Power Lunch - A rally on Wall Street, the dollar dilemma and Netflix on deck. 7/19/22

Episode Date: July 19, 2022

The rally on Wall Street gains momentum this afternoon as traders bet the market may have found a bottom. Plus, King dollar is becoming the king of all problems this earnings season. The stocks to buy as the strengthening greenback eats into profits for the major multinationals. And, why Netflix’s future could be determined by its quarterly results after the bell. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to power lunch for a Tuesday, a hot, hot, hot, Tuesday. Hot on the markets? Hot probably where you are. I'm Tyler Matheson. Here's what's ahead. King Dollar becomes the king of all problems. This earnings season for many companies, the ascent of the greenback is eating into profits for major multinationals. And the issue extends into virtually all corners of the market.

Plus Netflix on deck expectations low. Some are betting. Subscriber losses will be high. Shares down more than 40% over the past three months. A top analyst will tell us whether this is the bottom for that, the leagered stock. First, though, a check on the markets, and as I said, they are hot, hot, hot. The Dow up more than 2% at 31,740, up 666 points. The S&P up 2.5% up almost 100 points, 3927.

And NASDAQ, the king of them all today, almost 3% higher at 11,000. 689 on pace to close above its 50-day moving average for the first time since April 7th. Chip stocks among the best performers in the NASDAQ 100, the SMH on pace for its first three-day win streak since late June. And Twitter shares trading higher after a Delaware court judge granted Twitter's request for an expedited trial in its murder, merger litigation with Elon Musk. Somebody there, Kelly, may be calling it murder, by the way. Exactly, Tyler, thank you very much. All right, he mentioned the dollar.

Let's start today with the dollar dilemma. While the greenback has seen a slight pullback in the past few days, it's been trading at its highest levels in 20 years and has become a widely discussed earnings headwind that we're only just starting to really hear about. In fact, Morgan Stanley says the rally in the dollar in the past year translates into an 8% headwind for S&PU EPS growth. Everyone from IBM to Hasbro and Microsoft

and the commodity complex have all taken hits as a result. The J&J CFO summing it up perfectly this morning when asked why they lowered guidance. It's all the strengthening dollar, he said. Our operation guidance is the same. It's the strengthening dollar. So how are different parts of the market handling this? We're taking a look at four key sectors and how earnings are impacted from retail to restaurants to travel and commodities. Let's begin with our own Courtney Reagan on the retail space court.

Hi, Kelly. So the more geographic exposure retailers have to countries with a currency that is weakening compared to the dollar, the less profit a U.S. retailer will generate after you have that currency translation. Sourcing product in a non-dollar denominated country, that just adds further complications. Bevo Capital Simeon Segal points out in the latest fiscal years, PVAH, Nike, and Ralph Lauren generate the majority of their sales internationally. J.P. Morgan's Matthew Boss adds that Levi, V.F.C.C. Capri, those are, names that generate between 40 and 50% of revenues overseas, which of course get hurt when the dollar strengthened. So watch out for the impact there. Wells Fargo-Ike-Forchow points out that

Farfetch generates 79% of revenues internationally and Canada Goose at 73%. Cody and Estee Lauder in the makeup category are the most vulnerable to the strong dollar in Piper Sandler's Corinne Wolfmeyer's coverage universe. And Susan Anderson at B. Riley points to guess and Skechers as the most exposed with about 60% of revenues outside the U.S. Now, Lulu Liman and Columbia Sportswear are two retail stocks most positively correlated to a strong U.S. dollar according to an analysis done by Morgan Stanley. And then Credit Suisse calls out tractor supply, Target, Home Depot, Alta, and Dollar General as beneficiaries of a strong dollar with most of their operations right here in the U.S.

Kelly and Tyler? We would expect, Courtney, that maybe they are more insulated than other sectors. I mean, certainly tech seems to have a little bit higher exposure than retail overall. Yeah, definitely. I mean, I think things get complicated with retail, of course, when you're talking about, as I mentioned, sourcing product and then selling product and then the translation back. And so there's sort of a lot of complicated exposure mix when you layer that on. And we, of course know that not all stocks necessarily trade with fundamentals,

even when you can point to a reason why one company might be hurt more or less than another. So it really is one of those. Do your homework on individual names here. I think we gave you about 20 of them right there. So hopefully that helps a little bit. All right. Courtney, thank you very much. Let's switch now from retail to restaurants. And Kate Rogers has that part of the story. Hey, Kate. Hey, Tyler. Well, looking at the big multinational restaurant names, the focus for analysts is really right now on the fast food sector. So far, McDonald's is the one to watch. It already warned last quarter that FX headwinds could mean an 8 to 10 cent drag on EPS.

BTIG's Pete Saleh said the impact could mean we wind up on the higher end of that ranger slightly above. Andrew Charles at Cowan said they're looking at about 13 cents in terms of a headwin as of right now. Salae added that operationally it shouldn't impact McDonald's as much as some other names because it buys most of its food locally. Yum Brands is another name to keep in mind. Cowan points out it's a bit more global than McDonald's as KFC has a larger presence in more countries. which helps to hedge a bit there. For both McDonald's and Yum, U.S. represents about 40% of its business. Two more names to keep an eye on here.

Domino's also has a pretty large international presence. And finally, Starbucks. Its international exposure is more concentrated in China and Japan, its second and third largest markets after the U.S. But if you take a look at these names over the last six months, McDonald's and Yom fearing a bit better down under 5% while Starbucks and Domino's are down over 10%. And overall, the entire space has just really been hit hard.

Back over to you guys. Let me vector you to a place that's a little off point here, but what have the closings of restaurants in Russia for especially Starbucks and McDonald's meant? What's it going to mean this quarter for those names? That's definitely something else to watch, and they're pretty much completing that process. McDonald's, remember, those are corporate-owned restaurants, so a little bit different there. Starbucks also licensed those restaurants overseas. So that's another thing to certainly watch, Tyler. And one more thing I would like to bring up just about what this all means for this quarter.

that's coming up. The FX headwind certainly manner. All the analysts I spoke to today said it will be a key focal point here, but they're much more concerned about inflation here in the United States and what that means for consumer spending. And you're already starting to kind of hear from CEOs like Howard Schultz and Starbucks saying, you know, the American consumer can't keep spending at the pace that we're at with inflation where it is. So I think that's going to be a big focus too. For sure. Kate, thank you, our Kate Rogers. Let's turn from restaurants to travel. Now, Sima Modi back with a look at that sector. Sima. Well, Kelly, the stronger dollar is a for Americans traveling overseas. We have already seen a 27% jump in summer bookings from the

U.S. to Europe. That's according to Hopper. UBS analyst Robin Farley says that benefits the big hotel operators like Marriott and Hilton. On average, they see cross-border travel accounting for about 20% of room nights. But the stronger dollar hits two ways. It can also discourage foreigners from traveling to the U.S. And while that pre-departure testing requirement has been lifted, international arrivals are down 41% this year compared to 2019 levels. The dollar is one of the reasons truest analysts are lowering their estimates for booking holdings, Expedia and Airbnb. While all three of these travel operators have a sizable footprint in Europe, those sales are converted from euros back into dollars, which then brings down

the total amount. However, the key here is if they can make up the difference in volume, then that could come out ahead. That's why we are watching those bookings numbers internationally so closely. When we get to levels like Euro parity, SEMA, it has to trigger a renewed volume surge, right, in Americans going abroad or maybe not. No, it absolutely is. Those numbers from Hopper, I think, really tell that story. Already a 27% trump in Americans' bookings to Europe. That's up from 15% just a couple weeks ago. So you're right. It definitely has a psychological impact on how Americans think about traveling, knowing that the euro is one-to-one with the dollar, that can certainly have an effect on their willingness to go overseas and this idea that they can also spend more and get a better

deal on luxury goods that they buy there. All right, Seema, thanks very much. Let's take now a look at the dollar impact on commodities, and Pippa Stevens is on that one for us. Pippa. Hey, Tyler, well, the U.S. dollar has a strong influence on commodity prices, and that's because raw materials like oil, copper, wheat, and gold, all priced in dollar. And so when the dollar strengthens, all of these commodities become more expensive for the rest of the world. And that can ultimately reduce demand and drive prices for commodities lower. Goldman Sachs noting that the strong dollar has added about $20 extra to every barrel of oil priced in local currencies. So in the last two months, while the dollar has advanced, copper's dropped more than 20%, silver's down 14%, aluminum down 18%, and gold down about 7%.

Meantime, oil and wheat prices also falling. Now, the dollar is only, of course, one factor driving the price action. And, of course, Russia's war in Ukraine, another big factor here. But this weakness has weighed on equities. The XLE, which tracks the energy sector, dropping 11% in the last three months, the GDX and COPX, both down guys, more than 30%. All right, Pippa, thanks very much. Pippa Stevens reporting on commodities.

So what should investors do as we dive head first into this earnings season? are there names that look attractive? Let's bring in Sarat SETI. He's managing partner and portfolio manager at DCLA, also a CNBC contributor. Before we get to some of the segments that we hit on in the dollar impact thing, why don't you talk us through how important

the strong dollar is to the market and to profits as we begin to process those numbers this week next and the following? Tyler, there's no question that the dollar effect is going to affect earnings. But I do think we have to look at it as a bigger picture, having seen this through many turns when the dollar gets weaker and then what happens to earnings. So I think you have to take it with a grain of salt. I think fundamentals are what's going to drive earnings. I think companies are going to be using this translation effect,

sometimes as an excuse to kitchen sink to say, hey, things are slowing and kind of cover it up with foreign currency as well. So you really have to be careful. They're going to be companies that will surprise in the upside and say, look, we got hurt by the strong dollar, and investors will see through it because eventually these things kind of come back to the mean. The strong dollar starts weakening. The rest of the world starts getting appreciating currency, and we kind of go back. So that's kind of how we look at it. It definitely does affect it, but it's the fundamentals underneath.

That's what you want to look at. That's what you really want to focus on. I really hear you there because the dollar does swing back and forth. And I think you're wise to point out that a lot of companies may use this as a kind of umbrella to protect them from the profit deluge that may be hitting them. So let's go to some opportunities that you see here, beginning with Delta Airlines, which turned in $1.6 billion in cash in the most reason. They're doing very, very well. Put a big order for lots of new planes on the table yesterday. Yeah, they did. They put an order for 100 new planes. And Tyler, if you look back two years ago, the stock is trading lower than it was two years ago. And two years ago, we were in the middle of the pandemic and we had really no line of sight. So right now, what is Delta telling you that we've had a billion six in cash flow, that going out four to six months, our planes are full. We can't supply any more tickets. Oh, and by the way, we can raise prices and people traveling internationally are going to pay that extra price. So I think a company like this that's trading at a P.E. that's below the market that has strong fundamentals.

And even if things slow down, they're going to have demand far exceeding the supply. And they're in a position where if demand starts slowing down, they don't have to increase supply because it's hard enough for them to increase supply right now as it is. Yeah. Let's move on to the company that I think is one of the most interesting in the investment banking or the banking area. and that is Morgan Stanley, and you like it because of the pivot that the CEO has made over time towards wealth management, asset management, which are steady sort of annuity revenue streams. Exactly. 60% plus of their revenue now comes from this recurring revenue wealth management business. What does that mean for Morgan Stanley? It's got a 4% yield. Management's committed to buy back 15% of the shares, just announced that just a couple of weeks ago.

And also only about 20% of their earnings are affected, quote, by International. This is a company that is using its balance sheet really well now. They're not really leveraging their balance sheet in areas that some of the other banks are going to get to trouble. So, you know, you're trading at 10 times earnings with a recurring revenue business and a cash flow that provides a dividend that's greater than your 10-year bond. So, you know, if you're an investor with the three-to-five-year outlook,

look, why would you want to own a five-year bond that's paying two and a half percent when you can own a Morgan Stanley that is saying to you are committed to the dividend and buying back shares? All right. Love it. Sarat Setti. Thank you very much. Appreciate it. Always great to see you, sir. Thank you. You bet. Thank you, Todd. Coming up, CNBC investigates. Former employees of the crypto company Celsius, which filed for bankruptcy last week, are speaking out to CNBC about what they say was a company plagued by risk-taking and mismanagement. Plus Mosaic, Meta, and Goldman, the best performing stocks in today's best performing sectors. Which one should you own find out in three-stock lunch as we had to break FinTech getting a nice pop today with names like Lending Club leading the way with around a 7% gain and the Global X FinTech ETF up 7% for the month. Not shabby.

Celsius has gone from a multi-billion dollar company to bankruptcy in a matter of months. What was once a leading crypto lender made headlines after free. its customer accounts last month, then essentially went radio silent with no answers on when customers would get their money back. The company broke that silence last week when it filed for Chapter 11 bankruptcy. Now for the first time, two former employees in leadership roles are speaking out about what they say led to the company's downfall. Here's Kate Rooney with a cautionary tale for the crypto industry. Timothy Creddle's career had been about making sure companies followed the rules. So he says he was alarmed by conversations at a Celsius corporate event in late

2019. There was a bit of an odd thing that came up at one of our Christmas parties. Cradle, the former director of financial crimes compliance, says top executives were talking about deliberate price movements in the sell token. The cryptocurrency created and used by Celsius started to spike in early 2020. I don't know what better way to phrase it, but they were in the market. They were actively trading and increasing the price. of the token. Based on those conversations, you're saying that management was manipulating the price of the Celsius token. They were absolutely trading the token to manipulate the price. This echoes claims in a lawsuit alleging the company was actively using customer funds

to manipulate crypto asset markets to their benefit. Market manipulation is one of the biggest issues in crypto, and it's one of multiple issues former employees are now speaking out about. Cradle and a former top human resources employee spoke to CNBC about what was a multi-billion dollar company headquartered in Hoboken, New Jersey. They say its downfall can be traced back to one theme. The biggest issue was a failure of risk management. Celsia says it brought in 1.7 million accounts by offering a 17% yield on deposits. Because we allow it.

The crypto company and its charismatic CEO Alex Michinsky proudly proclaimed banks are not your friends. If you think of a bank, their job is to extract as much profit out of the U.S. We reached out directly to Mishinsky and the company for comment and have not heard back. Celsius was one of a handful of crypto companies to halt withdrawals as crypto prices plummeted. Compliance team was too small. Our resources were too limited. Why do you think compliance was so understaffed? What was behind that? Basically, we were sucking out money and not bringing any back in. They didn't want to spend on compliance. CNBC obtained dozens of internal documents that in part show disorganization. In one instance, a top Celsius executive,

of rights that he's surprised by a document written by another team overseas. Cradle, who left Celsius last summer, also said the company was trading customer funds. The CEO has denied this on Twitter. Did it seem risky? Yes. He also says Celsius was putting them in controversial crypto projects without the compliance team's approval. According to this internal document, these investments were clearly labeled as medium or high risk. The state of Vermont echoed this in a recent concern.

consumer alert, saying the company deployed customer assets in a variety of risky and illiquid investments and didn't disclose that to customers. Risk taking was also part of the hiring process, at least at first. I wasn't background check, which I thought everybody did that. Nikki Goodstein, a former senior member of the Human Resources team, says she wasn't aware of any background checks taking place when she joined in May of 2021. In fact, she says executives specifically told the chief human resources officer not to background check, Yaron Shalem, the incoming chief financial officer. Months later, he was arrested and charged with money laundering

in connection with his previous company. We made an attempt to find out the status of the case, but it does not appear to be public in the Israeli court system. Everyone was P-Oed that he wasn't background-checked because then it wouldn't have brought such embarrassment to the company if that was a process that we had in place. Goodstein says she's speaking out on behalf of customers who put their trust in Celsius.

I feel really bad for people in the community who put money in there with confidence behind this. And not only did they lose money because the market volatility, but now they can't even get out what they put in to begin with. In the end, Cradle says Celsius may be just another example of a startup that grew too fast.

It was just a bunch of mistakes that are ending up very tragically. Many former Celsius employees were paid, of their salary in the company's cryptocurrency, the sell token and stored their personal funds on the platform in many cases, they still haven't heard when or if they'll see their money again, but legal experts say there's no guarantee in one section of the terms and conditions. It says once someone deposits their funds, that cryptocurrency technically belongs to Celsius.

Back to you guys. Yikes, that last phrase is amazing. A 17% APY is also amazing. There seem to be a lot of red flags for employees who work there. But so why, why, why was there such a disconnect between the company's public image and what was happening behind the scenes? Yeah, Tyler, well, employees we spoke to said that Celsius was really focused on optics. They were really concerned with preserving the company's public image while there may have been some turmoil behind the scenes.

And especially on Twitter, they said the company and executives would really look to shut down any negative commentary or complaints. It was focused on things like user growth, which a lot of startups are. It tends to attract more clients and more investors. For example, Celsius said it had 1.7 million, what they called community members. Those are basically customers in the eyes of investors. And higher account numbers are usually seen as a sign of legitimacy and might appeal to more investors. One employee, though, told us it was probably closer to 300,000.

So he pointed to things like fake accounts. Those are usually duplicate accounts, which are normally things the compliance team would have been in charge of in terms of shutting down, but he said it may have been another effect of underspending on compliance. So things like that seem to have slipped through the cracks while they were not as focused on compliance, looking to take a little bit more risk. And you did see this massive disconnect between the public image and what was really going on behind the scenes. That was a really terrific piece. Really well reported, Kate. That took a lot of digging, I know. Thank you very much. Kate Rooney. Thanks, Tyler. Excellent digging.

We're continuing to watch a big rally on Wall Street, by the way. Not by the way, it's central to the day here right now. You got almost a 3% jump in NASDAQ, 2.5 for the S&P. The Dow, quote, lagging behind 2.2% higher. But if you take out IBM and Johnson and Johnson, both of those Johnsons, you could add another 70 points to the gain. What's driving the Dow higher? Goldman Sachs, Nike, Boeing, Boeing announcing new orders,

saying it is seeing strong demand for the 737 max. Netflix jumping nearly 5% ahead of earnings tonight. options are implying a move of nearly 15%. We've got a preview on Netflix. Stranger Things have happened. Our lunch is back to me. Good afternoon. Here's your CNBC News Update at this hour.

The agency responsible for maintaining federal government records asked the U.S. Secret Service to investigate the potentially unauthorized deletion of text messages on Secret Service phones from January 5th and January 6th of last year. The request comes nearly a week. after the Homeland Security Inspector General told two congressional committees that many messages from early January had been erased by the Secret Service as part of a device replacement program.

Agents were instructed to upload old text messages before the upgrade, but many agents appear to have not followed those instructions. The Chinese government warning House Speaker Nancy Pelosi against traveling to Taiwan with a congressional delegation. The foreign ministry spokesman said, quote, If Speaker Pelosi visits Taiwan, it would seriously violate the one China principle. And a possible explosion was reported at the Hoover Dam this morning. Reports began circulated online after a video was posted on Twitter showing an area of the dam on fire.

Officials say there's no longer a fire at the dam. We'll keep you updated there. All right, Seema, thank you very much. We appreciate it. Ahead on Power Lunch, two stocks that many people think have already seen their best days. First, Netflix reports after the bell. Has sentiment gotten bad enough that Netflix can jump over a low bar? Options say maybe so. We'll ask one of the most bearish analysts on the street. And speaking of bearish, Deutsche Bank downgrading GM to hold,

cutting the price target to $36 a share, yet the stock is up 5%. We'll tell you what's driving the action. That's next on Power Lunch. Welcome back, everybody. Strong rally this afternoon. We have 90 minutes left in the trade. session. I think we know which way this one's going to go. We want to get you caught up across stocks, bonds, commodities, and those Netflix earnings that are on deck as soon as we hit that

close. Let's start with Bob Bassani on this rally. Bob, which has gotten stronger throughout the day. This is one heck of a rally. It is broad-based. This is what we call a 90% upside day on the volume. Nice to see that for the markets here. We're breaking out of a trading range. Look at the S&P 500. We've been in this, oh, roughly 3,700 to 3,900 range for a month now. stopped every time we got near here. Not today. We're breaking out at least a one-month high for the S&P 500. What's helping things? Well, a couple of things.

First, the dollar's been down three days in a row. That's the dollar index. That's a big help. Natural gas is declining. We're hearing some reports out there about that North Stream pipeline coming back online, at least partially soon. And the VIX is below 25. That's a level.

A lot of people watching 25. All those three things help in the markets right now. We've got some stocks that were essentially at 52-week lows just a few days ago, bouncing nicely. A lot of them are cyclical names. So, for example, a lot of the travel stocks, Royal Caribbean, was $31 just a few days ago. Look at this. It's 36 now. General Motors was at a new low just a few days ago.

It was $30. Now look at it, it's heading towards $35. Nvidia, believe or not, was a new low just a little while. It was $144. I remember when I did a report a week or so ago. Look, 169 right now. Big moves up. Ingersoll ran some of the big global industrials hitting new lows just a while ago. It was $40.

Four days ago, 43. You see, these are all moving to the upside now. Lagerds, it's all of those, oh, defensive names, the names you all know and love, the Johnson & Johnsonsons, the Bristol Myers, Kroger's, Kimberly Clark. Good sign for the markets. We're finally getting some action in the cyclical sectors. Kelly? Absolutely, Bob, thank you.

And now to the bond market, where we have part of the yield curve. still inverted, but Rick Santelli, welcome back, by the way. To me, it's really striking that we can have this strong a stock market rally with yields basically still up around, you know, 10 year up around 3%. It's not like this is happening because everyone thinks the Fed's about to cut 75 basis points. I know. It really is quite incredible, but it is a tale of two different sections of the yield curve. Look at a two-year note yield. And Kelly's talking about the market is hovering, but But two-year note yields are like the S&Ps on pace for the highest yield close since the cycle-high yield close on the 14th of June, which was at 343. Open the chart up and you can see what I'm talking about.

This chart starts on June 8th. Now, that cycle high at 343 on the 14th of June was a 15-year high for the two-year note yields. But as you look at that formation, now keep it in your mind. let's go to a tenure with the same start date, 6-8. See how the right side of that chart's going lower? That really does encapsulate what's going on in the markets. The short maturities are getting ready for that Fed meeting. It's next week.

And 75 base points may be 100. I'm leaning 75. And it's so reflected in the two-year and the shorter maturities. Now, if we continue to monitor everything going on with tens, I would like to point out, the only close above 3% for the entire month of July. If you watch the end of the cash markets at 5.30 Eastern was on unemployment Friday on the 8th. And finally, here's the Euroverse dollar the last three days. Three days in a row with higher values.

And that is off 20-year lows. The dollar index takes a bit of a breath. Kelly, back to you. All right, Rick, thank you very much. Let's move to oil now where we also have higher prices. After being lower most of the day, WTI's at 104. Again, this is not denting the market rally. If anything, it's probably helping the energy space.

a little bit. And it also extends yesterday's, call it about 5% gain that we did see. That was the largest percent gain since May 11th. So a two-day stretch now that's putting us back into the green. Let's move along now to Netflix, which is trading higher ahead of its second quarter results due after the bell. Analysts are expecting a loss of 2 million subscribers, but the stock is down 67% this year. Matthew Harrigan is senior equity analysts covering telecom and entertainment for the benchmark company. He's got a sell rating on Netflix, a 157 price target that's one of the lowest on the street. Matthew, what would you say to those who are thinking it's got to be expectations so low now that maybe the stock can rally on these results or at least beat expectations?

Well, given the condition of the market today, I wouldn't be surprised if we had a reflex move up given the low expectations. But I think realistically, even hovering around 200, I mean, the stock is still priced for ample member growth through mid-day. decade, you know, I think implicitly priced for, say, 200, getting to 260 by 25, well over 300 in the next decade. So they really have to show that they could not only apply a tourniquet, but really generate some nice growth on the member side as well as eventually advertising. So would you say you're skeptical of its ability to do so because the stock is trading, as we said, about $40 above where you think it's fairly valued?

Well, I think you really have to look at this on a free cash basis. And you're really looking at a load in a new, single digit, free cash full yield, spending a lot more on programming than they're amortizing. So the ETS number, the PE ratio is a little bit deceptive. And you certainly have, you know, more competition, you know, coming. You've got some very high profile releases in the second half of this year, you know, House of the Dragon over at HBO max and then the first Lord of the Rings, you know, pre-equal. So I think the content execution has been really uneven, and I think that is the principal driver, clearly along with economic conditions and such for the consumer. How does the strong dollar affect them? That's number one. And what will happen

to the stock if the forecast of a two million subscriber loss for 20 for the second quarter is better than that? In other words, half that, let's say. Wait, a couple of weeks ago, we really felt the street wasn't looking at FX. You really have to look at a bad. you know, roughly a little over 40% of the revenues are from the U.S. So there's some pretty material overseas exposure. I mean, that's not going to be what rattles people's cages, what matters is the member growth number and any outline they have for their advertising strategy. You know, if they are short of the 2 million, I think it will hit the stock from the move it's made today. But again, I think people will be really focusing on Q3 and expecting a mildly positive number.

I think the expect consensus is around 1.8 million. Matthew, what would make you more bullish on Netflix? Really seeing a little more magic on the programming side. I mean, for spending high teen billions, I mean, I think the execution has been really suspect. And clearly, you know, looking at an outlay of the advertising strategy, you know, one thing that concerns me is they've got a very high price point relative to their competitors on the S-Bod side of no advertising. So they have to be careful not to cannibalize, you know, the as-is business on the advertising side.

I think they'll be agile in doing that, but they have a lot of balance, good balancing act to do that. And certainly we're not going to see being on material on advertising until into 2020. Just so I know, S-Bod is streaming video on demand. Is that right? S-Bod is basically what you're getting right now where you don't have commercials. And A-Bod is where you have an ad load. Advertising video on-demand. Got it. Exactly.

Thank you for educating me. And everyone is about to be for Avon right now. All right. Matthew, thank you so much. Matthew Harrigan. Thank you. We appreciate it. All right, coming up, a working lunch with the CEO of the cloud computing behemoth Juniper

networks as the company works to fight off competition from companies like Cisco and Amazon, who are also its customers. As we head to the break, remember you can now listen to Power Lunch on the go. Look for us on your favorite podcast app. Follow and listen. Well, heading into earning seasons, there are lots of questions about how much companies will keep spending on cloud and digital transformation. This week, John Ford brings us up close with a CEO who worked his way up to the top of a networking company that's gaining share in the cloud and the 5G era. John.

Hey, Tyler. Yeah, Rami Rahim is the CEO, Juniper Networks, a company he joined as an engineer at a grad school more than 25 years ago. Rami traces his interest in technology back to his upbringing. His ethnically Palestinian family lived in Lebanon before they emigrated to Canada. Rami's father, a civil engineer, introduced him and his sisters to computing with an IBM PC junior.

I ended up marrying a creative side that I had in me to technology, and I locked myself in my room for hours and hours, maybe even days on end, and just create art on the computer. And ultimately, that sort of gave me this belief that I needed to choose a career, not just in technology,

but in computer graphics. And in fact, the first part of my career, the first company I worked for in Canada when I graduated from my undergraduate school, the University of Toronto, is a company called ATI Technologies, which built graphics processors and now is actually a part of AMD.

And today, Rami Rahim is having to think creatively about the networking business. Cisco is the biggest name in the space, but Juniper has been gaining shares cloud technologies in 5G change what a network is. And there's a new factor. Amazon, Microsoft, Google, the biggest cloud providers known as hyperscalers that are both big customers and potentially big threats. Practically, every hyperscale cloud provider is a Juniper customer today.

And yet, these are companies that are packed full of very smart engineers that can do a lot on their own. So in some sense, you're always competing with them. You're demonstrating to them that you can keep up with their requirements. you're demonstrating to them that you can innovate in ways that would be difficult even for them to do. So that is how we ultimately succeed. Now, that's just one element of our business, that cloud provider component. We also have a thriving service provider business and an enterprise business. And the name of the game there really is around innovation.

Those hyperscalers, though, you see them take chips in-house sometimes. They'll take database in-house. They do networking where they can. Juniper's software and related services unit grew 60% in the last quarter. It's now 20% of revenue. That's one clear sign of how the networking business is changing, not just about hardware anymore, guys. If you were to sum up his career at Juniper, what would you say he's done to keep the company fresh and independent? Well, it's interesting.

He's been CEO for only about the past eight years, right? But he spent his career growing there. So it's really been a story of leadership projects, moving into new markets, some stretch assignments that turned into something bigger. And eventually him seeing that he could be the CEO, right now, it's really trying to be to be at that point of leverage where software is taking over the network and therefore the people, namely Cisco, who had a big position in the past, won't necessarily have a big position in the future. but they got a lot of work to do, a lot of innovating in this time to make that happen.

And we talked also about how remote work and hybrid work can sometimes make that team building more challenging, but he's working at it. Well, he's had a front row seat to, you know, the entire computing and internet age, John. So thank you for bringing that to us as they attempt their next act. John Fort with Juniper today. A big game for the markets and three-stock lunch. We're raising a glass to the top-performing stocks in the top-performing sectors. trader weighs in on Mosaic, META, and Goldman Sachs. Stay with us. Welcome back, everybody. It's time for three-stock lunch. And today we're looking at the

best performing stocks in our top performing sectors. Mosaic for the materials, meta, believe it or not, for communication services and Goldman in the financials. Let's trade them with Cliff Hodge. He's the chief investment officer at Cornerstone Wealth. Cliff, welcome. It's good to have you here. And let's start with Mosaic. What would you do with the stock? Good afternoon, Kelly. Longer term, there's no question that we're going to see a demand increase for fertilizer, especially as we run into disruptions as the world transitions away from globalization, and the food and ag supply chains get reshaped.

In the short run, though, there's really a lot of uncertainty, and a lot that's outside of the firm's control, especially from a pricing perspective. It's a commodity business, so they don't have much in the way of pricing power, though the vertical integration as it relates to phosphate can help with margins. But more importantly, on the input side, ammonia, which is a natural gas derivative is a key input into their products. There's just so much uncertainty right now related to Russia, Ukraine, the mainstream pipeline is going to come back on later this week. We're just not sure. So there's a scenario out there that's extremely damaging to the results of the stock,

and we just think there's better places to put capital than these uncertain times. And one of them might be meta, is that right? That's right. So meta is one of our higher conviction names going into earnings season this year. It's down about 55 percent, well, before today, from the 52-week-I, trades at 12.5 times next year's earnings. And in the most recent index rebalance, it actually got put into the value bucket. So it's not a name that you buy because it's cheap. Everyone knows it's cheap, but it's a name you buy because it's cheap and because growth is getting ready to reaccelerating.

We're really bullish on the real story. There's just been very little ad monetization so far, and we anticipate that that is likely going to be picking up here over the coming quarters. We also think that their AI and their algorithms are going to get better at driving content, similar to like a TikTok or a Snapchat. So we do think that could lead to an uptick and engagement. Who knows if we bottomed out? Let me just say who knows whether it's bottomed down. Do they really have a first mover advantage on the Metaverse? Yeah, I think they have a first mover advantage in the Metaverse, but really that's not the thesis for us behind the stock.

Metaverse is really a much longer term project. You know, we're talking five to ten years before we really see any sort of meaningful results. So we are much more focused on the real story at this point. And the metaverse is really more of a side project for now. All right. Let's move on to Goldman then, Cliff. What do you do with this stock? We're not a huge fan of financials in general late cycle here with recession risk being elevated,

but we will make an exception for Goldman Sachs. The earnings per share number was down about 48 percent, really driven by a slowdown in investment banking. but that was already in the price. And so I think that's why you've seen a really nice reaction post the results. Trading revenue, which is typically countercyclical, actually held up really nicely. We know the story there, rates, FX, commodities. But we do like the fact that they're being aggressive with adding businesses that can add some diversification

and more steady income streams like asset management. It's single-digit PEs, one-time book value, which if you look, back historically, it's been a great place to take a shot. So Goldman is our favorite financial going into the end of the year. Would you avoid the rest of the space, though? Yeah, by and large, we would especially avoid traditional banks. Okay. And they have that really high beta to interest rates and especially to the yield curve, which, as we all know, has flattened out and inverted. So really not big fans of your traditional banks in this environment. All right, but sticking with Goldman Cliff, thanks so much for your time today. We appreciate it.

Thank you. Cliff Hodge with Cornerstone. All righty. Up next from Twitter to gas prices to GM's new EV, the other stories getting our attention this day and a quick look at the markets, the rally. Still going strong. All three major index is up more than 2%. As you see there, NASDAQ pressing in on three.

Power Lunch is back in two minutes. Welcome back to Power Lunch. Time for a few stories that have caught our attention. And let's kick things off with Twitter today. The shares sharply higher after the company won its motion. for an expedited trial against Elon Musk. By the way, something that even Tesla's shareholders have kind of been hoping for to remove this cloud over the stock.

Now, Twitter suing Musk to enforce that $44 billion acquisition. He backed out of the deal earlier this month. Musk wanted the trial to take place next year. His lawyers argued in court an additional time is needed to review the massive amount of data for spam accounts on the platform, but the Delaware Court of Chancery ruled in favor of a five-day trial in October.

I think this is good news. It's the most important business court in the country, arguably in the world, and it's good to move this along for all kinds of reasons having to do with this particular deal, but also with other deals and tender offers and PE offers and arbitrage. If you have situations like this cropping up that scum the gears of transactions and it becomes a long, drawn-out thing, well, that slows that kind of process a lot. You can't think it boats. Well, it probably doesn't bode that well for Elon Musk at this early point. But now we'll find out in just a couple of months' time about the actual event. Love it when the courts move fast. All right, turning to the gas pump where prices continue to fall.

According to AAA, the national average now for a gallon is $4.49. That is $16 less than a gallon of gas cost last week and far below the record of over $5 a gallon back about a month or so ago. Last year, a gallon was just over $3. All we'll say is great, but did you see what WTI did today? Oil is back over a 104 barrel, so we'll see just how long this can last. I expect a lot of up and down going into the end of the year. There you see, well, there's Twitter stock has just shown up there again, but they're the U.S. markets on our board.

And with gas prices so high, consumers may be considering an electric vehicle for their next purchase, General Motors revealing a new electric crossover for the 2024 Blazer. Their fourth electric model when it arrives in dealer's showrooms next summer, The car starts at $45,000. It's their answer to the Tesla Model Y crossover. It will be made in Mexico like a previous blazer. And Musk himself was tweeting today in response to this, that Teslas are the most made in USA vehicles.

Don't love the paint job there. I mean, apart from that, but to compete in that mid-size SUV is a smart move, it would seem to me. They sell a lot of those sedans. See, I wish they'd sell actual cars with that kind of paint job. Make the roads more interesting. I guess so. Thanks for watching Power Lunch.