Power Lunch - Big Tech vs. Small Caps, Building Carbon-Negative Homes, Health Insurer Stocks & Domino's CEO Russell Weiner 2/26/24

Episode Date: February 26, 2024

CNBC’s Tyler Mathisen and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch. Alongside Courtney Reagan, I'm Tyler. Mathis. Glad you could join us. Coming up, we heard from two big names in business. Jamie Diamond, Warren Buffett, we will break down what they said about the markets and the economy. Plus, we're breaking down the health care industry and our week-long econ ecosystem. We'll look at Big Pharma and biotech. But we start today with a look at health insurance companies. Let's start, though, with a check on the markets here.

We have the major averages in mixed territory, but only ever so slightly so. the NASDAQ composite leading the way by just a hair under one-tenth of a percent. Dow Jones Industrial average is lower by a tenth of a percent. And S&P 500 down two-tenths of a percent, or just about 10 points. Got some changes in the Dow today. Amazon is in. Walgreens boots got booted. Walmart trading at $60 a share after a three-for-one stock split. And there you see that one, up nearly two percent. Shares of Domino Pizza are rising today, just like the dough in the ovens, heading for its highest close in more than two years. Beat on earnings, despite a small miss on sales, we'll talk to the company's CEO later this hour. But let's start with the CEO of J.P. Morgan, Jamie Diamond.

Joining Leslie Picker a short time ago on CNBC, and Leslie joins us now to sum it all up. What did he tell you, Leslie? Hey, Tyler. With AI in Focus these days, I ask Diamond about the technology and its applications for banking in particular, and whether there's too much hype. This is not hype. This is real. So, you know, when we had the internet bubble, the first time around, our eyeballs, you know, that was hype. This is not hype.

It's real. And so people are deploying at, you know, different speeds. But it will handle a tremendous amount of stuff. We're all going to get better, faster, smarter. Bad guys are going to use it. So we have to build the systems to counter the bad guys. You know, it's being used to combat cyber right now. It's been used everywhere.

Diamond said J.P. Morgan uses AI already. for risk for fraud, suggestions, fixing errors. And he said it's, quote, just starting and will be used in almost every job to make it easier to do things. That's new school banking, but J.P. Morgan is also investing in old school. I asked Diamond about the recent headlines

that the firm is building out 500 new brick and mortar branches over the next several years. Some small businesses need it. At the end of the day, they've got a drop off coin and currency and even wealthy people like to, visit their money. So I think people should be careful about it. And if we had to change directions somehow, you know, we could. But a million people a day, and that's been taking place for 20 years.

So when people tell me closed the brands, I'm saying, really? So you're going to tell a million people who obviously walk with their feet that they can't do that anymore. So, but that doesn't mean you can't be a great digital-only bank. You know, so we're going to compete with both. And speaking of competition, I asked Diamond about the recently announced deal between Capital One and discover financial, which would surpass J.P. Morgan as the largest credit card issuer in the U.S. if it were approved. And that diamond said, quote, let them compete, guys. Very interesting when he was talking about the branches, because they have been, at least in my town, they've been closing some branches, and a lot of banks have been closing branches,

but they're choosing to go the other way, open new branches. Maybe they're going to right-size some of the branches they have, though, too. Yeah, no, they have 5,000. branches. And so this is a pretty big investment, 500 more over the next three years. And he laid out a case for them saying that people want to see that their money is safe. They want to go into a physical place to visit their money. I thought that was really telling just about kind of as we see this competition from the neo banks of the world, the digital banks, there's a lot more of it, especially over the past few years. And he mentioned, you know, some of the competitors out there. And so having branch, if I'm kind of reading between the tea leaves here is almost a competitive advantage for that, for those people, those customers, to be able to kind of step foot and talk to someone face-to-face. And that is why they're investing so much in building that out. I think that's the key point there. I think people want to have a human being that they can talk to when they have a question about their account

or a service that they might need or they need to have a notary public witness, a document or something like that. it's good to have those branches. All right, Leslie, thank you so much. We appreciate it. All right, from Jamie Diamond to Warren Buffett after a record-setting week, stocks head into the final week of February on a high note. But in his annual letter to shareholders, Warren Buffett says it's not easy to find value in this market. In fact, he says Berkshire may only do slightly better than the average company because of its sheer size. So is this just another way of saying markets are over-concentrated in a few tech stocks? And if that's the case, should investors stick with Apple and Nvidia or seek value in smaller names? Let's bring in Brian Jacobson, chief economist with Annex wealth management.

Brian, good to see you. I'm happy to see your smiling there. That means you must be happy with the way the markets are performing so far this year. Yeah, so far, so good. You know, January and February have been pretty positive. So let's hope that this can continue for a while. Warren Buffett's warning to investors, I do believe, needs to be heated, of course. You can't argue with his success.

But I think that really what it highlights is one of the problems with size. In order to move the needle on return of investment for a company of that size, he has to find bigger deals. And so we actually think here at Annex Center Investment Committee that a lot more opportunities could be transformational in the small and midcap space instead where they don't have to worry about $136 to $37 billion in cash on their balance sheets. Right. Well, you've just touched on something that I wanted to ask you a little more about. Do you think Buffett's, quote, warning here was more about how difficult it is for him and the people at Berkshire to find companies of a scale that are value plays, because that's the way he likes. He likes to find hidden value, but are large enough to move that big battleship called Berkshire, or was he talking more broadly about the dearth of value in the market? Yeah, I think you're right as far as the first interpretation that it's really a Berkshire-specific

and maybe large-cap-specific worry that he has. As far as if you want to go out and if you're Berkshire, buy a big enough company, the valuations there might not be as attractive as if it was in a smaller company, but is it really worth his time? These might be more the crumbs from the table, but you can build a pretty good feast from the crumbs from Warren Buffett's table, that's for sure. Brian, when you're talking about valuation, the first thing I'm thinking of is what Tyler discussed in the intro, names like Invidia, for instance. It seems like it's only going one way, and that is up.

That being said, if you're not in it, it may be a little intimidating, perhaps, to jump in now. When you're looking at valuations and concentrate in success in some of these magnificent seven, or however many number you want to categorize them as, I mean, is that a no-brainer? Is that where you just have to be in this market until we have really? real substance that we're seeing things broaden out? Yeah, we think that we are going to see things brought it out. If you look at the actual performance of, say, like, industrials and even materials over the last few weeks, small caps have occasionally performed pretty well, and that we have seen early signs of some broadening and maybe a little bit of this top heaviness of the markets beginning to turn.

But then all of a sudden you get the shock from Nvidia where, you know, their revenues are up more than 200% year on year. And so I think that's actually kind of an important thing to note is that the stock price has gone up quite a bit, but as have the fundamentals. And really until we see the fundamental weakness, I'm not too worried about the valuations that we're seeing with some of those names, but do keep in mind, risk is fun in games until it actually results in down markets instead of these up moves that you've seen. Sure. If you're an investor that's still looking at elevated rates knowing we're not exactly sure what the Fed is going to do and win. But as of right now, they're sort of on hold and we know that rates are elevated. Should you be looking for maybe a play that's a little less risky?

Putting your money in some kind of high-yield account that is not junk. You say not all high-yield is junk. That's correct. Yeah. So we work with a number of high-yield managers where they actually have more of a focus on looking at the higher-quality high-yield. High-yield bonds, sometimes called junk bonds, if you want to use a pejorative for them. But with some of them, it can actually be fairly high quality. If you're looking at the EBITDA, so the revenue generation relative to what they need to service,

some of them have been able to term out their debt. And so it's really dangerous, we think, in this market, to just take that broad brush, scattershot approach to investing in an asset class. There are lots of these different pockets of opportunities. So it might be high-quality, high-yield. It might also be some of the more profitable, lower-leverage, small-cap and mid-cap names that are out there. I guess it would be remiss of us not to ask you what your prediction is for what the Fed will do here, since you are, of course, the chief economist at Annex before we let you go.

Where are you? What do you think the Fed is reading in the data tea leaves right now, especially after those surprise CPI and PPI prints that came in hotter than expected? Sure. I think they're really what this has done is reset the clock for them, where maybe they want to look for three more months in a row. row of decent inflation numbers. And so that would really put us at, I think, June at the earliest for them to start cutting rates. But they are likely to communicate at the March 20th meeting what their plan is for tapering the quantitative tightening that they have been doing. So one step at a time, taper quantitative tightening, and then they can tee up the rate cuts.

All right, Brian. Thank you very much. Great to see you, Sir. Brian Jacobson, Annex Investments. Well, coming up, Gemini, Google's AI platform, getting probed for bugs and issues by consumers and they found them. Details in tech check plus topping estimates and pizzas, Domino's Pizza beating on earnings. We'll find out what's working in the restaurant space from the CEO live. When Power Lunch returns. Welcome back, everybody. Shares of Alphabet sinking today. It's been a rough year so far as problems around its AI model Gemini pile up. At first, the company had to pause its AI image generation tool and now users are pointing out questionable responses from the Batbot. Dieter Bosa joins us now for today's tech check. Dee, what kind of issues are they

seeing and they seem a little alarming? Yeah, I'm not going to show you because they are alarming, but I am going to tell you. And the backdrop that you need to know here is like Google really has all the elements to dominate the AI race. That's always been true. Data, distribution in particular, but it keeps tripping up. So with the rollout of Gemini, the company finds itself at the center of renewed culture wars over race and diversity. It's image generator, which mentioned has been suspended after basically trying too hard to be diverse. For example, creating diverse images of the U.S. founding fathers and Nazi-era German soldiers. So a different kind of diversity problem that Google admits missed the mark. Its chatbot has been found

to have a similar problem. In a few high-profile examples, Gemini refused to condemn pedophiles, equated Elon Musk with Hitler. Some posted different answers from chat, GPT, which did suggest more straightforward stances on these difficult but pretty straightforward issues. Now, I tried to replicate, guys, some of those searches this morning, and I couldn't for the most part, but in some cases, Gemini simply said that it couldn't assist with the query while chat GPT always did give some kind of answer. The broader issue, though, around this rollout is whether this underscores a painful corporate reality for Alphabet and CERC, CEO, Sunder Pichai. Guys, one of the questions we still don't have answers that we've been asking for some time now is what happens to Google search. Google has rolled out its AI products slowly to be more cautious. They put this emphasis on safe and cautious AI, but it hasn't worked out for them.

It just creates a whole new set of problems, underlining the complexity of all of this, too. Were the queries that produced these, I don't know, offensive may not be the right word, but questionable. Let's call them questionable responses. Were the queries intending to trip up the model or not? That's a great question, Tyler. Yeah, there is a little bit of cherry picking going on here, but still the answers are the answers, and they should be straightforward, but they're anything but that. I do think you bring up a good point, though. When Chad GPT first came onto the scene, stormed onto the scene, there was all these issues as well about misinformation, bias.

We can't forget that New York reporter who Chad GPT told to leave his wife, right? There was all kinds of issues that were fairly quickly cleaned up. And I will say that Google is trying to clean this up as well. And these are just inherent issues and these chatbots that are trained on certain kinds of data. So it's not an easy answer, Tyler. But yes, there's always a certain amount of carry-thinking. I've gone in and asked, I think it was chat GPT, I can't say. So I'm not going to characterize the answers.

But asking questions about a critical race theory, for example, to untangle it, explain it. Tell me about it. And you could see very easily in the answers where, depending on your point of view, you might be offended or agitated by the answer, or you might say, okay, that's okay. That's pretty much the way it is. So it is, you can, you can't take the sensitivity or sensitiveness out of a sensitive topic like that. I don't think even artificial. Well, okay. Well, hold on, though. When you look at something, yes, there's, A lot here that is fuzzy, but when you compare, and I guess this is the argument that some people are making, when you compare Elon Musk to Hitler, the chatbot needs to shut that down and say there is

no comparison here. So it's these cut and dry issues that Google is getting a lot of sort of heat for, right? Which should be a straightforward answer, but they're trying to be too politically correct. We're talking politics here, which I hate to do, but that's where this is gone. But that's where it's gone. That's where the sensitivity is. And I would just say that whether you're in artificial intelligence or a dumbass invoking Adolf Hitler in any form is probably a bad idea. But whatever.

You want to have a question here? Yeah, I was just thinking, dear to that it's interesting that we're talking about having to have Google tried to fix it or like unteach this machine learning. I mean, isn't that kind of the point? It's supposed to evolve with time? I mean, how do you unteach it things? I guess it just, it boggles my mind to understand that part. Well, I mean, and that's the thing, right? When we go back to chat TPT, when it was first release in November of 2022, there was these

issues that are ironed out by now. But the fact remains that Google has sort of just been behind the curve here, right? It took them like 20 months longer to get their Gemini model out to mainstream consumption. So I always go back to this question. Like, what happens to search, right? That's what matters to our audience. Let's leave aside the politics. Yeah.

It's the investor story here. Search is still the cash cow, one of the greatest business models of all time. And we don't have an answer for that. Gemini may have all of its problems, but if more people are going to chatbots than they are Search, that's going to hurt their cash cow and the business model that has been around since, you know, the dominant model for decades. And Google, of course, had their saying, you know, do no harm. And for many years, I didn't really understand how they fit with this business. But now I do.

Thank you very much, Deirda. Well, further ahead, breaking down the health care ecosystem, there's more than one way to invest in the medical space. course. So this week, we're going to break them all down, starting today with insurance stocks. And before we had to break, make sure you mark your calendars for the premiere of CNBC's newest documentary, Big Shot. The Ozempic Revolution, our Melissa Lee, will give an in-depth look at how the diabetes drug reinvented weight loss culture and the way we treat obesity in America. That airs Thursday at 10 p.m. Eastern. You definitely won't want to miss it. We'll be right back. Welcome back to Power Lunch, everybody. Heard from Jamie Diamond earlier on CNBC's cautious about the

probability of a soft landing, more cautious than the market seem to be, at least judging from where they've been over the last couple of weeks. GDP, among the pieces of economic news we will get this week. And let's check in on that and the other data with Rick Santelli in Chicago with the view from the bond market. Rick? Yes, Tyler, the big news in the bond market today? Well, $127 billion. That's the big number. We'll get to why in a second. Look at an intraday of two-year note yields. Right around 1130 is when we had. 63 billion in two-year supply, the largest two-year offering by Treasury ever. And right at 11.30 Eastern, the yield was around 470s.

You see on that chart, we never look back, yields continually moved higher. Now, it was a few hours later at 1 o'clock Eastern. We had 64 billion of five-year notes, the biggest ever. There's your 127 billion number. And as you look at that chart, what's notable is that right around 1 o'clock Eastern, we put the high yield of the day in at 433. And the rest of it, well, two-year note yields, as you see on this chart, are on pace for the highest yield close in three months. And here's what's interesting.

Short maturities, two-year and three-year are both on pace for fresh, high-heeled closes. The rest of the curve is closed, but it isn't quite there. Why is that? Because the short maturity is most associated with the Fed. And the biggest story of the Fed is everybody scratching their head as to when and how many rate cuts are going to be, and it's under review. And that really is keeping the yield curve much more negative, as you see on the next chart, at minus 44 basis points around pace for a three-month most negative close in that spread. So short maturities are leading the curve with higher rates and long-dated treasury yields have rested a little bit.

Their main dynamic was debt. Right now we're looking at debt all right tomorrow, complete $169 billion of supply, but it's the shorter maturities. Courtney, back to you. Thank you very much, Rick Santelli. Well, after a long winner for Nat Gas, prices had been turning around, but well off the highs today. Pippa Stevens joins us with the details. What's going on here? So, Nat Gas is coming off for straight weeks of losses, but we are seeing some green today,

and that's because some producers are now starting to signal that they will be scaling back operations. So specifically Chesapeake last week, they said they're going to drill and frack new wells, but they're not going to complete them until there's a price signal to do so. So in other words, they're not going to turn them on. And this marks a divergent, you know, a different approach from other producers. who had still been saying, oh, we're going to keep producing, but Chesapeake is a major player. And so Mizzuho estimates by the end of the year, their production could actually be about 30% lower, which is very meaningful.

Now, quickly, turning over to utilities, that was the worst sector last year and also the worst sector so far this year. And over the weekend, Warren Buffett did have some pretty choice comments about the industry in his annual shareholder letter. He said that there were severe earnings disappointment within Berkshire's BHE division, saying the final result for the utility industry may be ominous. certain utilities might no longer attract the savings of American citizens and will be forced to adopt the public power model. He also said that when the dust settles, America's power needs and the consequent capital expenditures will be staggering and that he did not anticipate or even consider the adverse developments in regulatory returns. And so essentially what he's saying is that there are severe regulatory issues with utilities.

Of course, Berkshire owns some Western focus players like Pacific Corps that are now saddled with, you know, fired, and other issues. Exactly. And ultimately, he said that the industry might no longer attract savings from Americans. Well, he talks about a public power model. What is he describing now? So Nebraska went to a public power model back in. I can't the exact date escapes me.

Yeah, so that was in Nebraska. And what it is is that then it's controlled by the municipality. And these exist all over the country, but it's not the predominant model because utilities have to grow in order to grow, they need capital. And so access to that capital is so important. and that's where investors come in. In the public markets. Exactly.

And I did speak to John Bartlett over at Reeves' asset management who invests in the space. And he said that you can't paint all utilities with such a broad brush stroke, that they each have very different regulatory environments, different management teams, and that the best ones will be able to weather the storm and figure things out.

But it's certainly the regulatory environment does pose challenges for utilities. Question of whether these are best as public-owned utilities owned by municipalities or privately-owned. utilities that operate within a regulatory framework. It's tough, stuff. Thanks, Bipa. Appreciate it.

Let's get to Bertha Coombs now for a CNBC News update. Hi, Tyler. Actor Alec Baldwin's trial for involuntary manslaughter over a deadly shooting on the set of his film Rust is expected to begin in July. Court documents show jury selection scheduled for July 9th with the trial expected to last 10 days. It comes as the film's armorer is kind.

currently standing trial, her team is trying to lay the blame for the shooting on Baldwin. Jordan parachuted food and medical supplies into Gaza today in the biggest airdrop operation so far to the war-torn enclave. The delivery comes as local officials say the amount of aid entering Gaza from January to February dropped by 50%. An Eagles founding member Don Henley appeared in a New York court. today to testify in a criminal trial surrounding the theft of handwritten draft lyrics for the album Hotel California. Three collectibles professionals are facing charges in that case and are accused of trying to hide the origin of the lyrics sheets so that they could sell them. Henley maintains that he gave him to an author to help write a book.

He never intended for them to be made public or certainly to be sold without his his authority. He looks pretty good there. I've never seen him in a suit before. Yeah, I was going to say different ones. Usually he's wearing flannel shirts and things. Yeah. Thanks, Bertha. All right, Domino's Pizza, higher, raising its dividend, beating estimates.

We're going to talk to the CEO next. Power Lunch will be right back. We'll serve some pizza. Welcome back to Power Lunch. Shares of Domino's pizza hitting a new 52-week high today on the back of the company's Q4 earnings report. Earnings topping expectations, even though total revenue slightly missed the mark. Joining us now for an exclusive interview is,

Domino's CEO, Russell Weiner, along with our own Kate Rogers. Kate? Court, thanks so much. And Russell, thank you for joining us today. Great to see you. Thanks, afternoon, Kate. So you had a lot of drivers in this quarter from the revamped loyalty program, your Uber Eats partnership, of course, and then value promotions. From where you sit, what is your assessment of the consumer and consumer sentiment right now? Well, so let's talk about the consumer and then let's talk about Domino's.

I think, you know, from a consumer standpoint, as we look into 24, at least. in restaurants, we're expecting to see some pressure on order counts. We don't expect to see that at Domino's Pizza. We expect to be positive in order counts. And I think that's part of why we had a good reaction into our Q4 numbers. We're launching our new strategy. It's called Hungry for More. It's about delivering more sales, more stores, and more profits.

It's a 24 to 28 time frame, but we started to see some of the results peeking through in Q4, and it's exactly what you talked about. So we had product innovation. We had value with our loyalty program. We had this amazing emergency pizza promotion that got a lot of talk and obviously the Uber promotion, the Uber partnership as well. You mentioned value. Value has been so key for all of the restaurant players this earning season.

I'm wondering how you're evaluating value offers and deciding when and how to reach consumers with them. You know, the thing about value is it's not one size fits all. You know, sometimes it is kind of on the top line. So if you see it, this part that gets into a little bit about what we're doing in Q1. So we'll have everyday value with our mix and match offer. We did a carry-up special, what we call a boost week. It's one of the best ones we've ever had. So that's kind of top funnel.

But what we try to also do is micro-target, and that's part of what the loyalty program is all about. Some folks need to see certain things versus others. Sometimes it's price. Sometimes, let's say you're a vegetarian. You don't want to see a meat pizza. And so getting people into the top of the funnel is what our national promotions are all about. Once they're in the site and once they're in the loyalty program, we can micro-target. And that's where really things take off.

Russell, Tyler Matheson here, two questions for you. One is how do you differentiate, if you had to describe why Domino's, as opposed to your other national chain or franchise operations? Why dominoes? What's the value proposition? What's the discriminating difference that makes domino's the place I should go? And number two, how do you compete against local pizza shops in a pizza hotbed like New Jersey where I happen to live and happen to think we have the best pizza in the country? The Bronx. And so, you know, I know what kind of pizza you're talking about. You know, let me talk two ways. I, Tyler, I don't think you maybe meant the question this way. I'll talk about consumers in the second, but what I want to talk about is why Domino's if you're a franchisee. When you think about the profitability of a Domino's franchisee, it's best in the business.

We were at 139 last year. We were up at 162 in 23, 139 kind of a year before. When you're a Domino's franchisee, you most likely started in the store. So 95% of our franchisees started as delivery drivers or, or, or, you're a dominole's franchisee. making pizza. So the story is one that they know their brand really well. They become owner operators. They become franchisees. Last year, we had more new franchisees than we have in the last 15 years. The other special sauce about Domino's Pizza is no outside business interest. So you're not running a Domino's pizza and then two or three others, maybe concepts. You're all in on

Domino's. And that's the secret sauce. And that's why I think we have then the best things to offer customers. So value that's not surprising every day. We've had a mix and match offer since 2010. Recently took it a buck, but short of that, we have a change. And so best pizza in the industry operations that are back, our delivery times are back to where they were prior to COVID. And pricing that you understand, that's what people are looking for. Russell, it's Kate, here again. Uber is still a small piece of the puzzle. The company had long resisted working with these aggregators,

but investors seem to really like how it's going so far. You're ramping up marketing. How much business will this drive for you in the next year? What we're saying is this year, we think the exit rate, Uber will be about 3% of sales for us. The pizza business on aggregators called about a fine. billion dollars our fair share of that we deliver one out of every three you know pizzas about is about a billion dollars we think it'll take about three years to get

there what folks saw though kate in q4 wasn't really even us still leaning in the the marketing and all that started in q1 that was more still technology getting up so we're about 0.4 percent of our sales was uber in q4 and it's going to be a bigger part in q1 and continue throughout the year Great, Russell, we will leave it there. Thank you so much for joining us that stock, once again, up nearly 6% today on plenty of news in the quarter. Come back again soon. Good to see you.

Thanks so much for having it. All right, Cort and Tyler, back over to you. Kate, thank you very much. I'm partial to New Jersey pizza, you know, but New Haven has great pizza. Detroit has great pizza. New York has great pizza. Ohio has some great pizza. Ohio has good.

No, there's good pizza. There's good pizza. Nothing beats it. Coming up, we are breaking down the health care ecosystem. One analyst will tell us which insurance. names are leading the pack when Power Lunch returns, some ideas for investing coming up. Welcome back to Power Lunch. Whether it's tech, retailer, health care, there's always more than one way to invest in an industry. So we're taking a different look at economic ecosystems and the

stocks within them. This week, we are looking at the health care economy, insurance, pharma, and biotech. We'll start with the insurers, names like Cigna, United Health, Humana. Joining me now is Sarah James. She's managing director of Healthcare Services Equity Research at Cantor Fitzgerald. Sarah, thanks so much for going through this with us. So I guess let's start there. And let's talk about United Help. I feel like that's a name that's been coming up a lot on the air on CNBC because of their earnings reports and then because of also a number of our trader contributors that have positions therein. So talk to us about where United sits in this space and how you feel about its prospects going forward. Sure. So this is an interesting time for the health insurance industry. We're heading into a period where we're seeing costs go up. and some real challenges on the rate side. So when I think about United's positioning, they're one of the largest Medicare insurers.

That is square in the middle of where the challenges are coming for 2024. So they're well positioned because they're diversified. They're an industry leader. They have a large point of service division as well as technology, but they are going to be exposed to some of the pressure that we're seeing come in 2024. Okay, got it. And so then what about, you know, if you compare them to say a human, I understand you're downgrading to neutral.

So you also think they obviously subject to pressure as well. Right. Yeah. So the issue really within the health insurance industry for 24 is seniors put off getting services done during the pandemic. They're starting to come back. And that surprised a lot of the insurers. We're also coupling that with economic challenges. So the government is pushing down on rates and it's crimping margins.

So Humana, we recently downgraded because we think they're having the most exposure to that. But when I think about who really works, It's companies that are less exposed to the core insurance and have other ancillary businesses. So two that we like are Elevance and Cigna. Those are both companies that have large exposure to the PBM industry. And for company specific reasons, we think are poised for some margin expansion as we head into 24, 25, 26. We think that they're a little bit more safely positioned. Talk to me like a freshman.

What is the PPM industry? I don't know it. Sure. So when you want to get drugs, typically you're going to go to a CDS Walgreens down the street or you're going to mail them in. Somebody has to do the back end of that in negotiating drug prices as well as making sure that you're taking things that aren't counterindicated to what you've already had and working with the physicians to make sure that you're using the best protocol. So all of that value ad is something called a pharmacy benefit manager or PBM. Oh, PBM. I thought it was PPM, you said. I'm sorry. I do know what a pharmacy benefit manager is. I'm not sure that I like them, but I know what they are.

Yeah, fair enough. There's been a lot of legislation pushes on them trying to change the way the contracts work, but we actually think we're getting to a point where we're past the majority of the risk. And interestingly enough, as we think about Cigna, they just won a huge $30 billion contract away from CBS. That's the Centine contract. And we think they've got a nice couple-year earnings ramp from that. Elevance, they're the public Blue Cross Blue Shield plan. and we're heading into a period of heightened healthcare IT investments where we think the blue

plans are really going to rely on each other for shared services. And Elevance has been signing up a few of them. And we think that's a really unique pathway to top line growth. I have a question, Sarah, when it comes to, when you're talking about the PBMs, like something like the Mark Cubans cost plus drugs. I mean, is that sort of a disruptor type of innovation that are trying to lower these costs with or without insurance plans? Is that making any dent at all in some of these bigger players?

Yeah, it's interesting because some of the other insurers are making very similar plans. So I think of CVS. They just launched something very similar where they're going to break out the cost of drugs from the value-added services that they're doing. And it's going to give you that visibility into pricing and spread like the Mark Cuban plan does. So they're definitely taking note and taking actions, but in a way that I think could actually be margin stabilizing for them. And at the end of the day, it's about their power to negotiate with the pharmaceutical manufacturers. And I think a key area of that is thinking about GLP-1s.

So that's a huge focus for the payers. It could be, if employers added on, it could add 2% of premiums. That's a huge amount for a single drug class. So that certainly is an area where they're focusing on bringing down the price as we're looking at more and more employers, adding it on, as well as some state Medicaid agencies requiring it for weight loss. Can I ask you one quick question? If you can't answer it quickly, we'll skip and save it for another time. But the question is this, how come some of the drugs I get cost me zero in copay and others cost me $28 or a, you know, CP1 or what are the CG1 or whatever they are?

They may cost me $1,100 a month. Why does some cost zero and how does the company make money if they're charging me nothing? Yeah. So when they cost zero, it's because the insurance company thinks your whole person, whole cost of the year, could be better off if you're taking these preventative drugs. So they put them on a lower formulary and incentivize you to use them by making them $0 instead of $25. So as you see more and more expensive drugs, it could be the cost of the drugs, but it could also be that those aren't the preferred brand that the insured trying to get you to take. So they're encouraging me to do something that they think ultimately is going to save them money. It's not out of the goodness of their hearts.

A lot of what insurance does is making money by changing behavior. If it's the consumer's behavior or the positions, incentivizing the right behavior patterns is really how they create their value at. I like how you answered that, Sarah. That was very good. Sarah James, thank you. Appreciate it. All right. Still ahead. From solar panels to energy efficient appliances, Americans are trying to green their homes.

But to truly accomplish that, one startup says you'll need to start. with its construction. Diana Oleg will give us the details next. And during February, we celebrate Black Heritage. Here's FedEx Custom Critical President and CEO Ramona Hood sharing her story. It's truly an homage to reflect on the stories of those that have broken barriers and inspire the next generation. It was representation like Ursula Burns that allowed me to see the possibilities of becoming a president and CEO of FedEx Custom Critical. I humbly understand my assignment and responsibility to have a positive impact through my contributions and paving the way for our community. Shares of Altice USA jumping in the last few minutes and briefly halted for

volatility as Bloomberg reports that Charter is exploring a takeover of the company. Not clear whether formal talks have taken place between the two outfits, according to the report. Shares of Altis up 50% while Charter is trading lower on the report down 2% at 293 in change. We all want our homes to be greener, environmentally cleaner, and more energy efficient, right? But what if our homes could actually produce more energy than they consume? Diana Oleg explains in her continuing series on climate startups. Diana, what did you learn? Well, Courtney, real estate, as you know, is a massive carbon offender.

Both the construction and operation of the built environment account for 40% of global greenhouse gas emissions. So how do we reduce that? Well, one startup says start at home. From solar panels to energy-efficient appliances, Americans are trying to green their homes. But to truly do that, you need to start with its construction. That's what home builders like Dvell, Clever, and a California-based startup called Arrow Homes are doing. Arrow CEO claims its homes will actually ultimately be carbon negative. The access renewable energy that we generate, after 16 years, that offsets all the carbon that was used to build the home.

GISH points to four critical elements. First, Arrow claims to use the most sustainable materials possible, like timber and less concrete. Then they tighten the building's envelope, making it as energy efficient as possible. Part of that process is building much of the home off-site where they can monitor quality control and engineering. Then, energy-efficient systems and appliances. And finally, solar with battery backup. We're very focused on using materials in the building of our homes that have as low a carbon footprint as possible, and they need to be practical. They need to be accessible. They need to be affordable. They need to be

reliable in the supply chain. But Arrow homes aren't cheap. They build large homes. Their latest priced at nearly $5 million. Part of that is the price of land in California, but investors say once scaled, they can make the homes more affordable. We have the ability to go very mass market with this, But I think this first home is really, it's an engineering statement that demonstrates what's possible. And we can deploy that across a much broader set of geographies. Arrow is backed by Innovation Endeavors, Western Technology, and Stanford University, D-Y-D-X. Total funding so far, $21 million. Arrow has only built a few homes so far, but they say that by the end of this year,

they'll be on track to build 36 homes per year and their facility could handle up to 100. That's so interesting, Dina. I mean, it sounds great to buy a carbon negative home if you can really do that. But the price tag seems pretty high, especially given today's housing market. So even if they bring it down a little, is really that feasible for the mass market? And also, they're making 100. Yeah, I mean, look, it's very much a niche market. And when you look at the competition in the space, like Dval and Clever and some of the other homes,

some of those are very pricey as well. And that's what it may cost to get these kind of large-scale carbon-negative or even carbon-neutral homes. But we are seeing more innovation. If that innovation then trickles down to the more affordable housing category, even if it's just the solar or the prefab aspect of it, then we'll take all we can get, right? Yeah, absolutely. It's really fascinating stuff. We still have some more stories, of course, that we are watching. Diana, thank you so much.

But closing time is coming up next. So stick with us. All right, we've only got about two and a half minutes left in the program. Several more stories we'd like to tell you about. Let's get right to it. Walmart, one of the top performers in the Dow today. After the retailers' three-for-one stock split went into effect this morning. The company said the split is part of its ongoing review of optimal trading and spread levels

and its desire for associates to feel that purchasing shares is easily within reach. Shares are now up about 2%, as you see there, at 5968. So you didn't get poorer today if you woke up this morning and said, what happened to my Walmart? Yeah, you definitely didn't. It is very interesting. And Walmart is also just starting a new programmer. They're giving store managers.

They're gifting them stock. In addition to the employee purchase plan, what's partly interesting here, as you certainly know, is that the Dow is a price weighted average. So Walmart at 175 a share or 178 a share has more influence on the Dow than Walmart at 5758 a share, not that they care particularly. And then, of course, Amazon's going in, replacing Walgreens too. And it's a high price stock. Yeah, definitely. Well, Intuitive Machines cargo lander Odysseus returned its first images from the Moon Surface over the weekend. And an update late Friday, company executive said they believe the spacecraft caught.

It's landing gear sideways in the moon surface while touching down and tipped over. But it says it's still sending data. I just find space stuff. It turned an ankle there, but I guess they can turn the camera so you can turn it. And I believe the Japanese lander that landed last week has once again begun sending back some data as well. So good news there. All right, the husband of former BP M&A manager, one of them, pleaded guilty to insider trading by eavesdropping on his wife's work calls while she, She was handling a potential acquisition of travel centers of America.

Tyler Loudon, that name there. There it is again. A Houston resident earned $1.76 million with the illicit trades based on non-public knowledge of the possible acquisition at his wife's company. I don't even know what there is to say about that. Legal trouble is one thing. Trouble in the family is another. I don't envy this fellow Tyler.

Not at all. And on that note, folks, thank you very much for watching Power Lund. Closing bell starts right now.