Power Lunch - From ‘TINA’ to ‘TARA’, buy-the-dip backfires and a Stock Draft update 9/26/22

Episode Date: September 26, 2022

From TINA – there is no alternative – to TARA – there are reasonable alternatives. You just need to know where in the bond market to look to find the biggest rewards with the least amount of risk. Plus, why the popular buy-the-dip trade is backfiring for investors. And, with the bears in control and football season underway, we’re revisiting the Stock Draft. Stephanie Link joins is to discuss her picks, Meta and Chevron, and the one stock she would buy now. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody, along with Contessa Brewer. I'm Tyler Matheson. Here's what's ahead this hour from Tina to Tara. There are reasonable alternatives to stocks. You just need to know where in the bond market to look to find the biggest rewards with the least amount of risk, and we'll show you where they are. And the popular buy-the-dip trade, remember how that always worked over the last few years? Well, it's backfiring now, but it's not stopping investors from pouring in this hour a strategy. And stock. picks to help ride out. Contessa, the volatility. Hello, Tyler. Hello, everybody. Yields rising. The dollar surging. Stocks have given up all of their earlier gain. So much for that rebound. The Dow down as much as 429. But now you can see it down 1 and a third percent. The S&P 500 off 1.2 percent. And you've got the NASDAQ composite down a little more than half a percent. The NASDAQ was up 1.4 percent at its session high. Let's now look at the treasuries, the yield on the two-year at its high. At its high, highest level since 2007 right now, yielding 4.3.45% the yield on the 10-year, hitting a session high of 3.9%, the highest level since 2010.

And the dollar index at a multi-decade high, the British pound falling to a record low against the greenback. They're the dollar index, up 0.92%. Tyler. All right. Thanks very much. Contessa, let's see here where we are, because we don't have the prompter. The current macro environment is difficult to figure out, but our next guest says you got to respect it, tread a little bit carefully, and stay fully invested. For more, let's welcome in Jason Ware. He's a partner in CIO at Albion Financial. Jason, good as always to see it. See you. You say recession is coming in 23, but don't get too grim about it. Yeah, good to be with you, Tyler. That's exactly right. You know, I think for long-term investors, you've got to think and act accordingly. And that is you want to own good companies, you want to be diversified, you want to understand what your time horizon is, what your risk profile is, what your financial goals are. And if you're a long-term investor, you know, a recession in 2023 is not going to or should not kick you off of that track. However, you do have to respect the macro environment. We have a recession coming. We have a Fed that is continuing to push forward on raising interest rates. We have inflation that has been stubborn and problematic. And until those things change, it's going to be a volatile ride with a downside.

bias in the coming months. So you want to adjust the portfolio to optimize for behavior. The smoother the ride, the more likely you are to stay the course and reach those longer term goals with the portfolio. So how do I adjust my portfolio with those three big things? I mean, I look at three things here and they couldn't get more ominous. One, inflation and rising rates. Two, the prospect of a recession. Three, war in Europe. Right. Yeah. I mean, that's why the market has been tumultuous this year, and that's why it's likely to remain volatile for the near term. And so I think the way that you can hide out, I think, is an overused term on Wall Street. So we'll say the way that you can position yourself for the next 12 months. So you can respect that longer term is to own, first of all,

quality. You want to have great companies in the portfolio that have good cash flow profiles, great balance sheets, wide moats, good management teams. You can find that across mega-cap tech. You can find that in large-cap healthcare. You can find that in large-cap consumer growth stories. also, Tyler, tilt the portfolio defensive in respect of the macro over the near term, and that is low volatility is a factor. It's one of the best places you can hide out to protect the downside, i.e. remove beta from the portfolio, relative performance of the portfolio as things get a little bit more choppy here. We're doing that with LVHD. It is a diversified low volatility ETF that also pays an above market dividend around 3%. All right, Jason, thanks very much. Jason, Jason, we appreciate your time today and your investment ideas. to do well. Thank you. We'll see you soon.

Oh, yes, we investors. We are fickle lovers. We are moving from Tina to Tara. You know, Tina, there is no alternative. Now there's Tara. There are reasonable alternatives. For one thing, look at fixed income. Bond yields, as I just told you spiking, our next guest is betting

big on short-term yields as the Fed continues to raise rates. Maria Shrin is managing partner at Circle Wealth Management. I never thought I would be sitting here talking about how bonds might be sexy, but Maria, right now, it looks like they're very attractive. Agree. After 15 years of having no income in the word fixed income, income is back. And you don't

have to go out too far to get an attractive return in fixed income right now. Okay, so where are you looking specifically? What's appealing to you if you want to get some attractive returns? Well, we are liking every area of one to two years, including treasuries, where you can get at 4.1 percent, high yield, where if you go out three to four years, you're going to be able to get close to 7 percent. Bank loans, where you can stay basically inside of a year and you're getting about 7 percent. And investment-grade corporates, you can get close to 5 percent in two years. So regardless of where you are based on your tax situation, staying short, you can find some really attractive alternatives to stocks right now.

Can you talk a little bit about the corporate bonds? What are you looking for in quality corporate bonds? Are there certain criteria? Yes. We actually don't really like high-quality corporate bonds right now because they really trade on interest rates. And at the end of the day, if credit starts to widen because there's concerns of a recession, you might end up seeing the high-quality bonds get hurt the most. So in essence, we really do like corporates, but we'd prefer to be. in the high yield part of the market, especially the higher quality, triple Bs, double Bs, where in essence, at that level,

you're still getting paid quite a bid and the risk of credit is not as big. If I want to play it safe, and I look at the two-year treasury note, and I see it at four-point whatever it is, 3%, something like that, I can't remember. 4.3%. And I go, that's a pretty good return for two years.

I'd like to lock that up. Would you recommend me doing that, or do you think there's still a risk that that yield could go higher and that I would lose my principal value? If I'm just going to buy and hold that two-year note, I don't care what the principal value does intermediately. That's right. I mean, there's an opportunity cost, but you're right. If you're going to buy and hold, I actually like the one more than the two-year because you can lock 4.1 percent and stay in a short of a year. So either one or two years, if you're not going to sell, they represent very good very good. value at this point. Yeah. So a one-year t-note would be a good place to go, you think?

Yes, we like that very much. And even inside of a year, you can still get almost 4% by being out six months. So short, high-quality treasuries represent a very good place for nervous investors who want to have flexibility and the ability to perhaps pivot as markets go lower and redeploy cash. And what about the Fed? I mean, there's all sorts of speculation. right now about whether we're going to see them slow down on these rising rates or whether they're just going to go full steam ahead. What's your take? I think they're going to go full steam ahead. The Fed is not going to stop until wages slow down. The risk that central banks, over 80 percent of the major central banks are increasing rates because they cannot afford to have

inflation expectations get out of control. So I think they're going to continue and they're going to continue aggressively until they see labor cool off. Maria Strind, it's great of you to join us. Thank you so much. Thank you. Thank you for having me. All righty, coming up, bad time to buy the dip why this popular strategy is backfiring and what it says about the direction of the market plus a stock draft update.

Stephanie Link's meta pick is down more than 30% since we had the draft a few months back. Chevron down 12%. She's going to talk about her picks and give us another name to consider if she were picking. right now. But first, the real estate sector, the biggest lagger today, led lower by Prologis, Duke Realty, Ventus, and Kimco. Real estate, also the worst performing sector so far in September. More power to you in two. All right there, you see the Dow down about 300 points, it down 400 earlier. Now, let's look at Planet Fitness outperforming as Raymond James upgrades the stock to Strong Buy for market. Perform. Analyst call its business model resilient

and recession resistance, resistant arguing that it has no interest rate risk and few near-term debt maturities. Of the 18 analysts tracked by FACSET, almost 90% have it a buy. That's Planet Fitness, according to Raymond James. It trades around 38% below its average analyst bright target and 43% off its all-time high

from last November. And there you see Planet Fitness as people return to gyms. The flip side of that is obviously the, gain of Planet Fitness, the pain of Peloton. Yeah, it's so interesting the way that we've seen Peloton stock just crumble as people have decided to leave their attics in their basements and return to a more social setting for their fitness. And Planet Fitness is an interesting business model because they charge so little.

You know, it's a no-frills gym for those who don't know it. But you go in and have a very modest monthly fee, which people forget about. Probably more modest than what I pay for my Peloton fee. I bet. Yeah, at home. For sure, at home. Right. But I like my Peloton. That's okay.

I like it. It's all right. All right. During a big sell-offs, retail investors tend to buy the dip, but this year's extended downturn has put a dent in that popular strategy, making 2022 the worst year for buying stock market dips since 1931, I believe. CNBC contributor Gunnijan Banerjee of the Wall Street Journal is out with a new piece examining the age-old strategy, which remains popular despite recent losses and she joins us now. So are people still chasing the dips, Gunjan?

It looks like they are by the dip. One of the most popular strategies of the past few years and even since the last financial crisis has retained its popularity this year during this month-long sell-off that has now dragged the S&P 500 down more than 20%. individual investors do seem to be hanging on. They do seem to be buying more when the S&P 500 declines than when it's rising, though many are being tested by this incredible downturn. And it's been painful to say the least. Well, it certainly has been. I mean, I think people got accustomed to or maybe spoiled by the idea that whenever the stock market came, went down temporarily,

it was pretty soon going to, over the last decade, it was pretty soon going to snap back, and then go higher than it was, then it was going to go higher than it was. That works until it doesn't. And right now, it doesn't seem to be working because the steps are not going higher. The steps seem to be going lower as we broke last week through those June lows.

That's right. You know, it's been the worst year for buying the stock market dip since 1931, the second worst year on record. And look, the past few years, it kind of just seemed like stocks would keep going up and up and up. And so many people just felt really rich, right? Because they did buy on those dips. Then the stock market shot up immediately. And one individual investor I spoke with said,

look, I got greedy. I thought it would be so easy to turn my brokerage account into a 100K brokerage account. I thought I'd be able to pay for my daughter's college education through the stock market, shielding them from loans, because it just seems so easy for. a few years. And that has not been the environment at all. And I think just zooming out, this shows you how much the market has changed this year with higher bond yields and tumbling stock prices. You know, I just heard from a source this weekend, the same thing. Looking at these historic inflows of equities and especially these retail investors, non-professionals, going in and buying the dips. But conventional wisdom, as Tyler pointed out, is what they're going by. They

watch the NBC all day. This has been the message that they're hearing. Are you starting to see cracks in the theories that there might be some room for some nervousness over the stock market and where it's heading? There's definitely a lot of nervousness out there, especially among the individual investors I spoke with. And many realized, look, these trades that I piled into, for example, day trading, buying the ARC innovation ETA. A lot of those trades that worked, the past two years are no longer working. So even though we are seeing individual investors, you know, buy the dip to some degree this year, that doesn't mean they're not anxious about it. That doesn't mean there hasn't been other shifts in behavior. For example, intradate trading

among individual investors recently hit the lowest level since January 2020 before the onset of the pandemic that drew millions of new investors into market. We just showed the inflows into the... People put. People Piling into the arc, people pile net inflows into equity funds are actually up for much of the rising times in the market. The inflows were actually negative. They weren't inflows. They were. And I wish Ron and Sonal were here.

Maybe you know it, Gunjan, as well. But remember, I happily only remember a very little part of this, between 1929, when the market cracked in 1929, it did not get above its pre, crash high for something like 20 years until 1954 or something like that was a year I was born. So I'm telling you, these downturns can last a long, long time. And it is not necessarily a given that the market is going to go back and take out the all-time high that we set at the first of this year. It seems downright impossible to say right now and to even predict right now. But I think that is one big shift this year, right?

where suddenly investors have somewhere else to place their cash. Take a look at the two-year treasury yield, the 10-year treasury yield, right? Like, ultra-safe government bonds look attractive for the first time in years. Real yields are edging higher. So, you know, it really puts a dent in that TINA trade that carried markets the past few years. So no one knows how long this sell-off is going to last, but one thing is for sure. It's incredibly different from other sell-offs that we've had. recent years. Well, the other thing that we have seen is this really frothy excitement over

cryptos, over meme stocks. And if you're a new investor, and that's what you're paying attention to, boy, have you been sorely disappointed in the last couple months? Are you getting the sense now when you talk to these retail investors that they're looking at some other big names? I mean, meta is way off of its year-to-date highs. If you or, you know, it's a year-to-date lows, If you're looking at some of these bigger names that might be familiar to retail investors, are they starting to see the Amazons of the world, the metas of the world as safe bets? One thing that's really fascinating is that the Fang trade has really started to show cracks this year, right? Those stocks are underperforming the broader market.

One trend I've observed, and that's come up repeatedly in my conversations with individual investors, is that they still tend to hang on to those bank stocks. They love big technology stocks, despite the fact that many institutional investors and the broader market has kind of soured on those names. And another fascinating aspect is that even though, you know, mean stocks have tumbled this year, that frothiness isn't there,

it does seem to come back from time to time. For example, last Wednesday, the ARC innovation ETF recorded its biggest one day of inflows since June or July, you know, while the broader market was tumbling. So I think some of those old habits are dying hard right now. Good, John Bannergy of the Wall Street Journal. So good to have you here. Thank you.

Thank you. After the break, Macau Casino stocks are surging today. China is ready to start, permit, tour groups back into the gambling hub for the first time in nearly three years. We'll run through these moves. That's next. But it's not a straight flush for China. the country facing a major blow as Apple moves manufacturing to India. Details on that story.

And before the break, a reminder, CNBC's delivering alpha returns in person this week. Yay, you can scan the QR code on your screen or go to CNBC Events.com if you're listening on the radio and register there. We will be right back. All right, Macau Casino stocks moving sharply higher today. After the government of the gambling mecca announce a plan to resume, issuing individual visas electronically and easing COVID restrictions. There you're seeing it. Look at Melco.

I mean, this is the Hong Kong-based company traded here, ADR, up 30%. Las Vegas stands up 12%. You've got Wynn up 12.5% as well. MGM, up half a percentage point. Remember, MGM relies far less heavily on its revenue from Macau than the others. For the first eight months of this year, official figures show tourism off 86% from pre-pandemic levels. But now we're getting this announcement,

the loosening of COVID travel requirements. And the top tourism official says he anticipates Macau could see between 20,000 and 40,000 visitors daily as soon as October 1st, which is a holiday there. Pre-pandemic levels, though, Tyler, the daily average was 113,000 visitors. So you're seeing, like, great,

you're making progress off what it was earlier this year when you had visitations. But you're still a third of where you were. There is just no. clear-cut path forward from Macau until they open these restrictions. And right now, they're still maintaining the quarantine requirements for international visitors. They have to go and stay for a week in hotels to quarantine. How big a convention and business destination is Macau?

Not a lot, but they're trying to change that. Not as much as Las Vegas. Las Vegas is a convention. Absolutely. And we've seen Singapore become a very hot destination for those, they call it, Mice. It's like these big expos and big conventions and meetings. What you're seeing, though, is Macau's government says, we need to diversify the economy beyond gambling.

We need to have more here so that it's not just reliant on gambling. And so one way they're doing that is starting to look at the convention and meeting space as an opportunity. They're starting to look at are there other entertainment possibilities? Should there be a theme park in Macau? So that when people come like Las Vegas, yes, grandma can gamble, but you also have things for families with children to do and a more diversified economy. Interesting stuff. Let's get to Bertha Coombs now. She's got our CNBC news update. Hi, Bertha. Hi, Contessa. Here's what's happening at this hour. Former U.S. Secretary security contractor, Edward Snowden, has been granted Russian citizenship.

Snowden has been living in Russia since 2013 to escape prosecution. in the U.S. for having leaked secrets about American surveillance programs. In Rio de Janeiro, three people have died during a police operation against drug gangs. Traffic on some main roads ground to a halt as commuters reportedly left their cars to take cover from bullets flying overhead. And back here at the White House, President Biden welcomed the Atlanta Braves to celebrate their World Series win from last year. He called their come from behind victory, one of history's greatest turnarounds.

You made the playoffs and beat the Bra, the Brewers and Dodgers, and then you beat the asterers to win it all, forever known as the upset Kings of October. Well, looks like they may be headed back to the playoffs for another chance at maybe winning another series. Is that over to you, Tyler? Yeah, they're extremely good. They've been neck and neck with the Mets. all summer long. The Mets have had them by about a game, but we shall see. They'll both be in the playoffs. Right ahead on Power Lunch, the energy trade losing some steam. That gas falls to its lowest level since mid-July, down 25% this month on recession fears. And big oil firms like

Chevron losing their gains from earlier this year. That name, along with META, dragging down Stephanie Links P. Yeah, you know, it's got to be kind of a bummer for Stephanie. Her 22 stock draft portfolio is lower. We'll get an other. update on where our draft team stand amid market volatility. David Robinson is currently in the lead, thanks to Chipotle and Rivian. We'll be right back. Well, 90 minutes left in the trading day, we want to get you cut up on the markets and stocks, bonds, commodities, and the month-long plunge in natural gas prices.

But let's begin with Bob Pisani at the New York Stock Exchange, where stocks remain under pressure. Hi, Bob. And we were doing fine until about noon, and that's when the 10-year yield, in fact, all the Treasury yields started moving to the upside. 20 basis points today in the 10-year, boy, that's enough to really hurt stocks here. So two sectors are hitting new lows here, expansion of new lows like we saw on Friday. Financials and technology, there's Citigroup at a new low, some of the regional, super-regionals like U.S. Bank Corp. And the credit cards, MasterCard Visa. Look at Visa.

It's about to crack 180. Visa was 205, 206, about two weeks ago. So we're talking about 12 or 13 percent down in Visa in just the last 12, 13 days. The other big group is Big Cap Tech hitting new lows. Intel is almost every day a new low for a couple of weeks now. But advanced micro, service now, meta, Adobe, Oracle. The list is getting longer here, similar to what happened on Friday. One group that's been sitting in the new low list for weeks now is the transports, of course, on the FedEx news a couple of weeks ago. But UPS, Southwest, Norfolk, Southern, CSX, all sitting at 52-week lows. Are there any bright spots out there?

any immortal words of John Belushi. If I were you, I'd start drinking heavily. The beverages are doing well today. Monsters up, curigs up, Starbucks up, Constellation up. Not listed there. Brown Foreman, that's Jack Daniels. And I think that Contessa is what a lot of people down here are starting to turn to. Coffee in the morning and booze at night. I got it, Bob. Thank you. Let's go to the bond market now where the yield on the two year is trading at its highest level since 2007, near 4.3 percent yield. at this point. The 10-year yield, look at this session high right now, of 3.9%. It has not closed at 4% or more since October of 2008. And oil closing lower for the day. It's now up just 2% this year. It was up 71% year-to-date in March. Pippa Stevens is at the CNBC Commodity Desk for us now. Hi, Pippa. Hey, contest, and what a turnaround it's been for oil, sinking once again today with WTI hitting its lowest level since January 4th, and this is after the contract posted a fourth straight week of losses, the longest weekly losing streak of the year. Now, the major driver of today's action is the strengthening dollar. This impacts oil since it's priced in dollars, making it more expensive

for foreign buyers. Trading for Mowanda said the currency volatility isn't likely to slow anytime soon, which means oil will be on a, quote, very long roller coaster ride. Let's check on closing prices here, WTI down 2.5% at 7669. Brand crew right around $84 for a loss of 2.5%. Energy stocks are falling today alongside the rest of the market. The sector is down about 2.1 percent, but it is holding up better than some other groups. Hess, Halliburton and Baker Hughes are the biggest losers. Now turning to natural gas, it is in the green and well off the worst levels of the day, which saw it down more than 4%. Over in Europe, a price. falling today and now down more than 40% in the last month.

Contessa, that's a big decline. Okay, thank you for that, Pippa. For more on the reversal in the gas market and whether further declines are ahead, let's bring in Bill Perkins with Skylar Capital Management, CEO, and head trader. Bill, it's good to see you today. What's behind the decline? Well, I think basically global macro, you have the Fed basically dropping the hammer on assets. And if you're going to slow down industry, if you're going to slow down industry, if you're going to slow down the economy, you're going to have less energy consumption. We had a very tight market. Supply was growing. There was concerned would we have enough in storage for the winter?

And those concerns have eased a bit, and that led to a sell-off. Okay. So if average monthly production this year has exceeded all other years, how is demand matching up with that? I mean, are we going to see lower prices here in the United States? normally we use the natural gas that we produce. Are we going to see that lead to lower heating bills? You would think so, except we also export a lot of gas to our neighbors in Europe who need it. There's a supply disruption due to a little thing called the Ukrainian war going on right now. And so that is where we see a commensurate export increase with our increase in supply.

So we're kind of tightly balanced in any kind of upsetting of the apple cart one way or the other, will lead to wild price swings. So we were pretty high in prices. And then we saw that demand was starting to back off and prices have come much, much further down to earth. We're heading into the winter. Yeah. Go ahead. I was going to say, we're heading into winter, so you have to be careful. The mean and the median, they're wildly divergent. That means that the average price is very high, but the favorite price is lower. So we have to price in the case where we have a cold winter and prices go to $50. We are really getting into the height of the Atlantic hurricane season.

We've started to see a lot more activity, keeping an eye on Ian heading toward Florida. Give me a sense of how that might influence natural gas and what we're seeing with the price declines. In the old days, a hurricane was a bullish event because it would knock off more supply than demand to kill. Nowadays, a hurricane in the Gulf is a decidedly bearish impact. It destroys demand. We have power outages. And we also stop the exporting of LNG. So if we had it further in the Gulf, it'd be very bearish. Right now, it's mildly bearish by knocking off some of the Florida demand for some period of time and cooling down the temperatures. So, you know, things have changed in the last 10 years. So any type of hurricane in the Gulf is bearish U.S. generally and bullish Europe. I'm going to ask maybe a naive question here, Bill.

If I'm a consumer in the United States or Europe, and I would like to see prices come down so that I'm not walloped when my heating bills come out this winter or my driving charges go down, should I be rooting for a recession that would take some demand out of the equation? I think it depends on how stable your job is in that recession. I mean, it's kind of hard to root for economic pain. But what you really should be rooting for is investment in supply and growth of supply for stable prices. A recession would be nice in the short term, but who you're going to go on vacation with when your neighbors are out of work? But obviously, increasing supply is going to run up against, at least domestically and potentially globally, against those who oppose the idea of expanding the use of fossil fuels. Yeah, it's a great time to be a traitor, maybe not such a great.

time to be a consumer because you have so much opposition to anything that increases the stability of prices, mainly more supply. Right. Are there particular companies, are there particular stocks in this space that you like, Bill? I really like distribution a little bit for midstream companies. Energy transfer might be one of them. I have to put a disclaimer. I'm personally long energy transfer.

I like it because they have long-term fixed contracts, gas needs to be moved through the pipes, oil needs to be moved through the pipes, and this is not going away for some time. They're not as exposed to the wild price fluctuations on a day-to-day basis, maybe 10% of their earnings are. The rest of it is a fee-based business. And as we've grown the Permian, as we bring on new supply, it has to come somewhere and it has to be transported. So I really like companies that are a little bit more stable and insulated from the volatility. I'm already in the volatility game, so why do I need to, you know, I'm already, I'm already chopping up in the most volatile commodity there is. Tap dancing back and forth. Yeah. You know, rooting for a recession might be like rooting for war. The profiteers do it. You know, like you might root for it if you personally are going to come out on top. Yeah.

To your point, Tyler. Bill Perkins, thank you so much. Appreciate you being here. All right. Thank you, Bill. Up next, King Dollar versus the Tech Titans, Mega Cap Tech firms draw a huge. revenues from overseas, so what impact is the higher dollar having on their businesses? We'll discuss that next.

And as we head to the break, throughout Hispanic Heritage Month, we celebrate our CNBC teammates and contributors. Here is CNBC Associate Producer Karina Hernandez. I am a first generation Mexican-American, and I am so proud of that. The reason I am where I am today is because of the sacrifices my parents made to move to this country to provide a better future for my sister and me. It's those sacrifices that give me the drive to excel in my career and make their sacrifices worth it.

My advice to other Latinos is Echaleganas, which means to give it all you've got and don't wait for others to take a chance on you. Put yourself out there and take a chance on yourself first. Welcome back to Power Lunch. Costco is actually in positive territory today, despite a price target cut by analysts over at Raymond James. Now, the firm did reiterate a buy rating on the stock, but those gains come as some investors and analysts speculate over and when the wholesale retailer will raise its membership

fees with analysts at Guggenheim predicting it will come sometime in the spring. Costco chief financial officer Richard Galante said on the earnings call just this last week that it's a question of when, not if the club will raise membership prices. Nonetheless, those Costco shares up nearly 3% of the day. Tie back over to you. All right, Dom, good to have you with us. Thank you, sir. Tech stocks coming off their worst two-week stretch since the pandemic and the strengthening

dollar, causing some tech titans to make changes. Steve Kovac has a breakdown of the moves as we head into the fourth quarter. Steve, a lot of these big tech companies that do a lot of business overseas, they could get nicked a little bit. Yeah, that's right, Tyler. So they have a huge revenue exposure overseas. And so let's break them down name by name here. Starting with Apple, we already know how Apple's combating these foreign exchange headwinds. They've raised prices on a lot of their products. The new iPhone 14 line in the in the EU, if you want to buy one, it's going to cost a hundred euro more than last year's iPhone 13 costs. And on the app store front, starting next month, apps are going to get more expensive. All of this is the combat for an exchange inflation.

Then meta, meta, also raising prices on its virtual reality headsets and the CFO warning on earnings last last earnings report that look, revenue is going to get hit in its metaverse division by about 6% or so because of these headwinds. On the other hand, already saw its earnings whacked a bit last quarter because of Ford Exchange headwinds, shaving six cents off of EPS, Tyler, and it's only expected to get worse as the year continues. Although CFO, Amy Hood of Microsoft saying things will improve in the first half of calendar next year, 2023. On the Amazon front in Alphabet, a little bit more of mixed signals from those two names. There is some downturn on the advertising side, but Amazon saying it is able to protect its profits a little better. but the foreign exchange is going to hurt revenue.

And by the way, we're just on the cusp of earnings season, Tyler. So we're going to get a lot more data of what these companies are seeing just in a few weeks. Let's go ahead, please. Well, Steve, I'm just curious whether it's mostly the hits are coming from what it costs consumers internationally to buy these products and services from U.S. companies, or are there other ways that the currency is coming into play? Yeah, well, the other ways are part of it is with the app store. So, for example, with Apple, they're going to have to increase the prices there. So that's where that math comes in.

But what's going to be really interesting to me, contest, is how much pricing power do these companies have going into potentially a global recession? Are they going to be able to raise prices? We're going to find out some more color from that soon. Let's talk a little more about Apple, different direction here, now making the iPhone 14 in India. It's really, it's not that they haven't made phones in India before, but this is, am I? correct, one of the first times, if not the first time, they've made one of their brand new signature products in that country. Yeah, it's a little bit of a mixed bag here, Tyler. So I was with you guys just this spring saying, hey, look, they're building the new iPhone 13 out in India,

a good six to nine months after they first released it. Now they're doing it just a couple weeks after. So this is a significant move from Apple showing, look, we have got things in place in India to the point where we can almost simultaneously produce a brand, new iPhone line at the same time we do it in China. And as we know, this helps protect them a lot from those COVID restrictions that we've been seeing throughout the country. And also, look, Tim Cook and Apple, they've been looking at India for the better part of a decade now, trying to really figure out how to make that market work for them. So many Indians can't afford iPhones. But what they have discovered is they can do the production there cheaply and on par with China. So that's

a significant move throughout Apple supply chain to help them diversify. So they're not so reliant on the whims of China. That sounds like a smart move, which Apple does quite often. Steve, thank you very much. Steve Kovac. We appreciate it. All right, still to come, a special edition of three stock lunch. We'll check in on the 2022 CNBC Stock Draft. Who holds strong amid this market turmoil? We'll be right back.

All right, welcome back with the Bears in control of the market and football season in full swing. I don't know how the Bears are doing. We are revisiting our stock draft to see how some of our contestants poured portfolios are holding up amid the volatility. Well, it's mostly been downside volatility. David Robinson, the Admiral, currently number one. In fact, he's the only one in the green, up by about 4%. And today we're going to start by taking a look at the strongest link. Stephanie Link. She is currently in six place. Her portfolio of meta and Chevron showing some weakness, as you see there, down about 22%. down third meta down 30% since the draft. Stephanie joins us now. Let's start by going at and listen

Steph you know you got lots of company here in the negative column you're not alone at all there's only one person who has positive returns. Obviously it's a matter of timing but let's talk about meta a little bit this this stock has been cut up with razor blades lately. Yeah it really it really has So I have one winner and one loser, and this is a really big loser. But I still like it, Tyler. It is down 58% year to date. It trades now about 11.6 times earnings, seven times EBITDA. And these guys have the size and the scale and the eyeballs that the digital advertisers are looking for in terms of RRIs.

Right. So I think they have to fix reels, but I do think they will be able to do so. And then there was speculation last week that they're going to cut about 10% in their costs, structure, which could save them, OPX, about $6 billion or so. So they have some flexibility there. Oh, by the way, free cash flow of $20 billion. They've got a lot of financial flexibility going forward. And Stephanie, and I was asking a previous guest about this, but if you've got retail

investors who are going in, they're sold on the conventional wisdom of buying the dip, meta might look like, one, a very familiar product to most retail investors. And two, the fact that it's down so much, it might just look like a buying option. opportunity. I really think it is, but I've been saying that Contessa for the last several months, unfortunately, it's not been a great choice. But I don't, I think there is real value. And as I mentioned, they do have size and scale. They have two and three billion dollars, billion, rather, monthly and daily active users. I mean, those are real eyeballs, right? So I think that obviously they're having a slump here. There's a lot they have to deal with, but I think

this valuation is very compelling. You also have conviction about Chevroval. Ron, that you know, you had some early gains during energy's climb, but now it's dragging a bit. Are you, would you still stick with it? Yeah, yeah, I would. I mean, the stock is trading at 7.7 times earnings. It yields 3.9%. And structurally, I think the energy industry has changed in the favor of more shareholder-friendly moves like buybacks and dividends and special dividends.

These guys just raised their buyback program from $5 to $10 billion up to $15 billion, and their free cash, I mean, even at $80 oil or even sub below, they're generating about $11.2 billion per quarter in free cash flow. And plus, I just think that they have great assets and they have pricing power. Let's end on a hypothetical. If the draft were happening today, set aside your two picks. What would be your top pick right now? I like cybersecurity. I like Palo Alto. I don't own it in my portfolio. I happen to own Fortinet in my portfolio, but I like this one just as much as that. They think, Palo Alto, they think their total addressable market. This year alone, Tyler, is $72 billion. And they're growing total revenues to 20 percent, product revenues at 20 percent,

billings in the upper 30 percent. So a lot of good visibility there. And they too have pricing power, which has helped on their profitability. The reason I don't own it in my portfolio yet, it's really held up remarkably well. So if it were to pull back even more and get more compelling on evaluation basis, that's when I would be buying it. Steph, thank you very much. We appreciate it. Always great to see you. Fantastic. You bad. Likewise. Up next, return to work and the cost of child care will go under the microscope.

And a quick look at the NASDAQ right now, which made its way back into positive territory. The little engine that just can't be stopped. We'll be right back after this break. Welcome back to Power Lunch. As workers return to the office, there is a shift underway in child care. And Dominic Chu is back with us. Hi, Dom. These are trends, Contessa and Tyler, that have started since the pandemic and are only getting just exacerbated at this point. And it comes to the exorbitant cost of child care in this country. So earlier this summer, the folks over at care.com, a website that a lot of parents used to find care for their kids, did a survey and found out just about the approximate cost of what it is to hire people like nannies

or go to child care centers. It turns out, that the weekly rate versus pre-pandemic today for a nanny is $694. Now, the important part is that's up 23% from what it was pre-pandemic. So that's call it $700 a week to have a nanny. Now, when it comes to child care centers, think of daycares and that sort of thing, it's a much better cost, right, at about $225 per week, so $1,000 a month call it. It's still a lot of money. But the reason why it's important is, because many of the people who used to work at child care centers have now found higher wages, which is good for workers, of course, going to be private nannies.

The issue is you now have a worker shortage at child care centers because all of the people who used to work there are getting hired as private nannies for more money. That's an issue because most families in America cannot afford to have a private nanny, so they send their kids to daycare. Now, one of the interesting parts about this is they went further and delved into some of the kind of percentages as to what people are feeling right now. It turns out that even now, 40% are families are finding trouble having a nanny around. They can't even find the people to have the work. 39% are having trouble finding help through a child care center, and 37% are having problems just trying to book a babysitter for the weekend or anything else.

It just goes to show you just how dislocated the labor market has become and what it's going to pop up. possibly look like down the line. And now you have 15-year-olds telling you that you're going to pay $25 an hour just for a couple nights out. Twenty-five is good. I mean, I'm paying 20 right now, and I think it's exorbitant to pay a high school or 20 bucks to baby. But you know, you pay what the market will bear, right? It's good for workers, I guess. Yep, it sure is. Dom, thank you. And thank you for watching Power Lunch.