Power Lunch - Hack Attacks, Big Deal(er) 12/21/23

Episode Date: December 21, 2023

We’ve got 2 big CEO interviews from a couple of very interesting sectors on deck today.We’ll hear from the Splunk CEO on cybersecurity. It seems like every day there’s a new attack. Are the hackers always going to be one step ahead? We’ll explore. Plus, the CEO of Group 1 Automotive will join us to talk the state of dealerships and the broader auto market, including the softer-than-expected demand for EVs. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch alongside Kelly Evans. I'm Dominic Chu. Stocks are rebounding today after yesterday's late day sell-off. Coming up on the show, we've got two CEO interviews from a couple of very interesting sectors. First, the Splunk CEO on cybersecurity. It seems like every day we hear about a new hack attack. Are they hackers? Are these ones always going to be one step ahead of some of those companies out there, Kelly? That's the question and the CEO of Group 1 Auto. Joining us to talk about the car market right now,

automakers are pushing electric vehicles, but consumers may not want to buy them all, so dealers don't want to sell them. We will dig into that. But first, it's going to check on the markets. You can see the NASDAQ leading us higher today by three quarters of 1% as interest rates have fallen, although they've rebounded from earlier levels.

And it was about this time yesterday, Dom, things got a little dicey. They were still positive here yesterday. True. And things kind of really, really took a turn. Kind of in this hour, certainly in like the, last maybe 75 minutes or so of trading. So that's something to keep an eye on for sure as well. I mean, at this point, it looked like another kind of day of gains. It did evaporate in a sharp

sell off into the close. The markets lost more than a percent by the time things were done in just the last two hours of the trade with no real clear reason, no clear reason, a lot of theories as to why. Let's not bring in Mike Santoli to try to explain what exactly happened and what it means for this rally from here on out. There were folks out there, Mike, who had already said that there was a bit of euphoria in the markets overall. This is maybe a bit of a sell-off to remind people that markets do go lower. But we've heard all kinds of theories, including stuff about the options market as well. So what gave? Yeah, I mean, plenty of things, Dom, can be valid at once, which is, you know, when I was here 24 hours ago, I didn't say we're going to go down a percent

and a half in the next 90 minutes or whatever it was. But you did see the initial conditions where everybody, bull and bear alike, would say the market was due for a rest. The best 36-day gain in the S&P 500 in quite a number of years, and maybe the top 1% of all gains over that period of time, all those streaks, seven straight, you know, up weeks, all the rest of it, kind of getting the market into a little bit of a twisted position where it's more reliant on short-term money. It's getting and staying overbought.

And then it did kind of cross some technical trip wires during the day yesterday, the S&P 500 going down below a level, where there was a clustering of options, exposures might have caused some cell programs in there. And it's in the absence of other real money flows, fundamental actors getting in there and buying on the other side of it, that it sort of had an outsized effect. Now, any routine pullback after a 16% gain, it could go 3, 5%, and still be no big deal in the longer term trend. We don't know if we're going to go that way right away. But I think that's mostly the context of what happened. As everybody embraced the soft landing idea, it takes a little more.

than just haste, the market's going up to keep people buying. Traders do need to be reminded every once in a while that things don't go up in a straight line. All right, Mike, stick around. For more on this market and the comeback today versus what happened yesterday that led to that sharp sell-off. Let's also bring in Kevin Karan, the senior portfolio manager at Washington Crossing Advisors as well.

Kevin, Michael, laid out some very interesting points and valid ones for anyone who's been around the market for as long as all of us have been. markets can go lower, especially when they've been set up this way. Is there cause for concern about the state of this bull market rally, given what you saw yesterday? Well, the near term cause for concern would be that the market came too far too fast, just as Mike said. And when you look at what's been happening with interest rate expectations, throughout the

fall, basically, the market has started to discount in some easing next year. and when the Fed signaled a pivot effectively last week, taking 50 basis points off their forecast for next year, where they thought rates would be, markets were quick to jump on that, a little bit of euphoria, I suppose. But I guess in the end, what's going to have to happen in one or two things? You have to, A, avoid a actual recession. And then number two, the Fed's going to have to deliver on the rate promises to achieve this soft landing scenario. So you've set the market, the market has now set a bunch of expectations that are going to be challenging to fulfill. Kevin, it was an index-wide sell-off yesterday.

Everything kind of moved and you've got to kind of feel that there was a lot of selling pressure across baskets of stocks as opposed to individual names. Did you feel as though from a portfolio manager's perspective that were there were opportunities created given the sell-off that we saw yesterday? Not really. I mean, we've had a, we've had a narrowly. led market all year long. And then when you look at where the market was positioned, most traders or technicians would say that the market was overbought going into the session yesterday. So I think traders were looking for a reason to lock in gains. And they found that reason yesterday, having the market had such a strong run over the last several sessions.

Kevin, your stock picks, I think, are kind of fun and interesting. Texas Instruments is kind of the one semi-name that hasn't really performed. year. And Norfolk Southern, we don't really hear much about the rails other than, you know, we're talking about what's happening down the Texas border last hour, but you don't hear much about them at stocks down 6% year-to-date. Why do these two names jump out to you as names that you like for 2024? Yeah, well, these are names that are very good quality names, and they've held up very well whenever the economy was stressed. Ultimately, ultimately what we're looking for are companies that have very good balance sheets, and both of them do. We're looking

for businesses that are predictable, that have very profitable assets, too. Texas Instruments, essentially, it is a less exciting company in the technology space for sure. But if you look at their business, it's very steady, very predictable. And so if things were to get rocky next year, we think Texas would do fine. And they potentially have a beneficial, their potential beneficiary of onshoreing in the Chips Act. And the same can be said for Norfolk Southern. Frankly, they've got a very good business. They've got a little bit of work to do in terms of retrenching and spending some money on cap X.

But the stock has basically been overlooked and offers a very good value here. Michael, we'll give the last word to you. Did anything break yesterday? We've been talking lately about the idea that there was this broadening of the market rally. The equal weight S&P 500 has actually been doing some lifting alongside the market weight S&P 500. Small caps have been outperforming. Did any of that change given the stress we saw yesterday? You're right. It was pretty comprehensive in terms of the breadth of the selling yesterday to really compromise all the things that have built up since about November 1st, which is the breadth of the rally. And the other piece of it that makes the market may be slightly less vulnerable than you would think seeing how extended the indexes are, is that so many stocks like the banks, like small caps, like other cyclicals, are really just kind of reawakening after a two-year, you know, kind of basing period or kind of being in neglect. And so I think that makes it less kind of stretched and over its skis. Plus, you have Wall Street strategists on balance not calling for any upside next year.

I think we got to cool off in the very short term, but the longer term trend didn't really take on too much damage. All right. Michael Santoli, Kevin Coron at Washington Crossing. Thank you both very much. We'll see you guys soon. Thank you. And the media landscape could be shifting. Warner Brothers Discovery and Paramount Global are in talks for a merger. But it wouldn't quite be a merger of equals. What's the likelihood of a deal and will it trigger further consolidation as company shift to streaming?

Let's ask David Joyce, senior analyst at Seaport Research Partners. David, good to see you. I can't find a lot of enthusiasm out there for this potential tie-up. Maybe you have some. I think there's still a lot of confusion out there. These are two business models that would be somewhat complementary, but definitely synergistic. I think a combination could be possible. I don't expect that there would be antitrust issues like some other possible combinations might be

where you would have two sets of broadcasting assets. I think that right now there's a little bit of skepticism in terms of why are they getting together? Are they rushing? Are they fearing what the future means? I don't think that they need to be going at it in a willy-nilly fashion. I think that they have a lot of assets that are fixable and buildable from here. Would the conversation be different and more enticing to everybody if they didn't have such high debt loads? and maybe that counterfactual doesn't matter, but how significant is the balance sheet headwind?

Well, I think that you do have two different stories here. Warner Brothers Discovery is generating a lot of free cash flow on its own, about $5 billion this year, about $4 billion next year because of coming out of the actors and writers' strike, they're getting back to content production, whereas Paramount having a smaller portfolio, they are a little bit better than break-even, and that means that they have less flexibility

in what they can do to improving their balance sheet. So I think that that free cash flow generation, potential synergies from a deal, as well as growth in some other areas such as the studios business could, and the improvements on profitability at streaming are all ways that they could help improve the balance sheet from here. But they can do it on their own, but there could be synergies from a deal that could be incremental to that. Well, you know, David, it's Tom. What's interesting about the two stories for Warner Brothers Discovery in Paramount, at least in 2020, has been the divergence. We've seen some real relative strength in terms of Warner Brothers discovery versus what's happening with Paramount. Does Paramount need to find a partner in order to survive going forward? It seems like they would need to have some more scale with their

businesses. They are very significant in the linear network advertising that they've been transitioning to digital. So I think that's a misunderstood part of the Paramount story. So I think, and they've got pretty good breadth there. It's still an area where there are some court-cutting issues. But the Paramount Plus streaming service maybe could be argued as subscale and possibly the volume of production out of Paramount Studios, while it's got a great history, great library, and a number of great pieces of its own IP,

that's also producing lower than some of the other peers, such as Universal or Disney or Warner Brothers Discovery. So I think in this era, this scale is going to matter more than others, but it might not require complete company merges. There could be some platform combinations such as on the streaming services that could be a way to solve some of the issues. Right, or everyone's kind of jokes, you know, they should just all be sellers to Netflix.

Yeah, that's definitely a whole. another topic, I would say that you had the studios selling their content to Netflix in its earlier days, that all of the studios and media conglomerates went back to the walled garden environment. So I think that does beg the question, is Netflix going to continue to be able to source strong content? But that means that some of the more legacy studios, the legacy media conglomerates do need to retain their talent and keep producing the quality content that they've made for decades in order to still have some competitive product out there. Both of these stocks, maybe we can show them again, if I recall, kind of the low teens.

What would it take for Warner Brothers discovery for that to get its stock to triple from here? I think that you need a stabilization in the cord-cutting environment, which might be on the fringes of happening because of how the pricing of streaming services have increased so much that if you put them all together, it's not such an obvious decision for someone who still is a pay TV subscriber to be cutting the cord. So you need stabilization in the linear subscriber market. You also need the media companies, the media owners of these linear properties, as well as their add-ons with streaming. They need to get more into digital advertising.

They've been moving in that direction, but that's only about 20 or so percent of their total advertising. And that's really important for all the data that that provides to add buyers. And if the ad buyers have more data on their digital delivery of ads to the networks, that's greater pricing and that's greater revenue for these media owners. That's a great point. David, for now, I'm sure they're trying to get a triple. Could take some heavy lifting. David, thanks for joining us.

We really appreciate it today. David Joyce with Seaport Research Partners. All right. Well, coming up with the show, Micron, the latest chipmaker to jump after earnings based on hope for what else, artificial intelligence. But are investors overlooking something pretty important that the company said? And check out some of the big cybersecurity ETFs, hacked for one, cyber bug, all up 35 to 40 percent so far this year. But we hear about new attacks nearly every day. So how are we really doing in the fight against cybercrime? ask the CEO of Splunk coming up next on Power Watch. Check out shares of Micron. You can see if they're up

7% so far intraday. They're higher following the company's earnings report. As with other chipmakers, investors are less focused on the numbers now and seemingly more focused on the hope for AI in the future. Let's now bring in Christina Parts of Nevelis, who joins us now with more on the Micron News and what it could mean for the broader chip sector going forward as well. Yeah, well, Dom, much of the earnings beat that you saw with a strong Q2 guidance and improve gross margins really has to do with higher selling prices for memory chips and not necessarily higher demand right now. So on the earnings call management even warned that they don't expect to see volume growth in Q2 or Q3. So then you're thinking how can the street be so bullish

with for example Rosenblatt analysts hiking their price target by 40 bucks to 140 when it's not about demand because for micron this is all about keeping supply low and the street believes the company will stay disciplined doing so. For example, manufacturers have been cutting back on production to clear excess inventory. That means less supply. Secondly, Micron is pivoting some of its underutilized equipment to make more advanced memory that is used for those AI systems, further limiting supplies, since it requires more effort, more wafers. It's just a little bit more complicated. And then you had Micron CEO who was on CNBC this morning and called the bottom for everything from PCs to

smartphones, but did admit data center supply still remains high. So if it's a little bit high, that means customers may not buy as much. But Micron assured investors, AI is here to save the day to your point, Dom, and demand will increase two quarters out from now. They even name-dropped NVIDIA saying Micron's chips are close to qualifying for NVIDIA's next generation AI products, like the H-200. But for now, this is a volume game, and Micron intends to keep it low. All right, Christina. Thank you very much. apart Senevolus. 2023 has meanwhile been a busy year for the cybersecurity community, battling attacks,

growing ever more sophisticated and advanced. Speaking of AI, they're also getting more expensive with IBM data showing an average breach now costs $4.5 million. For the U.S., it's actually more than double, which is nearly $10 million per breach. What can companies do to best protect themselves from threats in the new year? Let's ask our next guest whose company provides enterprise threat management systems. Gary Steele is the CEO of Splunk. Gary, welcome.

Thank you. It's great to be here. I actually, so just last hour, one of our guests had some cyber names as stock picks. And every time investors like these names, one of the things I hear from the investing community is, well, if these companies are so great, why can't they prevent these cyber attacks from happening in the first place? So maybe you can explain a little bit. Yeah, no, I think it's kind of simple. The cyber threat actors continue to up their game. And AI has been a, for example, AI is a great advancement for everyone, but it's also an advancement for threat actors. And so as threat actors up their game, it puts more pressure on companies to continue to invest to ensure that their cyber posture improves. And it's a tough battle that we're in.

And it's not going to go away. As we enter 24, it's going to get worse, not better. How many cyber firms do you think the typical company is dealing with? Because there's maybe, you know, you can explain it better than me, but there's the ones who try to prevent threats. There's the ones that identify them. There's the ones dealing with, you know, actually dealing with them, cleaning up afterwards and so forth. And then my guess is, you know, maybe a breach is a catalyst for change or maybe it's not. But can you just kind of speak to the stickiness of customer transactions and how many different

names might be floating around a company at any given point? Yeah, no, I think if you go to a global 2000 company and talk to their executive in charge of security, you're going to hear from them that they have well over 100 products that they have employed across their enterprise. And because the attacks are. meaning the places where cyber actors are going to come after you continues to grow as digital footprints grow, that number of vendors continues to grow as well. Gary, it's Dom. One of the things we often talk about is how much companies are going to want to spend on this kind of threat protection, threat assessment type technology. Can you tell us about any visibility that you might have, that Splunk might have, into how budgets are shaping up in the coming year or two?

are they increasingly getting larger? Are they starting to slow down a bit? What exactly do the trends look like right now? Yeah, no, great question. And I think as we enter 24, the bar continues to rise. You've got a lot going on around the world from a geopolitical point of view. And then you also have these new rules from the SEC where public companies have a four-day time frame which to report material breaches. And so, you know, in this context, I do believe that cyber budgets will continue to increase because of the landscape and the level of issues that organizations are experiencing. So this has been, you know, I think it's taken many years, but organizations will continue to spend money on cyber and budgets

will increase as we move into the new year. Does that $9.5 million figure for the cost for an American business? Does that sound about right to you? I think that's probably in the range. Yeah. Yeah, just because I'm sure it varies widely based on, you know, the size of the company. And if we, you know, some ask, are we still not being tough enough on crypto for the role that might play, for instance, in ransomware attacks? How big is that aspect of this threat in terms of, you know, the fact that this is still an ongoing area where maybe companies couldn't have been attacked like this in the past? Yeah, ransomware is going to continue to.

play a role. And you would have thought that we would have seen ransomware decline. But it actually, we've seen the threat actors win that companies do pay ransom. And while crypto plays a role there, they'll find another way to exploit dollars if they need to. So taking away crypto doesn't, doesn't necessarily solve that problem because the threat actor will still find a way to go drive a financial outcome for themselves. This is a very tough field. And I think the threat actor community continues to get bigger, not smaller. Gary, before we let you go, just a few seconds left here, what's the big thing that's going to be part of that cybersecurity story next year in 2024? I think the big thing next year is we're just going to be in a very different world where we're entering an election year.

And typically we see more nation state actors active in the threat landscape. And so I think the big thing next year is we're going to be talking about a wide range of threat actors and the kinds of activity that we're going to see from them. So our message to all of our customers is we need to stay vigilant. And we all need to lock arms and do everything we can to protect what's at risk. It will be an eventful year for sure, not just because of the election. Gary Steele at Splunk, thank you very much. Come see us again soon. Thank you.

All right, ahead on Power Lunch here. He's making a list and checking it twice. No, I don't mean Santa Claus. Tim Seymour's in the house. And he'll tell us which stocks are on his naughty or nice list ahead of the holidays. But first, we'll take a quick first. break. Stick with us. We'll be back in two. Welcome back to Power Lunch. Let's get a check on bond markets with a 10-year yield dropping even

further below 4% earlier today. Rick Santelli has the latest from Chicago. Rick? Yes, we did see big drops of new intraday cycle low yields, but we have reversed higher led by longer maturities. And I think led by longer maturities when rates move higher is going to be something we're going to hear a lot more about as we move into 2024. But the world has seen huge moves just since mid-October. The moves in the fixed income, sovereign space are unbelievable. Look at a two-year note. We'll keep everything mid-October. The high there, 522, down nearly 90 basis points in about two months. Look at tens. 499. You remember that. Basically a whisker into 5% territory closed at 499. It's over 110 basis points lower.

since mid-October. Boond yields, they settled today at 197. Mid-October, there were 293, down nearly 100 basis points. And guilds, well, the guilt's win. The 10-year UK sovereign instrument was at 467 mid-October, closed at 354 today, nearly 115 basis points. These are huge numbers, and they demonstrate several issues that the post-COVID world is looking at,

central banks potentially reversing much of what they've done over the last past year and a half or so, and to the tune of a pace that we've had years that we haven't had, the amount of volatility we've experienced in some of these sovereigns just in a two-month period. Dom, Kelly, back to you. Who would have thought that the bond market was where the volatility would be and not the stock market? Thank you very much, Rick Santelli. Well, speaking of the stock market, the energy sector has led the S&P 500, the past two years running, but it's one of the biggest laggards in 2023. So can it return to its top form again in 2024?

Pippa Stevens is looking at the setup for energy stocks hindering the new year. Yeah, energy dethroned. It's important to note here that no sector has ever led for three straight years. And so there was some trepidation coming into this year, but energy is one of the few sectors in the red. Now, because of this decline, the sector's PE ratio relative to the S&P is now at the lowest in more than two decades, setting up potential opportunities. And actually across Wall Street strategists are the most optimistic on energy stocks with 64% rating the energy companies at a buy.

So a few key themes to watch here. So looking ahead to next year, the upstream players are becoming more and more efficient. They're spending less money and getting more oil out of the ground. And they've actually been a big laggard this year just because they have more sensitivity to commodity prices. And so there has been underperformance there, meaning they could be set for a turnaround next year. For the oil field services names like SLB and Halliburton, analysts are saying international. and offshore looks really strong. The services names are also important, you know,

towards moving towards more digitalization, more fewer carbon emissions when it comes to the upstream players, and so they are heavily used there. Then for the refiners. So this is interesting because we've seen Valero underperforming relative to Marathon Petroleum and Phillips 66, and that's because Valero is really the only pure play refiner, whereas Philip 66 and Marathon Petroleum have some other businesses.

And so when Valero underperforms, that's a signal that people think there's going, going to be some weakness in products. Of course, crack spreads have come down a lot. So one thing to watch there. Actually, Philip 66 hit a record high yesterday. So they have been pretty strong. We are both, Domini, pretty focused on this news of Angola leaving OPEC.

And it's kind of a bombshell. I mean, you don't hear about this that often, do you? So they are not the first country to leave. We saw Ecuador, Qatar, and Indonesia leave in the past decade. And nor are they a major producer. I mean, they produce 1.1 million barrels per day. And on a good day, Rebecca Babin told me, that they could ramp up production by about 50 to 70,000 barrels per day in the immediate future.

However, it does speak to this growing sense that there is divide within OPEC and its allies. Saudi Arabia, the de facto leader, has been setting these production quota levels. Angola has been very vocal saying we don't necessarily want to abide by that. Now, their production has come down from almost two million barrels per day because of a lack of investment. So, once again, it's not as if they can just ramp up, but still, if they are getting a lower quota, then it also discourages foreign investment. And they are dependent on these petro dollars. So they want to boost output.

They're going to test the free agent market, put it in a sports kind of analogy there. Although, are they going to get less for their oil because that means they're going to be pumping more and therefore the oil prices down? As we were saying, I mean, it is good news for U.S. consumers the extent to which countries peel out of OPEC, I would imagine. Yeah, but the key name to watch here is the UAE

because they actually do have spare capacity. And they've also been vocal saying they want a higher production quota level. they're producing about 3 million barrels per day. Adnock has invested heavily. They could, in theory, go up to 5 million barrels per day. So, you know, are they going to follow suit? I mean, strategists are saying this is not, you know, the imminent demise of OPEC by any means. But there is a lot of drama here to watch.

Diplomacy-wise, if you can get in there with the UA, it would have been a good ally and just kind of nudge them over the finish line. Tiny wedge. Huge, huge development. Pippa for now. Thank you. Our Pippa Stevens. We appreciate it.

Let's get to Bertha Coombs now for the CNBC News Update. Bertha. Hey, Kelly, Israel gave a signal today that it could accept a U.S. proposition to allow a revamped Palestinian authority to govern the Gaza Strip when the war with Hamas comes to an end. Prime Minister Benjamin Netanyahu's national security advisor said today Israel is ready for the effort, but the authority would need to make a complete reform. Southern California is being soaked today as a winter storm batters the region. The storm is shutting down roads and causing significant flooding. It has also prompted warnings about mudslides. More rain is expected with a flood watch in effect until Friday.

Tough timing during the holidays. And one of the most important relationships in football is between the offensive line and the quarterback. So this holiday season, Kansas City QB, Patrick Mahomes, wanted to give something special to the guys who protect him all year long. he gifted each of them a golf cart bearing their names and jersey number. Carts go pretty well with the golf clubs that he bought all of them last year. You know, with Tom Brady really retired.

I got to say, Mahomes is my favorite. No, they should give him the MVP on that alone. Don, does anyone ever done better than golf carts are thousands of dollars each, each. Yeah. There's like a half dozen, dozen of them driving around over there right. now. And what a brilliant, brilliant gift idea. Right. Clause all around. Bertha thanks. Coming up, dealership details. EV demand weakening. Gas prices falling in auto loan rates stabilizing. We'll speak to the CEO of Group 1 automotive about what it all means for 2024 and beyond

when Power Lunch returns. Welcome back to Power Lunch. While inflation has had a huge impact on auto prices this year, used car dealer CarMax is seeing a lot of green. CarMax shares are racing higher after its third quarter profits doubled. The EVs slowdown also a big story this year. And just today, General Motors said it's buying out half of its 2,000 Buick dealerships nationwide based on their decision not to sell EVs. So let's talk more about that and the state of the auto industry with Daryl Kenningham, the president and CEO of Group 1 automotive, which owns and operates more than 200 dealerships in both the U.S. and United Kingdom. Daryl, thank you very much for being here with us. Let's talk, first of all, big picture about the state of the auto industry.

Many Americans still feel the pinch. They think it's too expensive to buy a car. Is there any relief anytime soon for consumers out there? Well, thank you for having me. You know, I think what we're seeing right now is indications that there's a little more health with consumers than maybe we give them credit. Affordability, interest rates are a concern, obviously. But when you look at the truck mix and the SUV mix in our business today. It's higher than it's ever been. It was up again in November. And our OEM partners are being very aggressive with interest rate subvention and lease subvention programs, which help address affordability for consumers. When you talk about affordability, that's been the knock on some of the EV narratives in the past and maybe even the

current right now, this idea that they're too expensive. It's expensive to charge. It's expensive to them, where can you find them, the infrastructure that's needed. How much has the EV story changed the used car market or the auto industry overall? And do you feel as though the slowdown that we're seeing right now is going to continue and people are going to just turn back to internal combustion engine cars? Well, I think it's important to know or important to look at, you know, EVs grew 37% last month. That's a terrific growth rate for almost anything. And even though they're growing slower than maybe some anticipated and supplies are higher than they are, we have for ice vehicles, I think EVs are going to be part of our future. They're about 8% of the industry today. They've

doubled in the last two years. So they're becoming a more and more significant part of our business and and for consumers. There's no disputing that there are some issues around range anxiety, affordability, the ability to have it as a full-time everyday vehicle rather than as an additional car in the household. So I think once those issues get worked through, I think you'll see more adoption by EVs, but it's no secret that the adoption curve is probably slower than anybody. And you've seen announcements from some of the OEMs slowing down their their EV plans for the next couple of years as a result. Have you guys been caught in the middle of this, Darrell, with excess inventory price cuts,

unhappy dealers, things like that? Our inventories are higher for EV than they are for our ice vehicles and for our hybrids, that's for sure. And I expect that what we've seen is the OEMs are adjusting their production levels to match demand more closely. And I think you'll see that even out probably in the first or second quarter of next year. there'll be more equitable inventory across all power plants. And you mentioned there in passing, but it is fascinating to watch how hybrids actually are selling pretty well,

and consumers seem more amenable to them than maybe pure EVs. Just want to ask you before we have to go, what can you tell us you expect about kind of auto inflation or deflation next year? As far as I understand it, we've corrected maybe a third of the price increase so far on the used car market especially, but do you expect deflation in this category next year? I think we'll see some continued pressure on used car pricing. We've seen it quite a bit here in the last couple of months, especially. And I think as the OEMs continue to address affordability on the new car side, we'll see incentives stay where they are, maybe increase a little bit.

So I think you'll see a little bit of pressure. But again, I see pretty healthy SAR levels at this point, and the retail SAR is growing. So it tells me there's still some pay. of demand. All right. So we'll tell buyers not to give your sellers too much trouble. Drive too, you know, hard a bargain there on the law.

Daryl, Merry Christmas. Thanks for joining us. We appreciate it. Thank you. Thank you. Group one auto. Still ahead. Speaking of EVs, Tesla has been on a pretty electrifying run.

The stock is on track to see the highest net inflows of any security in 2023, including the SPYETF. We'll follow the money when Power Lunch returns. Welcome back to Power Lunch. quick news alert on Boeing. Right now, those shares up fractionally. The company is handing over its first commercial 787 Dreamliner model to China since 2019. Now, today's milestone is seen as possibly opening the door to handovers of 737 max jets going forward, which is a huge cash cow for Boeing. So some positive developments there leading to some fractional gains for that Dow component, Kelly.

All right. Meantime, stock picking is making a comeback. And the retail investor is picking Tesla over just about everything else. Kate Rooney has more on these incredible stats. Kate? Hey, Kelly. Yeah. So the first time, for the first time in five years, more traders bought a single stock than the widely held SPY, which tracks the S&P this year. It was all about Tesla. That's according to Vanda Research, Elon Musk's car company is ending the year as the most widely held name by individual traders. The next most popular, SPY, as I mentioned, and then the QQQQs, which track tech, followed by NVIDIA, Amazon, and Apple. It comes amid this resurgence we've seen in stock picking

over the past six weeks or so. Traders had spent most of this year really playing yields with money market funds and ETFs. They are now redirecting that money into single stocks and with yields under pressure individuals are shifting funds to some of the riskier names out there and small caps. That has been the preferred catch-up trade,

which analysts over at Banda do expect to continue into next year. At this point, retail net purchases are back where they were in late 2020 around those levels when election and COVID vaccine news kicked off a lot of buying in small caps. Vanda says the current episode shares some similar traits to that time period as traders once again are forcing hedge funds to cover those shorts and to some of the more crowded trades. If this trend does continue, they do expect retail flows to surge another 20 to 30 percent from these current level, sentiment data, as Vanda puts it, indicates that animal spirits are back in full swing,

guys. Back to you. All right. Kate Rune with the latest there on Tesla, thank you very much for that. Coming up on the show, is it naughty or nice? Tim Seymour will reveal which stocks he thinks are due for a happy holiday season or a blue Christmas this year. Power lunch is back after this commercial ring. Well, it's that time of year. Time to look at some naughty and nice stocks. We have five stocks on our list and here to check them twice. Is Tim Seymour, founder and chief investment officer of Seymour, I can't help it. I'm a festive person. It's perfect. Dom. And by the way, before we start, I ran into an older gentleman in the parking lot wearing a red suit stepping off a sleigh. And he gave me a treat for Kelly.

He said, you've been amazing this year. Look at that. And unfortunately, Dom. Thank you, what did I get? You're going to give me coal, aren't you? I don't know what that means. But I'm wondering if you were not taking out the trash this year? Gave me coal. It's literally individually wrapped coal. for me to deliver that, but anyway. Thank you, Santa. Well, thank you very much. Santa. I will try to improve my performance in the next couple of days here. All right, so let's get to the naughty and nice list with my coal in hand. The first up is NVIDIA. Tim, will this be naughty or nice to investors in the coming year after a tripling of the stock over the last year itself? Yeah, sorry, let me put

my tie back on. I've been naughty here. And I would say it, it was, it was, it was, it was, It's been oh so nice over the last couple of years, but it is, it's a naughty one in 24. And here's why. Less nice in terms of, I think, multiple and whatnot in 24 equals naughty for a stock that's had such a great run. It's priced as if it's one of the most important companies in the world it is. You can make an argument that's cheaper than Intel out in 25, you know, at 25 bucks a share in earnings. If you get there, I think the competition's coming. Not as fast as many do, but I think you're naughty next year.

It's relative naughty. Well, the next one is just as much of a high flyer this year, Bitcoin. What do you think, Noddy, are nice for Bitcoin in 2024? I think Bitcoin is nice. And I think the reason Bitcoin has been nice in 23 or the setup is the same that we have going into 24. It's a dynamic of less fed. It's a dynamic of, look at the chart of gold, which, by the way, I think is one of the best longer-term charts in the market. And I think some of those dynamics, at least for why people own Bitcoin, central bank buying, diversification, less fed, and less fed.

Less growth. I think Bitcoin is nice. All right. So let's talk a little bit about the energy sector. We talked earlier with PIPA about some of the dynamics and oil and gas. How about Chevron, an oil major integrated? Is it naughty or nice? Yeah, it's definitely nice. It's been a naughty run for energy after two very nice years, 21 and 22. But Chevron and the other big integrated oils. We're talking about a free cash flow growth story. We're talking about paying down debt. I'd make an argument that Chevron's dividend breaks even around $45. oil or better. I think these companies are run for equity investors. In other words, they used to be run at growth at all costs. Energy, I think we all believe, would be defensive necessarily in a world where the markets have had a big run. Down 14 percent in one year. So you could argue, you know,

not terrible given what's happened with energy. No, you're not chasing this one. I think it showed pretty good support. And again, there's obviously a macro play here and a demand play that if you think we're going into recession, energy companies are going to struggle. But you've struggled a lot already. relative to the S&P, again, they're always cheap, but relative to the S&P, very cheap. Our next one's an interesting one because we could say it's defensive because it's health care, but it's July Lilly, which is the invidia of the health care sector. So what would you do, naughty or nice? Yeah, I've got to naughty this one.

And, you know, this is a function really of where it's coming from. And again, I think the delta on this thing is the multiple isn't crazy. We know what's going on with the addressable market. I think there is competition coming with Orals. But, you know, one of the biggest issues really is just insurance coverage and who will be able to own this. I don't think there's any question that this is doing wonderful things for a lot of people. And it's not just the aesthetics. I mean, I think this is the dynamic here.

But I think the multiple is starting to get to a place where I don't think I need to chase this one. Healthcare overall, I mean, I think there are other names within the ranks that have really had a tough 23 and could be the names in 24. And you want to mention real quick? Yeah, I think Mark is very interesting on the multiple. And I look at some of the core pipeline there. I think you're going to see some breakouts, and I think they're going to participate in a couple of these hot areas. And we can't do Christmas without a retailer. So Targe, what do we think about Target? Targe, first of all, let's get this out there. I think it's nice. It's certainly been nice over the last month.

It's really closed that if you're a pairs trader relative to Walmart. I think the inventory has dynamic has been reset. I think we're starting to see a little more discretionary spend. I think disinflation isn't bad. Deflation is very bad for retailers, but the multiple at 14 times 24, I think is something that's attractive. And I think you've priced a lot of risk into Target at this point. So let's be nice next year. All right. There's the naughty or nice list. Tim sticks around for our next segment.

Many more headlines to get to. So little time. We'll see you right after this break. As you see on the clock, we've got two and a half minutes left in the show. And several more stories you need to know. First up, rising inflation helped boost millions more Americans into so-called accredited investor status. But financial regulators say that's not necessarily a good thing.

some consumer advocates argue the current income or net worth thresholds should be adjusted for inflation. Or some folk could just buy into investments. They really don't have any risk appetite for or expertise in, like hedge funds or private equity. I tend to kind of see that side of the story because people have just kind of ridden this wave higher and people who didn't really normally become accredited or now accredited. Then you wonder, should people have access to hedge funds? And, you know, if they ETFify these things anyway, then. So the accredited status is there to protect investors, whether it's limiting them or not.

I would make an argument that inflation has brought about higher interest rates, which has created real rates of return on actually very traditional forms of asset allocation like fixed income and credit products. So that's where I would like to see the folks who feel like they're investing in the, like, it used to be the people at the bottom on the economic spectrum who were, it was financial oppression because of what was going on with zero interest rates. I think inflation's been good for people for a different reason. That's a good point.

Let's get to some words of wisdom from Mark Cuban, who recently told Wired that when It comes to business. I love this story. He says, use the simple word. He's part of our anti-jargain campaign. He says, you're more likely to get on someone's nerves than impress them if you use jargon, especially in a boardroom. His least favorite term is using cohort instead of just a group.

I mean, for anybody who listens to my reporting knows that when I say comp store sales, I say sales growth at established store locations. I try not to use comp store, same store sales, that sort of thing. So I don't know, Tim. Well, like new normal, threading the needle, you know, all these things we say. I mean, you know, what's been interesting is that the people that have tried to sound really smart have actually, you know, being overly smart on the market in 23, I think was being stupid. In other words, that's the term if we can still say stupid. In honor of Charlie Munger this year, too, let's all fight jargon.

And more and more couples are getting a divorce at a sleep divorce, mind you. They say they're happier for sleeping in separate rooms. Apparently Cameron Diaz and her husband do it. And she thinks everyone should. She said they'd sleep in different houses. I think my wife is not not happy with my dynamic sometimes. You're dynamic. Why not get separate houses?

I mean, I think this is crazy. All right. Look, I mean, that's what you signed up for. Okay? If you can't deal with some snoring, guess what? Don't even go down the program. There's consciousness decoupling dynamic. All right, Tim.

Thanks for watching Power Lunch. We're going to consciously decouple. Time for closing bell.