Power Lunch - EQT CEO Weighs on surging Nat Gas Prices, Why the Charts Say the Market is Due for a Pullback & Restaurant Companies that can Withstand Menu Inflation 4/18/22

Episode Date: April 18, 2022

Inflation is on the menu on today’s Power Lunch. Nat gas prices surging to their highest level since 2008. Demand is strong around the world but can suppliers increase output? Kelly & Tyler asked the CEO of EQT, the largest producer of nat gas in the U.S., about his ability to boost production and the future of the energy industry. Inflationary concerns are rippling through the economy. Corn and rice prices are at multi-year highs squeezing margins of restaurants. A top trader tells us which companies can withstand the pressure in today’s three-stock lunch. Plus, our Clean Energy series continues with a look at a start-up using AI and robotics to disrupt the ag industry. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch. I'm Tyler Matheson. Here is what is ahead on a busy Monday. Natural gas prices surging to a 13-year high. Shares of EQT, the largest net gas producer in the United States, doubling since the start of the year. We'll talk to the CEO of that company to see whether he can step up production to meet that insatiable global demand. Now, from energy to food, you got high prices in energy? Well, look what's happening in food. Corn. highest levels in about 10 years. Rice, multi-year highs, wheat moving up. Margins across the restaurant sector, under pressure. We're going to take a look at the name's best positioned to withstand those rising prices. Kelly? We are. Tyler, thank you.

Stocks reversing course midday. Now we're higher ahead of a big week of earnings. The Dow up 90 points. Still not session highs, though. The S&P up 13. Even the NASDAQ has turned positive. It's up 25 points. Now, that's despite the 10-year Treasury yield reaching its highest.

level of even higher new highs, fresh highs since 2018, 2.884. That's a level to keep an eye on with just a couple basis points below that right now. Energy is the best performing sector today. It's not just the food stocks that Tyler mentioned. We have natural gas prices soaring, natural gas names rallying today. You can see names like Range and Antaro up about 5%. Now let's check on the Nat gas price. Over $8 per million BTUs a moment ago, and now around $790. These are the highest levels we've seen since 2008. Pippa Stevens has a look at what's driving this move and how much higher it might go, Pippa. Hey, Kelly, off the highs now, but still up nearly 8%.

And earlier today, prices surged more than a 10%, breaking above $8 and hitting the highest since September 2008. And this builds on five straight weeks of gains. There are several key drivers here. First, of course, is the global energy crunch sparked by Russia's war in Ukraine. The U.S. has remained somewhat insulated since we have production here, but we're now sending record amounts of LNG to Europe, which is boosting Henry Hub prices. Forecasts for cooler spring temperatures are also driving prices,

since this calls for more heating demand, and coal prices are surging, which is leading to more demand for natural gas. Finally, production has remained constrained, and inventory is falling. According to OTC, Global Holdings chief data analyst Campbell Falkner, storage levels are now 17% below the five-year average. He said this all creates a setup where there's constant demand for natural gas looking forward versus the typical seasonality. So the question is whether not gas can stay this high.

And if we look at the forward curve, prices are above $8 for the remainder of the year. Matt Maley from Miller-Tabach, noting that from a technical standpoint, natural gas is now the second most overbought going back to 2003. but in the meantime, utility bills are likely going up, Kelly. All right, I'll pick it up, Pippa. Thank you very much. EQT is the largest U.S. producer of natural gas, and it, of course, has benefited from the strong demand and rising prices. Shares more than doubling since the start of the year, as you see on that chart right there.

The CEO has been telling us that these sky-high natural gas prices are unnecessary. Toby Rice is the CEO of EQT. Mr. Rice, welcome. Good to have you with us. Thanks for having me. Let's get to that phrase unnecessary in a moment, but I guess the question to begin with is do you have any supposition as to why prices have jumped so much today? What happened? Well, I think people are starting to do the math. They're starting to look at the situation. And there's really just a lot of bullish indicators on natural gas macro. You mentioned storage being lower, about 15% lower than our five-year average. Look at the supply response has taken some time. to catch up. And people are now just starting to see the realities of what this traditional underinvestment in traditional energy has led to. And the bright spot is that this is,

I do believe that these prices are unnecessarily high. And we can do a lot more if we're able to, to lower these prices and continue to provide the cheapest source of energy for Americans relative to any other place in the world. So let's explore the comment you just made, that the prices are unnecessarily high and we can do a lot more if we're able to. That sounds like if you are allowed by government, presumably, to do more. Explain why you say prices are unnecessarily high and what is the more that you would like to be able to do. Sure. You know, prices set by supply and demand.

So let's look at the supply. And people should be very excited about the fact that America has the largest natural gas field in the world, the Marcellus Shale. But having that resource in Appalachia is useless in combating prices if we do not have the infrastructure needed to connect the wells that we drill to the demand areas in the rest of the country. Now, to show you how this has been challenged here in Appalachia, there's been over. seven BCF a day of pipelines that have been canceled or opposed just in the last five years. Now, that's about almost 10% of U.S. gas supply. So we are taking one of the biggest resources that we have, the Marcella Shale, and it's been challenged to get that to market.

And right now, as we speak, there are still pipelines that are being challenged. Mountain Valley Pipeline, which would take gas down out of the basin to the southeast, is being challenged as we speak. So we build pipelines to the north, east, south, or west, and they're being challenged. And unfortunately, that means we're selling our gas for a discount here in Appalachia. And Americans are paying unnecessarily high prices for their natural gas across the country. And just to be clear, the challenge to those pipelines is coming from? It's coming from a number of sources.

You know, particularly there's a lot of environmental pressure on these. pipelines. And quite simply because, you know, these environmentalists are concerned about the carbon footprint that comes along with natural gas. But unfortunately, these people need to understand that natural gas is actually the biggest green initiative on the planet because natural gas replaces coal, the largest source of emissions in the world. And the more natural gas we put into this world, the lower coal we burn. And it's actually the reason why the United States is the environmental leader in lowering emissions. And unleashing US LNG on the world stage is the way that the United States can be a leader

in lowering emissions on a world stage. Toby, it's Kelly. And it's good to see you again. We're showing the price of Nat Gas over the past six months or so. And we spoke in February when we saw a spike, but then things settled down. Isn't it unusual to see prices rise so much this time of year? What's this potentially going to mean for electricity bills for air conditioning this summer and all the rest of it?

And why are prices up so much right now? I can't quite understand it. Yeah, Kelly, you're right. I mean, these are what we call shoulder seasons, and this is where temperature is milder, and we're allowed to send more gas into our injections and fill up our storage. Unfortunately, that hasn't been happening as much

as the storage has been on the five-year average. So, yes, I mean, prices are expected to be higher. And I think let's look out, you know, six months, let's look at this winter. And what's really concerning is to see that New England, places like Massachusetts, our gas prices are expected to be north of $20. And to compare that to what we're seeing in Appalachia during the December, January timeframe, natural gas prices here will be around $6.

You say, well, how can we have such a big disparity in the winter months that people are predicting? The reason is lack of pipeline infrastructure. And New England is the poster child for cutting off. access to low-cost supply like Marcella's shale by cutting off infrastructure. And Massachusetts, by the way, if we look at state data, 76% of their electricity comes from natural gas. So they're heavily dependent on this price, which means, in other words, again, if they need air conditioning this summer, they're going to be paying whatever these prevailing natural

gas prices are. So is this because of the war in Ukraine, Toby, that Pippa mentioned a couple of things, coal prices and so forth have been spiking, but why are we suddenly seeing that gas go, basically the price double over the past, call it six to eight weeks. And do you expect it to stay up here? Yeah, like I said, I think people are doing the work and understanding that there's a lot of bullish indicators on the price of natural gas. There's not a lot of bearish indicators. I mean, we've had a traditional underinvestment and traditional energy sources. And this is all sort of coming to ahead. Certainly the conflict that you see in in Europe right now is certainly adding to that. But this is a question of, you know, should we be, should we be helping our allies by sending our natural gas overseas? The answer is 100%. Yes, absolutely. We actually need to do more.

And Kelly, when you realize what the potential could be here in America is if we can unleash our American energy, we will provide a tremendous amount of abundance. And that surplus that we can use to supply the world with energy is going to give a tremendous amount of energy security to Americans. and this is going to ensure that we have, we continue to pay the lowest price for energy around the world. We, Kelly just mentioned the state of Massachusetts, the senator from the Commonwealth of Massachusetts, this morning in the New York Times called for a windfall profits tax on companies in the energy complex that are making what she describes as windfall profits. Are you making windfall profits? And how would you like to answer, Senator Warren?

Yeah. So here's the situation. Without the ability to carry more gas out of the basin through pipeline infrastructure, we have a very low ability to reinvest those dollars in board drilling, which would create more supply. So what you're seeing is that EQT is going to have a very profitable forecast for this year and in the future. Now, the best thing that EQT can do that American energy producers can do is reinvest those dollars to create more supply and deep demand. It's what we've done in the past, and it's what we would like to do in the future. But we need to have more pipeline infrastructure.

Otherwise, I mean, this is a sad state where we've got the biggest natural gas field in the world. Gas prices around the country are high. Right. And without these pipeline infrastructures, we cannot be in and deliver the energy to the Americas that they need. Toby, point well made. We thank you for your time today. Appreciate you. Toby Rice of EQT.

Let's talk about rising yields. now the 10-year creeping up closer to 3% today. Leslie Picker joining us with a look at what the rising yields mean for banks, and at least for the stocks today, Leslie, it seems to be a lot of green. A lot of green on the screen today. And Kelly, for bread and butter banking, rising rates are actually a positive for the industry. According to an analysis by Wells Fargo, every 100 basis points of rate hikes adds an estimated 30 percentage points to earnings per share.

That's because higher rates boosts something called net interest income, which is essentially the profit generated by a bank from interest on its loanmaking minus the yield paid to depositors. As rates go higher, so too does the interest rates that banks can charge for loanmaking, which while deposits remain sticky, at least in the short term. We heard several executives this quarter tell the tailwinds from higher rates that took place over the first quarter. Bank of America's CFO Alistair Borthwick said on this morning's earnings call that if loans grow and rates continue to move higher, the firm expects to see Q2 net interest income increased by more than $650 million or nearly 6% over NII from Q1 and then

grows significantly on a sequential basis in the following two quarters. But here's where it gets tricky. If the Fed hikes too aggressively and pushes the economy into a recession, that can crimp the overall banking business. That's why you've seen banks largely sell off in recent. in weeks, today being the exception, because the yield curve inverted. Historically, that's a signal that the macro picture could be in for some pain down the road, guys. All right, thank you very much. Leslie Picker reporting. Coming up, checking the charts, why a top technician says the rally off the march low has been lackluster, and the summer could be ugly for stocks. Plus, menu inflation from the drive-through to full-service restaurants. Companies are getting creative

with their pricing, but which ones will be really successful at it? We'll break that down in our three-stock lunch later this hour. Welcome back to Power Lunch. I'm Dominic Chu. Check out shares of Charles Schwab right now, down nearly 9 percent under pressure today after the financial services firm and retail brokerage giant reported a decline in profits and revenue during its first quarter that missed analyst estimates. Schwab's trading revenues fell 21 percent on a year-over-year basis with executives noting that trading activity has returned to more moderate levels versus the quote, extraordinary surge in client activity during the first quarter of last year when we saw a lot of retail trading excitement, including that so-called meme stock frenzy and rally.

Kelly Tyler, I'll send things back over there. Everyone's back to work now. Yes. Dom, thank you very much. The S&P is up about 5% from those March lows. Despite coming off two straight down weeks, our next guest says the relief rally may have run out of steam and the charts are pointing toward a tough summer ahead. He explained his outlook in a new note to clients this morning. Let's bring in Ari Wald. He's managing director and head of technical

analysis with Oppenheimer. Ari, it's great to see you again. And you have been cautious. I've heard you, you know, being cautious over the past several weeks here about the market. So is it rates? Does it matter what it is? What do you see in the charts? Yeah, interest rates have surely been a big driver of the weakness that we've seen. And really what worries us of that and where you're seeing it in the equity markets is in this very weak internal breadth and this lackluster participation. Even through the March rally, just the failure for a lot of stocks to get back above the 208 moving average. We like that indicator a lot. I think the 60% threshold is one to watch.

If the market's rallying, you want to see at least 60% of stocks above their 200 on the NYS. we couldn't get that in the January high. We couldn't get that. We only topped at 50% recently in March. So we're seeing this ongoing evidence of distribution. And that leads us to believe that the full capitulation is going to be needed. I think you have to see that reading get below 20% to mark what could ultimately become the secular bull market's next big opportunity. That might be a few months away. So here you're talking about the broad market and what needs to happen for it to establish a base and then a turn and why you see choppy times ahead. But within the broader market, are there pockets of prosperity that you can point to? There are. And I think it's very likely.

Markets don't go in a straight line. I think the coming weeks could be just characterized by very choppy action in the market with areas working and other areas not working. So what we did, we screened the S&P industries for areas of relative strength. And where we're seeing relative strength are in low volatility groups like food products. We're seeing it selectively in some large-cap growth areas like large-cap biotech and the ag names as well, machinery breaking out to the upside discount retailers within consumer discreet. discretionary. So you have to dig and kind of be a little bit more selective and got to go down you know, these pockets, these smaller pockets, but they are out there. So you're talking companies

like Dollar General, not Nordstrom, you're talking deer and the like in the machine, agricultural machinery area. Yeah, all these for different reasons. So yeah, for starters, discount retailers, a low volatility area, the consumer discretionary sector. It's broader. It's It's not just dollar general. You're seeing it in Dollar Tree. You're seeing it in Target. Dollar General we like. It's also rated outperformed by our retailing analyst, Rupesch Perique.

So you have those dual headwind, tailwinds behind it, excuse me. And the socks acting well just broke above its August peak. Again, a sign of relative strength in a very difficult market tape. I think you want to buy that breakout and stick with it. I think it looks like to be a great summer rental. And for the market overall area, you say watch the small caps, right? Yeah, small caps, the Russell 2000 is really indicative of the weak internal breadth that we've seen. That's where the biggest breakdowns have occurred. A lot have been talking about the move out of growth into value.

I would say the move out of small caps into large caps, equally important, at least the breakdown in small caps. Russell 2000 broke a year-long neckline. It's top in January. You really just been consolidating below that breakdown level. So again, until the Russell 2000 can reclaim those resistance points, I think that's just a pause ahead of another move to the downside. And that's going to be an area to stay away from this summer. It's a higher beta area. And I think cyclicals could be due for a tough summer ahead. Very interesting words of caution.

Ari, thanks for your time. We appreciate it. Of course. Thank you. All righty, coming up, upsetting the Apple card, one Apple store making an historic push to union arms. We've got the details on that. Plus, thinking outside the ox. We're taking a look at one company disrupting agriculture. And as we head to the break, we celebrate financial literacy month, and we feature some of our CNBC contributors. Here's one, Gina Sanchez, about how she learned

about money. I learned about money because I grew up poor with a single mother in South Texas, and every time we went out to a restaurant or made any purchase, my mother would take out a napkin do the budget for the month to determine if we could make that purchase. And that's how I naturally began budgeting from the time I was 10. All right, welcome back, everybody. Workers at the Grand Central Apple Store have partnered with Workers United to form what would be the first Apple retail location to unionize. But as we are seeing with Amazon, these union pushes don't come without a tough fight. Steve Kobach is here with more. Steve, what do the workers want? Yeah, so Tyler, they actually just updated what their demands here.

So they're asking, let's just bullet it down for you. They're asking for $30 an hour minimum pay. That's up from $20 an hour. Better 401K matching, more vacation time, that's faster accrued, and tuition reimbursement. And I don't know, Tyler, if you've ever been to the Grand Central location Apple store, but it's kind of a unique setup. So they're also asking for things like dust and noise pollution studies that it might affect worker health.

Very interesting. What, if any, response has the company made? Yes, sir, right now, Tyler, the company is really highlighting the benefits they already give. For example, like I said earlier, that $20 per an hour minimum-based starting pay, they already do 401K matching to some degree, and they give stock grants to retail employees up to $2,000 of stock grants. So it's really above average, if you think about it, for a lot of retail jobs. They pay better. If you go to any mall, you're going to want a job at an Apple store more than, let's say, a Best Buy or something else. Steve, other than the features of its location, like you said, it's on the second floor at Grand Central and they have some particular needs there.

Why is this store such a flashpoint for the minimum wage demands just for the unionization broadly here? Well, Kelly, this is not going to surprise you. They're a screaming inflation over here. So they're just pointing to the historic inflation rate that we've heard other unionization efforts make light of, such as the Starbucks stores that we've been seeing unionize. And they're also just talking about the huge cost of living in New York City. It's not cheap to live in New York and live off of a pretty standard retail salary. So they're pointing to that as well. And the fact that Apple's just the most valuable company in the world. And they could afford to pay their retail workers more than other retail locations.

Is this likely to be a bitter fight? Who knows? It's so early, Tyler. First of all, I can't enforce this enough. It is very early in the process. They're only just now catching signatures, and they have to get 30% out of these 270 workers just to sign a card in order to hold an election.

So we're in the very early days at just one location, but you can bet Apple is going to fight this, absolutely, like we've seen with other companies. All right, Steve, thank you very much. Kovac reporting from San Francisco. Now let's get to Christina. Parts of a list for a CNBC news update. Christina.

Thank you, Kelly. Here's what's happening at this hour. No humanitarian ceasefires are expected soon in Ukraine, but they may be possible in a couple of weeks. This, according to the United Nations head of humanitarian aid, meanwhile, the mayor of Mariupil says 40,000 civilians have been forcibly moved to Russia or Russian-controlled regions of Ukraine. Those numbers have not been independently confirmed, and Russia denied.

as it is targeting Ukrainian civilians. Ukraine's top security officials says he sees signs that Russia has started a new offensive in the eastern part of the country. He says attacks are increasing in the Kharkiv and Donetsk regions. And back home in Florida, federal judge has voided the CDC's mass mandate on public transportation. The judge, a Trump appointee, says health officials exceeded their authority when setting the mandate.

The ruling does not immediately end mass requirements on airplanes, buses, or planes. challenges are expected. The current mass mandate is sector-inspired on May 3rd. Back to you. All right, Christina. Thank you very much. And ahead on power lunch. Bitcoin struggling. Back below 40,000 of pop, despite recent weakness, Miami still working to overcome, to become, excuse me, the crypto capital. Plus a restaurant edition of three-stock lunch. We're breaking down which names have pricing power from fast casual to fast food in this rising minimum wage environment. All right, folks, we've got about 90 minutes left in the trading day, and we want to get you caught up on the market, stocks, bonds, commodities, and crypto. Let's begin with Bob Bazani at the New York Stock Exchange, where stocks are a little bit higher. Welcome back, Bob.

Good to see you again, Tyler. And yes, it has been a choppy day. We've gone in and out of positive territory three separate times today. Three, that's a lot. And that means sort of up and down. But let's just show you what's moving in the Dow Jones Industrial Average here. J.P. Morgan's finally getting a bid. You know, it was at a new low on Thursday.

So we're getting a little bid there. Caterpillar has been a great performer recently, still doing well. Chevron's been a great performer recently still doing well here. Lagerds here, some surprises. Home Depot is continuing to lagg. It's been terrible quarter for Home Depot as the home play stocks. Don't do so well. Johnson, Johnson's been great.

Proctor's been great. By the way, they're going to have earnings this week for them. We'll keep an eye on that. Coca-Cola's also been a good performer. Defensive names have done really well. But did you see lagging a bit today. New highs, it's always the same. It's APA, the old Apache, doing well, Hess, Valero, Halliburton.

Those names consistently on the new high list every single day. At the same time, interesting stocks on the new low list today. So we had one of the big trust names, Bank of New York, B&Y Mellon, earnings report came out. That's a new low. Some of the other trust names also at new lows, the banks. We had some big tech names in the semiconductor space, lamb research, applied material, and even Skyworks solution, Apple supplier, also hitting 52-week lows today. You want to keep an eye on those semiconductors that SMH has had a tough time of it recently.

Tyler, back to you. All right, Bob. Thank you very much. The 10-year yield getting to its highest level since late 2018. Rick Santelli is tracking the action in the bond market. Hi, Rick. Hi, Tyler. You're exactly correct.

This chart starts in late 2018, December, to be exact. And you can clearly see that 10-year yields have been on the march, since their all-time low closing yields in August of 2020 at just half of 1%. 50 basis points. If you notice, 30-year bonds are getting awfully close to 3%. When was the last time they closed that 3% or higher? March 19th of 2019, as you see on the chart there,

and most likely we're going to cross that threshold rather quickly because the right yield curves are steepening like 5s to 30s, as you see a one-month chart there, and the right curves are flattening. Look at the three-month versus two-year. You know, the Fed's been dragging their feet on everything except for the verbal side, and that's shown up in the markets. But now, T-bills have had a chance over the last several months to play catch-up,

and they certainly are, as you see, that three months to two years, flattening, which is very normal at this point in the cycle, where the markets are way ahead of the Fed. And finally, the dollar index continues to march along with higher rates. rates. It's looking to close at the best levels since March of 2020, while many other currencies with central banks even further behind the curve like the ECB, their currencies are moving in the opposite direction. Tyler, back to you. All right, Rick, thank you very much. Oil is closing for the day up more than 1%, more than 15% in the past week. Let's take a look at today's action. There you see the 1%. One week, 14.2.2%. There you look. That's the big mover today, not gas,

trading above $8 earlier in the session. Right now up only 7%, a little less than that's 6th and change, as you see right there, off the best levels. But it is up more than 100% year to date. That is what you call a double. But Bitcoin has been falling back below 40,000 today. Kate Rooney joins us now from Miami and the Emerge America's Conference where crypto is a big topic of conversation. Hi, Kate.

Hey, Tyler, that's right. It's looking like another choppy risk-off week for tech stocks, and therefore Bitcoin, the cryptocurrency dropping to a one-month low starting in Asia market hours this morning. It did recover a bit, though, back above $40,000. At this point, it's around $40,800. Bitcoin, though, still very much trading like a high-growth tech name. It's been stuck in this $40,000 to $45,000 range as investors assess that rising rate environment and some of the broader macro picture and the factors here.

Fund Stratt, though, pointing to that increasingly tight correlation between Bitcoin and the QQQ over the past 10 and 30 days. Others are pointing to a decrease in open interest on the CME for Bitcoin futures, which in the past has been loosely correlated with the price of Bitcoin. It is outperforming the rest of the crypto market, though. You've got Ether, Solana, XRP. They all look to be down between 4 and 6 percent. I've also recovered a bit today.

None of this though, guys, is dampening the enthusiasm here in Miami. I sat down with Mayor Francis Suarez, who has become a tech and crypto ambassador for the city. He takes part of his salary in Bitcoin, and he says he's not checking the price every day. I look at it as a long-term play. When you look at the year-over-year gains in Bitcoin every year, it's been, I think it's fair to say. It's been the asset class that has grown the most in the history of all asset classes. It's a hard standard to maintain, but it's a good thing to think about it. So Miami still isn't quite at the level of New York or San Francisco yet in terms of investment

dollars, but Mayor Suarez thinks they can keep taking market share from those major tech and finance homes. We've transferred over a trillion, $400 billion in AUM companies to Miami in only 16 months. So at the pace we're going, if it's a zero-sum game, in other words, if our gain is their city's losses, we could overtake them in as little as two years. So you heard him as little as two years. We'll keep an eye on it. Kelly and Tyler, back to you.

Well, you're certainly right. I mean, he's right. There are a lot of asset managers who have been moving down to South Florida. I don't know about overtaking New York within two years, but let them have that ambition. But it is true that a lot of money managers have relocated. Lofty goal. And, I mean, a lot of crypto companies, but you're right, it's Wall Street. It's not just the tech companies.

So he's looking at Wall Street as one goal here, asset managers, hedge funds. and then you've got the tech companies too. Remote work really helps. And then, of course, the tax environment here has got to be another factor. Maybe we need a Miami outpost. Yeah, Miami Bureau. Miami Bureau. Kate.

We'll fight you for it. Tyler, I know, right? The three of us, I feel like, well, every week, though, the tech conference, that's what you talk to a lot of the investors that have moved here. They say they don't have to leave anymore because everybody's coming to them. All right, Kate, Kate, thanks very much. We appreciate you. Kate Rooney.

Coming up, a clean start. We're highlighting Iron OX. It's a startup using robotics and AI to disrupt agriculture. We have more when Power Lunch continues. Welcome back, a major challenge of fighting climate change is figuring out how to do essential activities and a cleaner and greener way. One key example is agriculture, necessary for feeding people, but also a big contributor to climate change. Now new forms of farming, new technology, and new companies are tackling the problem. Your climate correspondent, Diana Oleg, joins us with a look at one of those companies in her continuing series on Clean Startups. Diana? Well, Kelly, agriculture production uses about 70% of the Earth's fresh water and makes up about a third of greenhouse gas emissions. But it doesn't have to.

Farming is now moving inside, and farmers aren't exactly what they used to be. Meet Grover and Phil. They're autonomous robots, or farmers of the future, working at Iron Oaks, a six-year-old, California-based farm tech startup. We grow in natural light greenhouses, and our goal is to decentralize farming so we can grow closer to people in a more sustainable way.

Iron Ox is combining robotics, AI, and indoor farming to transform industrial agriculture. We have different robots that are tending to the plants. They're checking on it. They're scanning for issues, and they're adjusting the amount of nutrients it gets, the amount of water it gets. It is in direct,

It is in direct contrast to what Alexander, who grew up on a Texas farm, calls the spray and prey approach to agriculture, where more chemicals create more quantity, less quality. The advantage of growing indoors is growing anything at any time, regardless of climate and climate change. Iron ox can also vary what it grows from vegetables to fruits and berries. It also uses hydroponics, growing crops without soil, so water goes directly to the roots. A lot of the water and field farming gets just washed out and never actually reaches the plant. Iron Ox is now expanding to Texas just outside Austin.

It sells to retailers like Whole Foods as well as to local restaurants. Alexander says the company will produce about a hundred times more produce over the next 18 months. Iron Ox is backed by Bill Gates's Breakthrough Energy Ventures, Crosslink Ventures, R7 partners, Enniac Ventures, Pathbreaker and IO ventures and Amplify Ventures. Total funding to date, $98 million. Now, there is plenty of competition in this space, from hydroponics to vertical farming, but the space is incredibly large. Alexander points out that food done right has the ability to reach more people than the top five tech companies combined. Kelly.

I'm curious, how do you get the scale, Diana, to grow enough? Because these are all indoor facilities, not outdoors, where you can have hundreds. and hundreds of acres. Well, you take over that outdoor space and you make it indoor. And that's why part of this, you know, they're not a vertical farm, but we have started to see vertical farming,

which is, of course, farming high up, so you don't take up as much space width-wise. But basically they're saying if you can take farming from the outside and put it inside, they can make it much more clean than being outside with the Earth. Also protect themselves from climate disasters, which obviously affect crops as much as anything else.

Okay. Diana, thank you very much. Diana Oleg. And as we stick with the food theme, dinner and drink. Up next, the best positioned restaurant stocks to handle higher prices. The glasses are full. We're ready to look at three of them when we return. Our three-stock lunch is focusing on the meal today. Corn prices at a 10-year high. Rice and wheat prices surging. That plus soaring labor costs and inflation-pinched consumers are all weighing on the restaurant stocks. We've got a name in each part of the restaurant industry. In casual dining, Barclay says Olive Garden owner Darden is best positioned. Fast casual, Chipotle flexing its muscles by raising prices multiple times.

And in fast food, Wendy's hit with a downgrade at BMO, which says they are not well positioned for tighter consumer spending. Now, to trade them, let's bring in Chad Morganlander. He's senior portfolio manager at Washington Crossing Advisors. Chad, welcome. Let's start with Darden. Do you agree? I do agree. Actually, I think that Darden is well positioned in the long run.

They have very little debt on their balance sheet. It's a consistently growing type of company. They do have the flexibility to increase prices. And I don't think when they do increase prices, that volumes or traffic to their stores will decrease. We're very quite optimistic about the consumer when it comes to the restaurant industry overall in 2022 and into 2023. You're optimistic? Yes, we believe that the consumption patterns over the next two years will bode well for the restaurant industry. There has been a convergence like you just mentioned of pricing pressure from

input costs as well as labor issues. We think that the labor issues will subside and that you can see positive margin accretion in Darden over the next several years. Let's talk about Chipotle. What do you see there, Chad? So this is a great momentum stock overall. The problem with us is that we believe that the valuation is perfectly priced here. We're selling out of 50 times PE multiple for 2022 and perhaps about 38 times for 2023. It's just really quite rich at this point. Growth rates, though, are quite high with revenue growth rates plus 15, 20 percent as well as earnings.

But overall, it's just, I think, a bit ahead of itself as a trade. And even when you look that 24 to 36 months out. All right. So that's Chipotle. We talked about Darden, Chad. What about Wendy's? That's the one getting the downgrade today. You know, the analyst doesn't think that they're going to come out ahead when the consumer really starts pinching pennies.

And it's also, Kelly, regarding pricing. Can they increase their pricing? prices to keep up with the margin pressure. We think that this one has some trouble, also due in part because it has a lot of debt on its balance sheet. It's below investment grade by S&P. We would avoid this one. We do think it's a lower quality name. There are better names within the fast food side that one should look at. But overall, we think that Wendy's, for this time period, you're not getting paid well for taking on that risk. Is it McDonald's? We know we can't invest in Chick-fil-A.

So who do you like in the fast food space, Chad? So I would pivot a bit. I would go with Starbucks. We own it in our rising dividend portfolio. It has come down substantially. We believe that margins will hold up and that the management team there is doing quite well in regard to transitioning their business. It has been hit hard based off of COVID-related lockdowns within China. That's where most of their organic growth has been coming from and will come from over the next several years.

But we do own that company and have a buy on it. So you like the fact that Schultz is back? I certainly do. In fact, we do endorse the fact that he's reinvesting back into the business. That's how you grow your business over the long run. buying back the stock price for us is not meaningful. You want to see top line growth, and they're going to be taking care of that over the long run. All right, Chad, thank you so much.

We appreciate it. Are the drinks even empty? Yeah, they're empty. All of them are empty now. Let's kind of had them on the side today. All right. Still ahead, folks. Wages are up, but wait until you see how much more CEOs are getting paid.

Maybe you'll be surprised or not. More power lunches next. The numbers are in and some of the stats on CETs are up. CEO pay may surprise you. Dominic Chu has been putting those numbers under the microstocals. We know who they are, guys, right? Equilar. This is the company that every year tells us who the highest paid CEOs are, what they do, how much they make, and that sort of thing. They talk about things like the gender pay gap and whatnot. Well, 2021's numbers are in, and as Tyler pointed out, we do have the top five CEOs in terms of total compensation. Now,

that includes both the cash payouts and the stock grants, options, restricted stock units. It's that sort of thing. So take a look at the top five. You've got right now in the top spot, Intel's Pat Gelsinger, who took home $178 million worth of total compensation. Again, a mix of cash and stock. Tim Cook over at Apple, roughly $98 million. Hock Tan over at Broadcom, $61 million.

Microsoft's Satya Nadella, around $50 million. And Tom Rutledge, the CEO over at Charter Communications, very big cable powerhouse, taking home of the number five spot at $4.4. $42 million. Now, if you take a look at the overarching macro stats, this is where things get a little bit more interesting. And of course, with the overall narrative these days about what's going on, you do have CEO pay coming in much higher than anticipated from before. We're talking about a 20, 30 some, 31% increase to about $20 million for median CEO pay. That's on a survey of companies that are making at least about $100 million overall in revenues. So if you take a look at that, they also talk about this, idea that the pay gap between CEOs and normal wage employees was widening. Take a look at this overall stat. You can see here, $254 in CEO compensation for every $1 of the median average wage worker at that particular company. That's been a very political lightning rod for a lot of folks for a long time. But what's significant about this guys is that it's a 7% increase,

that 254 to 1 ratio, a 7% increase over 2020. So that's where you start getting to this discussion about whether or not that kind of pay is starting to show badly among Main Street America. And that's when it becomes an issue because we know there's all these unionization efforts at companies where they haven't had unionization efforts before. Exactly. A couple of other minimum wage announcements today from Verizon, I think from Fifth Third Bank. So they'll just show them this full screen. Well, what's interesting about this is how are these companies able to have been past those costs on? If you are going to pay higher wages, which we know a lot of companies are,

does the company end up absorbing those in terms of margins? Or are we as a consumer base in America more likely to stomach or tolerate paying higher prices? Because we know it's for the greater benefit of everybody else out there who's able to then take a little step up in terms of their overall. The famous question asked to Babe Ruth was when he was making $100,000 was something like, how can you justify getting paid more than the President of the United States? And Ruth said, I had a better year than the President of the United States. Gell Singer of Intel, why was his so much higher than the number two?

Well, it's a lot of incentives, right? Because there's a big plan in place. If he succeeds, that's when the payouts really happen. Is it even fair to put that number up there for EqualR to put it that way? It makes it sound like they took that much money home and put it in the bank. No, no, and that's the reason why. So the big thing here that we have to understand, and this is for all viewers, not just the rich or the middle income or the lower spectrum people. For a lot of those folks out there, this is about wage compensation versus stock compensation.

Oftentimes, and I don't want to make light of this, when I say a CEO only makes, for a CEO that makes $100 million, that might be a $5 million cash payout package with $95 in stock. So that's going to be the real. Yeah. And that those incentives only vest if they meet. Yes, exactly. All right, Dom. Now, we get paid about $250 million for this. We want you to know about the Power Lunch podcast, folks. It launches today. You can listen to us on the go. Look for us on Apple Podcasts or your favorite podcast app. Follow the Power Lunch podcast beginning today. Very exciting. Leave us a review. That's what people always say in podcasts. Leave a review. Follow. Thanks for watching Power Lunch. Closing bell right now.