Power Lunch - A rally on Wall Street, recession or no recession, and an oversold stock worth owning. 6/21/22

Episode Date: June 21, 2022

Wall Street rallies after the S&P’s worst week in two years. But Wall Street economists are upping their recession odds. Kelly & Tyler ask a Wall Street pro how to invest in a slowing environment. Plus, a top semi analyst cuts his price targets for chip stocks across the board. And, will other consumer conglomerates follow Kellogg’s lead and split up? Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

We begin power lunch with a look at the markets, and they are rallying right now, and stocks are moving higher after last week's route. The White House saying this afternoon, it does not see a recession in the cards, but Wall Street economists say something different, a bit different. We'll break down the debate and what it may mean for you. And Splitsville in the shares of K-E-L-O-Double-good. As the food industry undergoes a massive shift, Kellogg breaking up its business, will other iconic companies follow, Kelly?

We will explore that. But first, let's look at the major averages having their best day of the month. The Dow just off the session highs when it was up 618, we're up 576, up 2.4% for the S&P, 2 and 3 quarters for the NASDAQ. Energy, best performing sector,

snapping back after that deep drop into bear market territory last week. The Energy Spider up 5% today. Exxon outperforming on an upgrade. It's up 6.5% now. Diamondback up 7.5%. percent. Mega cap tech solidly higher, alphabet up more than 4 percent today. Pretty much seeing green across the complex, though.

Despite today's rally, the risk of recession hangs over the market, and the White House wants Americans to know it is not inevitable. Kayla Taushy joins us with more. Kayla? Well, Kelly, that's what the president told the Associated Press last week, that a recession is not inevitable. The Biden administration publicly hopeful that the strong labor market and corporate and consumer finances will protect against any headwins, but senior officials,

behind the scenes that a recession is possible. One tells me recession odds of about one and six a month ago are undoubtedly higher today. They're now focused on policies to keep those odds down. Among the things that are being considered, a call to suspend the 18 cent federal gas task, discussed as recently as last week, moves to encourage more energy production in the Middle East, while capping prices on Russian oil to keep it on the market, and a possible reduction in tariffs on some Chinese goods. Last week, the Biden administration asked for assurances from retail companies that they'd lower prices if that tariff relief were pursued.

Executives, according to my sources, told the White House they'd try, but it's not that straightforward. Noted economists have begun sounding alarms. Clinton and Obama advisor Larry Summers, who warned early on inflation, says that all the precedents point to a recession. He told meet the press over the weekend that because the Fed must curb demand to tame inflation, quote, the dominant probability would be that by the end of next year, we would be seeing a recession in the American economy. This morning on CNBC, President Biden's top economist responded. Well, we all certainly hope that the Fed can get inflation under control without seeding too much on maximum employment. We all hope for the, you know, long for our soft landing.

But when we look at recession, we're obviously watching. That's obviously a concern. but the bones of our economy remains solid. So we have the headwind to face these challenges. Of course, the length of time that it takes to curb inflation could erode some of that strength. Kelly and Tyler. Well, and even it is interesting when I was reading the write-ups of what the president said,

Kayla, he's focused on lowering the price of insulin, which, of course, is great. I don't know exactly the mechanism by which that would happen, but why do we keep hearing about this move more than many of us? others, which he's put on the table. And obviously, it's not connected to any kind of real relief, I don't think, for consumers on the recession or inflation front. Right. Well, the reason, Kelly, why you keep hearing about that is because there is some semblance of support on Capitol Hill to pursue policies that lower drug prices. There could be a renewed push in the coming weeks to pursue a very much slim-down version of the Build Back Better proposal that failed last fall,

a last-ditch effort by Democrats to pass something on a party-line basis ahead of the midterms. And lowering drug prices would be part of that. Although when you specifically ask administration officials and their top economists, how that would help inflation. Now they acknowledge that it would only help over the medium to the longer term, Kelly. All right. Kayla, thank you, as always. Kayla Taushy.

So Washington may say a recession is avoidable, but Wall Street sends a different message these days. Goldman Sachs today saying there's a 30% chance of a recession next year, Bank of America. higher 40%. Morgan Stanley CEO James Gorman sees a 50-50% chance, as does city's top strategist, Scott Cronert. So what happens if these predictions are accurate and what does it mean for your money and investing? Let's bring in Jim Tierney, A.B. CIO of U.S. concentrated growth. Jim, welcome. Good to have you with us. I see that you point out in your note that some measures of inflation have rolled over. Lumber has come back down. A container.

shipping prices coming down. The housing market may be slowing a bit. So I get the idea that maybe you see some signs of slowing inflation, but I'm not clear on whether you see a recession in the cards either later this year or next. We definitely see the seeds of slower inflation. As you mentioned, housing really has slowed down. That will ultimately affect home prices home prices over the next year or so. Lumber has come down to 2018-2019-type levels. So all of those are positive, and we're also seeing a lot of news and headlines in terms of companies pulling back on hiring, and the labor side is a big inflationary input. But to get to your point, which is, does that automatically mean that we go into a recession?

I think it's tough. We're headed in that way in terms of significant economic pullbacks. And so then the question becomes, if that's where we're headed, how do you invest in and what's attractive right now? Well, so let me just put a fine point on it. You think inflation is an elevated possibility or a probability. And obviously that would mean slowing corporate earnings. It would take, I assume, away from some of the, or maybe it would favor the companies that can have enduring growth under those circumstances. What's interesting is we've had a whole lot of pricing by corporate, but it feels like the pricing is now getting a little bit tougher to come by. You heard Kroger last week talk about pricing pushback.

You saw the Target news, the Walmart news. So I think pricing is going to get tougher. So that will really advantage those companies that do have that really strong underlying pricing ability. So I'm still not clear on whether you think a recession is in the cards or not. Yes, no. I think there's a high likelihood or a high probability that we do have some kind of a recession over the next 12 months. Okay. Absolutely.

So now, how should I invest? I think you look for companies that have products that are indispensable. You have companies that have other drivers of growth. Look at Charles Schwab. As rates go higher, Schwab benefits from higher net interest revenues. They also have cost cutting from the TD Ameritrade deal when the broker dealers come by. So there's a way that you can invest a company that we think can outrun any kind of a recession. Nike, Microsoft, those also screen well to you.

Nike, even with what we might be going through consumer-wise? I think Nike has been undersupplying the market for the last couple of years. When their supply chain gets fixed, we'll see what the underlying demand is. But I feel good about Nike's chances. Microsoft, I feel great about their chances. You're not going to turn off your office subscription just because we're in. a recession. So the underlying demand for a company like Microsoft is very strong. And I think they have a real tailwind behind their cloud business that should allow them to grow right through a recession.

And when you look at all three companies with really depressed PEs versus where they were just six months ago, to me, that spells opportunity. Last time we spoke, Jim, a couple of months back, you were more confident in the economy's sort of self-correcting ability. What do you think about that now when it's obvious the Fed is trying to single-handed, kind of push things through a correction very forcefully now? I think the really tough part is where we're seeing some inflation that the Fed just can't control. And that's on the food and energy side. There's just nothing that the Fed can do to get that to pull back. And I just don't see a solution for that in the short term. Certainly longer term,

they are commodities and they will correct. But that's the pressure that the Fed is facing right now. Does that make you bullish then? You haven't named energy stock. or food stocks, well, it's hard to find food stocks of benefit. But you know what I'm saying? Does that make you as an investor want to chase them higher or no? We're a growth investor. We're looking for secular growth companies. I'm not convinced that there's that much growth. I do think there's a great cyclical trade here, but it's not really what we're trying to do on a core portfolio basis. All right. Understood. Jim Tierney, thanks for all your time today. We appreciate it. Thank you. Coming up with multiple thinking like Jim was just discussing,

concerns about a weak consumer, inflation, and macro headwinds. One analyst says it's time to sharpen your pencils when investing in the semi-space. And the more he sharpened, the more he cut his targets. He joins us next. Plus, the most oversold stocks in the S&P that are ready to bounce. Netflix tops the list, down 71% this year. Is it a buy? Find out in today's three-stock lunch.

And as we had to break a look at shares of Target moving higher after the CEO reiterated with his outlook for a strong back half of the year. Says he's confident they're making the right moves to manage inventory. Stay with us. Welcome back, everybody. Pretty strong rally for the NASDAQ between 2.5 and 3% today. The semiconductors are helping with that. Every member of the Van AX semi-ETF is higher, led by Nvidia, KLA, and applied materials,

Nvidia's up more than 6%. But the index is still down 30% year-to-date. And our next guest says, investor sentiment is still firmly in peak cycle camp. and he's cutting his price targets across the board. Stacey Raskin joins us now senior semi-analyst at Bernstein. All right, Stacey, let's pick up the discussion where we left off last hour with one investor, not a semi-specialist, just a typical kind of value investor saying that he thought NVIDIA would be the kind of stock you could own here.

What would you say in response to that? You agree with him or no? Yeah, I think it depends on your time frame. So, Nvidia's got a wonderful long-term story built through on Data Center. they've got near-term product cycles in that space as well. And I mean, they're killing it in that business. Where people have been nervous on NVIDIA is not that, though, it's around the gaming business,

and particularly around cryptocurrency, which, as we all know, has been a bit of an issue, especially in the last couple of days. People are a little nervous about sort of the near-term gaming trajectory in the wake of potential shortfalls from crypto. And so that is maybe a little bit of a near-term risk. Now, to the company's credit, they actually did take numbers down a couple of weeks ago when they reported. Right.

And so that's a good thing. You could argue that maybe they could take it down a little more as we go through. So I think it just really depends on your horizon for that one. I think if you're owning it for the data center story and you can live through volatility, as we've seen, it is a volatile stock. That is one that you could own, but you're owning it for that story. So let me ask you. I do think at some point, by the way, gaming and crypto and all this won't matter anymore. Data center, I've got bigger than gaming for them this year.

So that's a trajectory. No, and that's helpful as investors try to sort this out. I guess my broader question, when we say that you're cutting price targets across the board, as you're sharpening your pencil, this might be a dumb question asked, but are you getting more or less bullish on the space, cutting price targets, but at the same time saying some of these valuations have corrected too far to the downside, maybe like AMD, Qualcomm, and maybe some others. Yeah, so look, at a minimum, I think it's time to start sharpening your pencils on a few of these names.

So if you look at the space itself, multiples have compressed quite a bit. They've come down about 40% from the peak that we saw in the beginning of January. Now, a silver lining is that is as much or even more than we typically see in a typical, like, a peak to twelf kind of cycle. What investors are looking for right now, like perversely is earnings, is earnings revisions, negative revisions. They want to see expectations come down. That's why the multiples have done. Multiple come first, earnings come second, and then people can feel comfortable buying the stocks. Broadly for the space, multiples have kind of normalized, but we haven't seen panic.

But there are a few names that I could argue valuations do price in a little bit more panic. In my coverage, those are names, especially names like Qualcomm, which is trading at nine times earnings. It is well below its pre-COVID trough simply because anything touching a smartphone is death, although their exposure in smartphones is better. There's a content story and a diversification story that's really playing out and they're doing really well. The other one is AMD, which is trading, oh, I don't know, 16 times earnings maybe. It's pre-COVID trough was 24 times. There's a wonderful growth story there.

They've got a lot of levers that I think actually can carry things. They just reiterated guidance at their analyst day a week or two ago. And as it comes to Intel, their primary competitor, they are absolutely killing it in the data center. And Intel even basically admitted at their own analyst day a couple of months ago, A&B is going to run over them, at least for the next two years, maybe longer. And so there is a story there that at, you know, 16 times earnings or wherever it is, I think this is a great time to be sharpening your business. It's so amazing that AMD has flipped the tables on Intel because for so many years, Intel was the gold standard.

And AMD was the tag-along, and now it's quite the opposite. So let me ask you this. You mentioned, as an aside there, anything that touches the cell phone is what your word was, but not good. Why is that? Why is that? Smart phones are weak. They've been weak, especially Android smartphones in China. have been very, very weak, and they got even weaker recently because of some of the COVID lockdowns we've seen

there. So that's just a market that has not been great. And anything touching that market has been had. And some of these things have been coming up and even a little more, I think, than maybe they should have been interesting. Interesting. And obviously, Apple's using more of its own chips in lots of things, I assume, including. Apple's actually okay. The Apple supply chain, I mean, the Apple units look all right. Yeah. We can argue about internalization of silicon. It's a counterfeitualysis for Qualcomm, although it should already be in the numbers. So I'm kind of, I'm inferring from what you're saying that the great sell-off in semis overall is in the seventh inning or later. Am I, am I intuiting me correctly?

I hope so. I hope so. That's the thing. And so the issue is usually when numbers start to come down, you do see multiple start to come up. The problem is you always get that period of a double whammy. And so it turns out the best time to buy the stocks is after numbers start coming down. but if you could be perfect and anticipate the trough, a couple of months before the estimates hit bottom,

that tends to be the best time. The worst time to be holding, usually, though, is right when numbers come down. So investors want to see cuts before they feel like comfortable buying them, but they don't want to buy them until they see the cuts. And so that's kind of the stage we're in right now. Yeah. Stacey, thank you so much.

We'll see you again during the summer. Oh, you bet. Anytime. Thank you, my friend. Stacey Ragsson. All right, coming up, culture wars, more and more states finding themselves or inserting themselves at the center of social debate.

whether it's the Supreme Court in abortion or LGBT rights, we will discuss how this could change our rankings proprietary of the top states for business. And as we had to break, a reminder throughout the month of June, we celebrate Pride Month. Here's Goldman Sachs partner, Susie Scher. My advice to the LGBT community is to be out at work. When I first came out at Goldman Sachs in 2000,

on the eve of the birth of my first. child and I now have four. I had no idea how being in the closet was preventing me from connecting with my colleagues and my clients. Authenticity is an important part of your brand. So come out and be out. All right. The Supreme Court, of course, taking up a number of cases that tackle the culture wars, a ruling on the biggest one abortion, could come as soon as Thursday. The court could, as many expect, send the issue back to the state. where some are arguing this isn't just a moral issue. It's an economic one.

Scott Cohn is in Orlando, Florida, a state that is already learning about what happens when culture and the economy collide. Scott. Yeah, Tyler, one of our categories in our America's top states for business study, which we will release three weeks from today, is life, health, and inclusion.

And what's happening in Florida is why this is so important. We're talking about the clash between Disney and Governor Ron DeSantis, over that new education law that the critics call don't say gay. Disney opposes it. Governor DeSantis had Disney's tax credits here at Disney World revoked, and now things really start to get interesting. You saw what Governor Ron DeSantis had to say about Disney.

This state is governed by the best interests of the people of this state, not by anyone will corporation. Left unsaid, Florida is still planning to pay Disney more than half a billion dollars in subsidies to move 2,000 jobs here from California. But now Disney has just announced it will delay moving the jobs from California, which was supposed to start this year, until 2026. The company isn't saying exactly why and didn't respond to our emails. But some employees who were told they'd lose their jobs if they didn't move were demanding

the move be stopped. Florida Democrats, like State Representative Ana Ascomani of Orlando, say this is what happens when politicians wage culture war. It has an economic ripple effect where companies who are trying to attract top talent realize that they can't do that in a state that doesn't welcome a diverse populace. A spokesman for DeSantis declined to speculate on why Disney is delaying the expansion. And by law, the company can't collect the tax credits until it creates the jobs. But the spokesman said Florida is booming regardless. leading the nation in state-to-state migration.

Disney is an important employer, he says, but it's not the only major company or industry in Florida. Those other companies are watching, though. We surveyed the CNBC Global CFO Council. 50% of the respondents said that it's important to do business in a state where the laws are open and inclusive. Just 35% disagreed with that statement. And the stakes get even higher when it comes to abortion

by more than two to one, the executive said that the state's restrictions on abortions could have an impact on their location decisions. You can read more about our study, our methodology, inclusiveness, and everything. Our top states for business revealed July 13th. Read about it at topstates.c.com. Can you go back to that one statistic where it was something like 35% of CFOs say a reputation for inclusiveness is not important in where the business is located? Did I get that number right? That's right.

That's right. They disagreed with the statement. It's important to do business in a state where the laws are open and inclusive. That's amazing to me. It's amazing to me in today that more than one out of three would say that has no influence on where they do business. Does it surprise you? Yeah.

And you know, a little bit. I mean nothing is unanimous when you're talking to business exactly. And we know that it's important, particularly in this area of workforce shortages. And that's why it's so important in our study. You want to be able to attract as broad and diverse of a workforce as possible when workers are in such short supply. And that's why you have companies like Disney, albeit under some pressure from their employees on this law in Florida, that they're coming out and they're saying that the states need to back off, but the states, many states, are having none of it.

oven. All right, Scott Cohn, we look forward to the great reveal, which will be, what did you say, two weeks from today. Three weeks, July 13th, mark it on your calendar. Three weeks. I'll mark it on my set my DVR. It's all good. Thanks, Scott. Good to see you. I think it's Samus Prime Day, fun time of the year. Oh, is that right? Think so. Let's get to Sima Modi now for our CNBC News Update. Seema. Good afternoon, Kelly. Here's the CNBC News update at this hour. The January 6th committee is hearing from the Republican Speaker of Arizona's House about a phone call with former President Trump pushing him to question Biden's win in the state. You are asking me to do something that is counter to my oath when I swore to the Constitution

to uphold it. And I also swore to the Constitution and the laws of the state of Arizona. And this is totally foreign as an idea or a theory. to me, you're asking me to do something against my oath and I will not break my oath. In other news, Russian officials saying two Alabama veterans captured while fighting in Ukraine could face the death penalty. The White House responding by saying this news is, quote, appalling. The two are believed to be the first Americans captured since the invasion began. And the U.S. Forest Service is taking the blame for multiple miscalculations over a planned fire went wrong, causing the largest wildfire in New Mexico's history.

President Joe Biden assuring residents the federal government will take responsibility for its role. Tyler, back to you. All right. Thank you very much, Seema. And ahead on Power Lunch, splitting Staples, Kellogg splitting its company into three parts, should other consumer brands follow in its footsteps. Plus, today's three-stock lunch will break down oversold names that could be due for a bounce back. Power Lunch will be right back.

Time flies when you're having a round. rally. There's just 90 minutes left in the trading day. And we want to get you caught up on the market stocks, bonds, commodities. And Splitsville in the Staples sector, let's start with the rally. The Dow, as you see, they're up 630 points or better than 2% today. Gross stocks, which have been beaten down so far this year, they are rising. Tesla up 12%. Chinese tech company, Pinduoduo, almost nothing more fun than saying that. Up 10%. Data Dog up 7%. And Splunk rising 6%. So there you see, Splunk, no plunk there. It's up five. Bitcoin rising alongside other cryptocurrencies now back above $21,000. What a weekend it was in crypto if you were watching. That's sending crypto

stocks higher, including Coinbase and micro strategy. Now let's move on to the bond market where yields are rising to start the week. Here we go again, Rick Santelli. Absolutely, Tyler. Deals are definitely on the march, but there's a couple of things we should pay attention to in exactly the path interest rates are taking. If you look at one week of the 10-year, you'll see that it was on the 14th last Tuesday,

the day before our Fed raised rates, three-quarters of 1% that we shot up just a whiskershive 3.5, 350%. And if you look at what the guilted, it sprang up to 2 and 3 quarters percent. If you look at what the boom did, it sprang up to 194. So we are all below, and all central banks, of course, that I referenced outside of the ECB, either have embarked on tightening, like the Bank of England or the Swiss National Bank or our bank,

but the ECB is on course to tightening, markets providing the impetus, a bit of a push, so to speak. But the fact we're below those spikes is offering to many a path of potentially a soft, landing because of the slowing that many believe is being caused by the Fed and the central banks tightening. And finally, there's one central bank that'll have none of that type of take away the stimulus religion. That's the bank of Japan. And they now nearly own half of the JGB 10-year market.

They've purchased over a hundred billion of them so far defending one quarter of one percent. That's almost 14 trillion yen in counting. And the damage that's done to the yen? Well, you could see for yourself. Fresh new low of the Yon versus the greenback going back to September of 98. Let's call it fresh 24-year low. Tyler, back to you. Time to travel to Tulsa. Rick Santelli, thank you. After closing down nearly 10% last weekend, breaking a seven-week wind streak oil back in rally mode today. And Pippa Stevens has the numbers. Hi, Pippa. Hey, Tyler, and that is right. Oil is in the green today, although not nearly enough to make a dent in last week's losses. Despite these high prices, summer fuel demand is remaining strong, at least for the time being,

which is putting a floor on oil's declines. Let's check on prices WTI at 11058 for a gain of 1%. Brent crude up half of 1% at 114, 64, now gas down about 2% at $6.82. Now, energy stocks are also bouncing back today. The sector up about 5%, making it the top performing S&P group. Still, though, down 11% for the month. And Goldman Sachs said today that they've gotten questions about whether the energy rally is over, and they don't think it is. They noted that buying each of the prior three dips in the sector yielded strong returns.

And so their top picks looking forward are Suncor, Pioneer Conoco, and Schlumberger. Tyler, back to you. All right. Thank you very much. Pippa. Well, Kellogg shares are trading higher after the company said it will split into three companies, cereal, snacks, and plant-based foods. So will other consumer conglomerates consider a similar move?

With us is Michael Lavery, senior research analysts at Piper Sandler. Michael, welcome. It is great to have you with us. Let me just ask you whether you think this is a smart move for Kellogg, and does it change your view at all? You have a sell rating on this stock. Could this change that? Would you look at the company differently under these terms?

It certainly is interesting, and thanks for having me on. The celebrating we have is related to our concerns about consumer down trading. We've surveyed consumers about how they're responding to inflation pressure, and they point to me primarily, but also surprisingly, Serial is where they expect to cut back and trade down as prices rise. So that's unrelated to this news today, obviously, but it does position them differently because importantly Kellogg's, even though everyone associates the name so closely with cereal. Serial is only about less than 20% of their portfolio. So if they spin that out,

I think they probably reasonably expect the remaining 80% of the business to get treated with a different lens. And the remaining 80% of the business is the snack foods part, and I guess the plant-based part, though that is a much, much smaller portion of the business. Let's move on to one of the key questions, and that is what kind of template does this set, if any, for other companies in this sort of packaged goods marketplace, like Campbell's, like General Mills, like Mondalese. I think it's important to keep in mind that portfolio optimization is constantly going on for all these companies, both from acquisitions and divestitures, shedding businesses that

are slower growing or not growing at all, and trying to find acquisitions that, of course, are faster growing. And so in the sense that cereal and the plant-based meats together are by, about 20% of the current portfolio, it's a fairly significant size relative to a lot of the deals that tend to be a bit more ordinary. But this is similar to that. So in one sense, there's nothing completely new. That said, there are companies like Campbell's Soup, for example, which has a close to 50-50 split between its snack segment and its simple meals, which is of course the soup and sauces. It's gotten the question of what they consider splitting. So far they've maintained

they're better off together. But that's one that might be interesting to watch if this looks like this process is really beneficial to Kellogg's. It could certainly keep, you know, other companies adding something that might be a little bit more dramatic than they could have considered in the past. Well, and I'm sure the bankers and the consultants are all over these companies with tons of pitches. But Michael, I look at the market reaction to Kellogg and it's pretty muted. Up 2.6 percent. Is that even a vote of confidence in this plan on a market day like this one? I think it really points to some of where we're focused, which is there's a lot of dis-centered. from these sort of transactions.

And same as when you make an acquisition, you get some synergies. They go the other way in this case. You've got two companies now that'll have new public company costs. They'll have to bear. They won't have the support of Kellogg's existing Salesforce and distribution, et cetera. So there really are incremental costs.

We think that it could be at least 1 or 2% of current total company sales. That may be on the low end. We typically see synergies from mergers that are 3% of sales or more. Right. And so that's one thing to watch that I think is a big part of how the market may be keeping up. I don't know what Kellogg's market cap is, but could this actually be a moment?

Should there be more consolidation, actually, not deconsolidation. Should some other player in this, you know, a rival, you know, who post general, I mean, who's got overlap here? Should there be consolidation of either Kellogg taking someone else out or being taken out? Well, if you mean for the serial piece in particular, it's unlikely you've got Kellogg's and General Mills both with positions that are somewhat similar size. Sure, Kellogg's as a slightly number two player. It'd be the smaller players that would be the ones that might participate in any further consolidation. And so that wouldn't really involve them.

But you never know. Obviously, Kraft Heinz was trying to be a consolidator in the space. They didn't get too far past the Kraft and Heinz deals as far as anything on a large scale. But it is, you know, to your point, lots of bankers involved that keep, you know, these wheels moving. And so you never know. Or maybe they could just sell the cereal business outright. I don't know why I keep trying to come up with different options, Michael, but a vote of confidence for a deal like this should look like a stock gain of what, 10% or so in a session, don't you think? It's hard to pinpoint.

But, yeah, I think your visceral reaction is right, that it seems like this isn't the enthusiastic response that the company was probably hoping for. All right. Michael, thank you very much. Interesting viewpoints there. We appreciate it. Michael Lavery. Thanks for having me. Up next, we turn from breakfast to lunch. It's our weekly working lunch with John Ford. He's got the CEO of a startup helping tech firms, hire coders. We'll dig into that next. Plus, fight or flight, airlines are struggling to keep up with demand. They're canceling a ton of flights again this weekend. This is the battle for Spirit Airlines intensifies. We've got the action next.

And let's look at the Dow as we head out. It's back actually at new session highs up 645 points. We're back in a moment. Welcome back, everybody. There are plenty of cross currents in this economy, as some companies announce hiring, freezes and layoffs, while software programmers still remain in high demand. Today, John Ford brings us up close with a CEO

whose startup helps clients identify tech talent that can do the work that matters, John. Yeah, Kelly, Amanda Richardson is CEO of CoderPAT, private company that cuts through the traditional interview process by giving job candidates coding tests that are close to what they'd really do in the workplace. Richardson's own path to leadership was stacked with challenges. She started off in finance straight out of college on September 10, 2001. She says as a 22-year-old starting off at a hedge fund, she quizzed the CEO of Eastman Kodak

about the digital strategy. I asked the CEO something about, you know, downsizing plants and like the fixed cost of the business and switch to digital, which, you know, there's a whole generation of people who are like, what are you talking about? But pretend, you know. And the CEO looked at me and said, when I took this job before you were born, and I don't remember what he said for the rest of the sentence, but that was like one of those scathing moments. And I literally, like, somewhere between like pinching my own skin and like taking a deep breath is just like, all right, we're going to face these challenges. And I think maybe you're right. Maybe I've just always been in an

environment. Like, if you think you're so good, come prove yourself. and having that challenge. But, you know, at the end of the day, you know, for the girls out there, like, I always have imposter syndrome. I always worry, like, I should have done this better. I miss this opportunity. Like, I'm not sure I can do that. Part of CoderPath's purpose is to cut through convention and preconceived notions

on software talent and figure out who can actually build using the software languages and processes the hiring company needs. Amanda says that's important because a lot of corporate interview tactics and come across more like hazing rituals or endurance tests, that can be a problem if the job actually involves more thoughtful, focused precision. I think the important thing the assessment allows is it gives the candidate space and time to work in a more natural environment. So the challenge to live interviews, and this is true of all industries, but is particularly pronounced in engineering, is that you end up in a situation where you're more in a stress test and like how quickly can you

answer questions, how quickly can you think through a problem? How comfortable are you working through a technically complicated challenge while explaining it to somebody else while being judged and stared at and making typos, right? Like, it's just awful. Like, I don't watch you write an email. Like, please don't watch me write code. So so much of what gets interpreted in that live interview experience can create a lot of bias and may not be relevant to the job. So a challenge for Amanda now is going to be showing. the importance of CoderPAD in an uneven economy. If the corporate focus stays on data and measurement, though,

that could be good for CoderPAD in its pitch that it helps companies figure out whether candidates have the skills that really matter. Go ahead. I mean, I was just going to ask the kind of obvious question. How do they make sure you're not cheating? Well, it's a live interview, right? And the problem to work through is complicated.

So you're kind of on, but not on in that sense. So it's kind of like remote testing, but we're not sitting in person together doing it. Kids are doing standardized tests in the same sort of environment these days. The company has the option to say, okay, the live interview portion is worth 20% of your grade. The problem solve is worth 30% of your grade and other things are, is that the way it would work? That's the way it works. This is a piece and it's a longer process of actually having to code and work through a problem, but not doing it in a pressure cooker environment where you're standing in front of.

of a whiteboard, you know, that kind of thing that happens. There's other companies doing this as well, though, right? You know, I don't know how many companies are doing this specifically, and CoderPAD is majority owned by private equity. They're small and scaling up. It's a relatively unique approach to interviewing, because generally there's a big culture started by the likes of Google in the early 2000s of how many golf balls can you fit into a school bus.

How many marbles in the Empire State Building? Which really has nothing to do with coding, but was a way for filtering for a certain type of personality and thinker. And there's still room for that, probably in certain organizations. But really when it comes down to it, a lot of companies just want to know who can code this, right, and actually work with people. And there are different ways of testing that. Even Google has gotten away from doing that kind of question.

They don't do it anymore. All right, John. Thanks. Appreciate it. John Ford. Coming up, down but not out. Some stocks have become so oversold during the recent sell. that they may be overdue for a bounce. We will look at streaming, selling, and sports in our three-stock lunch. We'll be back in two.

All right, welcome back, everybody. Time for today's three-stock lunch, with stocks snapping back today after last week's brutal sell-off. CNBC Pro set out to find the most oversold names in the S&P 500. The team looked for shares trading furthest from their 200-day average price, and they screen for names that moved in greater increments. than the market on a daily basis. Now, three of those oversold stocks are Netflix, Under Armour, and Etsy.

Joining us now is Ava Otto, C-O-O-and-Chief Investment Strategist at ER Shares. Ava, welcome. Let's kick it off with Netflix. What do you think? Buy-sell or hold. Buy, but by small amounts, we wouldn't overweight. And we like the transformation we have seen. It has reduced its FGNA costs in,

its gross margin, improve its EBIT margin. So we want to reward this side. However, it's not a fang for us anymore. We have already replaced the end in fangs with Nvidia. And secondly, over the last five years, the stock performance has been flat. However, the key executive has compensated himself with close to $2 billion.

And that's misaligned with the stock performance. So we want to be sensitive to this factor, as we see more and more companies such as Docking sign down on the store. sign now on the spotlight. Wow. So Netflix, not a buy for you here. What about Under Armour? So, no, Netflix is a buy, but just small positions. Under Armour, we're not buying, never owned, for many years of years we haven't owned, we would sell. And that's because it's a company that's struggling in its area. It's in all three key areas. SG&A is skyrocketing at the same time, gross margin is dropping.

And so we don't want to be in this area compared to its fears. It has half the revenue growth. One fourth of the income margin, we think there are much better names in the space. All right. Let's move on to the last one. And that is Etsy. What do you think here? Etsy is a hold.

We own it. We hold. We are not buying more. We think it's going to move with the market. However, a recession could be good for them because they are a clear. leader in the space when it comes to its profitability. Most of the companies in space are not profitable. Etsy is.

And so with the recession coming, there is the likelihood that their smaller competitors, unprofitable ones, will be pushed out. And so Etsy might get the market share from there too. All right. Thank you very much. We got sort of a buy-ish, a sell-ish and a hold-ish. Traffic light. Yeah.

Eva, thanks. Eva, Otos. We appreciate it. Still to come, a bitter saga. JetBlue raising its offer to buy Spirit, the latest when Power Lunch returns. The bidding war for Spirit Airlines heating up. JetBlue increasing its offer in hopes it'll beat out rival Frontier to create the fifth largest U.S. airline. Spirit and Frontier shares are higher today's Spirit by 8%.

JetBlue just turned lower. Villabot has the latest twist in this battle for the skies, Phil. Kelly, this is at least the third revised offer that we've seen from JetBlue when it comes to acquiring Spirit. Will it do the trick? Well, time will tell. We will know within 10 days likely. Here is the revised offer from JetBlue. 3,350 a share is what they are offering to acquire Spirit. That's an increase of $2 per share. And there's also the agreement, or they would like to make an agreement,

that they'll pay all of the Spirit shareholders a buck 50 once the deal is approved. That is payment, whether or not this is ultimately rejected by regulators or not. So as you take a look at shares of JetBlue, remember, Spirit is talking with JetBlue about a possible acquisition. That is a change from, say, three weeks ago, when there was no discussion between the two carriers. And then when you take a look at shares of Spirit, naturally moving higher today, what, almost 9% higher, the shareholders are scheduled to vote on June 30th. So just 10 days from now is when there is a shareholder vote scheduled. And as of right now, as you take a look at shares of frontier, the agreement is still in place between, Spirit and Frontier. It'll be interesting to see whether or not this latest offer prompts Frontier to

say, okay, we'll step up and we'll increase our offer. I think this is going to play out over the next week. I don't think this is the last of what we've seen in terms of a potential bidding process between JetBlue and Frontier. Is there a breakup fee for Frontier and Spirit? There is. And that was part of the last offer from JetBlue, where they raised it up to $350 million. Reversed it. breakup fee, meaning they would pay it regardless of what happens, you know, with the regulators. You know, so if the regulators say, it ain't happening, they're paying that $350 million. That's part of their latest offer, two offers ago, but it's also in this one. Phil, why do we keep having such bad traffic and cancellation problems at airports? I mean,

don't the airlines know when they sell the tickets, how many pilots to book? What is the problem here? Well, it's a combination of issues, and I know that sounds very simplistic, but you have no slack in the system. That's the easiest way to put it. In other words, the airlines are trying to maximize their ability to finally turn a profit. So they have booked these flights. And by the way, they've brought down their schedules dramatically, more than 17 percent from what they originally planned at the beginning of the year. But there's just not enough slack in the system in terms of if there is a flight canceled, there is a reserve crew that is ready to step in because of bad weather, et cetera. And part of this is also the fact that you, the fact that they're not,

that you had so many pilots who took early buyouts, early retirement, the training system is just not up to speed, guys. And now you've gotten an issue. Do you have enough training pilots? I know that's not something the public thinks about. We think about only the person who's getting in the cockpit at an airport and flying is somewhere. You need training pilots to get these guys through the training system. Fascinating stuff. Tyler could do it. All right. Thanks for watching. Phil, thank you. And everybody, thanks for watching.