Closing Bell - Closing Bell: Tariffs, Trade Wars & Stocks 01/31/25

Episode Date: January 31, 2025

We break down all of the latest developments from DC and what it could mean for your money with Washington Correspondent Megan Cassella and CNBC’s Senior Economics Reporter Steve Liesman. The Wharton School’s Jeremy Siegel tells us what he’s forecasting for stocks in the weeks ahead. Plus, star Apple analyst Erik Woodring from Morgan Stanley joins with his first reaction to that company’s quarterly report. And, noted value investor Scott Black reveals his top picks. 

All right. Welcome to Closing Bell. I'm Scott Wobner live from Post 9 here at the New York Stock Exchange. This make or break hour begins with this late day weakness in the market. The White House says tariffs are coming this weekend on Mexico, Canada and China. Take a look at the majors with 60 to go in regulation. NASDAQ now red. The Dow down about two thirds of one percent. S&P is negative as well. All of this really happening within the last hour after those headlines hit. The market got progressively weaker. We'll see where things head over the final 60. We will ask the Wharton School's Jeremy Siegel what all of this means now for stocks. The other big story we are watching as well. NVIDIA CEO Jensen Wang at the White House today with that stock really on the defensive. The worst week in many months on fears over new AI competition. We'll have the very latest there in just a bit as well.

Meantime, Apple shares, well, they are in focus today following that earnings report. The stock initially positive, not so much anymore, giving it all back. Star Apple analyst, Eric Woodring of Morgan Stanley here in just a few for his first reaction to that important quarter and what the stock is doing. It does take us to our talk of the tape, tariffs, trade wars and stocks. Let's

bring in our Megan Casella. She is following the latest developments from D.C. Our senior economics reporter Steve Leesman with us as well. Megan, first to you. What do we know? Scott, as of last night, we still thought there was room for negotiations with Canada and Mexico, and especially with China on these tariffs taking effect. But today, the White House Press Secretary, Caroline Leavitt, was clear that tariffs on all three of these countries will be taking effect tomorrow. I asked her specifically whether these would be going into effect right away or whether there might be some lead time.

She was clear on that point. Take a listen. The president has made it very clear those tariffs are going to be implemented in an effect. If the president at any time decides to roll back those tariffs, I'll leave it to him to make that decision. But starting tomorrow, those tariffs will be in place. Now, no clarity yet, Scott, on whether there might be any exemption process for these tariffs, whether anything might be carved out, especially oil. There had been some expectation after the president spoke yesterday that oil could be carved out of this. We do think that negotiations with the two countries could be ongoing. But as of now, the latest we can expect from the White House is that final fine print should be out on this tomorrow, that that should

be published within 24 hours. And we can likely expect the president to be making a formal announcement on this from Mar-a-Lago over the weekend. Scott. Megan, the question obviously is retaliation. And we are going to see clearly in the days ahead how these countries respond to what the White House is doing. Absolutely. And they're very likely to respond. Both countries had been vowing that they were getting their product list ready. We both saw them retaliate in 2018 when tariffs were first put in place on steel and aluminum from Canada and Mexico. So we know that that's coming. The press secretary was asked about this as well and what that would mean for prices. For example, the Canadian Energy Ministry has been out there saying that oil tariffs plus retaliation will lift gas prices

by some 75 cents a gallon. But the White House says that the president has your back, that they will ensure that consumer prices aren't hit too hard in this. But definitely something to watch, Scott. We will. Megan, thank you for that. Steve Leisman, to you on what the fallout might be for the economy. How are you thinking about this? It's not a surprise. No, it's not a surprise. Most of what I'm seeing, Scott, suggests lower GDP over time as a result of this, higher prices, though not necessarily inflation, with a real question mark about jobs. All of a sudden, there are people working on both sides of, for example, the Canadian and Mexican border, whose jobs may not be the right jobs to have

if they're not buying the products because the products are 25% more expensive. So it's a fascinating question right now. We're thinking about how companies will respond. Do they find other sources? Is manufacturing moved to the United States to consumers go buy other products and go around? Can they even buy other products? And can these things be made in the U.S. and what kind of time frame that takes? It's a really uncertain thing to try to put into an economic model.

It's a reason why the Fed has paused here. It's a reason why I'm seeing estimates of negative 0.3 to negative 2 percent in terms of, say, a 10 year impact on GDP. Note that I haven't seen any positive GDP impacts. I will say one thing, Scott, which is that one thing I've heard the Trump administration say is that, well, you all all you economists, you warned about terrible inflationary effects in 2018, and it didn't come to pass. Well, first of all, it seems like those 2018 tariffs were designed not to include products in the consumer price index, but more so that was a time of low inflation. This is a different time. And so what we could be seeing are potentially worse inflationary impacts from these tariffs,

which are one-time price increases, but they could bleed more broadly potentially worse inflationary impacts from these tariffs, which are one time price increases. But they could bleed more broadly into the inflation numbers. Those those, Steve, the commerce secretary nominee, Howard Lutnick, just a day ago, maybe it was to suggested that it was, quote, nonsense that tariffs across the board are inflationary. Sure, you may get an increase in a product here or there, but the notion that it's going to have a dramatic effect was, in his words, nonsense. It's a lot of Ph.D. folks that are talking nonsense then, Scott. I mean, I'm a little lost as to in which world you put a higher tax on something and the price doesn't go

up. Now, admittedly, there are several routes or avenues to attenuate that full price increase. For example, exchange rates. Take a look at the dollar. The dollar has already offset some expected impacts of tariffs. You can have producers eat some of the cost and the importers or the exporters. But at some point in time, somewhere, somehow, somebody is going to be paying 25 percent more. That money will not magically appear in the U.S. Treasury coffers without somebody paying it. And most of the economists speaking all of that nonsense with their PhDs suggest that it is the U.S. consumer who will pay it. That was the considerable debate the first time around. So we will have it again, apparently.

Steve, thank you very much for that. That's Steve Leisman, our senior economics reporter. Let's bring in the Wharton School professor and Wisdom Tree senior economist now, Jeremy Siegel. Professor, it's always good to have you, especially when we see a market doing what it is on these headlines. Your reaction is what? Well, I think, you know,

tariffs are the only negative of Trump's economic agenda, most of which is very good. I also, by the way, wouldn't completely give up hope on a settlement. I know a number of people, including myself, that have been in a jury room, selected for a jury, and we're ready to go. Lawyer comes in the last minute and said, hey, we have a settlement and we all leave. I can't guarantee that. But, you know, the art of the deal for Trump, let's push him to the edge and see what happens. But clearly, if it is 25-25 and then 10 on China, that is a negative impact on the economy and, I think, on stock prices. But then why do you have people like Jamie Dimon, who I think it was in Davos, said, get over it, essentially, as it relates to tariffs? Lutnick, as I said, the proposed Commerce Secretary saying

the notion that these are just across the board inflationary is nonsense. Well, you know, it's not nonsense. There is some positive effect. Is it a disastrous effect on prices? Probably not.

I mean, I've seen some research that suggests of all those tariffs come in, and don't forget, trade is only, you know, 10 percent of GDP, and if all those tariffs come in, it might raise the price level by a half or three quarters of a percent, and that's a one-time increase. So, you know, I wouldn't call that disastrous, but that certainly reorganizes supply chains, all sorts of sourcing situations. And it really depends on how long it lasts. I mean, you know, if he puts it on Saturday, I think a lot of people are going to defer for a few days. And then he could reverse it on Monday or Tuesday if another concession is wrangled from Mexico and these other countries.

So it's a bargaining tool. Are you going to get enough in exchange for the negative effect of the tariff in and of itself? And I don't think this play is over yet. It's been a wild week, to say the least, given the deep-seek story, the headlines, the sell-off in tech, what happened earlier in this week and where we are now. So how does that color your opinion of the stock market here? Well, I think that, you know, cheaper is better for the economy. Cheaper is better for any AI user.

What cheaper isn't better for are perhaps the high-end chip producers. Of course, we all think of NVIDIA as that. And, you know, I'm not an expert in tech. I've been hearing all sorts of stories. You know, can advanced AI be done on DeepSeq's program? Does it mean advanced AI can be done without the Blackwell chips? I mean, all these questions need to be answered. Autonomous driving, robots, all that. Can that be done with deep-sea type of transformation? So I think there's still a lot of questions out there. The basic thing is certainly anything cheaper AI wise is good for the U.S. economy

and good overall for the U.S. market. Yeah. You may not be an expert, as you say, in AI and tech, although you sound well versed. I will just give you that. And you are an expert, Professor Siegel, on stock market valuations, to which the Fed chair himself this week, when asked directly about economic conditions, financial conditions, called valuations stretched by almost any measure. Now, he was zeroing in, of course, on tech and on AI and those stocks that have done quite well. But what was your view on that comment? Well, so, you know, we talk about 22 as a forward-looking P.E. on S&P. I mean, ex-MAG7, which is the, you know, 493 other stocks, it's around 19, which I don't think is an unreasonable P.E. given the entire economy. So the question is, can the MAG-7, which has done unbelievably

brilliantly over the last two, three, five, ten years, maintain its prominence? And of course, what happened Monday says, well, maybe margins can't stay as high for some of them. But then again, some of these others are going to be users of it and actually have gone up after the deep seek. So not all MAG-7 is going to be negatively affected. So yes, MAG-7 is a singular event. We've never had it in the 200-year history of the U.S. stock market. X the MAG-7, I do not think the stock market is overvalued. But does this threaten that trade, which many people have obviously gone heavily into over the last 18 to 24 months? Yeah. Well, you know, when you when the trend and the narrative is extremely strong, my

research shows that it's very hard to topple a trend. It usually takes more than one blow. You know, it's like a prize fighter up there takes a blow with that and all right, and continues on. It would take something else. And then it's like a tipping point. I'm not saying that tipping point is going to happen. But if all of a sudden people say, hey, I can reproduce the Blackwell performance with cheaper chips, whoa, then you're on the next side of that story. And if margins go down on some of these other MAG-7 stocks, that becomes the other side. So this is, you usually need two or three blows to break a trend that is as strong as the AI narrative is. And you could say Monday is blow number one. Doesn't mean that two or three

are coming soon, but it means you've got to be on alert. I mean, Wednesday may have been blow number two in terms of this market thinking that you're going to get a lot of rate cuts this year, right? Well, I mean, we've talked about that and I've been doubting that for a long time. Actually, if you want to know the truth, I thought that Powell's pressure was more dovish than I thought. And he said, yeah, I still think we're very restrictive. And I mean, because not every FOMC member actually thinks that. I mean, really, let's face it. It's one to two cuts at most this year, and I wouldn't be surprised at zero. I think what's much more important is what happens to the 10-year. And by the way, I think the 10-year is really going to be dominated by what happens on the deficit and particularly taxes, which we know, you know, there's a nominibus bill, so to speak,

is being formulated by the Trump administration. How much are they going to include of all the Trump tax cuts? That's when the bond vigilantes are going to be looking out and saying, hey, you can't put all the goodies in that you wanted to. You think we're going to get another rate scare? I think that's going to be more important on the interest rate front than whether we're going to get one, zero, or even 225 basis point cuts on the funds rate. Do you think, forgive me for talking over you, Professor,

do you think we're going to get another rate scare, a backup? Because, you know, it looked like the 10-year was going to knock on the door of 5%. Now we're at 456 on the 10. The 2 is at 422. So how do you see that? Because that spooked the stock market for a little while. Clearly, they came off the boil, and then the market felt a little bit better about where we were. Yeah, and, Willie, no question that higher yields are a challenge for the market. But we also have to remember that throughout history, the 10-year on average is 100 to 150 basis points above Fed funds.

I mean, that's over a half a century average. Fed funds are now 433. So you're really talking about, you know, five and a quarter to five and three quarters would be the normal range of the 10 year. So I, you know, my feeling is I'm not, you know, I would be surprised to see much of a decline in yields, even though I'm relatively more optimistic about inflation. I think the deficit and economic growth, and by the way, AI is, if that cheap AI promotes economic growth, that's great for the economy, but it also means higher interest rates. Higher interest rates mean more are caused by that higher growth. So, you know, I think the challenges are still on the upside for yields, and we're not yet at a normal term structure. Professor, stay with me. Just a quick market check. Dow down 328 as we speak, almost three quarters of one percent. S&P negative

by a half percent. And then the Nasdaq, which was up, is now red. And we'll track all of it as we bring in J.P. Morgan Asset Management's Mira Pandit and BMO Wealth Management's Young Yu Mats. Good to have you both. It's nice to have you here, Mira. You've heard what the professor had to say. You've seen the news that Megan Casella delivered to us and the analysis that Steve Leisman brought us as well. What's your view? I use 2018 as a case study of how we think tariffs will impact the markets. So you had this drip feed of tariffs throughout 2018.

And while that did cause episodes of volatility in the markets, you're seeing that today and right now, ultimately, we also had a massive tax cut, both for consumers and for businesses. And that resulted in 21 percent profit growth. And that really supported the market for the majority of 2018. And this year, analysts expect about 15 percent profit growth. So that could continue to support the market those types of fundamentals However, the cautionary tale of 2018 is that we expect politics to be unpredictable therefore volatile markets could digest that We don't expect monetary policy to be unpredictable and what ultimately unseated the rally in 2018 because we had 19 new all-time highs In 2018 was the fact that the Fed got a little more

hawkish towards the end of the year. Markets got spooked. The Fed wanted to continue to cut into 2019. And that's how we ended up with a down year. So expect that monetary policy could be the unpredictable and unexpected dark horse this year. Hello, volatility, young you. I think that's the point of what Mira is getting at. Maybe, you know, the longer destination is still in our sights, but it could be some twists and turns along the way. Yeah, thanks, Scott. Great to be here. We do think that's probably going to be the course of the trajectory this year. Bouts of volatility, underlying fundamentals, both with consumers and corporations still healthy.

Productivity really kicking in and helping to spur that economic growth. Probably actually in our estimation, moderating inflation. We think productivity will help to alleviate some of the labor market pressures that might otherwise have been there with that degree of growth. But we do think the volatility is going to be significantly higher this year, but probably higher in the first half of the year as we're working through some of these initial deals, initial negotiations that could drag out a few or even several months. It's probably going to be a bumpy path in today's announcement, although to some degree there was some surprise that some elements of a deal were not reached or at least not alluded to. We do think that tariffs is something that is going to be with us for some time. It's going to roll through region by region and country by country here. And Professor, what happens if that's the case? In fact, what happens if these aren't temporary?

What happens if this is no art of the deal? What happens if, as Steve Leisman points out to me to tell you directly, this is how the president wants to pay for his tax cuts. He wants to have revenue coming into the government to cover the cost of what he wants to get done fiscally. And he wants to get even more than he did last time done. Well, first of all, if you do the math in any way, the tariffs can't pay for all the tax cuts that he has said that he wanted to. Even with, you know, 25 or 30 on Mexico, Canada, Europe, and even talked about 60 on China. He's starting out 10 on China. And, you know, he get top tougher on china earlier on

it doesn't generate enough revenue to cover all the extra tax cuts and the extension the uh... two thousand uh... seventeen tax cuts we should also remember that we went from thirty six percent on 21% of corporate rate, a huge

deduction, reduction in that rate. What Trump is talking about now is down to 15 for that part of production or firms that produce in the U.S. So the magnitude of the corporate tax cut is much lower going forward than it was in his first tax program. Mira, are you reassessing the tech trade after the events of this week? I think it's the most important question in the market with all due respect to the tariff breaking news and the impact of the market, which isn't even that dramatic. But this is the largest part of the S&P 500. It is probably the most crowded part of the S&P 500.

The biggest market cap companies on this planet are within this group of stocks. If we take a look at what's been happening from a broadening out perspective, the good news is it's not a market crash and it's not a wholesale sell-off. It is a rotation. And what you've been seeing is that rotation has been in train. In 2023, 63% of the overall market returns came from the MAG7. In 2024, it was 55%. Year-to-date, it's actually zero. It's actually a flat contribution from the MAG7. In fact, the MAG7 are on two different ends. There's big dispersion here where the top five contributors, half of those are MAG-7. The biggest detractors in the S&P 500, those 10 worst detractors, those are the other half of the MAG-7.

So dispersion in the MAG-7 is an important point to point out because there are going to be winners and losers here. I do not think this is the end of the AI trade, but it is phase two. And this is the natural evolution of a technological revolution. You have a concentrated number of players, then you get more beneficiaries, more players, more different competitive landscape. And essentially, I don't think that the capex that's going towards this innovation is unwarranted as long as we can continue to advance the goals. The LLMs that we have now are just the building blocks. We need to have more advanced technology, and that is what's going to allow incumbents to stay in place. Young Yu, what happens if these stocks, if nothing

else, are just in the penalty box for a little while? Is there enough elsewhere to keep this market climbing, even in the face of this tariff news? Well, I think there's probably enough there to keep the market treading water. But we do think that this tariff news perhaps changes the market psychology of looking at developments, whether it's the Fed, whether it's spillover from negative earnings reports, changes that psychology from a glass half full to perhaps a glass half empty until some of this gets worked out. So the prospect for downward momentum in the stock market is certainly elevated or higher than it was just a few hours ago. But we do think under the hood, there are good things happening in the

economy and with companies. Corporations, balance sheets are strong, consumer spending is healthy, and we do think productivity is really going to be something that is very impactful this year and surprises the upside. We think ultimately that's going to pull us through. But in the meantime, there could be some prospect of down momentum if we get this tit for tat, especially with other countries doing retaliatory tariffs. We'll see what happens over the weekend. And then as we begin a new week. Good weekend, everybody. Thanks for the conversation. I appreciate it. Professor, we'll see you soon. Mira, of course, and Young Yu as well.

To Seema Modi now, who is tracking that other big event this afternoon. NVIDIA CEO Jensen Wang at the White House today. What are we learning here, Seema? Scott, we've also learned, according to a source, that in addition to meeting President Trump, NVIDIA CEO Jensen Wang also meeting with Commerce Secretary nominee Howard Lutnick at the White House, where he's discussing China

restrictions and ways to revamp the CHIPS Act, which is seen as key to our country's national security. Now, Trump, we know, has been meeting with a number of tech CEOs in recent weeks, but it is the first one-on-one meeting with Jensen Wang since Trump took office. We're told Wang is keen to discuss the new chip licensing requirements that were unveiled by the Biden administration that would severely impact shipments of graphic processing units to a long list of countries, including countries like Israel,

which is considered a U.S. ally. Trump does have the power to reverse this ruling. The question on Wall Street is, can Wang convince Trump to do so? We know DeepSeek is expected at least to be a part of the discussion between Trump and Wong and how it informs U.S. policy on artificial intelligence as the White House tries to figure out what type of restrictions

and expert controls on China would be most effective. Scott. All right. We'll see how all of that transpires, too. A few weeks away from earnings. Quiet period. Not much they can say. And to some, that has been a little unsettling,

given all this important news this week. Seema, thanks. Seema Modi. We're just getting started. Up next, star analyst Eric Woodring is back with us. We get his first reaction now to Apple's earnings. Stock move as well, which has been a story in and of itself. He joins me right after the break here at the New York Stock Exchange. You're watching Closing Bell on CNBC.

Better than feared. That seems to be the major takeaway from the market on apple's earnings the stock giving up earlier gains though despite beating on its guidance offsetting weakness for the iphone sales in china for his first comments on the quarter let's bring in morgan stanley star analyst eric woodring welcome back it's good to have you back on this day thank you scott thanks for having me on the price action for starters what do you make of the stock up then roll? Sure. So stocks opens about three percent. Listen, let's put that in context. My estimates went up about one, one and a half percent. So three percent felt like a bit much. But at the same time, what have we heard now? We've heard about the implementation of tariffs. Where does Apple

source most of its product from China? The natural progression of tariffs on Canada and Mexico progressing to China is a headline negative for most of my group, inclusive of Apple, just given where their production stands. So I do think that the fate in the stock is more reflective of what we're hearing, what we're hearing from the macro side of things, as opposed to micro or reaction to earnings. Your own takeaway was better than feared, correct? It was exactly right. And maybe just to explain that, an inline December quarter, largely as we expected, really strong gross margins, impressive services growth of 14 percent, a bit better than we expected. Really strong gross margins, impressive services growth of 14 percent, a bit better than we expected. And then for the March quarter, you know, we had expected a guide down. We were two or three percentage points below consensus. We got a guide that was about a billion dollars higher than where we were. I would consider that better than feared. There are still challenges that Apple

faces in the near term that they do need to overcome. But in light of where expectations were, you know, a midpoint of $94 billion for the revenue guide was, as I've termed it, better than feared. Your bull case is $350 billion. How do we get there? You need a cycle. Well, I should say this. You need three things to work in tandem. You need an a cycle. Well, I should say this. You need three things to work in tandem. You need an iPhone cycle. That would be both iPhone unit growth and iPhone ASP growth.

That comes from both Apple intelligence upgrades, pent up demand and new form factors. You need strong services growth. Right. Apple just added 90 million new users in calendar year 24. You need those users to spend. If you say that those users spend as much as the existing Apple user, that's about 30 billion of incremental revenue, not necessarily just in fiscal year 26, of course, but over time. And then the third thing that you need is gross margins. You need gross margin expansion. Right now, I think we're looking at some real nice gross margin expansion, obviously, in the company. That's kind of a check the box. Services is outperforming expectations. The question comes back down to iPhone, iPhone units in particular. You didn't say China. There wasn't a fourth. I mean, how do we assess

this continued weakness in China with really no roadmap to get it better anytime soon? Sure. And, you know, when I when I say that Apple still faces near term challenges, I would put China at the top of that list. So what did we learn last night? You know, we did learn that China revenue was down 11 percent year over year off of a negative 13 percent year over year compare. So not a good performance in the quarter. We also did learn that demand in China was better than revenue because Apple drained channel inventory in China as some of these local subsidies took hold at the end of the quarter. So China didn't necessarily perform as poorly as the headline number would imply, but China is still

down, right? There is still a challenge that Apple faces in China. It's why I posed the question, is this an issue of Western technology falling out of favor, or is this simply Apple doesn't have Apple intelligence in China, and therefore there isn't a strong reason for upgrading? The work that we do, the survey work that we do, would push back on the threat of domestic operators taking share from Apple. It would support, though, the notion that Chinese consumers are looking for Apple intelligence, but they can't have Apple intelligence. And if they can't have Apple intelligence, they aren't upgrading their iPhone. And what that means is that not upgrading your iPhone leads to iPhone

revenue declines. I think that is the challenge that Apple faces. And what we did not hear last night is any real concrete timeline for when Apple intelligence does come to China. We know that Apple intelligence will support simplified Chinese starting in April. That's a good step forward. But Scott, you need Apple intelligence in China. Consumers in that market want it. But until they get it, I do think that China faces a challenge unless, of course, either subsidies work or discounting does help to drive demand. Can you can you get even to your base case of 275? Again, I said your top case, your bull case was 350. Can you get

there if China just remains this prolonged weak spot? You can't get there if China remains on the decline in fiscal year 26. It's the single biggest risk that I think about when I think about my iPhone unit forecast. Can you get there if China is flat to slightly growing? You can, but you need a really strong Americas. You need really strong emerging markets. If we said that China was growing, say, 5 to 10 percent, I think that Apple would have it in the bag. That's kind of how I think the different scenarios associated with it. But again, the challenge is it's kind of incumbent upon Apple now to bring Apple intelligence there. Right now, Apple faces challenges. It is not in the leader seat, so to speak, when it comes to accelerating replacement cycles.

All right. I appreciate your time, as always. We'll see you soon. Good weekend, Eric. Thank you. Thanks so much, Scott. That's Eric Woodring, Morgan Stanley. Up next, noted value investor Scott Black is standing by. He's going to give you his top stock picks right now, right after the break. Hi, welcome back. Value stocks off to a pretty good start this year.

The question is, where are the best opportunities right now in that space? Let's ask Scott Black. He is president and founder of Delphi Management. It's nice to see you. Welcome back. Thank you for inviting me. We'll get to stocks in a moment. But generally speaking, how are you feeling about value when the week itself

here was so dominated by questions about growth stocks? To be frank with you, if you look from the statistics from 2007 on, value has systematically led growth and large cap has dominated mid cap and small cap by a wide margin but what we do is we're bottom-up stock pickers we're indifferent whether it's large cap small or medium we're just looking for high return on equity companies to generate cash that can be bought at low valuations so that really hasn't changed over the years for us so it's not about picking the homogeneous risk class it's going to do well. I think that's why our viewers like hearing from you. You cut through all the noise and just get to bottoms up stock picking.

Let's talk some names, if we could. You have some stock picks for our viewers. SNX, TD Cinex. Tell me about it. Yeah, it's probably the quietest $61.6 billion revenue company that nobody ever heard of. It's an IT distributor. It's based in California. And essentially, they distribute computers, peripherals, etc. They also have a manufacturing process called Hive, H-Y-V-E. I've been to it. I actually visited it, where they configure basically CPUs and GPUs for

companies like Matter, for example. And that's a better business. So the company should do approximately $12.85 for the coming year. That's based on our own model. The stock is around $141, which places it at an 11 multiple. If you want to take out the 80 cents in stock-based comp, it's in about 11.8 multiple. The company will do about 13% return on equity and about 10% return on total capital. And over the last few years, they generate more than dollar for dollar

in terms of free cash relative to net income. The last couple of years, they generated over a billion dollars in free cash, and they brought back $1.2 billion worth of stock. They have a deleveraged balance sheet to begin with at 0.35, and it's a triple B minus. So it's an investment-grade company. So there are two divisions to the company. The first division are mundane businesses, like selling PCs and iPhones. And that constitutes about 43%. The more upscale thing is configuring. It's doing stuff like networking and cyber. The high business, which is making upscale computers, GPUs, that's about 57%. That business has much better margins. That does gross

margins over 8%, whereas the regular distributions are 4.4%. So overall margins are lifting as they go more into the advanced business. And now somebody's going to ask, because we just see retaliatory tariffs coming, are they big in China? The answer is no. They only have about 6% of their business in Asia. Most of it's Japan. They have almost no business in China, so you don't have to worry about doing business there. The bulk of the company is in North America, 60% of the sales in Europe is about 33%. So I guess, you know, you're buying something in 11

multiple, top line revenue growth is 5 or 6%. The share bottom line is about 10%. It's pretty good value considering the S&P multiples is 23 times. You're getting it at half the multiple of the S&P 500. All right. Let's do one more. Ultra Clean Holdings. The ticker there is UCTT. Yes. We already own Applied Materials, KLA, and LAM. But those were all 19 to 23 times. This is a surrogate play. They're big with both AMAT and LAM. LAM is their biggest customer, 31 percent. Applied materials, 21 percent. What do they do is they make subcomponents for AMAT and LAM.

These are critical things like gas, gas chromatography, chemicals, that type of thing. There's not much competition for them, except the parent companies themselves occasionally do it, but they're outsourcing it. There's a little company called I-Corps, which is about 40 percent the size of UltraClean. On a multiple basis, it's a $36 stock. We think they're going to earn $2.85 at the low end. That's my own conservative estimate, having spoken to the management. It's about a 12-7 multiple. The return on equity on this one is 14%. The net debt equity is about 0.19, so the return on total capital is 12%.

This is a smaller company. It only has a $1.6 billion market cap, but they're still generating about $125 billion in free cash. It's a well-run company. I've had the management visit me in the past and I think it's a decent value. It's selling at up to seven multiple points lower than AMAC, KLA and Liam. All right. I appreciate it. We'll talk to you soon. Scott, thank you very much. Have a nice weekend. Yeah, you as well. That's Scott Black. Up next, we track the biggest movers into the close today. Pippa Stevens is standing by with that for us once again. Hi, Pippa.

Hey, Scott. Well, investors are not shopping for one retail stock after earnings. The name that's down double digits coming up next. All right, we're less than 15 from the bell. Back to Pippa now for the stocks that she's watching. Hey, Pippa. Hey, Scott. Well, Walgreens is under pressure after announcing it will suspend its quarterly cash dividend.

In a statement, the pharmacy name said it's part of the company's broader long-term turnaround efforts. Evercore ISI estimates the move could free up about $650 million in full year 2025. And Decker's is sinking. Q3 results did top estimates, but guidance came up short of expectations. Truist saying that short-term headwinds are overshadowing meaningful momentum and growth opportunity for the maker of Uggs and Hoka. And to be buyers on the weakness, those shares down 20 percent. Scott? Pippa, thank you. Pippa Stevens still ahead. A double dose of farm removers today. We'll tell you what's behind the bouncing AbbVie and Vertex coming up.

We're back on the bell right after this break. All right, we're now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this Friday trading day. Plus, Angelica Peebles tells us about two big movers in health care. Christopher Stevens with the main takeaways from big oils earnings. Mike, we begin with you. All right. I mean, we knew tariffs were coming.

Yeah. And if this is it for the, you know, at least the beginning of market seems to be dealing with it reasonably OK. It's not like a dramatic. No, it's not dramatic in terms of magnitude. It's a one percent drop intraday from the highs. I think there was a sense out there that maybe the notion of imminent tariffs was at least a cap on the market, but not necessarily something that all of a sudden absolutely undercuts the bull case. The thing I would be aware of, I mean, I mentioned earlier about this absolutely tenacious retail investor bid in this market, and it has really kept things moving, especially on the tech side, crypto, all the rest of it, as professionals maybe have backed off a little bit. And then the really baroque rotations that we've seen, right, majority of stocks being down on a given

day when the index is up and vice versa. They're all healthy as long as they last. Otherwise, it could be if they exhaust themselves, it could be fragility out there in the market. And, you know, we're up 3 percent for the month. It's really being down 1% for the week on the S&P 500. It's probably a net win when NVIDIA completely broke down and you had some kind of underwhelming results from Apple and Microsoft. And yet you kind of power through. So, yeah, I agree. It's not a game changer. And by the way, it's almost like the threat of tariffs might be worse than the reality of them if we finally get there. But it does keep the market from getting too comfortable. Yeah. Alphabet, Amazon next week. So we still have a lot in front of us.

Angelica Peebles, we do have two big movers in health care. Tell us. Yeah, Scott, two of the names we should look at today are Vertex and AbbVie. Now, let's start with Vertex. They had their drug for acute pain approved. That drug, Gernavix, came with a broad label and there was a little bit of, you know, some concern that the FDA would limit it to only be used after surgery. And so that broad label helping the company did price that at $15 a pill, which was in line with what people were expecting. So really good news on both fronts there. And then AbbVie, they raised their long-term sales outlook for Rinvooke and SkyRizzy by $4 billion.

And remember, these two drugs are the key to life beyond Humira. And that was AbbVie's biggest drug. And that started facing biosimilar competition in 2023. So they've had a lot of questions about what's next. And now it looks like they have an answer. Scott. Angelica, thank you for that. Pippa Stevens on these moves in energy today.

What do you see? Yeah, Scott. Well, profits have come down substantially for Exxon and Chevron amid softer oil and gas prices, but a bit of a divergence for the two. Exxon beating on the bottom line helped by strength in its international upstream, notably Guyana, as well as cost cuts amidst for Chevron, however, thanks to weakness in the refining business, which did also impact Exxon. Now, Exxon CEO Darren Woods was asked about DeepSeek on the call, saying it hasn't impacted the conversations to date that they're having with their customers, adding there is still a lot of interest in gas and carbon capture for data centers. And for Chevron, the Hess acquisition is still an overhang,

with CEO Mike Wirth telling SquawkBox today that he remains confident Hess will prevail in the arbitration, saying there is a line of sight to resolution later this year. Scott? Okay, Pippa, thank you, Pippa Stevens. We're getting more news out of Washington. A busy afternoon. Megan Casella joining us now with these new details. Megan? A few more details, Scott, on tariffs. The press pool is back in the Oval Office right now with President Trump. We have not yet gotten the tape feed from that, but just based on the headlines that we're getting from the wires, it appears that he's saying now that oil and gas tariffs will take effect by February 18th. It is not yet clear if that is only on Canada and Mexico or if Canada and Mexico oil and gas tariffs

could be earlier, but we will be getting some oil and gas tariffs, he says, by February 18th. He's also saying that nothing can forestall at this point those tariffs taking effect on Canada, Mexico and China by tomorrow. He also says those 25 percent and 10 percent levels respectively could increase. And then he's also talking about additional tariffs. It looks like he mentioned steel, aluminum, copper and pharmaceuticals as different commodities where he might be considering further tariffs as well. Scott. Okay, Megan, thanks for that update. Megan Kinsella got about a minute to go. We obviously are red still across the board. We'll see what we do as we creep here towards these final minutes of trade.

Not a big surprise about this either. It's not a big surprise, although it is very telling that, you know, people woke up to this story in The Wall Street Journal saying, oh, maybe the president had been persuaded to kind of defer any decision till March 1st. So you still see the internal tension. You still see the residual hope among some short term traders that maybe we can avoid it. Maybe it really is just posturing. I guess not in reality. You have to just pay attention. The volatility index was in free fall for much of the week, and it has just perked up ahead of a weekend

because you have to be aware of the swinging headlines. All right, you have a good weekend. Thank you for everything this week. That's Mike Cantoli, all of you as well. We'll see you on the other side. Earnings and really getting into the bulk of earnings season. And then we'll continue to follow the care story as well. We'll go over time.