entry points. Welcome back to Overtime. Michael Santoli is back with a look at economic indicators. Hi, Mike. Yeah, Morgan, if it seems like Wall Street's been waiting for this recession that so many have been anticipating for a long time, it's true. And one of the reasons is the leading economic indicators, which is something designed really to predict how the cycle is going to play out, peaked 14 months ago. This is a super long term going back, you know, over 60 years here of the leading economic indicators in blue right

here against the coincident economic indicators. Just say here's the state of the economy today. This right here, 14 months ago, is when leading economic indicators peaked. It's one of the longest stretches we've gone when they've been declining in consecutive months. And every single time it's been this negative for this long, we've already been in a recession. And here we have coincident indicators at an all-time high. Now, of course, we could have revisions to what the current state of things is. We can have the coincident indicators fall apart right away. But it does bring up this issue.

And I think it's a lot of people struggling with it, both on the bull and bear side of these markets, is what is it about this cycle that has the lag effect seeming to be prolonged and also has just these underlying structural resilience beyond what we had anticipated? So this is that in one picture, Morgan. So I just want to go back to something you said. Every single time that we have seen this go on for this long, we have already been in a recession. That's right.

Now, sometimes it's hindsight because you can retrodate the start of a recession. But, yes, that's been the case historically. The shaded areas here will show you that, that those are recessions in the past. And every other time we've been declining for a year or more, it's in retrospect been proven that we've already been in a recession. OK. Are there other indicators that we've had similar, I guess, similar situations or feedback from as well where we're seeing this trend get bucked? I would I would argue the Treasury yield curve is perhaps in this category. Now, we have had instances where we've been, you know, short-term yields above long-term yields. That's

been the case for a year now on the 2 and 10 year. We've had longer periods of time before we hit a recession in that instance, but it's also pushing the limits of what the sort of average lead time has been. Although I would say, I think back before the financial crisis, it might have been a year and a half or so that we had gotten to that point and it didn't show up in a recession until after that. So a lot of these things feel like we're kind of sitting here and anticipating something that may or may not be right around the corner. All right. Mike Santoli, thank you. Maybe this time is different. That's right. It's always a little different. Question is, is it all that different? Up next, where to find investment opportunities in China following Treasury Secretary Yellen's trip to Beijing.

We'll come right back. Welcome back. Shares of Alibaba rallying over the past week after Chinese regulators issued a $985 million fine on its financial arm Ant Group. Investors are hoping this could be the end of a crackdown on Chinese tech companies. The move comes as Treasury Secretary Janet Yellen wrapped up her meetings with Chinese officials over the weekend, which she described as a step forward in putting U.S.-China relationships on a surer footing. For more on investing in China, let's bring in Brendan Ahern, Crane Shares Chief Investment Officer. Brendan, welcome. So, I mean, it's been hard to really have a long-term view for a lot of investors in China because is the crackdown the real enduring policy or is this now alleviation of it the real enduring policies? Does this between what we're hearing from about Alibaba and Yellen's

visit provide any clarity? Yeah, 100 percent, John. Certainly Ant Group is what started the regulatory crackdown going back two years ago. So I think it's somewhat fitting that this fine being finally paid by Ant Group kind of is the final nail in the coffin, kind of puts the issue to bed. And I think, you know, secondarily, besides the Internet regulation, a lot of investors have been concerned about the geopolitical relationship and this dialogue and communication you know you had the blinken trip now the yellen trip uh likely a john kerry trip that will put you know lessen some of that geopolitical risk that's kept a lot of investors on the sidelines but is that just a band-aid what i'm wondering is it sort of seems like okay china's in a little bit of a complicated macroeconomic position right now are Are they just doing this now because they kind of have to and then they're going to tighten up again, right, when they feel like they

can? Are, you know, market forces just something for tough times? Are investors going to get hosed again? No, I think in general, A, you know, the Chinese economy does need the companies we hold within KWeb, that these companies are the transmission engines for domestic consumption as it occurs online. But secondarily, remember, a lot of U.S. multinationals have been doing really well in China. You know, a percentage of their revenue is coming from China. And those companies really haven't had any beta. There's no correlation to the political risk in stocks like Apple and GM and ExxonMobil and Tesla and others. So I think it's really been focused on Chinese

equities. And we think this improvement in the dialogue and communication will help bring some of these professional investors back into the space. Yeah, it reminds me of what Greg Hayes, the CEO of Raytheon, said not too long ago about this idea of it's not decoupling, it's de-risking if you're a U.S. multinational. We've seen some pretty weak data coming out of China and a lot of traders and investors pointing to the PPI data that was out of China overnight as pointing to a potential deflation problem, increasing expectations that maybe perhaps we could see even more stimulus and the reemergence of a reflation trade. How are you thinking about that? What does that mean in terms of how you're thinking about investments right now?

Yeah, I mean, certainly you've seen commodity prices be quite weak and therefore that is reflected in the poor PPI. At the same time, China's economy faces the headwind of a slowing economy. So demand for the world's factory is going to lessen, which is why we believe you're going to see a lot more emphasis and focus on the domestic consumption story in China. And at the end of the month, Morgan, we have a very important Politburo meeting. We have the very senior officials are going to really articulate the economic stimulus, economic policy for the second half of this year. And we really do believe it's got to be domestic consumption because exports will continue to face the headwind of a slower global economy. So, Brendan, how much risk is there for Chinese Internet companies over U.S. policy on AI access? We just heard from Andy Jassy last week. He said, hey, China cloud players have plenty of AI capabilities. There's

no real issue there. But is there? And is there valuation wise? Yeah, I thought your interview, John, was excellent. And it shows that these domestic players are doing well, but also foreign players are doing well in China and cloud computing. You know, I think the Biden administration continues to articulate this idea of a small yard with a high fence, that dual use technology, technologies that have the potential to be used in military defense. It makes sense that the U.S. holds back on that. At the same time, they have to articulate the policies. They have to give transparency, or else you're going to have a lot of U.S. I mean, look at Qualcomm. Two-thirds of their revenue is coming from China.

You know, KLA semiconductor, applied materials, Texas instruments. There's a lot of U.S. semiconductor companies. They need to be able to prove that their chip, that when it's made, it's going to the Sony PlayStation factory. It's going to the Apple factory in China. And it's not being used in a potential military application. That makes perfect sense. And those rules should be articulated. All right, Brendan, thanks for joining us.

Thank you. We have a news alert on a deal in the energy sector. Pippa Stevens has the details. Hi, Pippa. Hey, Morgan. Well, Dominion Energy just now announcing the sale of its remaining stake in Cove Point LNG. Berkshire Hathaway Energy is the buyer there. They currently operate the facility. The total transaction value stands at $3.5 billion, with Dominion Energy calling it a

non-core investment, saying they instead want to focus on their state-regulated utility operations. That stock up slightly here in after-hours trading. Guys, back over to you. Pippa, thanks. And we've got another earnings alert, this time on PriceSmart. The warehouse club operator falling after the company reported adjusted EPS of $1.02 on revenue of $1.1 billion, also announcing a new $75 million buyback. The stock falling after hours, but shares are still up about 20% this year, Morgan. All right. Well, payment stocks have been underperforming the broader market this year, but our next guest reveals the two payment stocks she thinks are unusually cheap and ready to charge higher. Hint, hint. Stay with us.

Welcome back to Overtime. Moffitt Nathanson out with a note on payment stocks, saying there are two names that offer an unusually attractive entry point for investors. Let's bring in the author of that note, Moffitt Nathanson, Senior Managing Director Lisa Ellis. Lisa, MasterCard and Visa, valuations are compelling here. Why? Yes, look, it's a technical dynamic. Both Visa and MasterCard have derated about 10% year to date. You know, they perform kind of roughly in line with the market, but these are companies that compound earnings in the high teens. So they really should be outperforming. But the stocks have derated. It looks like it's very technical in nature, driven a lot by the sort of AI mania that's been going on with a lot of rotation hard into these AI-driven stocks. Visa and MasterCard's performance has been fantastic. Both companies have beat both on revenue and EPS for 11 straight quarters.

And so the dynamic we're calling out here is that when we've seen this happen before, where they've derated like this, it takes, you know, six months or so, or at least for it to correct. But then they tend to meaningfully outperform. You can look back at 2017, both stocks were up over 40% that year when we had a similar dynamic going on. Yeah. And certainly I spoke to MasterCard CEO Michael Meebeck just recently on the show, and he talked about the fact that the consumers continue to be resilient, perhaps even more so than he's expected. He talked about the strength of travel and how that has helped to propel those strong results. Take a listen. Probably on the outbound side at 65 percent of pre-crisis, pre-COVID levels of outbound travel.

So that's happening. The summers, I mean, right now, I just came back from a trip. Very anecdotally, you can't get a seat and people do want to travel. Now, keep in mind, when we spoke, the company was already, you know, in this quiet period ahead of upcoming earnings. But he sounds like a person who thinks that this travel strength is going to continue. You see it the same way? Absolutely. Absolutely. You can look back and we've kind of lost sight of it because we're three years into the pandemic, but we're still several points below where we were in terms of mix of travel. And you have to keep in mind, pre-pandemic, international travel was almost 25% of the revenue of Visa and MasterCard. It dropped

all the way down to about 16%. And it still hasn't climbed all the way back up. And that's been a big factor driving these continued beats on revenue and EPS. And as Michael highlighted, and as anyone knows that's out there trying to travel, it's absolutely continuing. I think maybe American Express gave the most recent number on it. Their travel numbers are still up almost 30% year on year this year. So that travel strength keeps powering through and keeps powering these payments companies. Lisa, how at risk are Visa and MasterCard to potential headlines as the years, as the year goes on, about a slowdown in consumer activity or overall economic activity?

Yeah, look, they, of course, their businesses are, you know, driven by consumer spending. And so, you know, it tends to cause a little bit of a rotation out of the stocks, right? There's kind of an area that people trim when consumer spending gets a little bit soft. But you keep in mind, these companies grow revenues usually in the low teens, and only about five or six points of that is actually driven by consumer spending. The rest of it is driven by cash to card conversion, you know, the secular side of it, the people still using more debit, more credit cards and less cash, not only in the U.S., but all over the world where there's still tons of cash being used. And so even in a severe recession, they still grow revenues because of that kind of continued cash to card conversion.

Back in 2009, you know, when PCE dropped, consumer spending dropped to negative five. Visa and MasterCard actually still grew revenues a couple of points. So they're not immune to it, of course. But there's a huge like secular, you know, underpinning to their businesses that powers through any sort of overall macro slowdown. All right. Lisa Ellis, thank you. Now we are just moments away from the final clue for this year's top state for business winner. Scott Cohn joins us from somewhere through that hint. Hey, John. Yeah, we've been dropping hints all day about where America's top state for business is. In the TV business, we kind of call that a tease.

This is a tease of a tease because after a break, we will have the final hint in our diabolical hints about America's top state for business and tell you a little bit more about how this study works. That's coming up. DNBC will reveal this year's top state for business. Not now. Tomorrow morning, Scott Cohn has been giving hints throughout the day. Joins us now with the final clue. Scott. Hey, John, we've been doing this study since 2007, and throughout we've always had 10 categories of competitiveness. That's always been the same. But the weight of those categories changes based on what states are talking about in their economic development marketing materials. So for 2023, here's how it works.

We rate the states based on what the states are selling. This year, with people in such short supply, everyone is talking about their workers, so workforce carries the most weight. Where are workers moving? Where are they the most productive and the best trained? Next, infrastructure with a trillion dollars in new federal money, roads and bridges, ports and airports, broadband, sites for development. We look at the economy, which states are growing, life, health, and inclusion, the cost of doing business, technology and innovation, business friendliness, education, access to capital, and the cost of living. There are some 86 metrics in our study this year, so we really do put the states through their paces.

Tomorrow morning on Squawk Box, we will reveal the state that put it all together, America's top state for business. It's where I am. So here is your final diabolical hint. Big house. Big house. Now, if that sounds familiar to you, you passed the loyal CNBC viewership test. It was on a little earlier today as well. All about our study and how this all works and all about competitiveness at topstates.cnbc.com, guys. Hmm. All right. That's all. I was hoping for a new clue, but I can't expect you to come up with another one.

Scott, I won't. We'll have to talk after Scott's off because I don't want to watch his face and see if our guesses are right. But how different are the metrics that you're using this year from previous years? What has more weight than before? Well, this year, this has been kind of a constant over the last several years. Workforce has been the number one rated category. And we're looking more closely this year within workforce at migration. Where are the people going? Because we know this is what companies and site selection consultants are looking at as they try and decide where they want to be because they want to be able to find workers.

So that's a key category this year. All the economic uncertainty. We've been talking about this the last several weeks. That makes economy very important. And within economy, we're looking at entrepreneurship this year for the first time, business formations. That's an important one. And then life, health, and inclusion with all the culture wars going on, but also things like crime rates, environmental quality. All of that is very important this year. And you can read the whole methodology at

topstates.cnbc.com. I mean, we know states take this ranking and all of this work that you do. You spend many months on this every year. They take it very, we know states take this ranking and all of this work that you do. You spend many months on this every year. They take it very, very seriously. Given the fact that this is a list that has been going on for as long as it has, have there been very specific instances where this methodology and this work that you've done has translated in some way into the real world and into business? You know, they do talk about it, and it's one of the reasons we take it very seriously, because we know that a lot of states are taking it very seriously. I can remember several years back, there was a particular state that did really well,

but their infrastructure was a huge issue. They did not do well in that category. And pretty much right after that, they passed a massive infrastructure package. So they do, they do. And, you know, is it us? I think they look at a lot of different things. We also know that that Amazon told us back when they were doing the whole HQ2 thing and they ultimately chose Virginia, that they were looking at our rankings, which kind of surprised us. And again, it's it's very humbling as we put this all together. We want to make sure that we get it right. I'm not surprised to hear any of this, knowing how much work you put into it. I am dying of curiosity for Squawk Box tomorrow morning to

hear the ultimate reveal. Scott Cohn, thank you. And John, I'm going to go. I have no idea. I'm going to guess Tennessee, especially when you start talking about things like infrastructure. Good guess, good guess. I'm going with Georgia because Big House, the Almond Brothers Band, Almond Brothers Band Museum is the Big House Museum, and old school, the oldest state school in the country is University of Georgia. So I don't know about the rub, all those, I don't know, but because of those two. I think barbecue and that could be like any number of Georgia. So I don't know about the rub, all those. I don't know. But because of those two, I think barbecue and that could be like any number of states could be a lot. But because of those, I'm going with those plus big airport. I mean, infrastructure. Yeah, that's important.

Big house to me. I was thinking, you know, Elvis Presley, Jailhouse Rock, Memphis, Tennessee. That works as well. We're going to Graceland. All right. Well, OK, that's going to do. You got CPI later this week. Right. So we've got to pay attention to that. And also can't forget the bank earnings kickoff end of the week. That's right. Bank earnings delta. We've got PepsiCo. We've got PPI. We've got claims on Thursday, which are in focus, given some of the jobs and labor data we've seen, perhaps more important. That's going to do it for us here at Overtime. Fast money begins right now.