Power Lunch - A rally on Wall Street, the most undervalued mega cap name and is there trouble ahead for oil? 5/23/22

Episode Date: May 23, 2022

Stocks bounce back as investors buy beaten down names. There’s one name a long-time analyst says is the greatest buy since the financial crisis. He makes the case for Amazon and says the stock could double over the next few years. Plus, as crude prices trade around $110, could China determine how much higher prices go from here? And, the start-up turning seaweed into straws. 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. Hope you had a nice weekend. I'm Tyler Matheson, and we have, yes, a rally on Wall Street. Here's what's ahead in this busy hour. Is Amazon the most undervalued mega-cap stock out there? A longtime Wall Street analyst makes the bullcase and how. He says the stock price can double and calls this the best opportunity to buy shares since the financial crisis. Plus, you think gas prices are high now. Well, just you wait why China, determine whether they had even higher. We will discuss the warning from the head of the IEA Kelly later this out. Yeah, that is the last thing we need right now. Tyler, thanks. But the Wall Street rally we're seeing suggests investors are taking news in stride to start the week today. The Dow up 623, the S&P up 68, the NASDAQ up 146. Actually, some speculation about President Biden's off-the-cuff remarks about rolling back China tariffs,

seen as helping sentiment. Nevertheless, we also have bond yields on the rise today. and big banks leading the gains. Goldman sacks up 4%, B of A up 6%. City and JPMorgan up 7%. You can see JPM the leadership down here. After JPMorgan's CEO, Jamie Diamond, said storm clowns over the U.S. economy may dissipate,

and the company said they'll reach a key target earlier than planned. Our Leslie Picker has more from J.P. Morgan's Investor Day. That's helping lift sentiment broadly, Leslie. Hey, yeah, Kelly, we are here at JPMorgan headquarters. Lots of happy faces. here at headquarters, thanks to what the stock is doing today. Part of that reaction due to chairman and CEO Jamie Diamond's analogy that the economic risks like war in Ukraine and QT are more like storm clouds

than a tsunami or a hurricane. He said those clouds may or may not dissipate. But analysts say that Diamond must not see an imminent risk of a recession or else the firm wouldn't have lifted net interest income guidance. That's the key to today's stock move, not just to JP Morgan, but also its rate-sensitive peers like City, Bank of America, and Wells Fargo. J.P. Morgan said that NIA will surpass $56 billion this year up from its prior forecasts. This is an important profitability metric benefited by rising rates,

but investors have shunned those tailwinds over fears about a recession in recent weeks. That's why even with today's gains, J.P. Morgan is still down 20 percent year-to-date. Q&A just beginning with Diamond with the first two, questions about diminishing excess capital and its rationale around spending. Diamond responded by saying that he and other execs spent the whole day explaining why they are having the spending that they're doing right now. And the firm reiterated it would have $77 billion in expenses this year, a number that caught the market by surprise earlier, but that number reiterated didn't go higher in today's slides, guys. All right. Thank you very much. Leslie Picker. Financials,

as Leslie mentioned, and so did we did earlier in the broadcast, moving higher today and helping stocks all across the board. But inflation data in the week ahead and some key earnings from reports from Costco, Nvidia, and Ulta could set the tone. Here with a weekly look ahead is Stephanie Link, Chief Investment Strategist and Portfolio Manager at Hightower Advisors, also a CNBC contributor. Welcome back, Stephanie. Good to have you with us. Good to be here, Tyler. You, I always like to begin with any economic data that you'll be watching this week. Is there a number or two that you will be perusing? Yeah, I think this week it's the core PCE, right?

Everybody's focused on inflation, so is the Fed. And this is what the Fed looks at this particular series. It should come in about 6.3%. That's versus 6.6%. That's year over year last month. And there are some people out there to the extent that this comes in a little bit better than expected, meaning lower than maybe we are at peak inflation. The only problem is we're going to stay high in terms of inflation, in my opinion,

for the foreseeable future. At peak, but not a break in the fever of inflation. Let's move to a couple of the stocks that you'll be watching this week with earnings out or other news attending to them. The first one is Costco. I would think, among other things, while there may be more costs in Costco right now, one of the things that must be helping them is revenue from gasoline sales. For sure, absolutely. That'll help drive traffic for sure. But they have, the executive members are about 71% of total revenue.

And they also have a limited assortment model. So they're more flexible. So to the extent we had disasters from Walmart and Target last week, I think Costco can hang in there. The comp number that people are looking for is 9.2% and gross margin. 11.2% flat. Everyone's looking at gross margins for the retailers. And so that's going to be a very important number. I think it's going to be a good one. It's just too expensive. Still, it's down about 26% year to date,

but it still trades at about 31 times forward. So I wanted to come down a little bit more for me to buy. Gross margin. If it stays flat, that's good. If it falls, that's bad. All right. Let's move on to the next one, which it was a darling stock for much of the past couple of years,

though some of the luster's come on. off at Nvidia. Yeah, and this one's down 43% year-to-date, but it also trades at 29 times, so it hasn't really gotten real cheap yet. But I do think the quarter is going to be just fine. Data Center, we know enterprise spending on AI and high-performance computing and ASPs within this segment have been very strong. I expect that to continue.

They talked about auto and about an $11 billion backlog billed into the next six years, so they've got a lot of runway in terms of auto. Gaming is the beneficiary from stay-at-home. That might be a little bit sloppy. This, too, you want to watch for gross margins and supply chain issues. Gross margins are expected to be 67%. And let's wrap up where I like to get my makeup, by the way, Steph, and that's Alta Beauty. I'm not kidding.

Alta's a great, it's a great store. It's a great company. You're not kidding. I do, too. I like it as well. That's why I wanted to highlight it. But this is a reopened name. But we have been getting very encouraging data points from Nielsen and SafeGraph in terms of sales, trends.

and traffic trends. Traffic trends for beauty was up 31% in the month of April. So we've really seen a comeback in this segment. So I think they're going to probably do 12% comp. And then, of course, the gross margin question is also another one for these guys. 38.9% is what is expected. I think they're going to be probably conservative on guidance. If this stock were to pullback, I like this one very much for the long term. Steph, can I go back to Invidia for just a moment and ask you about this rumored broad-com VMware tie up? What do you make of that as someone who just recently, if I'm not mistaken, sold down some of your broadcom position and are concerned about the semi-cycle.

Yeah, I don't own any semis, Kelly, at this point in time, because I do think over, I don't know, maybe it's the next quarter or two, we might start hearing about double and triple ordering. I mean, if Walmart and Target are double and triple ordering, you can just imagine what's happening on the supply chain side in the semiconductor world. But I think broadcom is a great company. The CEO is one of the best in the industry. and he's looking for growth. Unfortunately, I don't think VMware is going to do it for them,

and that's why the market isn't applauding the move. They want more buybacks, more dividend increases, which they've been doing, but they don't want more deals. And unfortunately, that's what we're probably going to get. Yeah, the shares are down 4% right now, adding to 21% for the year. Stephanie, thanks. It's great to see. We appreciate it.

As always, Stephanie, Link. Shares of Amazon are lower today despite the broader market rally. And, yeah, they're still down 1%. They're also one of the worst performing tech stocks over the past month, and they're down 27% this year compared with Apple down 12% Microsoft and Google off single digits. But our next guest says the pullback represents the best buying opportunity since the financial crisis and calls this the most undervalued mega-cap name. Joining us now is James Chuck Muck.

He's a partner at Clockwise Capital. Again, that's the one-month performance, I should add, that these big tech shares have fallen. James, it's great to see you again, by the way. And this is a pretty bold call. You really think Amazon is as cheap now as it was during the financial crisis? I mean, yes. I mean, it's at 1.7 times forward sales right now. I mean, the problem with Amazon is that, and the broader market,

is that multiples have completely collapsed. And there's just very little confidence to no confidence in what the earnings picture and revenue picture will look like in the back half of this year and into next. and fundamental buyers for Amazon, as well as many other tech companies, have all but to the sidelines. So the Fed is not your friend right now, and when you have this completely unknowable macro, you have to lean into the micro. And what we think is that these cloud-enabled time savers, which is what we call them, will prove much more resilient in their revenue and earnings picture than the market currently implies. and as a result, like that Amazon at the forefront and that more emergent companies like a snowflake.

So we really like Amazon here. Two follow-ups to that. One is, did you just say its valuation as a price to sales and is that, you know, is it a maturing company now that we should, you know, just kind of look towards P.E. The second, though, is, you know, out in the real world, they are closing some warehouses as they roll back the rapid warehouse growth that they added the last couple of years.

That has to tell you that this reset was somewhat fun, fundamentally justified. Okay, just real quick on the on the capacity issues. Look, they messed up. They over added capacity and overhire for Omicron. But I think the takeaway from there is also that the company is much more nimble following COVID and its ability to scale up and scale down as demand ebbs and flows. And they will right size within a quarter. But that being said, and there really three points I just wanted to highlight on Amazon. One is that, you know, like you mentioned, is growth stalling. Yes, they grew 7% this last quarter, but you really have to strip out COVID from that. On a two-year basis, they grew 22%, and on a three-year basis, they grew 25% annually.

So what we think is that as the COPS get easier, that growth will revert back to that 20% number. And as far as the valuation is concerned, yes, high PE, we get it. It's an expensive stock, but they're also investing for growth. If you assume that the growth is stalled, it's over, is a Walmart GDP-esque kind of grower, you know, they can't scale back into investments and conceivably earn on this year's revenue number alone in our report would be about $150 in earnings per share, which would imply that it trades around 15 times. And then lastly, just on the proxy statement, no one really reads proxy statements, but Amazon actually has one of the best management compensation programs in tech. Andy Jassy does not earn 80% of his compensation until years six to 10. of his tenure as CEO. I mean, that's his shareholder-friendly, as you can see.

And he wouldn't have taken the job unless there was an opportunity. I mean, it's not for fun. And this day and age, some CEOs don't last six to ten years. A lot of them don't, particularly with a falling stock. Talk me through Amazon Prime and whether you see it as a consumer discretionary item that might be vulnerable to subs cutting off, as people have to spend their money on higher price groceries, gasoline, et cetera. That's a great question.

I mean, I think Amazon also gets lumped into the subscription basket, you know, with Netflix's and so on. But when you think about your portfolio of subscriptions that you own, what is the most valuable? You're paying $139 a year for Amazon to get things within a day max two, or you're paying $120 a year for Netflix to use up your stuff. time versus save your time with Amazon. So we see it as much less discretionary and more non-discretionary. And if you believe Andy Jassy's words that he put in his investor letter, his very first one, you know, talking about 2021, spend levels on a household basis have only gone up. And their prime

membership continues to hold well above 200 million members. So you're not really seeing churn on the member level and you're seeing growth on the average spend per member. So we think that, you know, as a result of COVID, some companies have become have benefited from COVID, and some companies have not. We think Amazon is certainly very much in that former camp. It's going to be interesting to see how Amazon and Prime perform when they start broadcasting NFL games later this year. That's going to be an interesting case study there to see if people, well, obviously a lot of people have it. Will people go find it on Prime? We shall see.

Anyhow, thanks very much, James Chukmock, clockwise capital. Thank you. Appreciate it. All righty, coming up, there you are. Investors pulling more than 10 billion from Tether in the past two weeks, getting untethered as regulatory scrutiny grows around the world's largest stable coin. The co-founder and former CEO of Tether says it's more stable than many think. We'll talk to him next. Plus, Goldman Sachs says Uber, Facebook, and Alphabet are large-cap stocks that can weather the volatility. Does our trader agree? It's the focus of today's three-stock lunch. coming up on Power Lunch.

Welcome back to Power Lunch. I'm Christina Partsenableness. Stocks are higher today with Consumer Staples among the top gainers. Within that group in particular, we're tracking a rebound in grocers and retailers like Kroger and Walgreens. You can see Walgreens up over 3%. Walmart is firmly in positive territory after its worst week since the 1970s. Costco is in the green, also after its worst week, but not as bad since 2003. The food staples, also moving higher, including Conigran. Tyson and Kraft Heinz today, you can see Kraft up over 2%.

And those three are still more than 10% off their recent highs. Kelly, there you have it. I'll send it back over to you. All right, Christina, thank you very much. Now, the world's largest stable coin, which is tether, is seeing the value of its circulating supply plunge. In the past two weeks, investors have pulled $10 billion out of tether, making the value drop from $84 billion on May 11th to about $73 billion today. The crypto is meant to be pegged to the U.S. dollar, but,

but it did dip as low as 95 cents on May 12th after that stable coin Terra plunged well below its dollar peg. And that's leading to questions about regulation and risk. Joining me now is co-founder of Tether and BlockV C.O. Reeve Collins. Reeve, welcome. So has Tether made enough moves in the past few weeks to shore up questions about its soundness? Well, I think that what took place in the past few weeks actually perfectly illustrates how. well it is, how well it functions. The fact that there was almost $10 billion was redeemed, and it was all redeemed at exactly $1 speaks for itself. When you mentioned that in the past,

it dips down to $0.95. That's not quite accurate. While on third-party exchanges, it traded as low as $0.95. That's because third-party exchanges are based on supply and demand. There was tons of supply, and so the price went down. However, the point of tether is, if you want to redeem it for $1, you always can redeem it for $1.tether.to at the corporate website. And also I wanted to know, I was the former CEO in Cochondra. I'm no longer involved in Tethers. These are just my observations.

And I'm sharing you some insights into that market. But Tether itself has never lost its peg. You can always redeem it for a dollar. It's just on the third-party sites that the price fluctuate. Does every dollar of Tether, is it backed by a dollar worth of something in the real world? So initially when we started the company, the foundation of it was, give us a dollar, we'll issue you a token. That token moves on a blockchain, and you can redeem that token for a dollar at any time. And that dollar would always be held in reserve in a bank account.

And we've stuck to that. Over time, it's evolved, and you'll have to look at all of the research and all of the reports that have done on Tethers backing. It's evolved into other things other than specifically dollars, but it's still backed one-to-one with instruments that are still worth $1. And so if there's ever liquidity crunch or $10 billion that are trying to be instantly redeemed, Tether has the wherewithal to redeem it. Is that because, so what you're saying is originally you basically just held the dollars in a vault, a bank account, but now maybe those dollars may be held in the form of something like commercial paper. Is that right? What is the range of assets that are backing those dollars now and how liquid are they? They're all extremely liquid.

And Tether recently came out and stated the figures of how much is in U.S. US treasuries specifically, but I can't comment on what the mix of the backing is, but I do strongly believe that it is fully backed and you'll never have any issues redeeming it. And that's the significant difference between an asset-backed stable coin versus an algorithmic stable coin. So the big tragedy in the marketplace, but it's not a surprise, is that an algorithmic stable coin crashed. And algorithmic stable coins are experiments.

Some really smart people say, here's a lot of it. a mechanism to peg a token to the dollar. Right. We don't know if it's going to work, but we believe it will. And in this instance, it didn't work. But just to be clear, there is a distinction, which is, you know, the algorithmic one is basically not necessarily backed by anything. Asset backed is backed by assets. But if the value of those assets declines, then Tether's holdings could still be worth less than, you know, 100 cents on the dollar. Yes. If the assets, they put it in decline some in some factor, there is a possibility that's worth 99 cents for a point in time. But that would only mean if 100% of that $80 plus billion is liquidated right away,

I firmly believe they'll always be able to liquidate at a dollar, because I doubt 100% of their reserves are going to be called upon at any one time. What is the amount of reserves that can be called upon? Is it 10%, 5%, is it 15%, where's the threshold at which that demand couldn't fully be met one for one? Well, I can't comment on that. I don't have the answer. However, $10 billion, which was roughly what 12%, 12%, was just called upon and was instantly redeemed without a problem. So that's the best use case and best testament to how valid that asset is. And you can guarantee that anybody who's holding tether then will never get less than a dollar back for a dollar of the tether they hold? I can't guarantee anything. However, I truly believe that.

All right. Reve, thanks for joining us today to defend. it. We really appreciate your time and we thank you for coming on. Absolutely. Yeah, I hope I shed a little light on the industry. Thank you. Reeve Collins. Well, we've got a rally on Wall Street today, but even with those gains, the averages are lower over the past week. But look at the emerging markets, ETF, up 3% in a week. Are the opportunities, the bigger ones overseas? What about opportunity in big tech? Goldman Sachs says Uber, meta, Google, they're the best positions to weather the recent volatility. So what does our trader think? Stick around for free stock lunch to find out for just a few minutes time. Major averages are bouncing back today, but the Dow remains 14% below its yearly

high or high so far this year. The 8-SP, 18%, and the NASDAQ off 29%. That has investors looking outside the U.S. for returns. Sima Boney now on where they're finding them. Seema. Hey, Tyler, global markets have certainly not been immune to the recent volatility, significant outflows this year, but emerging markets have fared better than the S&P 500, down about 2% in the past month versus the S&P 500's 7% decline. Certain markets like Indonesia, Brazil, Norway, broader Latin America are not only outperforming the U.S., but trading in positive territory for the year. What they all have in common? Well, they're commodity producers, of course, from the rise in oil prices.

BTG Pactual, which manages $3 billion in Latin American equities, remains bullish on Brazil, specifically Petrobras and Vail. Portfolium Manager Will Lander is telling me inflation there has peaked, with interest rates climbing from 2 to 12.75% this year and says the recent sell-off has brought valuations down, with Brazil now trading at eight times forward-looking earnings. In fact, the broader emerging market ETF, now trading at price-to-book ratio of 1.1.3%. ratio of 1.4 below the 1.7 it was at in December. Data this week on inflation in Brazil, Russia and interest rate decision in Turkey plus industrial profits out of China are among the key

economic vents on the calendar that investors will be watching closely. Kelly and Tyler. All right. Thank you very much. Sima. Meantam, let's get to Frank Holland for a CNBC news update. Frank. Hey there, Talley. Here's your CNBC News update at this hour. Active shooter incidents here in the U.S. increased by more than 52 percent in 20. 2021 compared to just the year before. In a new report, the FBI also says 103 people were killed, another 140 hurt excluding the shooters. That is a 48% jump from the year before. Of the 61 shooters last year, the FBI says 60 of them were men. Goldman Sachs chairman and CEO, David Solomon says he is devastated by what he calls a senseless tragedy. Apparently random

and unprovoked shooting death of an employee on a New York City subway train. Solomon is calling Daniel Enrique as a dedicated and beloved member of the Goldman family, police are still searching for the shooter. And at a jewelry store in California, employees responded to four would-be smash-and-grab robbers by punching and kicking them until they just ran away. One of the defenders said, I didn't think too much going into it. I just kind of reacted. That's the very latest. Kelly, back over me. All right, Frank, thank you very much. And ahead on Power Lunge, everybody. We'll update you on these markets with the Dowell still up more than 600 points to kick off the week.

are leading the way, thanks to those positive comments from JPMorgan's CEO Jamie Diamond. JPM's up 7.3%. We'll also get a check on oil and why where it heads next is really dependent on what happens in China. 110 a barrel for WTI. We're back right after this. We've got 90 minutes left in the trading day. It's when it all starts to happen, folks, and we want to get you caught up on the market, stocks, bonds, commodities, and the whole thing. And why China may be the key to rising gasoline prices. Let's begin. though with Bob on today's markets. Robert? And the important thing, Tyler, is right near the highs for the day.

Three to one advancing the declining stocks, and this has held up. No wild swings. It's actually been a pretty nice, steady update. And here's the key here. Tech stocks are leading. Apple's been on just a wild ride. Remember, it was 149 back on Tuesday. It went to 134.

And now it's back to 142. It's not quite a round trip, but that's a very big swing for the biggest stock. that out that's out there, too, the biggest ones. Microsoft Alphabet, similar moves in these tech stocks. Now, what's not moving in Techland is the more speculative tech stuff, all of Kathy Wood and the Ark stuff, not really doing that much. So Twilio, Zoom, Roku down. But if we get some more stability in another couple updates, they'll start picking on this as well. I have no idea if there's any bottom here. I'm just making an observation about how these tend to work. These tend to rally after you've got a couple days where things are moving to the upside. Banks have

had a great day. J.P. Morgan had a good analyst meeting, increasing their net interest income projections. The CFO, Jeremy Barnum, making some very positive comments. Unusually low level of credit card chargeoffs. That's a very interesting statement. Consumers still very strong here. And again, nice moves up for the banks. So there's a lot of stocks trying to bottom. You remember that debacle with consumer staple stocks last week? I have been 25 years as a stock's correspondent. I don't remember a day when Proctor and Gamble dropped 6% in a single day. That just does not happen. went from 155 to 140 in a couple of days. Now it's 145. So again, this is an attempt to bottom here with those consumer staple names. So far, things are looking very good here. And the volume

on the moderate side, not heavy buying, not heavy selling today. Guys, back to you. All right, Bob, thank you very much. Now to the bond market where the yield on the 10-year is holding steady about 2.8%. That is well below the high water mark this year of 3.1% hit just about two weeks ago. Eald, meanwhile, on the two-year at 2.6%. The yield on the 30-year is just above 3%. So there you see the tenure at 2.86, pressing in on 2.9%. Energy complex closing for the day with upside moves for oil and Nat gas. Pippa Stevens is all over it for us. Hi, Pippa. Hey, Tyler, Nat gas is the big mover today, starting the session in the red before reversing those losses and then steadily climbing higher throughout the day. Now up 8.000.

8.5% at $8.77 per MMBTU. MZUHO attributing the move in part to a lack of substitution in domestic power generation since coal prices are also at record levels. A more muted move here for oil. We have recession worries weighing despite an outlook for higher demand. WTI is flat here at 11028. Brent crude up about 7 tenths of 1% at 1113. And then turning to energy stocks, the sector is hovering right.

around its highest level since November of 2014. Outperformers today include Marathon Petroleum, which had an all-time high, as well as Exxon, which is at the highest in nearly six years. BTIG noting that the sector is now more than 30% above its 200-day moving average, which is the widest it's been in the last two decades, and they now expect some reversion for the group looking ahead. Tyler. It is an interesting point to point to there, Pippa.

Thank you very much. Let's stick with energy as gas prices continue to rise across the U.S. With a national average now about $4.60 a gallon, the International Energy Agency has a new warning. The organization's executive director tells CNBC that unless we see big production increases around the globe, the only hope we have to avoid big trouble in the oil markets is this summer is weak Chinese demand. With us is Paul Sanky, lead analyst at Sanky Research. Paul, welcome. Good to see you. Do you agree with what the IEA administrator said, which is that unless, if, basically, if China comes back online in a big way, we got a problem?

Well, I think China's going to come back online in a big way because you've got the party Congress coming up in October, and I think they need to show something like the economic growth that they promised for this year, which is 5.5% GDP growth was the target before the whole COVID shutdown drama. On the supply side, I don't know what the IEA is talking about. I mean, if they could list for me five countries that are going to grow more than a million barrels a day of production this year, I'd be very interested to hear which those five countries are because they aren't there. So there is no prospect of more, in your view, or very little prospect, I don't want to put words in your mouth, of increased supply coming from somewhere in the Middle East, Venezuela, Iran, whatever, to help alleviate.

the price issues. Well, I mean, further to exactly what you're saying, you obviously have a long history of oil because Venezuela obviously used to be a huge producer. Venezuela no chance. Iran, I have no idea what's going on with the administration's dealing with Iran, but it seems to be going nowhere. Saudi and OPEC in general, of course remembering that Russia is a member of OPEC Plus, they haven't met their 400,000 barrel of day increased target for several months, and that's

the whole group combined. you're left with the U.S. and Canada. We've cancelled the Keystone and in the U.S., everything we're hearing is that they're maxed out on labor, pipe, any kind of service company is saying to you, it's impossible to grow faster than we already are. So I don't know where they think this oil is going to come from. Yeah, an interesting point and a troubling one, I guess I would say. West Texas crude right now at about 110. Brent at 113. Where do you think it peaks this summer? and how soon? Well, seasonally, normally we would say that we peak at Memorial Day,

because that's when the refineries would be running maximum. The concern here is that we're short distillate, which would be diesel and jet fuel. We're very short, and so we haven't been making gasoline. So the normal seasonal trade is off. So I think we keep going higher, unfortunately, through summer, unfortunately from a consumer point of view, through summer. And we'll then see, because we haven't also, seen the impact of the Russian outages. So I'm afraid we're in a very concerning tape here for oil.

It looks like it'll go higher. A couple of months ago, I was saying on your show, I think 110 to 150 is the new range. Obviously, we're at the bottom of that range now. So I think, you know, somewhere in that range over the course of summer. 110 to 150. And as you point out, we're at 110 right now. That means more pain at the pump for American and global consumers, I guess, particularly at the... the diesel pump, if you're a trucker or a person who has a diesel automobile, as many people do. Many people do in Europe. Or will there be some relief there as more focus goes to those distilates that you just mentioned? Well, you know, your short refining capacity in the U.S., which is a

problem, and, you know, maybe the administration will lift the stupid ethanol requirement, which doesn't make any sense. We're using 40% of our corn to make ethanol. Corn prices are off the hook. Chicken prices are off the hook. I'd like to see some better energy policy for sure because there are certain ways of alleviating this pressure. One of them is the renewable fuel standard, which really makes no sense. You shouldn't be using corn to make gasoline at this point, which is basically what we're doing. So we'll see. There's a number of issues that can be faced, but the reality is the market was already tight before the Russian invasion of Ukraine. Now it's crisis level, and I'm very worried about hurricane season, to be honest with you, in terms of if we would lose

refining capacity. Thank you for your candor. Thank you for your bracing thoughts, and we'll have you back soon. Appreciate it. Thank you. Paul Sankey. Hadn't even thought about hurricane season as a factor. All right, coming up a familiar scene at beaches around the country, debris washing up onshore, a lot of it plastic. Coming up, an entrepreneur sick of seeing this happening to the beaches in her native Hawaii, how she's using technology and seaweed to fight this problem. We're back after this. Plastic straws are out as more businesses try to reduce their carbon footprints and stop global warming, but some of the replacements, they're not so great. Paper and cardboard gets soggy reviews. Metal, but what about seaweed? CNBC's senior climate correspondent Diana Ollick

joins us now with the details in her continuing series on climate startups. Diana? Well, Kelly, we've seen seaweed used as a substitute for cattle feed. Now, how about disposable utensils? It's the latest in renewable replacements for plastics, and this startup is reaping the rewards. At Sunday Motor Co Cafe in Madison, New Jersey. I would take this over a paper straw because this doesn't feel soggy. Customers are sampling the latest in Cincinnati. sustainable, biodegradable, and most importantly, non-plastic utensils. A straw made of seaweed designed to disappear. Sea Technology is a competitive technology to replace plastic at scale because it's high-performing, cost-competitive, scalable, and regenerative.

So it's the most sustainable alternative to plastic on the market. Lolliware CEO, C. Burganti, is a native of Hawaii and says she was always struck by so much plastic pollution on its shoreline. on its shorelines. That's why she founded the Silicon Valley-based startup. Lolliware technology takes seaweed, mills it down, and then combines it with color, minerals, and water. The result, seaweed-based pellets instead of plastic. These pellets are revolutionary because they can be processed

on existing plastic machinery at scale. That also means straws are just the start. Cups and other utensils to come. So far, customers include the Cornerstone Restaurant group, the table at Crate and Barrel, and of course, the Motor Co. Cafe. Trying to do our part in our little community. Yeah, small business trying to make little impacts where we can. Backers include H.L. Ventures, City Rock Venture Partners, Sustainable Ocean Alliance, Geekdom Fund, the Field Group, and Sinclair and Rush. Total funding to date, just over

$12 million. Said the company has $50 million in revenue from the straw loan so far, and they expect to expand significantly now that the technology is up and running. The materials are made in the Midwest, so no supply chain issues. Swapping for seaweed for petroleum is slightly more expensive, but apparently not enough to turn vendors away. It's clear that investors are pest and that's why lulliware right now sees a very bright future. Back to you guys.

What other products might come out of their shops? Well, they're talking about plastic cups, but really any type of plastic cutlery because these are just pellets made out of. seaweed so you can put them into that processing machine that makes all kinds of plastic wear and make whatever you want out of it, really. All right, Diana, thanks very much, Diana Oleg. Checking the NASDAQ right now, up more than 1%, but still down 25% so far this year. Up next, we will check on three big cap stocks that Goldman Sachs says can weather the current volatile environment. Our three-stock lunch is next, and all of those three stocks are higher right now.

Welcome back, everybody. It is time for our three-stock lunch. The glasses are ready. Today, Goldman Sachs highlighting large-cap names that the company thinks can weather the volatile market. On the list, Uber, which Goldman says, is poised to benefit from recovery and ride-sharing. Metas, better than expected ad revenue, and alphabet strength in Google search and digital ads. So, how should you trade them? I'd say have a couple of drinks before you do. Let's bring in Ava Ados. chief investment strategist at ER shares. Ava, welcome. Good to have you with us. Thank you. Goldman Sachs says Uber is a buy. You say no, avoid, don't own, never have, won't. Why?

We never owned it. We're not buying at this point because it does not have strong fundamentals. This is a company that's losing money since day one. It has a very high debt to capital ratio above one to one, which is very high for a company that's losing money. money and it's nowhere close to break even. In fact, it's losing $3.5 billion a year, which is a significant amount. And also with this and with the energy costs now rising, the rebates that they're giving

to the drivers are not enough to subsidize for their increasing costs. And so what we're saying is that the drivers are reluctant to drive. And so they have shifted that financial burden to them. And it doesn't look like their business model is working at this environment. Why do they have so much debt and so much debt to capital, debt to equity? What are they, other than financing their losses, what are they financing? They probably also are doing investments. So it's the financing losses, as you said, the main issue.

In fact, we are saying, at our company, the best investor in Uber is the one who is using it. Because every ride, every Uber eats, you're getting a better benefit as a user than as an investor. So it's not, unfortunately, it's not a revenue model that's sustainable. And in fact, it has direct competition with Lyft, which Lyft has a better net income margin. It has a net income margin of 23% compared to the 33% of Uber.

All right. So on that note, Ava, let's move along. to Facebook or Meta. And do you like that stock any better? So of course, we're overweighted meta. And we would suggest that if you don't own it, buy, if you own it cold or even add to it. And so the reason is that it's a very well-diversified company.

It can sustain in a bad economic environment. Leadership is the most important trait we're looking at an environment like this one. Because leadership is able to help these companies, not only survive this bad economic environment, but also thrive. And Mehta is a company with the best net income margin and its industry of 31% that's seven times, sorry, seven times above the industry average. And so it's a company that's doing great, it's well diversified, it has a position in the

metaverse, great place to be. So question, if you like Meta for all the reasons you described, I guess without mentioning alphabet specifically, but, you know, Amazon. Apple, Netflix, some of the other mega-cap tech names, Microsoft. Would you be equally interested there or staying a little shy? Not Amazon because of the cost, the cost increases that they have. The biggest struggle now is their SG&A costs. But when it comes to Alphabet, that's again a company that we own, again,

and overweight because it's very well diversified. You use Google every day, every hour. hour even. And so it's a company with the biggest revenue growth in its industry, 37% revenue growth, again, a leader. And when tech comes back, which we believe is about to come back, in fact, we're tracking the advanced decline volume. And over the last month, so for instances, where the decline volume was significantly higher than the advanced volume. During the last 20 years, when that happened, six months after, the markets were high. higher, and in some cases, much higher.

When the markets come back, tech will come back the strongest. And these companies with very strong fundamentals will benefit. Let's move on to Google, where you have a somewhat similar take, which is to say, if you own it, hold it. If you don't, consider buying it, and you're attracted by the net income margin, among other things here at Alphabet. Yes, definitely. So it's a company that is very well diversified.

a very good business model, again, a leader in this space. And why we like them is that in a tough economic environment, companies that are leaders are able to take market from the companies that are struggling. And so it's tougher for newcomers to join the sector and their revenue growth can help them continue to be the leader in the future. So we're not seeing any changes in their leadership position in the future. In fact, we think that in a bad economic environment,

they might get market share from their smaller competitors. All right, Eva, thank you very much. We appreciate your time today. Thank you for walking us through those three stocks, Uber, Meta, and Alphabet. I think that's what, two drinks, maybe she would take. One of them, skip, yeah. Up next, there's a nearly 80, 80 percentage point gap between the best and worst performing sectors here to date.

We will dive into that next. Welcome back, everybody. You don't see this off. First of all, you don't often see a sector up 50% on the year. You don't often see a sector down 30% on the year, Tyler, and you don't often see a gap of 80 percentage points between the best and worst sectors, and it's only the end of May. And you haven't seen energy on this kind of run in many, many, many years.

And when you consider consumer discretionary, two-thirds of the U.S. economy is consumer spending, and so that is telling you where the feelings are. I guess I would caption this chart by saying what goes into oil and gasoline spending is coming out of the pockets of people who would otherwise spend at the dollar store or Nordstrom or Macy's or whatever. Perfectly encapsulated. And by the way, Amazon is a big, probably the biggest component of the Consumer Discretioner Index down year today. But this is exactly why. We see them shutting some of the warehouses that they opened during the pandemic.

We see this reset from consumer goods into services, into other things. just generally a slowdown. And that's why James Chuck Muck told us at the top of the show. He thinks it's the biggest mega-cap tech pick. He thinks it could rise 50% from here. But yes, that reversal very much goes hands to hand. He certainly said that. And then Paul Sanky, midway through the show, said 110 is the floor for oil, 150, the peak this summer, get ready, buckle up. And boy, if that's true, the impact on gasoline price is another record high today. Around $4.60 a gallon nationwide means it's going to still go higher. His about the hurricane season as well means watch refining capacity. That's already putting gasoline

prices higher than they would normally be at $110 a barrel. If we lose more of that in hurricane season, you could see pump prices go even higher. There you see it right there. It's been a little higher a couple of months ago in March where it went up and spiked there. But 110 is nothing to nothing to take much relief from, particularly if Sankey says it could go to 150 from here. Right. By the way, he thinks it'll also go to 10% of the S&P taking share from tech. consumer discretionary and those other sectors. Yeah. Let's remind our viewers, shall we, that you can listen to us on the go.

The Power Lunch Showcast is available where you get your podcast. You can listen there. You can follow. And we highly recommend it. Throw us a review. Yeah. What do those podcasters always say? Thanks for watching Power Lunch, everybody.

We'll see you back here tomorrow.