Power Lunch - Boeing On The Hill, Doing “Elf-ing” Well 6/18/24

Episode Date: June 18, 2024

Boeing’s CEO is testifying before congress, with many expecting the aerospace executive to face a thrashing from lawmakers. We’ll bring you the key details.Plus, Canaccord Genuity is bullish on E.L.F. Beauty, seeing 30% upside in the shares. And that’s despite signs of a weakening consumer. We’ll speak to the analyst behind the call. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to power lunch for, what is it, Wednesday. Is it Wednesday? No, it's Tuesday. It's Tuesday. I'm getting ahead of myself. Melissa Lee is here. Welcome, Melissa. Good to have you with us. I'm Tyler Matheson. Coming up, the Boeing CEO testifying before Congress with many expecting the airline executive to face a thrashing from lawmakers. More on that in a moment. Plus, doing it, L-thing right. Count of Orgenuity, bullish on L-F beauty. This is despite signs of an overall weaker consumer, that's further ahead. And first, a check on the markets. Three major indexes are up ever so slightly, as you see right there, or as I can't see right there. But just trust me, they're up just a little bit. The industrials, NASDAQ, and the S&P 500. Treasury's moving on the back of the retail data as well today. And check out the semis, the group overall higher in adding to recent gains.

Micron leading the way, we got much more on those names later on in the show. Also check out shares of Lazy Boy up 18 percent, releasing strong quarterly results. A lot of lazy boys out there. There sure are. Taking them in. But we begin with Boeing, the CEO, testifying right now. Phil Leboe has been monitoring this. Phil.

It has not begun yet, Melissa. But Dave Calhoun has just walked in to the hearing room. We expect the senators to come in here shortly. This is what we usually see at one of these hearings, where the witness comes in and then they wait for the senators. This was Dave Calhoun. About 45 minutes ago, he briefly stopped and talked with us in the hallway here on Capitol Hill said that he's here to answer the questions truthfully and honestly and in full transparency.

And when he just walked into this room, as you would expect, as we saw when Dennis Mullenberg, the former Boeing CEO was here for the 737 Max hearings back in 2019. There are families of the victims from the 737 crashes who are in attendance with placards showing the faces of some of the victims. Dave Calhoun walked in. Now, I'm in a booth up above the hearing, so I can't tell exactly what he said, but I'm pretty certain he started by acknowledging them and saying, I'm deeply, deeply sorry. He said a few more things, and then he sat down. There you see some of those placards. Those are relatives of some of the victims from the 737 crashes, the two, that really are at the very beginning of

everything that we've seen Boeing go through over the last six years. There's Dave Calhoun waiting for the hearing to begin. we expect it to last two to two and a half hours. And as we've talked about all day long, he's going to get roasted. No doubt about it. He will get skewered by members of Congress who believe that Boeing has not been forthright in the changes that need to be made, has not been forthright in addressing some of these complaints that have come out from whistleblowers. In fact, we'll hear from a new whistleblower at the beginning of this hearing today,

or at least we'll hear the complaints from that whistleblower. Richard Blumenthal, the senator right there who's about to sit down. He's going to be bringing up those whistleblower complaints. And we expect that all of the senators to say basically the same thing over and over again. Dave Calhoun, you have promised to make changes. You're not making them fast enough. You need to be held accountable. So we'll see how this hearing goes.

And again, we expect it to be a long and brutal hearing for Dave Calhoun. Guys, back to you. But Phil, hasn't the FAA taken steps to bring the company's production pace and stand? standards of practice up to a higher standard. So is this is, basically my question is, are these hearings substantive or are they theater? There's a lot of theater here, primarily theater. Now, having said that, if you talk with Richard Blumenthal, and we had him on Squawk Box this morning, he said, look, the American public needs to tell Boeing, you're not doing enough, you're not moving fast enough. And that's why the senators are holding this hearing. But in terms of changes

at Boeing, the FAA has put more inspectors in place. It has, at least initially, signed off on procedural changes for Boeing in terms of improving quality controls, including safety measures. And there you see Senator Blumenthal about to begin. So yes, Tyler, to answer your question, there are a lot of changes that have already been put in place. And not a whole lot that comes out of this hearing today is likely to change the trajectory of Boeing immediately. And if you're an investor, none of this is going to really matter. What you really are focused on if you're an investor is, A, when is a new CEO going to be named? What's that new management going to do in terms of improving quality?

And when does Boeing start to show progress towards instituting the changes that the FAA has said, yeah, at least for now, these are the right steps. All right, Phil, thank you very much. Phil LeBoe covering the story for us from Washington. I'm sure we'll check in with Phil as the testimony gets underway. Let's bring in a Boeing shareholder now for more on what's at stake and the impact on the stock. Tony Bankroft is a portfolio manager at Gabelli funds. Boeing is the number one position in his Gabeli commercial aerospace and defense ETF. Tony, welcome back.

Good to have you with us. What about what Senator Blumenthal says? That is that Boeing isn't doing enough, fast enough, to satisfy both the American public and the flying public. Thanks, Tyler. It's great to be back. I think, you know, Boeing's in a tough spot. I think Boeing's there today to show their commitment to transparency. And, you know, they're changing their culture.

They've implemented a lot of changes that have been approved by the FAA. And they're doing it. But I think just like Phil said, I think that essentially Boeing needs to do. Do you know of anything they could be doing faster or better? Or is, again, I mean, if a senator can't point to something specific and just say, well, you're not doing it fast enough. I don't know how hope that is. I'm pretty sure that what happened on January 5th with those bolts, that's never going to happen again on a Boeing aircraft. I'm pretty sure as a guarantee.

That was where the door imploded or blew out. Yeah, the door. I'm sure, but a lot of investors and the flying public are thinking, but something else could happen because of the culture of Boeing. From a Boeing shareholder standpoint, what is the bull case? Is it just that it's a duopoly? It's just that the United States has to buy defense from Boeing. I mean, because we've seen like things just unfold, time and time. Another thing, another thing, another thing, you know, a self-inflicted wound.

And it doesn't seem to relent. Yeah, I think on the commercial side, you know, there was, after COVID, there was a lot of turnover on unemployment. And you've got a lot of new people learning how to build a very complex. multiple, a lot of engineering that has to go involved in it. And so I think Boeing is dealing with that right now in a tight labor environment. And obviously, you know, the supply chain as well is being, is constricted. But I think long term, you know, secular tailwinds of how many, you know, almost 40,000 aircraft that need to be built over the next 20 years with a, you know, rising middle class in emerging economies that all want to go fly, the experiential general. I think those tailwinds, you know, are essentially that that thesis has not changed.

And, you know, Boeing is going to be a big participant in building those planes. How do you, I mean, Mr. Calhoun, whatever you think of him, it seems to me that he has tried to be transparent. He's tried to be responsive. He is leaving at the end of the year. What, if anything, are you hearing about people who might be on the short list to succeed him? Are they leaning more toward an internal candidate or an external candidate? What do you know?

I think Boeing's wish list is that they want someone that can come in and, you know, work on the culture, hearts and minds of the employees and get Boeing sort of going the right direction. I think they want someone with a technical background, some type of engineering, something that can work in a plant and make operations more efficient. and, you know, there needs to be someone that can come in and usher the next generation plane. There's going to be a new aircraft. Eventually, that's going to be replacing the 737, and they need someone that has that kind of that mindset and outlook.

Is that the catalyst that you're waiting for? Well, I think the big catalyst is going to be getting, obviously, you need to get a new CEO. I mean, they've already decided that's going to happen. You've got to get the spirit deal done, which they've said is going to happen, and you've got to get the 737 production rate increase. You've got to get the FAA to prove that. And I don't think you're going to probably see much going on until that's completed. Is there nowhere else in aerospace where you find more attractive than Boeing? I mean, it's your largest position. Have you added to it in the past year? Or, I mean,

you're trying to get this. For sure, I just, I just, I just bought more. Yeah. Listen, I mean, these are opportunities. And I think, you know, over the long term, Boeing's going to, they'll get their production rates back up to, you know, the 50 rate number that they have been talking about. Is that like a year out? It's probably going to be in a 25, 26 time frame, more in the 26 time frame. How about Larry Cope of GE Aerospace? I think he'd be great.

I think he's pretty much formally turned it down, so I don't think Boeing's going to get him. Well, at least that wasn't way off. I didn't say Juan Soto or anybody like that. Our G-CAD ETF owns a lot of G-Erospace as well, so we're large holders there as well. All right. Tony, thank you. Always good to see you. Thanks for coming back. Appreciate it. Coming up more on markets and that retail sales data, but as we had to break a quick power check on the positive side of the S&P,

Hewlett Packer Enterprise, up nearly 4%, seemingly lifted by strength in Dell. On the negative side, Linar, lower despite reporting strong earnings results. Some analysts pointing to guidance as a problem. That's your power check. We'll be right back. Welcome back to Power Lunch stocks. Little change as investors try to shake off weak retail sales data. Our next guest says the macro data, especially during the earnings lull, lacks the oomph to really get markets worried about a recession. Let's bring in Doug McKay, President and Chief Investment Officer with Broadleaf Partners.

Doug, great to have you with us. Thanks for having me. It sounds like you aren't really too worried, and you're just investing in the Mag 7, which seems to be the trade to be in, the trade that you have to be in, if you want to at least match your indices, right? Yeah, the macro data is important, but I think in the last few years, The economy just hasn't followed a traditional playbook. And so, first of all, the data out this morning, this month-to-month data could be very noisy. But you also have to consider companies like Costco and Chipotle, who didn't take as much price, they're not experiencing perhaps as much trade down.

And Costco even said they didn't experience any, didn't see any weakness across any of the income cohort. So, yes, right now during the earnings law and 30 years of doing this, I've definitely noticed a rhythm where when earnings data is slow, companies turn to other things that may not be any more reliable, but tend to sound a lot louder than they really are. You talked about two companies, though, specifically in this sort of momentum trade category. I mean, if you take a look at Chipotle going into the split here, we're seeing a trade up sharply at on very high. heavy volume relative to his 30-day average volume, Doug. And same thing with Costco. It's been just a winner in addition to the MAG7. So when you take a look at the macro data and you pair it up with what you're seeing in these

positions that you have, particularly in the MAG 7, at what point do you start getting concerned that Nvidia, well, it may not be an implosion or anything like that. If you see sales start to slow, we could see what we saw when we saw Cisco go through the build out of the Internet, where... sales growth just slowed down, and we saw huge drawdowns in the stock. While it went higher, we did see significant drawdowns in certain years. Well, that's definitely a risk, and I went, we were at one time one of the largest shareholders to Cisco, so I still have a burns on my finger from that. We experienced some good times as well. My son had pointed this out that a lot of people

are managing a lot of money, went through similar experiences, and are my age now running that money. And so hopefully we don't make the same mistakes. Invidia, we have a philosophy where we prune names as they've gained. And so every investor needs to consider the risks that they're taking. You need to be prudent. But this is a once-in-a-lifetime opportunity, just as the birth of the Internet was and Cisco. And so artificial intelligence, the advent of C3PO, RTD2 coming alive here, it's something that I think has legs structural.

but clearly you are absolutely right. You've got to watch inventory levels. You've got to watch cash flows. And you have to be nimble and quick, which benefits us as a smaller manager, I believe. Yeah. And as I think back, Doug, on the history of companies that win that coveted title of the most valuable company in the world, a lot of them lose that title pretty quickly. And they can go into the woods for a long time.

And, okay, another example, Tesla, which was part of the. quote, Magnificent 7, is not anymore. Right. Yeah, I mean, you know, I compared in the notes that I sent you, these companies that get to a trillion-dollar valuation, they're almost stars in terms of their gravitational planet. They're not just mere planets. And the reason for that is if you don't own a name and you're judged against indices like me, and it's 5, 6% of the index, 10% is with NVIDIA or a Microsoft or an Apple,

you're making a big bet that that star is going to become a black hole and implode. And we haven't seen, I mean, Cisco's as a shadow of its former self, Blackberry, you know, nothing. So you have to be aware. You have to be nimble, but I still think the bigger risk, and in the last five years, people have been gnashing their teeth over the Mag 7 for the last couple years, and they just continue to put up the earnings. And VDivis is a little bit of a different case, I will admit, because it's kind of come out of the blue just in the last year.

But again, the opportunity there's pretty large, and they're one of the few companies that's actually monetizing that today. When you say you have to be nimble, what are you looking for, Doug? What will be the first cracks that you're looking for? Because I would imagine that you, along with many other PMs out there, many other FAs, are under pressure to be in these stocks. You have to be in these stocks. And that concentration will push the S&P 500 more quickly to 6,000 or some other lofty level. but it'll also create this element where when there's a downside, down draft, that's going to be swift. Well, and I agree. And, you know, that's why, you know, we do have a pruning method where we just prune because we know we're not going to get out at the exact peak. I wish I could say that that was the case.

But you pay yourself a dividend and you take some gains along the way. And then you try to be prudent about them having, you know, a broad set of companies that, you know, behave differently. Because you're right, it's a siren song. And you don't want, even though it's tempting to put it all in in increasingly narrow areas, you know, go after Broadcom that reported last week. It's getting close to a trillion dollars. You have to be careful and not make sure you're not getting too exposed to one's area. Because, yes, Cisco, the game was you bought PMC, Sierra, you bought all these channel chain stocks, and you participated that way. I will say one thing that's a difference, what you could look at is, you know,

back then there was a whole dot-com group of companies. that were built up. And there was also a whole bunch of telecom carriers, the ISPs that were started out of the blue. And so one thing I'm watching is, you know, how much funding is Nvidia doing of customers that could end up having too much inventory and you need to sell all of a sudden? That's one area that I think you have to watch for the rhymes. So far, we're not seeing it. We knew there was a hundred. Can I squeeze in one quick final question quickly? You mentioned it's good to have companies that perform differently in your portfolio. Give me an example of one in your portfolio.

Well, companies like today, Dexcom, you know, Dexcom's not near its all-time highs. It's a health care company does continuous glucose monitors. Healthcare is not typically correlated to the rest of the market. So I would look there. But Dexcom is, yeah. Great. Doug, thanks. Appreciate it.

Doug McKay. Okay. Thanks, guys. All right, you too. After the break, the presidential fundraising race kicking into high gear, Trump being fueled by his verdict rather than hindered, poised to outraise Biden. Details on how Democrats are responding. That is next. Welcome back. Former President Donald Trump poised to outraise Biden and Democrats for the second straight month. Megan Kassella joins us here with the details. Megan.

Melissa, that's exactly right. So Trump and his campaign are saying that they raised a remarkable $141 million in May alone. and much of it from small dollar donors in the hours immediately following his guilty verdict. So the official fundraising data comes out on Thursday. That's when we'll be able to verify Trump's numbers and see what Biden and the Democrats also raised. But the $141 million figure likely puts him on top for the month. It's roughly as much as the Biden team had raised in March and April combined. And it will underscore how with both that primary and the trial behind him, Trump really has the fundraising momentum at the moment.

That could change in June. So Biden and former President Obama headlined that star-studded Hollywood fundraiser that reportedly raised the most money in party history at $30 million. But Trump also wrapped up a West Coast swing the week before that, which the campaign says raised about $27 million. The Democratic bundlers I've spoken with this week say they feel the policy environment is keeping Democrats engaged right now with topics like gun safety, IVF, and abortion rights in the news. And that's going to help the Biden campaign win small dollar support. They dismiss concerns over Trump's fundraising saying they always. knew he would catch up, especially guys since he does have those wealthy donors, writing him big checks to help him raise money quickly. Neither of these campaigns seem in imminent danger of running out of money anytime soon, right?

I mean, they've got plenty of money. Plenty of money. And I did talk with one person who tried to downplay this, saying they're always going to be able to run a campaign. Both of them are at the presidential level. There's no problem there. But the money does matter. I mean, on one hand, you're buying out ads. the Biden campaign has secured a lot of ads for later this year.

So they're already doing that before they get more expensive before they fill up. The early money can go a long way. It's also a signal, though, of excitement, especially at the small dollar level. So when we get the data on Thursday, that's one thing to be looking for. Biden so far has really been outpacing Trump in the official data on the small dollar. Small dollars, is that right? Open secrets as of April said 47 percent of Biden's donations were small dollars and 30 percent of Trump's. That really could have changed.

Trump team is really leaning into for this most recent month saying, that it was small dollars in particular, so we'll have to see. But it can be a signal of who's, who are you most excited about? And also, who do you think is the most viable candidate? Who do you think is most likely to win? People want to put their money behind the candidate they think can win. There was a narrative that out in Silicon Valley, there were switched. There were notable, you know, investors, venture capitalists throwing their weight behind Trump now. Is that actually playing out in terms of where we're seeing the corporate, the VC sort of money go? Definitely at the hedge funds and the VC firms.

That's right. So Doug Leone, Ken Griffin, Steve Schwartzman. It was some of these people who had previously, many of them had distanced themselves from Trump and then came back to him. Where you're not yet seeing a big wave is in the other part of corporate America, right? Public company CEOs. We saw the meetings last week, but we haven't seen a ton of endorsements yet for either candidate at that level. And one of the analysts I spoke with this week said to me, actually it was one of the Democratic fundraisers who said, that to me is the real corporate America.

That's going to be more of a test than if you're at your own hedge fund, you have more flexibility. My guess is that relatively fewer heads of those corporate America companies are going to speak out and endorse anybody. I agree. I think it's a different environment. I think it's a different environment. I don't think they want to stick there. It's very little upside to it. Yeah, exactly.

Same with even supporting the conventions or even with lending your internet to the convention. We're just likely not seeing as much. No matter which side you're on, I remember that famous Michael Jones. Jordan, quote, Republicans by Nike's two. You know, I mean, it was, yeah. So one way or another, you're going to, you don't want to alienate customers. You either do neither or you do both. And I think that could be interesting, too, if we start to see CEOs donate to both candidates

if they suddenly think this is actually a really close race, either one could win. Nice to have you here. Thank you. Thanks for coming. Yields on the move following the latest economic data. Rick Santelli live from the CBOE, CBO, tracking the action. Yes, Tyler. It started out early this morning with weak retail sales, even weaker revisions.

But the stellar move of the day was based on a 20-year auction. You see the chart there. And now you can look at 2s, 10s, 5s, 20s, 30s because every maturity made a new yield low on the session on that auction. Let's go talk to a trader. Hey, Jim. Hey, Rick, how are you? Okay, so we saw weak retail sales, week revisions, a stellar 20-year auction. You guys have a big expiration coming up, don't you?

you? Kind of a big deal. June quarterly expiration, quad witching. It's been particularly important for the last several weeks. We talked about this little way back because there's a ton of ball supply and also with the skew decaying, you're getting a bunch of this buyback. These Vaughan and Charm flows we talked about. And sure enough, you know, here we go, ball compression, mark it up, sideways to up action. Well, there's been an inventory of these options going on for months, literally. So it doesn't surprise me. Do you think when many of these options were put on that the option holders had any idea would be flirting with historic territory?

Well, this is what the wall of worry is all about, right? People buy hedges, by protection, those decay, the dealers who are short them, hedge them, and then have to buy back those deltas. So this push-up is essentially a decay of that worry pushing things up. So will it continue likely through the... Now, is that skews such that reversing these positions

going into this expiry? most likely going to put some upside pressure on the index. Yes, and it has, a lot of that's come through already, right? So we have a couple days with Juneteenth tomorrow, only a couple days left until that expiration. And on the other side of this, that's when you start to get a little bit of weakness and that demand kind of pulls off.

That said, with all of the vol supply, you know, in the middle of summer, you're likely to continue to see this and the dispersion that it's causing as well. Now listen, let's get way off the beaten path. We have a little over a minute left. Melissa Lee said something really interesting to me when the 20-year auction hit. She thought maybe some of these good auctions is because the globe is not enamored with French securities anymore, whether it's the political nature, but what really is going on is the embedded debt in their society and what they need to do to reverse that.

Do you have any thoughts on what's going on there? Well, look, we talked about the wall of worry. So the question is, is this going to be the thing that pricks and unpins all of this on the supply? unlikely right i think uh... at least in this window now could it come to roost as we go forward into the end of the year into next year very possibly and it also what's important is what does this mean for rates in general right uh... and and the demand now you're stealing my thoughts because to me the french economy u.s economy they don't even rhyme one's a little one's big however if you look at the debt to gdp the eurozone

requires three percent or lower i believe france is hovering a little over five There's another country that's higher than that. You know what it is, Jim? Yeah, we're standing in the middle of it. Is there a lesson to be learned your final thought? Well, I mean, this need for more and more debt is a global phenomenon. It's going to continue to push rates higher, which has all kinds of political knock-on effects,

not to mention structural effects, for our whole world. So very important, but important in how it fits to the bigger picture more than any. I just hope politicians win an election year don't lose sight of the fact that we're not France, but we're definitely doing our best to get there quicker rather than later. Melissa Lee, back to you. Rick, thanks. Rick Santelli. Gas prices on the move. Pippa Stevens has the latest.

Yes, so Arbop futures are actually down about 9% over the last two months. And that's on just really soft gasoline demand here. We've seen inventory rise for the last three weeks. At the same time, refinery utilization has jumped above 95%. So refiners are basically running full out and then there is no demand on the other side. Take a look at this chart showing vehicle miles driven. You can see that it's recovered out of the pandemic, but it's not growing. And that's the key here is that before it was trending up about maybe 2% or so per year,

and that has petered out. And so that means lower gasoline consumption. There's not one reason behind this, but more hybrid remote work after the pandemic, also fuel efficiency, also more EVs and battery electric vehicles. So this has all pushed the 321 crack spread, which is a measure of refiners profits, down to about $22, very good by historical standards, but well below what we've seen recently. So shares a Valero Marathon and Phillips 66 now just about in bear market territory. All right, Pippa, thank you very much.

All right, let's get to Bertha Coombs now for CNBC News Update, Bertha. Tyler, the shooter who killed five people and injured 19 others at an LGBTQ nightclub in Colorado pleaded guilty today to 50 federal hate crime charges. The convicted killer is already serving life after pleading guilty to state charges in the 22 shooting last year. today's plea will allow him to avoid the death penalty. Two of Donald Trump's legal advisors pleaded not guilty today in the fake electors case in Arizona. Jenna Ellis, Boris Epstein, and 16 others are accused of trying to overturn 2020 election results in the state. The former president is not included in that case.

And the U.S. budget deficit is projected to jump to $1.9 trillion. this fiscal year. That's according to new congressional budget office findings, which cited increasing outlays for student loans, Medicaid, bank failure costs, and aid to Ukraine and Israel. The forecast could mean a second consecutive substantial deficit increase for President Biden after deficits fell sharply in 2022 as COVID-era spending dropped. Nearly $2 trillion, that's two-thirds of the value of Nvidia. Wow. All right, Bertha, thanks. Coming up, some attractive upside.

Canacord Genuity, seeing strength in shares of elf beauty, calling for 30% upside from current levels. We'll speak to the analysts behind that call. An elf when we return. Boeing CEO David Calhoun's testimony continues. The airline executive offering an apology. Phil's got the latest, Phil. Melissa, this was at the beginning of the hearing,

and what we're going to play for you are the comments from Boeing CEO Dave Calhoun when he walked into the Senate hearing room as a setup for this. Let me explain to you that there are about, it looks like 15 to 25 relatives of victims from the 2737 max crashes who are seated about four to five rows behind where Mr. Calhoun is sitting. He walked in and this is what he said when he first walked in. It's a little hard to hear. We'll summarize on the backside if you can't completely hear it. Before I begin my opening remarks, I would like to speak directly to those who lost loved ones on Lionair Flight 610 and Ethiopian Airlines Flight 302. I would like to apologize on behalf of all of our voting associates spread throughout the past and present.

And again, it was a little hard. to hear because obviously the mic is only picking up what's right there at the witness table. But he said, we apologize. We are deeply sorry, obviously, for the fatalities that were involved in those 2737 max accidents and that Boeing is committed to making sure that it makes the changes so that this never happens again. Having said that, after he turned around, he sat back down and the beginning of the hearing started, guys, the first questions from Senator Blumenthal, included Senator Blumenthal saying, well, what exactly are you doing? And Dave Calhoun reiterated what we've heard from Bowen before. We are committed. We are making changes. And then Senator Blumenthal

held up a paper. I can't see it from here, but it basically looked like code. And he goes, what is this? We asked for an answer. And what your staff gave us was Gabbity Gook. And he asked Dave Calhoun. He goes, what's yours take of this? And Dave goes, I would agree. That is Gabbity Gook. So it's not been a good start to this hearing for Dave Calhoun. We didn't think it would be, but that gives you a sense of what's happening. And we're only on the second senator questioning him at this point. They're going to go through two rounds. So we're going to be here to two and a half hours.

All right, Phil. Thank you very much. Interesting drama on Capitol Hill. Thank you for the reporting. We'll be back with you, I'm sure. Well, despite from weaker signs around the, despite weaker signs from around the consumer, Kanakor Genuity sees strength in the beauty space, specifically an elf beauty. The firm's new price target of $250 per share implies around a 30% upside,

highlighting strong sales data and retail partnerships. Joining us now is the analyst behind the call. Canacord Genuities, Susan Anderson. Susan, welcome. Glad to have you with us. What's Elf doing right? Yeah, so Elf has done a really good job making product at a value price point that is at prestige quality, and that's really attracting the consumer's wallets. And then also, you know, they've done a really good job in this more modern day in terms of marketing through social media and really attracting that younger consumer. So I think all of that combined is really leading to market share gains across all distribution channels and, you know, continuing to grab more of the consumer's wallet.

And they're going to get more shelf space, right? Yes, so they're expanding in Walmart this year. So it's uncertain yet how much more space they're going to get in Walmart. We won't know until we actually see it roll out, but we think it's going to be bigger than the shelf space that they got in Target last year. Right now they have about eight linear feet in Walmart versus 13 linear feet in Target. So we think if they can get to that 13 in Walmart, it could be another 160 million in annual sales for them. So it could be very big.

And then on top of that, they're getting space internationally. So last year, their international sales grew over 100%. This year, they're getting more space in choppers' drug and boots, also in Sephora, Mexico. So we think that could be huge for them as well. Forgive me, Melissa, just for a moment. It's amazing that five feet of shelf space translates into $130 million or whatever you just said.

Lipsticks are small, Tyler. Yeah, they're small. You got a lot of them. Yeah, you get a lot of little. Yeah, you get a lot of little bit of shelf space. Susan, how much of this is a trade down? Consumers are getting away from the Yes Day Lauders or the more expensive brands and going down to an elf. Actually, we don't think that there's a lot of trade down going on.

We think there's a lot of trade around where consumers are mixing and matching price points. So if elf has a product, such as their lip oil, which is a DuPon-Diores lip oil, and consumers feel like they're getting just as much quality of it, they're going to buy it. they're going to substitute that. But then they're also looking at prestige products and buying what works for them and what makes sense. So we're actually still seeing prestige outperform. Prestige sales were up 9% in the first quarter. And mass sales were actually only up 2%.

So we don't think a lot of it's a trade down. We call it more a trade around where they're mixing and matching price points. Susan, great speaking with you. Thank you. Susan Anderson. Still ahead, Microsoft launching new AI computers beating out. Apple to the punch by months, we will get the key details when Power Lunch return. Welcome back to Power Lunch. Microsoft beating Apple to the punch, launching new AI PCs.

Steve Kovac is here with the details for today's tech check. Yeah, it's a big launch day for Microsoft. And because we know about AI apps and other software, we've spent the last several weeks seeing the announcements from the biggest companies in the AI game. But starting today, Microsoft kicking off the artificial intelligence hardware race, launching about a dozen models of new AI computers months before Apple switches. on its AI features for Macs and iPhones. That's what we heard about last week. And by the way, a big part of Microsoft's AI PC push is saying its latest devices outperform Apple's Macs. Microsoft

calls these computers copilot plus PCs. That's just a clever way of saying they're designed to process AI tasks on the device instead of over the internet. A lot of that is thanks to Qualcomm, which is shipping its first ever PC chips in these new co-pilot computers. And it's coming from a bunch of different brands. Microsoft itself, of course, here at Surface Computers, along with Samsung, HP, Dell, Lenovo, and many more. And the hope here, of course, is AI PCs will help the market grow again after the post-pendemic slump. Microsoft has already said it expects 50 million copilot plus PCs will ship this year, but for a little perspective on that Gartner says nearly 242 million PCs shipped in 2023. AI PCs still going to be a very tiny fraction of new computers

bought this year. can they do? What's the whole point of an AI PC anyway? Well, in this case, they run a different version of Windows 11 with even more artificial intelligence features. But days before today's launch, Microsoft had to remove the marquee feature called recall because of privacy concerns. Recall is a feature that takes screenshots every few seconds from your PC and creates a searchable database of everything you've ever done. So what could possibly go wrong there? So these PCs are going to launch ahead of Apple, but missing. its main AI feature. And by the way, it's still not even clear if AI PCs can offer enough

to spur those upgrades. And by the way, same story that with Apple's announcements last week, we just don't know yet. We're going to find out a few months. All right, Steve, thank you very much. Thanks, guys. Steve, Go back. Coming up, a special three-stock lunch, I'll sum it up in two words. Stock splits. Back in two. All right, time for today's three-stock lunch. We're going to look at three names announcing stock splits here with our trades. Quint Taitro, founder and president at Jewel Financial. First up, Virgin Galactic down about 15% today, Quint, the company issuing a 1 for 20 reverse stock split. What is your trade on Virgin?

Hey, Tyler, it's good to be with you. First of all, it's not for me, reverse splits I'm never a fan of to begin with. But this is the company that's just grasping for straws here. It's not profitable, burning cash, high debt levels. You just stay far away from this one until a real turnaround takes place. Next up, Chipotle announcing a 50-for-1 split up over 7%. in the last month. It's up 5% this week on pretty heavy volume going into its split. Quint, what's the trade? Melissa, it's so good to see you again. This also is not for me. I'm not going to be

very exciting today. That's for sure. So, I mean, they're not reinventing food. And they're now trading, you know, 50 times forward earnings. If they hit their projections, those growth rates are around 24, 25 percent, high debt levels. I mean, people can enjoy the split, but take the money and run. All right, let's move on to Broadcom, Quint, announcing a 10-for-1 stock split last week. Shares are up nearly 65% this year. Your thoughts on Broadcom, now at 1,800-ish-share, soon to be lower than that. Yeah, Tyler, I've been perpetually wrong on this one, but I'm going to just stay in the camp. If people are writing the name, good for them.

But it's, again, not for me. And at some point, the debt levels, I think, are going to come home to roost, and the valuation is just too rich. It's trading 30 times. I think everything is baked into this stock right now. And the fundamentals are very, very overvalued in our opinion. Again, it's not a buy for me. It's a sell. I hear you're a fan of Texas instruments. Tell us why. Yeah, I mean, in this environment, we're trying to get away from really rich valuations and move over to things that are a little more attractive and somewhat undervalued. Texas instruments, in our opinion, has a, you know, lower debt levels.

therefore a better balance sheet in our opinion. And even though it's around the same multiple of Broadcom right here, we don't feel that the growth rate is priced in nearly to the extent that it can. So we feel that this is a company that has a lot of legs and it would be a buy for us. All right. Very interesting. Quintetra, thank you very much. See you again soon. Thank you. And remember, you can always hear us on our podcast. Be sure to follow and listen to Power Lunch wherever you go. We'll be right back. Welcome back. We're awaiting President Biden to speak on immigration and increasingly hot issue,

with the latest focus giving legal status to undocumented spouses. Amen Javers is tracking that for us. Amen. Hey there, Melissa. We're waiting for President Biden, as you say, in the east room of the White House. As we take a live look in here for an event marking the 12th anniversary of the deferred action for childhood arrivals policy known as DACA. That's the plan that created the category of migrants now known as Dreamers who came to the United States illegally. children. Now, the president is expected today to announce that certain non-citizen spouses and children of Americans will be allowed to apply for lawful permanent resident status without leaving the country. In order to be eligible, the White House says non-citizens must, as of yesterday, have resided in the United States for 10 or more years and be legally married to a U.S. citizen

and satisfy all legal requirements. In an election year with immigration a hot issue, there's clearly a political element to this announcement today. And the Trump campaign is already reacting this afternoon, releasing a statement saying in part, quote, Biden only cares about one thing, power. And that's why he's giving mass amnesty and citizenship to hundreds of thousands of illegals, who he knows will ultimately vote for him and the open border Democrat Party. Now, Melissa, a senior administration official told reporters that people may start to apply for the new status as soon as the end of this summer. President Biden has also, also expected to announce executive action to allow dreamers to quickly receive work visas

if they've graduated from a U.S. accredited higher education institution and have a high-skilled job offer in hand. So a lot of moving parts here, Melissa. Back over to you. Yeah, that would certainly help the labor force in terms of finding skilled workers to have all those graduates be eligible to work here legally. That's right. Let me bear down a little bit here. The matter pertaining to the spouses of people who are here. The spouse has to be a citizen, right? And then the person who can apply for a permanent status is a person who can be here illegally. Can't have entered illegally. Right. And then that person will not have to then leave the country and come back in order to apply for that status. So that smooths the pathway for a lot of people who are in that category. So the idea here is what the Biden administration says is what they want to do is keep families together.

So families that already exist, the idea here is that the U.S. citizen, who is the core of that family, should be able to keep their family all in the place. But the obvious counter argument here would be you are legalizing people who came in here illegally. Sure. And you see that Trump statement. What they're saying is obviously they see this as an effort by the Biden administration and by extension the Biden campaign to generate good. will and increase some voter population. All right. Amon Javers, thank you very much. And thank you, everybody, for watching Power Lunch. Great to be with you, Mel.

I'll see you tonight at 5 on Fast. Closing bell starts right now.