Power Lunch - A Tesla bull-bear, a fintech’s path to profitability and a double dose of three stock lunch 10/10/22

Episode Date: October 10, 2022

Tesla coming off a week that saw its shares drop 16%. Two analysts with two very different opinions debate where the stock goes next. Plus, a fintech stock that a top analyst says is on the path to profitability. And a double dose of three stock lunch. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody. I'm Melissa Lee. Here's what is ahead. Chip-checked, a global sell-off in semi-stocks. The sector gets caught up in a geopolitical battle. The SMHATF hitting lows not seen since 2020. Are there any beaten down names worth a look? And Tesla coming off a week that saw its shares drop 16%. The Bayer site margin pressure and deliveries,

the bull site potential for strong earnings growth, two analysts with two very different opinions, just minutes away. Brian. Yeah, we certainly have a lot of. A lot more to do here, Melissa, stocks were, well, they're way off their lows of the session. So that's the good news. The Dow and the Green, the S&P and the NASDAQ. But earlier today, they hit their lowest level in two years. That was intraday. Investors remaining focused on a lot of things. But about an hour ago, you had some comments out of JPMorgan Chase, Jamie Diamond,

to our colleague, CNBC Europe's Julianna Tattlebaum in an exclusive interview that he thinks a recession is six to nine months out and that the S&B could, not will, but could fall another 20 percent. and the overall economy is starting to teeter. Listen. The unknown effects, you see it today in bond markets around the world and sovereign markets and people selling U.S. Treasury debt, and it's the war. And these are very, very serious things, which I think are likely to push the U.S. and the world.

I mean, Europe is already a recession, and they're likely to put U.S. in some kind of recession six or nine months from now. Now, that is a big call from an influential, maybe the most influential finance CEO. and economists tend to agree. A new survey shows that they are ramping up the odds of a recession. Let's get more now on this with Steve Leasman.

Steve, what are they saying? Do they agree with Jamie Diamond? Yeah, pretty much. Diamond's comments come justice forecasters for the National Association of Business Economics, upping their chance of recession and downgrading their growth outlook for this year and next. I'll show you that in just a second. First, I want to tell you that Fed Governor Lail Braynard also agrees in remarks. She just delivered.

She said she was marking down her economic outlook. And I quote, I now expect that the second half rebound will be limited and that real GDP growth will be essentially flat this year. I don't think Fed governors give anything lower than a zero for GDP growth. Brainer added that she thinks Fed monetary policy will need to be restrictive for some time. But held out some hope that maybe there's some progress being made. Chicago Fed President Charles Evans, he agreed with Brainer saying the Fed would hike to a four and a half to four and three quarters range and stay there for some time.

Here's that NAB economic outlook. Just 0.01 on G, sorry, 1.1% for next year, 0.01 for this year. That's down from 1 8 and 2.1. So a good chunk lopped off there. CPI inflation numbers ratcheted up 8 and 3.8. So it does come down next year, but those are both higher than the prior forecast. You can see also that payroll growth goes down to just 94,000 a month. 88% of neighbor respondents saying the risk is to the downside for their forecasts.

But Evans did start off saying that he believes inflation can be brought down without causing a recession. That is a forecast prime that you know has a lot of doubters on Wall Street these days. Well, anything I think is possible, Stephen. And, you know, to be fair to the Federal Reserve, I don't imagine you've been covering them for a long time. Is anybody going to come out and say, well, you know what? There's actually no way we can ever avoid a recession. We'll be lucky to avoid a depression. so our strategy is doomed.

They can't say that, right? I mean, they have to be somewhat optimistic. Yeah, Brian, I guess as a car driving enthusiast, you should know that if you're controlling the accelerator and the brakes, you should be able to say we're not going to have an accident. Of course, the Fed has this single-minded mission right now, which is to bring down inflation, and they have said that they're willing to have at least a minor accident

in the sense that they have, have said that even if there is a recession, at least Loretta Messer from Cleveland told me this, that if there is a recession, they need to keep hiking as long as inflation is a problem. Yeah, it's a good analogy, and one, by the way, picked up, but Paul Krugman was using that, that car driving analogy. You and I have talked about for a while last week. They have no control over the snowstorm. That's right. Or the potholes in the road. Or a flat tire. Or a sundry of other things. Giant anaconda that comes out of the engine compartment while you're trying to drive the car at high speeds. Exactly. Things could happen. But anyway, I digress.

Steve, thank you. Well, there are signs investors are moving to cash in anticipation of a recession and maybe some better buying opportunities ahead. According to Bank of America, inflows to cash funds totaled nearly $89 billion during the week ending October 5th. That is the highest since April of 2020. In other words, people are selling stocks and putting the money into cash. Your next guest is adding modestly to cash and is getting ready to deploy it. Joining us now with Howie Pans and put that cash to work is Mike Bailey, director of research with FBB Capital. Partners, Mike, good to have you on.

You know, basically this would be a great market, I guess, long term for people who have cash. And apparently they still do. How long do we sit on it before we start to buy again is the real question, maybe the only question? Absolutely. So for folks who have been maybe selling a little bit or haven't been, you know, deploying cash actively, it's definitely a time to sharpen your pencil and get out there sort of start lining up. ideas and themes that you're ready to take action on. The magic question, when does this all happen? When do you hit the gas to go back to your last analogy? None of us know perfectly in terms of timing things. It does feel like in a very short term, you know, just a few weeks away from another

big rate hike. Does it make sense to really go aggressively at that moment? Maybe not quite yet. I think this, we're getting into earning season. Who knows, it could be a bit choppy here. But I think for us, it makes sense as you're thinking of protecting capital, line up your ideas when you're sort of ready to go, you know, take some action. But I do think having a little bit of extra cash on the sidelines is helpful here. You may get a better opportunity here in a few

weeks after the next rate hike. Where? Where do we put that money? So we've been looking a little bit more. It sounds like kind of maybe a chicken response, but defensive, but with kind of a growth flavor. So there's a couple different ways you can do that. Semiconductors are in the news today. The sector's kind of blowing up. For us, I think there's a way you can participate there. You'd actually underweight the sector and go defensive and still stay in semis. You know, Taiwan semi is the name that we've owned. Texas Instruments. You can, you know, even buy American if you want to go that route. So there's a couple ways to play that. You can also pivot a little bit. Stay defensive. You know, if you've got some cash, maybe park it and some defensive names. Utilities, sort of the classic

way to avoid a big cyclical blowup. Nextera. So that's a name. It's a growth, semi, probably the fastest growth, U.S. excuse me, a utility that's out there. So again, you can kind of hedge that a little bit. You can own a safe sector. but maybe play a little bit more on the growth side. Last name, this is, again, kind of a countercyclical. If you were to think about progressive insurance within the property casualty space, generally a countercyclical area. So if you're not quite sure if Jamie Diamond's right or if the Fed's right on the recession,

own property casualty insurance and progressive. Businesses that gain share over time, you don't have as much exposure to the economy as you start to whip through some of those cycles. Mike, do you have positions in any of these stocks right now? I'm asking because for people out there who are, sitting on their own cash thinking about when they should go in, it may seem daunting to just sit there and wait or, you know, to try and figure out what time to get in when you have a longer term horizon. Absolutely. You know, I think it's going to depend on each individual, sort of what your goals are,

et cetera, and sort of where your cash levels are. If your cash levels are significant, you know, typically you only hold on to a low single-digit percentage of cash and that's moved up to 5% or closer to 10%. I think you definitely want to participate in the economy, whether it's starting to just tiptoe into some defenses. of utilities, property casually, or some of the safer semiconductors, you definitely want to do that. If you started out kind of at zero cash and you're up to 2 or 3 percent, that's probably a reasonable place to be at this point. If you're a believer that there is going to be a recession, though, in six to nine months, would you sit on that cash for six to nine months?

I mean, let's be honest. You probably raise cash right now, right? So we've been raising a little bit of cash. It's been a little bit more bottoms up for us. We've had a couple names outperformed, whether it's in pharmaceuticals or some other areas. we've been trimming. When a stocks valuation gets excessive, we trim. That's sort of our process internally. But I think six to nine months, that's a really long time to hold on to excess cash. I think you do have to participate. If you think you're smart enough to pull out now and get back in later,

that's two good decisions. Most people have a tough time just making one really good decision. So again, as that cash piles up, you can, I think a good move is just participate in some of the defensive. Utilities, some areas in health care, some of the safer semiconductors, property casualties, There's a lot of areas out there. Good growth, high quality. You may underperform on the way up, but at least you're participating in markets. You're going to see some of that. Mike, thanks.

Mike Bailey. Thank you. Meantime, the Van Ex-Semeycinductor EATF hitting a fresh 52-week low today dragged down by Lamb Research, Marvell Technology and KLA 10-Corps. This is a sector finds itself caught in the middle of a semiconductor arms race between the U.S. and China. Sima Modi is here with the detail. Seema. Hey, Melissa, the new restrictions are the most aggressive actions taken yet by the U.S. government.

limiting U.S. companies from working with Chinese chip makers without approval and making it increasingly difficult for companies in China to obtain advanced computer chips made in the U.S. and use them to develop technologies like artificial intelligence, supercomputers. Bank of America pointing out this is not an outright ban. Instead, it adds an important step of verification to prove the end buyer is a non-military person. China, though, criticizing the move, calling it a violation of trade rules that will, quote, isolate and backfire.

BFA analyst Vivek Ariya. says the exact effect of export controls really depends on how these rules are enforced. He expects Intel, implied materials, Nvidia, Lam Research, to potentially see a 5-10% hit to sales. And adds that memory players like Micron and Western Digital could potentially benefit incrementally by taking market share from China's Yang-Ci memory. That's one of China's top chipmakers. It's one of the several companies added to the Commerce Department's unverified trade list. Melissa.

Seema, thanks, Sima Modi. So how do you invest in this sector with all this going on? With us now is Christopher Rolland, the senior analyst at Susquehanna. Chris, great to have you with us. Great to see you, Melissa. You know, what's so interesting, Chris,

is that a lot of people thought that this sector had been derrisked. I mean, it was down 20 plus percent since August highs. And here we are. And if you look specifically at how certain stocks have reacted to this news

because these export restrictions were floated before. And we saw an immediate reaction, an immediate comment from NVIDIA and AMD, which traded lower. They're trading down again on basically the same news except it's codified at this point. How do you sort of interpret all of this price action in terms of where the semiconductor sector is and how do you risk it is in fact? Sure. In terms of these BIS restrictions specifically,

the language is somewhat open-ended. So semiconductor analysts today are trying to figure out specific products from specific companies and how this will expand to potentially hit them and what that revenue impact is. And it's really hard to figure out right now. But we do know that things used in AI and supercomputing as well as memory, as you had mentioned, as well as compound semis, all of these are getting thrown into the mixed here overall. It's difficult to exactly determine what is going to be enforced and what is not. But I think overall, at least a 5% revenue hit for semis overall would be a base case for this new legislation. Let's delve deeper into a couple of them. And they're ones that I mentioned in VD, which is trading a new 52-week

low, and AMD, which is not only trading into 52-week low, but lows we haven't seen since 2020. Do you think that a 5% revenue hit is factored into these multiples at this point? Or is it just too unknown? Yeah. For AMD, this was most likely about their pre-announcement last week. But for names like Invidia and partially AMD, it's really going to be this language around AI and supercomputing. And so, for example, we know leading edge Nvidia training equipment like the A100 or H-100 are going to be banned. But what about inference for AI, for example?

That could take another, call it, quarter of NVIDIA's data center sales off the table here. So there are some risks. This may not be completely derrised overall and may go on a product-by-product basis. Are there certain sectors that you take a look at that had been huge growth sectors in China that the semiconductor industry will no longer sell into? For instance, and I'm thinking of comments made by the chairman and CEO of expert, I think it was last month when he said this would really hurt the autonomous driving sector. Auto chips and anything related to autonomous driving had been sort of a big growth sector.

If we cut that off in terms of exports to China, is that meaningful? That is meaningful for many of these players. There are internal efforts on the AI side beyond hardware. China is incredibly good at AI software. And so they may be able to use that, those algorithms on internal China-made chips. But chips, for example, from companies like Ambarella or NVIDIA or even Qualcomm could be at risk here, eventually if they were to expand that and impact the EV and autonomous driving segments in China, indeed. You know, we're talking about the chip sector as sort of a monolith, Chris.

But I'm wondering when you think about the fallout or the impact on semiconductor equipment versus semiconductor manufacturers, is there one side of the equation that feels it harder? Well, there's one that feels it less, and that was memory as they really are putting these restrictions down here. Less, yes, that would be lagging-edge technologies that they still may be able to produce. in China. So SMIC, for example, think of that as the Chinese national fab and champion there. They are not going to be doing leading edge there because of these restrictions, but they can do older technologies. And that may be a winner for them. Are there chip buys in your view at this point, or are there too many unknowns, whether it be

these export restrictions, whether it be, you know, just concerns about the global economy, etc. Yeah, we are working through it. And I think finally PC on the back of AMD's news, we're probably close to a bottom here. I don't know if it's 3Q or 4Q, but we've hit total units now from 350 million a year during COVID to now we're thinking 260. So that to us is really de-risk. These are starting to come into the numbers. We still think mobile has another quarter or two to go. And then finally, we haven't begun to talk about industrial or auto and cuts to numbers there. I think it'll be into next year. Wow. We finally see a bottom in numbers there. So a rolling sort of process here. Chris, we appreciate

your thoughts. Chris Rollins, Ms. Santa. All right. Coming off, a high gross stock that may have found a path of profitability. The fintech name one analyst says is now a buy. Plus, Tesla, coming off, its worst week since March 2020. The Bears piling on. The Bulls, always finding a reason to pile in. A little debate, what is next? Before the break, though, Rivian. It's got about 9%.

The EV maker recalling nearly all of its vehicles and said the company may not be able to meet a 2023 production target. We're back right after this. Welcome back to Powerlun. Chairs of Tesla are looking to make a comeback today after posting its worst week on Wall Street since March of 2020, driven in part

by the ongoing controversy. surrounding Musk's Twitter deal. It also recently reported disappointing Q3 deliveries, reporting 15,000 fewer deliveries than anticipated. On the flip side, Tesla's Shanghai factory, had a record-breaking September delivering 83,000 new vehicles. Joining us now is a Tesla Bull, Garrett Nelson with CFRA, he's got a strong buy rating, a $400 price target on this stock. GLJ researchers Gordon Johnson is way more bearish on the stock. He's got a sell rating with a $73 price target, the lowest on the street. You know, it's interesting, guys, because it's rare that you have a bull bear debate, and you've got people so far away from the actual price of the stock.

You're really on the opposite ends of the spectrum. Garrett, I'm going to start off with you in terms of that very bullish price target that you have. Is that a 12-month price target? And what are the catalysts there, especially if we see, you know, a recession, which many, many, many more people are calling for, is $400 realistic? Yeah, thanks for having me. Let's not forget that just three weeks ago, the stock was above $300. So while the stock has come in sold off sharply over the last few weeks, we think $400 is still achievable over the next 12 months.

Simply put, we view Tesla as one of the market's best earnings gross stories over the intermediate term. If you look, Tesla earned adjusted earnings of $2.26 last year, we see their earnings growing to about $7. by 2024. So, you know, at a time when inflation is really weighing on earnings growth, you know, broadly across the entire market, and consumers are pulling back on spending, there's really no other company out there that has this type of earnings growth trajectory. Even if you assume the analysts are wrong and you haircut those estimates by, you know, say 20 to 30 percent, it's very impressive earnings growth. And it's being driven by increasing production and sales,

at the two new factories that they just started up in Texas and in Berlin. Gordon, you've been a long time bear on the stock. $73 is a long ways away. Is there a particular catalyst at this point that you see finally coming home to Roos? Because the argument had been, you know, in the past, and I'm going way back maybe, accounting issues, the vehicle tax credits are going to expire, you know, all these different things that have sort of come to pass, and the stock hasn't hit, you know, that very low price. target. Yeah, Melissa, thanks for having me. Good to see you a long time.

No. See. So Tesla is effectively valued as a high growth company. And the problem is they're no longer growing. The issue is very simple. Tesla in Q3, their cells were 343, but if you look at Q3 and Q2 versus Q4 and Q1, their cells were actually down. So they're no longer growing. Why is that a problem?

The answer is simple. Tesla is valued at the next 10 at more than the next 10. largest automakers combined. They're valued at more than the next 10 largest automakers combined, despite selling just 2% of the cars those automakers sell. And when you look at Tesla's lead times, you can now get a Tesla car effectively in a week for all of their variants across China, which means their backlog is gone. They're no longer growing there. There's cells in Q3 in Europe were actually down versus Q1, and there's effectively no more backlog in Europe. You can get a car immediately there. And in the U.S., the lead times for the Model 3 are roughly a week, and the

Model Y are roughly three weeks. So this is a company that's no longer growing, and you know, you're looking at sales growth that is now declining. And I think the issue is, unless Tesla cuts prices significantly, we think Q4 growth is going to be down versus Q3. So you're looking at a company that's either going to see no growth or margin debilitating price cuts to move units. And I don't think you want to pay 100 times earnings for that company, when you're going to the auto industry trades at five times. And when people say Tesla is more than an auto company, they're not. 95% of revenues from selling cars, the other 5% from an energy division. But if you want to give them that, you have problems. Their energy division has single-digit

gross margins, which means it perpetually loses money on the operating line. So I'd like to know how Garrett would value a company that loses money in their other division outside cars. Well, Garrett, you can answer that? But also, can you talk to us, Garrett, a little bit about Tesla's cost structure? To be fair, they've done a much better job. It appears at sources some of these critical materials on a lot of other companies. I don't know how they did it, but they have, they've done it. But do we know what they're paying for that? I mean, is the model, you know, why going to cost $90,000 in a couple of years? Where's our cost and price structure going? Yeah, so they were way ahead of the rest of the industry in terms of sourcing raw materials

where there's real concerns about shortages such as lithium and cobalt, way ahead of the rest of the industry who are just now, you know, reaching supply agreements. And so that's another reason we like the company. Also, we think that the valuation is justified because if you look, you know, all their factories are essentially brand new. And that's why their gross margins are the highest in the industry. And not only, you know, people always make the argument, well, they're overvalued compared to traditional automakers. But, you know, a significant portion of their revenue and earnings is coming from software sales. That's really important because that's really high margin compared to vehicle manufacturing.

And so when you see that they just raise the price of their full self-driving subscription to North America from $12,000 to $15,000, that's revenue that pretty much flows right down to the bottom line. And so, you know, when you have a company that's sung that amount of software, you think about the margins on that product. You know, and so we think the valuation is justified. That's, you know, and Gordon, I mean, I, I, Tesla's are cool. I mean, they're cool cars. They're fast, right? They, they model S, the good looking car, the model Y. Yeah. But I hear about a $15,000 a year subscription to self-driving. My question about Tesla is, how big is the pool of buyers? I mean, how many people are buying $7,500,000 cars, throwing another $15,000 a year in self-driving? It's awesome if you can afford it. I just wonder how big is the addressable market. Maybe it's huge. Maybe everybody's rich. and I'm just not familiar with that. Yeah, so the FSD take rates have completely collapsed. What is that? Oh, full service driving?

Full self-driving take rates have completely collapsed. And keep in mind, full self-driving is vaporware. It does not exist. So I think that's a risk to Tesla. But one other thing I want to highlight, keep in mind, Tesla is seeing their sales growth decline. Again, they had about 70,000 cars of backlog that slipped from Q2 to Q3, which means when you exclude that backlog,

Their sales are actually down from Q2 to Q3. And keep in mind, they're intentionally running their Shanghai factory below capacity and only running their Berlin and Texas factories at 10% capacity. So they're having a hard time selling their current production. They sold 344,000 cars in Q3. They produced about 365. So they didn't even sell up their existing capacity, despite the fact their plants haven't even ramped. And with respect to technology, Tesla ranks dead last, according to Navigant, and full self-driving.

Again, FSD is vapor where it does not exist. And with respect to their batteries, keep in mind, at their battery days, I want to look at my notes. They promised us, or they said they were going to have silicon anodes in their batteries. The reality is, once those batteries were tore down, they had graphite anodes, just like every other battery manufacturer. They said we're going to have cobalt-free high nickel cathodes. In reality, we had NMC 8-11s.

So they make promises they don't deliver on. The growth has completely slowed, and we believe it's going to decline, and they're not even at full capacity at all their plants. So to say that we're going to give them a great valuation for a product FSD that doesn't exist, I think it's a step too far. I think you've got to look at their units and I think there's big problems there. It's a good debate. Listen, it's a company, though, Gordon, as you know, that's got people that are going to buy the stock and buy the car regardless. It's almost just like, you know, the fans of Tesla are going to be the fans of Tesla in the stock and no amount of valuation discussion is probably going to sway them.

But we'll get you both back on. Respectful, smart, polite. We appreciate it. It's amazing in America these days. It's Garrett Nelson and Gordon Johnson. Thank you both very much. All right, further ahead here on the show called Power Lunch, Melissa, free stock lunch, mixed drink, if you will.

UBS, UBS downgrading 4 to GM, Goldman Sachs has buy Etsy but hold Wayfair, net firm also upgrading Kraft Heinz while downgrading Procter and Gamble. Apparently cheese up, swifers down. Our trader will give you his top choice from each call. And consumer cracks retailing, desperate for a big holiday this season, but with household debt continuing to climb, could we see a spending slowdown? Everybody's spending money on the full self-driving, Melissa.

We're back right after this. Welcome back. Let's get a quick check on the markets here. We've got the Dow right now down by just about 68 points, a quarter of a percent there. The NASAC really feeling the brunt of the losses in today's session, down by almost 100 points or almost a full percentage point. Meantime, we're watching a couple of biotech stocks,

BioRad and Quijan, both moving here in just the past half hour. As Dow Jones reports, the companies are in talks to combine in a deal that could be worth more than $10 billion. It got Bayerad down by 6.5%. Quieting getting a pop 1.5%. Let's get to Sima Modi now for CNBC News update. Sima. Melissa, here's what's happening at this hour. NBC News is reporting that Trump attorney Christina Bob has spoken to federal investigators.

She is a lawyer who signed a letter certifying all sensitive records in former President Trump's possession had been returned to the government. sources say Bob denies having written the letter. Instead, she says she was told to sign it by Trump's lead lawyer at the time, Evan Corcoran. Bob and Corcoran did not immediately respond to requests for comment. President of the Los Angeles City Council has resigned from that post. Nurey Martinez stepped down from the presidency after recordings were leaked of her making racist and crude comments to other Latino leaders last year. Martinez issued an apology but did not say she would resign from her city.

council seat. And in Italy, one of the most active volcanoes in the world has erupted. Dramatic video shows ash and lava blasting into the air and tumbling down the side of the Stromboli volcano and into the sea. Guys, this is one of the most active volcanoes in the world. It's been continuously erupting over the past 90 years. Amazing scenes there from Mount Stromboli. Thank you very much. By the way, I want to issue something, a correction. I haven't done this in 20 years or so. Sorry to laugh. Tesla full self-driving, apparently I said it was 15 grand a year.

It's 15 grand one-time fee, which you can spread out. It's not bad. No, I want to make it clear, though, because otherwise it wildly overstates the car. Somebody was in a dealership right now, about ready to pull the trigger. They're like, no, wait! Brian Sullivan, told me. That's right. There we go.

All right, coming up on Power Lunch, Mizzouho proposing a toast. The restaurant software stock down 51% this year as many investment. investors shed riskier, low profit tech names, put the firm out with a bullish call, saying the stock is a clear path to profitability. The company, you know them if you dine out. We'll talk about it coming up. Stick around. All right, welcome back to Power Lunch, everybody. Just 90 minutes left of the trading day and we want to get you caught up on the markets, stocks, bonds, commodities, and a, well, restaurant FinTech name that may be on the path to profitability. Maybe it can make you some bread. We'll get to that in just a second.

Let's begin now with Mike. Don't give me that look, Melissa. Let's begin with Michael Santoli at the New York Stock Exchange. Quite the volatile day internally, Mike. Yes, Brian, jerking all over the place. In fact, the S&P 500 did go back and just about visit the bear market lows. Said a week ago Friday, that's under 3,600, 3588 was the load today. And then we did get this bounce or a bounce attempt. We're still holding most of it right now after Fed Vice Chair Lail Brainerd did have some more

nuanced comments about the Fed's inflation fight, maybe acknowledging some of the effect of the rate hikes that have already been in the system, and perhaps that's eventually a way to see clear to them pausing those rate hikes, but shows you the sensitivity here. Semiconductors, you guys've been hitting it, really been the downside driver today, that news about China, export restrictions and all the rest. That seems to be the main problem that the NASDAQ is having in handling that. It's actually not otherwise holding up too poorly. Equal-weighted S&P is well outperforming the market cap weighted S&P similarly. Now, U.S. cash bond market closed, something you guys have been hitting. Long-term Treasury ETF, though, making new lows today probably would imply that the

10-year treasury yield is in the vicinity of 4 percent again. So that's one of the things that's keeping investors a little bit on alert here, Brian. All right, Mike, thank you. And of course, that TLT bond ETF is trading, but the U.S. bond market is not trading. It's closed for Columbus Day. But we do want to bring your attention to a big intraday move in UK bond yields. Morgan Stanley Investment Manager Jim Caron explains the move by saying that there is concern about what is going to happen to the guilt, that's their bond, a guilt market, when the Bank of England purchases end, basically like their quantitative tightening, since the Bank of England is the one that stabilizes the market.

And then the question then becomes, will they have to extend that QT? Point is this. UK bond market, it's really volatile, scaring a lot of people. people, and it's a market that you probably never watched before, but you should. All right, guess what? Let us now watch the oil market, which is closing for the day. And Pippa Stevens, we are back above 90 bucks a barrel. That is right, Brian. We are giving back some of last week's strong gains. But Brent, you know, isn't all that far from topping $100 again.

The market continues to digest that two million barrel per day cut from OPEC and its allies as we await any type of further response from the U.S. Now, Brokridge PVM today lifting its Brent target for the first half of next year to $110 per barrel, although the firm added that inflation-induced economic headwinds will make the road higher a bumpy one. Let's check on prices. WTI down 2% at $90.70. Brent crude at 9577 for a loss of 2.2%. Now, heating oil, which is a proxy for diesel, is in the red, down more than 3%, but it's coming off a nearly 20%. gain from last week. And amid that jump, diesel prices at the pump are up 19 cents over the last

week, according to AAA. And finally, energy stocks are the worst S&P group today, falling 2% with every component, Brian, in the red. Back to you. Big watch there on oil and oil. Stocks. Stevens, thank you very much. All right, well, many newer financial technology stocks are yet to turn up profit. That's perfectly normal. But your next guest says that the company called Toast is on a path to do just that, upgrading the stock to a buy. Let's bring in Dan Dolev. He is managing director and senior analyst at Mazuho. Dan, welcome back. I interviewed the actually interviewed the founders of Toast when the company was still private. And for our viewers that don't know, and please correct me if I'm wrong,

this is like a company they might be familiar with at restaurants, right? The handheld payment devices, they've got software that connects to that, takes orders, payment processing. But they're also much more than that. They're getting into working capital loans. They're getting into kind of information software as a service. What about Toast? do you like because the market has not liked the stock? Thanks, Dave, thanks for having me on the show again. I mean, toast is a massive share gainer. We're seeing them gain share across the board.

And what we like about them that the market doesn't like is people don't think they can be profitable. We ran a survey of 55 restaurants. And what we found out is that people that take payroll are actually more likely, much more, twice as much likely to take other software and services. And if you think about those incremental margins, they're like, they could be like in the 60s. They could be even higher. So the bare case on toast is that they can't make money. What we say today is if they continue to upsell payroll, SaaS, et cetera, over the next, you know, 12 to 18 months,

they could actually turn a profit in 2023, which is not in consensus right now. So, Dan, it's primary customers, a restaurant business. I'm wondering how you think about and how you model out a recession in six to nine months in the various base case scenario. for a recession, which restaurants may not survive and there may be cuts at restaurants? So there's actually two views. That's a great point you're making. So we weren't making a macro call. And, you know, obviously if we hit a recession, there's going to be a lot of things to short out there. But the way we looked at it is there's two ways to think about it. Like there's some of the restaurants that are not going to survive. But if you think about where TILS is

heading, they're heading deeper into enterprise. They're heading deeper into sort of bigger restaurants. And I think those restaurants tend to be more resilient over time versus like the very, very small end of the SMB, right? So they're kind of morphing away from where it used to be, like, you know, where square operates normally and going into deeper restaurants. So I think it's not like we're not modeling a recession, you know, per se in the numbers. I don't know how it's going to play out. But I think there's some resistance there, given the size of the restaurants and the depth of the SaaS products that they're attaching to it. How hard was it, Dan, to make this call? I mean, you could have easily just sat at a neutral in this stock.

in an environment in which even come for companies that see a path to profitability with a recession looming, that path is a little bit more uncertain. And the market doesn't look favorably on high multiple non-profitable companies. And that's basically where toast falls. Yeah, I appreciate it. It was a very bold call. And I think on our team, we thought a lot about whether or not we actually want to do it in this environment. We couldn't just sit there looking at how much share they're gaining and how well they're doing.

you see them everywhere. I mean, you're seeing them taking share across the board. We actually have a chart in there in the presentation. They're actually taking more share from most share from Square. We couldn't just sit there, watch it, and be neutral on the stock. It's just too good. I mean, they're just executing so well. It was a screaming buy. And once we saw the data on the SaaS, we were like, it's a buy.

So we're taking the risk on the metro, but, you know, I can't predict that. Is there a takeout premium that should be built into this stock at some point, Dan? there's so many of these companies that popped up. Every time you go to a restaurant, it feels like there's like a different vendor because, you know, we look, right? It's our business. Is there got to be some sort of a buyout put on this company? 100%.

I think that if there is a, I mean, that's actually what makes it such a great stock in our, you know, in our view to buy because if it does, if things fall apart, let's say, there's always someone like one of the legacy guys that's going to want to take them out, right? So there's definitely a put on this one. It reminds me a lot of like Robin Hood, right, which we cover. So there's a put on Robin Hood, and that's what made it so resilient because everyone, there's a lot of people who are interested in buying Robin Hood if, you know, things kind of don't go the right way, which they are. So I agree with you on that. It's a, it's the best in class.

It's like the apple of like restaurant point of sale. Dan, great to speak with you. Thank you. Thank you. Dan Dolov. Sillacom growing concerns this holiday season for big companies. some top calls of the day. We'll be right back. Welcome back to Power Lunch. Let's get straight to Steve Leaseman with a Fed alert, Steve. Yeah, thanks, Melissa. Fed vice chair, Lael Brainerd in the

Q&A portion following her speech, said that the Fed recognizes that liquidity is a little fragile in some markets, and the Fed is monitoring the situation carefully. Meanwhile, former Fed Chair Ben Bernanke, taking questions from reporters and others after being awarded the Nobel Prize in Economics this morning. He did a little press briefing at the working institution. He said the current financial and economic issues right now are different from the great financial crisis because the GFC was created by the financial system, the upset in the system, that is. This one was created by the pandemic. There are issues of financial stability in various markets, et cetera, but we're certainly not

in anything like the dire straits we were in 14 years ago. Bernanke said that over time, even if financial problems don't create the financial crisis, they can add to it. These comments coming on a day, as Brian just mentioned, that yields on long-dated British government debt have risen 20 and 30 basis points in a day. So very apropos, Brian. Yeah, it certainly is. So much to unpack there, Steve. The Brainerd comments, they seem to move markets as well.

Bernanke talking about, you know, COVID did it, although many people might argue it was COVID, but then it was the response to COVID as. well. But going back to UK, because this is like, we'll call it like WBI wonky, but important. Like, how do we analyze this move in the UK bond market? It's not something we talk about all the time. To be perfectly blunt, it's hard to understand, at least for me. We've been talking to a bunch of people this morning about what actually caused today's upset. I don't know if in the back they can get a chart of the 10-year guilt. They didn't know we were going to talk about this. But these kind of moves like this, 20 base points, the best explanation I

heard, Brian, came from Krishna Guha, who said the concern was, look how good they are in the back there. Look at that shirt come right up. The best explanation, Brian, was that the Bank of England today in the statement affirmed its plans to stop buying bonds at the end of this week and that it hadn't taken really as much as it said it was going to take in terms of taking that off the market, taking off the hands of the pension funds, which, as you remember, a week ago Friday, as we reported, was the source of all this tumult in British markets. going back to the liquidity is a little fragile, because when I saw that headline, that really concerned me. Was she speaking about a specific market? I mean, I don't know what the context of

the question was, but that in and of itself seems a little bit frightening. I don't know. The house is a little on fire. I guess there's a little smoke that I smell. Maybe there's a fire. I I mean, what does that mean? I think it is a statement that you could cause to have concern or just one that says, you know what, there are some illiquities out there in markets. That's a known fact. We've been reporting this over time, but not a broad, systemic-wide illiquidity problem. Look, I told somebody the other day, Melissa, I don't have to report the illiquidity problem

because people call me when they can't place these things, and they say the markets are all screwed up. So in March of 2020, I got calls from people who could not place 30-year government paper. We are not there right now. There are times when some of the guys who are placing this big paper want to use smaller lots than bigger lots, and sometimes they find that there's not liquidity

in certain markets like corporate bond markets down the credit spectrum. All right. Steve, thanks. Steve Leesman. It's some big. These are some big comments disguised as benign headlines. Wouldn't you agree with that? Well, I would love to hear the actual speech because a little fragile. A little fragile, a little less liquidity. Read the facial expression. Yeah, that's a big deal. All right. More power lunch right after this. Time for three-stock lunch. Today, we are pouring doubles on autos, UBS, UBS, downgrading 4 to a cell and GM to a neutral.

On internet retail, Goldman initiating Etsy with a buy, Wayfair with a neutral. Goldman also making a call on the staple sector, upgrading craft. to a buy, cutting Procter and Gamble to a neutral. Here with the take on these pairs is Scott Nations, Nation shares, president, and CEO. Scott, let's start off with Ford and Jam. What do you think? I mean, they're saying the entire audio sector, U.S. and Europe, could see profits decline 50 percent next year. Yeah, but Melissa, this is not very helpful when the stock prices are already down 50 percent or more. And, you know, even if that comes to pass, then General Motors would still have a P.E. ratio in the single digits, and Ford would be just

over single digits with a P of about 11. So even then, I think they'd be relative bargains. I don't see this one being very helpful. Okay, Etsy and Wayfair. Your take? Etsy being a buy makes a lot of sense. It's an interesting company. It has to become more than where you go to buy homemade pot holders,

but it has huge brand equity, huge brand loyalty. This one makes sense to me. Wayfair is a neutral. I don't know how they're going to grow EBITDA earnings, profits from where they're at right now. Final pair, Scott, Kraft Heinz and P&G. I think Brian said ketchup and swifers. Summarize this one. I look at it this way.

I want to be long anything, any company that makes the stuff I have to buy or sells the stuff I have to buy, P&G is a little bit more expensive with a 21 PE. but I still want to be owning a company that's going to do really well when it comes to managing profit margins. Craft Hines, that makes all the sense in the world. It's a bargain in the staples space. And again, it's something that it's a company that makes the stuff you have to buy. Hey, Scott, very quickly before you let you go, because I just feel like we just ate the appetizer and ditched out on the check. Your quick take on the Lael Brainer comments about lack of liquidity, it seems that kind of a big deal, no?

I'm with Melissa. So I want to hear the context of what she said in the context of the question. And was it asking about a particular asset class? Because there is plenty of liquidity in the 4th in the S&P 500 names. But again, mortgage-backed securities or corporates that are not AAA or double A. I know that there are liquidity problems there. And if that's the context of the question, I'm with it. All right.

Scott, thanks for take three, stock lunch, and then some dessert. It was like fast food. Thank you for watching PowerLine.