Power Lunch - Europe rallies, tech’s new reality and the CEO of Southwest 12/7/22

Episode Date: December 7, 2022

Europe’s benchmark index on track for its best quarterly performance since 2009. Is this the start of a bigger European rebound? Plus, tech layoffs expected to accelerate into year-end leaving a new reality for investors to navigate. And, the CEO of Southwest on his company’s dividend, travel demand and hiring plans. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

And welcome to Power Lunch. I'm Aymann Javers in today for Tyler Matheson. Here's what's ahead. Down but not out, Europe's benchmark index on track for its best quarterly performance since 2009. Is there an alternative to U.S. stocks and can it be found in Europe? Plus, Southwest shares rallying 25% quarter to date. The company reinstating its dividend and forecasting strong travel demand. Later this hour, we're going to ask the CEO if rising labor costs could put a lid on growth. Kelly? Amen, thank you. Welcome. And hi, everybody. Stocks wavering this afternoon on recession and Fed tightening concerns. The Dow had been up 178, but now we're down eight. We're down eight for the S&P as well, and the NASDAQ's down half a percent now. Money's been moving into some of the defensive areas,

as you see Campbell's Soup rallying after their earnings, General Mills and Smocker, all hitting 52 weeks high, a 5 percent pop for Campbell's today. They're coming off strong quarterly earnings and an upbeat outlook. In fact, pricing power helped offset lower volumes there. Also, new financial guidance from Coinbase within the past hour. They're seeing 2022 revenues down more than 50% from last year. A lot of that already priced into what's been a very tough stock. It's down less than 2% trading around $41 a share Aman. And there's been a lot of action in the Treasury market. Look at the move in rates over just the past week or so. One week ago, Fed Chair Powell gave a speech that the market interpreted as dovish. Stock soared yields fell. The 10-year went from a high that day of 3.8%. Now it's at 3.4%.

So what does this move mean for the stock market? Let's bring in Doug Butler. He's portfolio manager and senior VP managing director with Rockland Trust. Now, Doug, I'm told that you are bullish here, but it really depends on the Fed. Is that right? Yeah, I mean, I think we've all seen that the Fed, really, the dovishness even started earlier as the rates dropped through the four level. we anticipate that if the Fed comes in and the governors expect inflate as you expect the Fed funds rate to be at north of five for 2023, we think that that's going to put a little bit

of pressure on the markets. And certainly if it hits the five and a quarter level, we think that is probably another down four percent or so. When you say a little pressure on the markets, when you say a little pressure on the markets, what do you mean? Are we talking sort of nightmare apocalyptic scenario? Are we talking, you know, a couple points? No, we're talking not dramatically down from last week's levels anyway.

So no huge swings. Not dramatically down from here, sorry. Yeah. So what do you buy then? What are you telling people if you're out there trying to pick stocks in this environment? You're looking at the Fed. You're wary of some kind of swing coming up. You are looking at a couple of different stocks.

Which ones do you have in mind? Yeah, I think one stock that we love in the energy. space is EOG. We think they have a pristine balance sheet, almost no debt. We think they make money, even if you get a sell-off in oil, if there is a recession, they still will be a fantastic play here, especially for the long run. They've been distributing, they've been increasing their dividend 10%. They've been distributing special dividends. They're a fantastic company and probably the best run and best cultured company in the space. We think that they can amply grow to 150 bucks over within the next year.

You also like J.P. Morgan and META, Doug. A couple of names are a little more controversial, but before diving into that too much specifically, I'm curious if the next move from the Fed Chair is actually to walk back the dovishness that the markets ran with last week, in other words, to get more hawkish again, you know, to what extent could that really spoil the landscape here? Yeah, I think that puts the kibosh on the Santa Claus rally. But I think that the walking, I don't think they're going to walk it back hard is what I would say. I think they might be a little less optimistic.

But really what you're looking for is that 2023, where the median ends up and where the governors think they're going to be for the full year, that average, if that average is below 5%, it'll be great news. And I think the markets are starting to price that in. You see the 10-year rolling over down to three and a half. And big question is, does that prompt a recession? We don't really think so. So I think that's the me reason for both JPM and meta. They're different stories. JPM, from the CEO on down, they've been very talking and very defensive and a very cautious outlook.

But if you look at their results, they've been successful at cutting costs. They've been successful at maintaining their margins. We think they can do that even if there is a bit of a poll. back in the economy. And meta, frankly, if they would just get out of their own way for a few weeks, the stock has ample room to run. I really view them as sort of, you know, remember Microsoft back in the 2000s when they kept having problems in Europe and having problems everywhere, sort of late, early aughts and late 90s. I'm dating myself here. But yeah, I think that meta has a tremendous future if it can just stop making mistakes. I want to ask you about that, because

There's a big if in that sentence that you just said, if you can stop making mistakes, right? I mean, so you're betting on meta. You think they're in a good position here, the company formerly known as Facebook. Is that a bet just on the sort of ego of one man, Mark Zuckerberg? He has come out and said, you know, he got it wrong when it came to the metaverse. He put too much money in, hired too many people, sort of bet the farm on the metaverse. Now is trying to reel that back in and trying to get some humility here about what the market is telling him. Do you think that Mark Zuckerberg now gets it and is,

going to be able to refocus this company. I mean, obviously you do if you're picking this stock, but this is not a guy who's had a lot of humility over the years, right? He's not a guy who's had a lot of humility, and frankly, he's done a lot of great things. He's gotten this one wrong, and he, like, and he bet too much of it on this. But the company still, I think our premise of the company is not to be aligned with Mark or feel like that there's one man running the show, but that's the share structure we signed up for. So that's That's what we have. You knew that going in.

Now do we want to stay in? And yet we knew it going in. And we believe that their positioning is fantastic. And we believe that Mark Zuckerberg is not an irrational individual. I mean, there are other CEOs who I wouldn't entrust this much rope or this much runway. But I believe Zuckerberg will get it turned around. And I believe, look, I think Google and Apple are going to solve the Apple problem. Google and Facebook are going to solve the Apple ad problem as well.

Doug, thank you so much for that. I really appreciate it. Not an irrational individual. That's an enormous endorsement for a CEO these days. Doug Butler, thank you for being with us. All right. Bye-bye. There is no alternative. That's been the investing mantra for U.S. stocks for some time. But European stocks have quietly been rallying. The European benchmark Eurostocks 50 index is up 18% this quarter on pace for its best quarterly performance since 2009. That far out paces the S&P, which is up about 9%. Here to discuss whether Europe is investable again as Jeremy Schwartz, the Global Chief Investment Officer at Wisdom Tree Asset Management.

Jeremy, why the sudden run-up here? Is it about a week dollar? Kelly, thanks for having us. And I'm actually calling in from London. Usually I'm in Philadelphia, but I am traveling with our team in London, so this is an appropriate segment. Good to have another Philly boy on the show. Yeah, absolutely.

And, you know, I do think some of this sentiment was so bombed out. You know, that there is, the washout incentive, when things look really terrible, if you could just get a slight improvement from terrible to just bad, you know, you can have a big rally. The dollar does seem to have turned, certainly the euro. You're showing the chart there, the strength in the euro has coincided with, we do think the Fed is going to pivot harder than they're saying right now. We say you can't trust what they're saying. You've got to watch what they're going to do in the coming six months. And we think they're actually going to potentially start cutting rates sooner than the market expects. The momentum on the dollar has definitely turned. We have some dynamic currency signals that actually went long. The foreign currencies over the dollar for the first time in at least 12, 18 months. And so those things are turning, momentum's turning. Valuation are really more than 50% off. If you say buy what's on sale, Europe is 50% cheaper than the U.S.

When we look at a basket of high-diven stock eight times earnings in the foreign market versus 18 times. for the S&P 500, they're forecasting weaker earnings growth are ready. And people are starting to say the S&P has to downgrade their earnings estimates. So all those things are, we think, you know, supportive for that rebound there. Jeremy, let me ask you about this because, you know, all of the stuff you just mentioned, notwithstanding, I mean, the big problems in Europe, right? I mean, you had a war shock, you had an energy shock, you had a Russia sanctions shock. All of those things are still in place right now, although we've been living with them for a while.

But all the fundamental problems that Europe faced at the beginning of this year, it's still facing now at year end. So how can you be bullish on Europe when all those core problems are still there? Well, it gets to like what's factored in the price, like what's already in the price? People know that those are current issues. So it's not a surprise. And so then the question is, what can actually turn for the positive? Now, people are starting to believe this war will last forever. And that may not be the case.

I mean, hope we have to see how that goes. but it doesn't, there's no positivity on that today, but you say like what could inflect going forward, you know, there could be a surprise on that. You know, it's going to take time, obviously. But all this stuff is factored in the price. And so then you say it really, you know, the growth, we often say growth is not return.

Economic growth often leads to subpar returns because it gets factored in very bullish expectations and on growth, very bullish valuations. And at eight times earnings, this stuff is factoring. a lot of negative news where the XPT still has, call it a rich multiple. So, Jeremy, I'm curious if you look at the individual stock performance, could you make an argument for, okay, it's the luxury names. These are all about fundamentals because what I hear you saying is really about a weak dollar,

more doveish fed here. Is there any fundamental case that company by company that would argue for Europe's continued outperformance? Well, for the currency itself, I think does help make Europe more competitive. You know, it's been a very weak currency so far. I mean, you walk around, you see a lot of the tourists traveling and coming here to spend. The streets are bustling, frankly. Trying to get to restaurants is packed here in London just this week.

So I do think there is, the currency being cheap actually makes a lot of those global companies more competitive. I do think just the sentiment turning is positive for U.S. investor buying European stocks. There's been negative outflows all year. some of that's teens in the last 30 days, you're seeing a little bit of inflows return. But I do think it's a matter of these cheap stocks, cheap currencies, momentum's turning, and a lot of that sort of negative news has been priced in and just things turning and fucking just a little bit more positively is why we like something like that, that DCH is the international high dividend.

It's a broad, diversified exposure. They're not betting on any one company's over 500 stocks in that basket. So it's sort of spreading the risk around to the broader national market. Well, and again, apropos that you're in London for this discussion. Very great. Very appropriate. Thanks very much to Jeremy Swartz with wisdom, trade. And how much fun to be in London when England is doing well in a World Cup, right? I mean, it must be absolutely insane there.

No wonder it's hard to get a seat at a restaurant. And coming up, a tech reset. Sector layoffs may not be done yet. They're expected to accelerate into year end. A lot of people worried about that. It's creating a new reality for investors to navigate. Plus, Halliburton, Enphase, and lithium play, all named 2023 top picks, but some might pose more risks than others. The trade, that trade in today's three-stock lunch.

And as we had to break, shares of MasterCard and lows trading in opposite directions after both boosted their buybacks. MasterCard by $9 billion, lows by $15 billion. Power Lunch. We'll be right back. Welcome back to Power Lunch. The labor market has been one of the bright spots for the economy this year. but there's one place where the skies have definitely turned cloudy, and that's in tech. According to Jeffries, over 210,000 tech workers have lost their jobs this year amid mounting fears of a recession.

Nearly all of the big players have been impacted with cuts and freezes coming from meta, Amazon, Microsoft, and others. Our next guest says these reductions are assigned the industry is facing a new reality, and there could be more cuts on the way. Let's bring in Brent Phil, an equity analyst at Jeffries. Brent, it's great to see you again, and perversely, does this make you positive on any of the years? stocks because it means they are cutting back expenses quite dramatically? I think it's the early signs of the time to get positive. Clearly, it's been a really tough 22. It's going to be a rough first half of 23. We think there are more job cuts underway. We obviously published this report last night just this morning, both Zora and IES and both in tech had over 10% layoffs.

So we're going to see more. It's going to continue to weave through the public and private market, probably more so even in the private market in the beginning of next year. So I don't think the pain is over. But I do think the good news is that companies that were running high growth and no lack of profitability are now switching. And you're seeing investors applaud that. You look at MongoDB and how well stock did in their focus on profitability. So I think we're in the the early stages of this, but I still think we have some more pain to go for attack. First half of the year is going to be a difficult backdrop of demand. How much of this, though, is correcting the excesses of the previous two years? Because it was Hewlett-Packard, I think, when I read about their recent job cuts, they said that they had hired 10,000 people over the previous year, which is like hundreds of people every day. Did companies over-expand?

100%, yes. I mean, we're dealing with the tech access. And I've said this repeatedly. The tech industry is notoriously never in front of the puck. And if you know how to ice skate, you know what I mean. It's just hard. You can't go where the puck is going. And they're always behind.

And so I think we're now playing catch up, the pandemic. Every tech company got on your show, told all the analysts, hey, like, this is the new reality. It's not a pull forward. And that all ended up not being true. And so I think all these companies are seeing a pull back in demand. And it doesn't matter if you're in cybersecurity, application, infrastructure, you're seeing the pull back. And so there's a tremendous amount of excess. And we've looked at, if you take Google, their headcount was up over 25% or close to 25%

in the last quarter. They're going to grow a high single digit next year per Wall Street estimates. So you can't have these headcount numbers growing faster than revenue. So I think ultimately there's a tremendous amount of excess. I mean, you look at Amazon. headcount, you look across the board, there's not one vendor to single out. They all were guilty. And we're going to see, we're going to see at a minimum of freeze and probably continue to see additional layoffs as we go into 23. That will restore the health of tech. That will restore the margin structures and is no longer about just growth. It is about responsible growth and profitability. And the only way you get there, because revenue is fading. The only thing you can

control is the bottom line. And that's headcount. Brent, let me ask you about what comes next, right? Because we're painting this whole industry. It's all obviously one tech industry with a broad brush. But each individual story here is so different, right? You look at Amazon. You know, that's a story about package deliveries during the pandemic.

Facebook is a story about an aging user base, not adapting to new technologies fast enough. You look at Twitter. I mean, that's its own bizarre, surreal universe, right? Each one of these has a different reason for the predicament that it's in. So how do you see them coming out of this series? of layoffs. Are they going to come out in a different order or at a different pace? Are we going to rank them differently on the other side of this? Yeah, I mean, it's a good point. There's tons of microclimates so we can't take a broad brush, but I think we can take a brush on the over-exuberance of tech in the last two years post the pandemic. That clearly was in. So I think there's no disputing that. What I think is going to happen coming out of this is they are going to be stronger companies. And one of your guests, Brad and Eltimeter said this, and I think he said this very well. I think we're going to come out of this and realize that we didn't need as many people doing this job.

We can be more efficient. You know, many have talked about salesource.com. You know, do you need as many sales and marketing people there to actually execute on the revenue goal? And I think in many of these companies, you can have 10% less capacity and still deliver on the same revenue number. And that just shows you how much excess there was. I mean, everyone in Silicon Valley knows this. that basically, you know, 20% of the developers do 80% of the work. So, you know, do you really need that many people?

It's just figuring out which 20% are doing it, though. That's the challenge for management, right? Brent, in all seriousness, what's your favorite stock right now before we let you go? Into next year, I like Intuit. It's got the exposure to both consumer tax and small business. Really great story in terms of focus on a buyback. And his post this year has had, you know, 10 plus years of double digit or single digit returns 80% of those years have been double digit. So really consistent story would be one name we'd focus on.

All right. Into it. Brett, thanks very much. We appreciate it. Fred Phil. You know, I get everything that Brent was saying, but your heart just breaks for these workers who are bracing for these layoffs. You know, heading into the end of the year, they know it's coming. The analysts know it's coming.

It's just going to be a very tough time inside some of these companies. Of course, not to mention. He always says that they're kind of a lagging place. are always behind the puck, but are they ahead of where the puck is coming for the rest of us? Right. That means, in this case, 50% of the anchors do 100% of the work on this show, so we know how that's going to play out. Further ahead, going south by southwest, the airline holding its investor day and reinstating its dividend after nearly three years as travel finally rebounds.

But the stock is moving lower today. The CEO is going to join us live. And first, Carvana crashing shares down 35% today as bankruptcy concerns grow, detail, with Power Lunch returns. Welcome back to Power Lunch and look at shares of Carvana. Continuing to collapse today, they're down 41% that brings them below $4 a share. This amid growing worries the company is headed for bankruptcy. Wed Bush downgrading the stock to underperform, dropping its price target to just a dollar today,

citing those risks. Separately, a new report today suggests Carvana's largest creditors have signed a pact to cooperate in negotiations with the company and prevent infighting among creditors in case of a restructuring. The stock payment is down 98% this year. If you go back to August 2021, Carvano is trading at $374 a share. It's incredible. 98%. I mean, it's just a total wipeout.

You wondered about these efforts to protect creditors from infighting. Is that even possible when you're sort of fighting over the remains after a wipeout of that scale? What's interesting about this as well, I don't know if you experienced this. Carvana was a real business, right? I saw plenty of people in the neighborhood around town. You'd see the trucks pull up there. Carvana would, it wasn't the famous Pets.com, you know, the business plan without a reality from the late 2000. Is this one with the automobile automobile vending machines that are everywhere?

I wonder what happens to those things because those are kind of cool. Yeah, it's, my 11-year-old son loves those. It's stunning because this was seen as disruptive technology that would emerge from the pandemic and reshape the way that, you know, auto sales happen. And to see this kind of about face is pretty shocking. Yeah, live and learn. Yep. Well, let's go to Kate Rooney now for the CNBC News Update. Hey, Kate. Hi, there, Amin. Here's what's happening at This hour, representatives of former President Trump have reportedly found more items marked classified and returned them to the FBI. The Washington Post reports at least two items were found in a storage unit used by Trump. It is not immediately clear what was in those items.

And Peru's Congress has voted overwhelmingly to remove the country's president. The lawmakers rejected President Castillo's order to dissolve the legislature. The country's military and police are also warning Castillo against violating the country. Constitution. And a handful of survivors of the attack on Pearl Harbor took part in the 81st anniversary of that event that pulled the U.S. into World War II. There were fewer centenarians than in previous years until now a dozen or more came from around the country for the Remembrance Day. Back to you. Kate, thank you for that. And ahead on Power Lunch, ESGs versus the GOP, Republicans releasing a game plan for taking on big asset firms like BlackRock, Vanguard, and State

Street over their commitment to ESG. Details on their plan next, Kelly. And plus, regardless of your stance on ESG, energy, both alternative and traditional, is getting some bullish calls on Wall Street today. We will trade them in three stock lunch. And 90 minutes left in the trading day. We want to get you caught up on the markets, stocks, bonds, commodities, and the GOP's roadmap to fight ESG. But let's get it all started with Bob Pisani over at the NYSE. Hey, Bob. Hey, Ma'am and great to see you. We are flat on the day, but a lot of movement. We've been listening in on the Goldman Sachs Financial Services Conference. This is the second day. A lot of companies reporting on Outlook for 2023. Big mover today, M&T Bank here down rather noticeably. That's not a typo there, almost 10%. They reported the net interest

income would be a little lower than expected, suggesting lower profitability. That stock is essentially at a low for the year, fifth, third. Also reported today, that's had a new low. Generally, I would describe the commentary there as cautious, but not necessarily pessimistic overall for the 2023 outlook elsewhere. Take a look at the homebuilders there moving to the upside right now. Toll Brother had earnings out. Orders down 60%. That was quite a move to the downside. The first quarter seems to be starting slowly, but they're buying back a lot of stock. And investors seem to be trying to position themselves for a better second half of 2023. That stock, those stocks are moving today. Remember, homebuilders were the first ones, the first group to turn down

early in January. They've turned around a little since bottoming in October. Finally, GameStop, we are waiting for earnings to come out. This stock has really collapsed in the last three days. It's probably down about 20% last three days. There's been reports of layoffs this week there. That may

help the company become profitable eventually. It's deeply unprofitable right now, but that's still a long way off here. We are at the lowest level since May on GameStop. So where are we? The markets, the sentiment's poor because there's recession concerns out there, but there's some very positive data points today. And the yields are down here. The

Mannheim used car index, lowest since August 2021. What does that mean? Well, inflation is maybe coming down a little bit. Unit labor costs lower than expected. That's another positive sign for inflation. Productivity was higher than expected. Well, that's positive overall for stocks. And finally, China removing a lot of the COVID testing and quarantine rules. Well, that's been a big drag on the commodity markets all year. So, Aeman, I have to say, some positive data points. and yields definitely have come down when those productivity numbers came out around 830. Amen, back to you. Bob, thanks.

Now over to the bond market where the three-month 10-year yield curve is on pace to close at a fresh 22-year inversion. Rick Santelli tracking the action. Rick, what's going on where you are? Yeah, pretty much every maturity you look at has an interesting story today. If you look at two-year no yields since May, excuse me, since September, Aymn, they're getting close to rolling over. And if you look at an intraday of 10, and this is interesting, look at the way yields started to drop right around 9 o'clock Eastern. Now, if we move ahead and look at a two-day chart, we could clearly see we saw a big drop when we traded under 3.5%.

But Bopasani just talked about better than expected third quarter final productivity and unit labor costs were lower. He's right. But yields on something better should have gone higher. They didn't. As a matter of fact, they dropped. Why did they drop? Because traders were expecting it to be better, and they really bought it incredibly quick and reversed their positions.

They were right on the trade, but wrong on how it turned out. And if you look at what's going on with the 10, they're on pace for the lowest yield close since mid-September, nearly three months. Boone yields are joining them, almost exactly the same pattern. And if you look at what you talked about at the very beginning, three months to tens, approaching minus 87 basis points, And you can see on this chart, we haven't been anywhere near there since early January, like the first few days of 2001.

And Bank of Canada raised for the sixth time, but they did hint that a pause may be in order. And I think that central banks are most likely going to move in much more unison. So some of these stories have to start meshing together a bit better. Amen, back to you. Rick, thanks. Get your stories straight, everybody. Oil is closing for the day. Crude prices falling 3% mostly on economic concerns.

That offset government data showing supplies fell by more than 5 million barrels last week. Week to date, crude prices are down about 10 percent, and RBOB falling today and actually going negative for the year. And how's this for a stat? The national average for gas across the country is just about the same as it was one year ago. That's before Russia invaded the Ukraine. Think about that. Now over to Washington, where Republicans have released a game plan for taking on Wall Street's commitment to ESG. Moy has the details of that strategy.

Halan. Hey, Amon, that's right. Republicans are calling the big three asset managers the new emperors because of the influence they wield over big corporations. In a new report, GOP staff at the Senate Banking Committee argue that BlackRock, State Street, and Vanguard aren't actually passive investors because they're trying to shape companies, climate or social policies. The report calls for more shareholder disclosures, more voting authority for retail investors

who hold shares in index funds or 401Ks, and more investigations by Congress. It states, each of these firms proudly uses the voting power gained from their investors' money to advance liberal social goals. And we've reached out to each of the three large asset managers for comment. BlackRock told us it respectfully disagrees with this report and warn that more regulations could raise the cost of investing. It said the conclusions are built on flawed premises

and risk harming millions of everyday investors that rely on mutual funds and ETS, to help them retire with dignity. Vanguard said it wants to work with Congress on proxy voting and transparency and said it leaves management decisions to companies and policy decisions to lawmakers. Now, Republicans are framing these proposals

as a new form of corporate accountability. So, Amon, it's likely to become one of the major themes in the new Congress. Back over to you. Elon, that's fascinating. I mean, you've heard rumblings about this all during the year, but now you see Republicans taking over, at least on the House side

on Capitol Hill, they have the power to put that into action. actual action. But how likely is any of this to become law? Because we learn last night there's going to be a 51 seat Democratic majority in the Senate. That seems like, you know, it would argue against any of this ever getting to Joe Biden's desk. Yeah. I mean, Amy, you know how Washington works, right? This is unlikely to become law over the next two years. But the reason why this is really important is because it's a Republican attempt to start turning some of their rhetoric into actual realities. What can Congress really do to push back on some of these ESG proposals. And so this is how you do it. You put out an idea. You vet it amongst your caucus.

You galvanize some public debate and you see what sticks so that if and when Republicans do end up controlling, maybe both chambers of Congress as well as the White House. They have a suite of policy proposals ready to go. So I expect that this is just the beginning of this effort. And you're going to hear a lot more to come. Elon, thanks. Yeah, they're definitely teeing it up for next time. And coming up on today's three-stock lunch menu, all energy. But we've got choices, no matter your taste, oil, solar, or lithium energy. That's coming up next. Still to come here, an exclusive interview with Southwest CEO Bob Jordan.

That stock is having its worst day since September as they hold their investor day. What's got the market so upset? Power lunch will be right back. Welcome back, everybody. It's time for our three-stock lunch, and today's menu is all energy. We're sipping on three bold analyst calls for 2023, starting with Halliburton, which JPM names as a top pick, saying there, They're bullish on U.S. shale and oil markets.

Wells Fargo naming Enphase, the solar company, a top-picking clean energy. They even call its growth recession-proof. And Piedmont lithium, Cowan calling it a best idea in line for a boost from EV battery demand. Here to help us trade all three is Lee Munson. He's president and CIO of portfolio wealth advisors. All right, Lee, welcome, sir. Let's kick things off with Halliburton. You a buyer?

Yeah, I would be a buyer on that, and I'll tell you what. First thing is, Pella Burton all year has just been going along with the XLE index, you know, it's along with the sector. So you have to think, if I'm going to buy an individual stock, what is going to make that outperform and compensate me versus just buying an ETF in the energy sector? And I think what JPMorgan was alerting us to is that half their earnings is really about OPEC and stuff outside the U.S. shale. And I think that if you're looking forward, where are we going to have more CAPEX? I agree. I think OPEC's going to have to do it. OPEC can't even get their quotas now.

So they're going to have to spend because they've been underspending for years and years and years. Do we really think that that's going to be the same amount of spending as a share? JPM doesn't think that. I tend to agree with that. So I think if you think that Cappex spending is going to happen, think COVID lockdowns and China are going to sell. You think that we're going to have a soft landing or energy demand. Halliborne is a good individual stock to try to jack up your energy data. All right.

So let's go to the next one, which is N-Phase. Do you like this idea that this is recession-proof? Is anything recession-proof? I love when analysts tell me. It's like a little bedtime tale, warm milk and cookies. You can't avoid the macro. You can't avoid the macro. Most of the, I have an N-phase micro-inverter.

It's fine. But you're betting that all these homeowners are still going to be doing solar. A lot of that solar panel stuff is financed. Rates are going to be up. But I get what they mean. Here's the thing with N-phase. You're buying it because supposedly they're going to double their capacity over the next 12 months. You mean they're going to have more stuff to sell more easily.

But the stock's trading that is 70 times next year's earnings. And I think that's rich. And plus, when you look at Wells, the price target's only 10% where it is now. That's not a lot of upside. I'd rather pick this up 10, 20% lower. And if you own this thing, take a little profits from this year. Just do a little profit taking. There's nothing wrong with paying tax or ringing the cash register.

It's done well. Nothing wrong with paying tax or ringing the cash register. How about the final name here? Piedmont Lithium. So I actually like Piedmont. If you're going to speculate in an individual stock versus just, you know, sleep at night in index fund, this has all the things, right? They don't make money now, but they're going to make money soon, like in the third quarter

of next year. So says Calin, right? They've got to get these permits from the Carolinas. They got to have electric vehicles not hit the macro headwinds, right? it's all about not avoiding the macro. But if you want to get in early on lithium, lithium that's sourced here in the United States, there's some big risks to this company, which I just said.

But if all things work out and you start having those lithium prices going up, I think this could be a big winner. But remember, out of the three stocks we talked about today, this is speculative. And think about it. You know, you can, the call suggests a 90% upside from here. So if you're looking for a little bit of spice in your portfolio, I would go for this one. A little bit of spice.

A little bit of spice in our drink. I'm feeling maybe a little bit woozy after those three stocks at our lunch. But Lee Munson, thank you for that. Really appreciate your insights here. And coming up is the clock ticking for TikTok here in the U.S. negotiations between TikTok and the U.S. government being delayed now. But could this ultimately lead to a ban of the app? We'll discuss that one next.

Welcome back to Power Lunch. Shares of Southwest Airlines are lower today, even though they just reinstated the dividend, which was suspended at the start of the pandemic. The stock is up about 22% this quarter as travel demand rebounds. And they're hosting their investor day over at the New York Stock Exchange. Southwest CEO Robert Jordan joins our Phil LeBow for an exclusive interview. Phil take it away. Thank you very much, Kelly. Bob, thanks for joining us.

Kelly, set that up pretty well. You reinstate your dividend. You give a very optimistic forecast for the fourth quarter in terms of revenue. growth. You're bullish on next year. And yet your stock is down almost 4% today. Where is the disconnect between the bullishness that you're presenting and what we're seeing from investors when it comes to not just Southwest, but airline stocks in general right now? You know, Phil, hey, first, it's great to be with you. I wish we are together in person, but we're not. So I think you're in Chicago. So good to see you. I'm not going to answer for the market in the really short term

term like a day. I'm just really proud that we are the first airline to be able to reinstate our dividend. And not only that, but reinstated in full. We've also got terrific momentum here in the fourth quarter. Our fourth quarter revenue trends are actually above the third, and we're going to take that momentum into 2023. And we've presented a really good 2023 plan today that actually has the opportunity to return to net income levels that were pre-pandemic like. So I'm really proud of our team and our people and what we are able to talk about it at our investor day. I saw your presentation and I hear your optimism, but the question remains for a lot of people, what happens if we see a recession? We've heard from some of your competitors and the executives

at those airlines saying, look, we see no slowdown in demand. From your perspective, if we see a recession in this country, even a mild one, what does that potentially do to your outlook for 2023. Well, I think step one is plan appropriately. So we always plan conservatively. Our forecasts are very tepid in terms of GDP. The demand, as we look forward, so look into December and January and February, looks really strong. So our demand trends have not changed. They are very strong. We've got a strong fuel hedge, 50% for 2023. That is certainly very helpful. And then there's a chance that given constraints in the industry, primarily pilot, hiring and we're not having any trouble hiring pilots and selfless airlines but i think pilot hiring

might be a constraint and that could constrain the industry capacity but step one is plan appropriately and we are planning for tepid growth in 2023 in terms of tepid growth for the economy overall correct for the economy overall yeah just planning for tepid GDP uh the other thing really is most of our capacity next year which is going to be roughly 15 percent growth is going to go into markets that we We were already in pre-pandemic. We are just restoring the 2019 network, which means that these are flights that customers were already taking. We're just adding them back.

And so that means that capacity comes on at much lower levels of risk. And we're looking forward to having our network fully restored to pre-pandemic levels here at the end of 2023. Bob, you're trimming the number of 737 maxes that you expect to take delivery of next year from Boeing. because there is this lingering question that is out there about whether or not the certification of the 737 Max 7, of which you've got many on order with Boeing, if there's going to be a waiver instituted by Congress, or if there's going to have to be an entirely new process, which brings up the question about the future of the Max 7. What's your outlook in terms of, do you think that this can get resolved in Washington by the end of the year?

Well, first, our Boeing delivery plan has moved around a lot here in 22 and then in 23 and probably likely into 24. A lot of that is just supply chain driven. It's not just the max 7 certification issues. They're having supply chain issues, engine with GE, just like every other company is suffering. But on the max 7, again, I don't want to speak for Boeing, but I'm comfortable that they will get the extension. We will get the aircraft certified. The max 8 is a terrific aircraft. I'm convinced the max 7 is also a terrific aircraft.

So we will get it certified if I was guessing here in 2023. It takes us about six months to put that aircraft into service after the certification. So there's a good chance that in my guess we don't fly one in 2023, which just means that they will push to 2024. But I think we ultimately get the max 7 certified and fly. and I'm looking forward to that. Bob, it's Amon Javers here at CNBC headquarters. Good to see you.

Thanks for doing this. You flipped to this issue just a second ago in terms of pilot hiring. We're getting some headlines crossing the wires now from your investor day saying that you guys are going to be able to hire 2100 pilots next year. That's a huge number. I fly all the time and it seems like everybody is having difficulty out there hiring pilots. So I'm wondering if you can tell us where those 2100 pilots are going to come from. Do you have some kind of secret pipeline that the other airlines don't have? We have no secret pipeline, but if you know a pilot, please send themselves with airlines.

But I think there's a little confusion, which is we are constrained, but our constraint is our training capacity. So our classrooms are full for pilots. Our simulators are full for pilots. Actually, we take three more simulators here that will go online February 1st of next year. So we are not having trouble hiring pilots. We're getting all the pilots that we can take and train. Our constraint is really training capacity. Now, that's different than is the overall industry constrained.

I think if you ask that question to maybe regional carriers as an example, the story might be different. But we are not having trouble hiring pilots at Southwest Airlines. A lot of those are coming from regional, some of those are coming from military, some from corporate as typical. but we are not having trouble hiring pilots at Southwest Airlines. Bob, it's Phil again. One last quick question. What's the status of negotiations with the pilots? I know they're requesting federal mediation.

What's your sense in terms of potentially getting a deal maybe locked in by halfway through next year? Well, first, negotiations are always hard. I'm glad that we are in the midst of closing out several of them, like IM 142 with our customer service agent. So we just got to deal a few days ago with our flight instructors, TW557. But our Swapa, our pilots and TW, our flight attendants, those are large contracts that are open. They're in mediation.

I'm very encouraged because we've got a really good mediator that no Southwest Airlines, no Swapa. There are negotiating nearly every single week working through sections. So I'm optimistic that we will make a lot of progress here. And we will get this done. We have terrific people. We've always paid great. We're going to pay great. And we will get these contracts done.

Bob Jordan, CEO of Southwest Airlines. Thank you, Bob, for joining us today from the New York Stock Exchange. And yes, next time we talk, I'm sure that it will be in person. Amon and Kelly, I will send it back to you on a day where Southwest, the stock is down. But if you listen to their presentation, I mean, pretty bullish regarding their expectations for next year. Yeah, and huge hiring numbers as well. That really jumped out. Phil, thank you. Our thanks to Bob as well.

Let's get to a few stories now that caught our attention today. National Security concerns are reportedly delaying a U.S. TikTok national security deal. According to the Wall Street Journal, the government's concerns include how TikTok could share information related to its video recommendation algorithm. Lawmakers have been vocal about their security concerns. Republicans in the House are expected to take a close look at the apps ties to China. Wall Street is already looking ahead to which companies would benefit from a TikTok ban in the U.S.

Meta, for instance, Bank of America and Cowan both say MetaSnap and YouTube could be the biggest beneficiaries, Amen. I mean, the question here is, what do you do, right? I mean, examining TikTok's ties to China. I mean, we know what TikTok ties to China are. The question is if you want an app operating in the United States, which has that kind of surveillance capability and also that kind of propaganda capability for an entire population of young people. And I speak as a parent of teenagers who are on TikTok nearly constantly. I was on a trip with my daughter this weekend, and I participated in some TikTok.

videos. But you wonder, as the Chinese aggregate all that, what's the United States government going to do? It's sort of a binary question. You ban it or you don't, right? The best way to solve this would be if Instagram ramps up reels as, I've been messing around with it. It is not as good as TikTok in kind of sucking you into that algorithm, getting the content out there and really making it an addictive experience. If they can make that better, they could cannibalize TikTok as it is as we stay and maybe avoid the issue. But if not, then they're going to have to wait until there's an outright ban, I think. Yeah, absolutely. Another thing I'm watching is Apple, the tech giant announcing it's stepping up, its security, with a new encryption system

to ward off hackers and better protect ICloud data. The expanded end-to-end encryption is an optional feature called advanced data protection. It would make most iCloud data secure in the event of a massive hack. And it would also prevent Apple from being able to provide data in response to law enforcement requests. And this is a huge issue, Kelly. The FBI has had a problem with this encryption at Apple for years. They asked them not to do it. Apple sort of shelved the issue for a long time. Now they're coming out and doing the very thing that the FBI has said they don't want to do because it's going to block access to a treasure trove of information in all kinds of cases. No, it's a huge problem, it seems. I can't imagine that investors, they just want us to keep

using our iPhones with confidence, but it's a massive challenge for law enforcement. And once you do encrypt all of that, you're going to see the situation where the FBI is going to be holding up at press conferences, it's going to be holding up iPhones and saying we can't get into this phone from this terrorist, this child molester, this other kind of bad guy, and voicing frustration around that, that's potential headline blowback for Apple. I'm sure they've weighed all that, though. This has been going on for years. Yeah, but it's not over yet, is it? It's not. Amen, it's been a pleasure. Thank you so much. It's so great to be here in person. Thanks for watching Power Lunch, everybody.