Power Lunch - Power Lunch 7/15/22

Episode Date: July 15, 2022

CNBC’s Tyler Mathisen, Melissa Lee and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day���s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. 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. I'm John Ford in today for Tyler Naffison. Here is what's ahead. Lots of green this Friday on Wall Street. Inflation expectations fall. Retail sales rise. Is this a sign? Equities are on the road to recover. Kelly? Thanks and welcome. And while it's a good day for the broader markets, it's been a tough week for software. Estimates cut. Target prices slashed. Multiple's compressing. The sector on pace for its worst week since February of 2021. This we're finding value plays amid the deepening slump. But first to Dom Chu with a check on today's rally. All right. So Kelly, the Dow, the S&P 500 and NASDAQ are all positive, as John just pointed out. But the real outperformer right now is the Dow up nearly 2%. Now, at the highest of the day, we were up roughly 658 points. At the low, still up around 145. So that's just to give you an idea of the range so far.

The NASDAQ is the underperformer, if you want to call it that, it's only up 1.5%. Now, from a sector perspective, definitely seeing that outperformance in the financials driven in no small part by bank earnings out of two of the big ones out there in particular. City Group and Wells Fargo. Now, believe it or not, City is the best performing stock in the entire S&P 500 after it reported better than expected profits and revenues, strengthened its sales and trading units as part of that story. It's also making more money given the rise in interest rates. Wells Fargo is also up big, despite a mixed report where profits topped estimates, but revenues missed. Wells did, though, say that it sees credit losses headed higher in the future, albeit from very low levels right now. And by the way, among the four big banks that have reported earnings so far, only Citigroup has beaten Wall Street revenue estimates.

As for some of the other stocks in the headlines, still watching a surge and shares of Pinterest right now, after a Wall Street Journal report cited sources as saying activist hedge fund Elliott management had taken a 9 plus percent stake in the social media platform. Also, watch the solar stocks like N-phase energy, solar, first solar, sunrun, others. That's following an NBC news report citing sources that said Democratic Senator Joe Manchin from West Virginia will not support a bill increasing spending to address climate change. So many of those alternative energy stocks like those solars, Kelly and John, off on the day, back over to you. All right, Dom, thank you. Let's stay on the markets.

There are several big questions investors are asking themselves. has inflation peaked or not peaked? Is it 75, 100, maybe even 50 basis points for the Fed's next hike? And is it a soft landing or a full recession that cometh? No matter what the answers are, there's ways to invest. Let's bring in Anne Barry. She is Threadneedle Ventures founder. And it's good to see you. I guess we'll just take it piece by piece. Starting with inflation, where are we after this week, do you think? I think that perhaps we are coming to the peak, Kelly, but we're not sure yet. And until we're sure and until the Fed is sure, I think there's continued risk that rates go up

fast and expected. And as a result, we know the impact of that on these glamorous tech stocks and growth stocks. I'm staying away for the moment. So I will probably miss the bottom, but I'm waiting to get a bit more certainty before going back into all of these. So you're not eager to jump back into that trade just yet. And that's interesting because we just heard that it might be kind of a soggy earning season to get through first. So that brings us to the Fed then the big question. How important is it for you as an investor? the size of the hike they're likely to do in a week or two? Well, the approach I'm taking right now, Kelly,

is I'm trying to invest rather than trade. And the distinction between the two is really trying to find thematics that I think will survive through an upcoming recession and create value over the much longer term. You know, one of those I'm looking at very closely is in the music space. It's one that I've invested in privately, particularly on the event side, private equity like Apollo and KKR

has been spending huge amounts of money on music, music libraries and catalogs in recent years. So I'm looking at things like Warner Music, where there is good headline growth in the music sector, 9% Kager coming up, where there are opportunities for tech to be more infused into that industry. That's the kind of thematic I'm spending my time on trying to stay away a little bit from the volatility that's more fed rate related. And what do you make of the market action this week? And we've got a hotter than expected CPI number. We got banks building up loan loss reserves. And yet on the S&P, we're ending a about even for the week after a big dip.

That seems to me to show that there's a lot of optimism in the market, and I'm not sure that's a great sign. John, I think there's too much optimism in the market right now. And the reason I say that is I look overseas. We've seen the data and the expectation coming out from China that GDP growth is coming down significantly. We still don't know that supply chain shortages are done. And I think the expression that you use, which is a soggy earning season, is exactly the right

one. So I find the optimism we're seeing in the market today a little bit perplexing. I'm definitely more pessimistic than where it seems to be shaking out this Friday. How do you read the consumer, which is going to be so important in Q4, given that savings rates are coming down? And also consumer credit seems to be coming in. Consumers seem to be a little iffyer about putting stuff on a credit card as inflation remains high. What does that say potentially about the type of spending patterns we might see after summer's over, and is all of that priced in to the movement that we've seen this week? This issue of consumer spending and also the loss rates on some consumer credit, John, is exactly where I'm actually the most nervous. And specifically when we think

about what that means as it translates into add spending when it comes to consumer products companies looking at their marketing budgets, which tends to be the first thing to get hit when you see a slowdown in consumer sentiment, I don't think we have seen the market yet fully factor in what could happen as real savings continue to be depleted because inflation still is too high, as consumer confidence despite the decent data today continues to perhaps be ruffled. And when we start to see labor market data get weaker because that will absolutely come, I don't think we've seen all the bad news filter through yet either so far the summer or into the market expectations we're seeing right now. And that's why I actually, I like your

stock picks because they hardly reflect a super defensive positioning. I mean, you're looking maybe at Netflix, maybe at PayPal Warner Music. You know, these are, these take some Cajonis. Thank you. Well, let's see how that works out. But definitely on the Warner Music thing, that again comes back to, I think they're a good macro pieces of evidence historically that music has tended to be recession resistant. The industry is underpenetrated in streaming compared to the video space. PayPal, Kelly, I mean, that is one. I'll be very transparent. I put money into that over the last two years, so I'm down on my PayPal position. But I do look at what's happened with Klanah's down round. I look at what happened

with Stripes down round. And at least what I'm seeing now is rationality is beginning to set into fintech valuations more broadly. And PayPal still has the benefit of scale. It has the benefit of a good cash position. And I think it's got the ability to learn from some of the mistakes of these other product innovators. And it's growing at share in buy now pay later. PayPal is growing its share in business credit cards. So that's one where I say, perhaps it is going to take a little bit of metal, but I think the longer term positioning of PayPal

could be a lot more attractive than its valuation today suggests. Yeah, it's hard to do anything but think long term with the way this market is lately. And thanks for your time. We really appreciate it. Thanks for having me. And Barry.

One of today's market drivers, the better than expected retail sales, showing that the consumer continues to remain resilient, even as inflation remains high, sales were up 1% sending the major retail ETFs higher. While traders are applauding the rise, our next guest says the numbers are making one thing clear we're entering an environment where all boats will no longer float. Joining us as Jerry Storch, CEO of Storch Advisors, also former CEO of Toys R Us and Hudson's Bay. Jerry, how are these numbers showing us that all boats won't float?

Well, look, the worst performers by far, the big lose. losers were department stores and apparel stores. In fact, over a three-year basis, when you look to the pre-pendemic June compared to this June, sales were actually negative down in department stores during a period when retail sales as a whole were up 32%. So that's a massive loss of market share. Sometimes we kind of lose things with the puts and takes over, you know, during the pandemic, one year after, et cetera. But basically, the trends from before the pandemic are being even exaggerated by what's going on. So let's like a look at e-commerce.

E-commerce sales are up 64% versus June 2019 before the pandemic. So that's double the rate of growth of retail sales as a whole. So department stores, mall-based apparel stores, companies that never really fix their strategy. You know, we saw that with Gap. We saw that with Bed Bath and Beyond. We take a look at their results. Those companies are going to be in a world of hurt as we go forward from here.

But I'm a little confused because Amazon's way down, right? investors seem to have largely backed away from that pull-through narrative during the pandemic that, oh, we got all years worth of growth in just months, and this has accelerated us toward the future. You know, the stock auction in Amazon suggests, well, maybe not. And yet, Prime Day was very strong, historically strong, even as department stores are down. What should investors take from that? I think e-commerce is here to stay, and it's growing very, very rapidly.

leaked. And, you know, I think Amazon kind of got a bad knock. They reported first. They are in a calendar year or the other retailers on our retail year, so it's a month off. So Amazon reported first. People said, oh, my gosh, look how terrible Amazon did in the first quarter. And then we heard from Target. And then we heard from Walmart and so many others who really demonstrate even greater problems, you know, than Amazon showed. Meanwhile, Amazon, they overbuilt a capacity. There's no doubt about that. But that means they have room to grow. They have headwind. They had tailwind. They're going to keep growing, growing, growing.

So I would never have had against Amazon. I thought that was a mistake when people were doing it. I think it's a mistake now. Jerry, let's turn to some of the winners here. Very familiar names, Costco. But maybe the likes of TJX and Home Depot are a little more controversial. You think they're going to come out of this fine? I do.

Look, Home Depot was strong before the pandemic. They were incredibly strong during the pandemic, and they're still strong. I think they're a big winner over the long term capturing, again, massive market share which in retail is everything. T.J. Max, they didn't have the strongest pandemic because let's face it. Their stores is where the action is not aligned for them. But now that they're open again, they're going to come back. You know, their market cap is still more than the entire department store industry combined.

All of them are worth less than T.J. Max. And they're where the consumer wants to be. Value is the name of the game. It always has been. But it's especially so during a times of high inflation. And maybe the kind of problems we're going to see with the consumers who get to the back half of the year. So a company like TJX is very well positioned as would someone, for example, like Dollar General be. Even Target and Walmart, who obviously disappointed with the way they handled the last quarter,

are going to do a lot better when we get to the second half of the year. Jerry, I want to ask you how you read this, because it's a couple of numbers that have been on my mind for the past few days. One of them is the savings rate, which is down, right? The banks are talking about how, yes, customers still have more savings in their accounts than they did before, they seem to be spending that down pretty quickly. And then consumer credit, which has been historically high anyway, consumers seem to be getting a little bit more hesitant to put more on the credit card, perhaps understandably given that interest rates are going up, right?

But what does that mean for the second half of the year? And are we thinking enough about that? Obviously, consumers are very strong now. You know, the numbers who are under day, which were strong, didn't even include travel or transportation or a hotel and lodging. Those are in a totally different report. And you know those are way up. So the consumer is spending right now.

But, you know, they're spending money that they saved and they're going to run out of it. And with the rate of inflation, even today's report, by the way, in an inflation adjusted base, you know, people were, you know, sales were basically flat, you know, because the increase in sales basically matched the inflation rate. So the consumers got the same amount of stuff

as they did before this inflation really took off. So when we get to the back half the year, that savings is going to start to run out. The one thing I've seen from the American consumer is they will spend until they run out of money. And they haven't run out of money yet. when we get to the fall, I think we're going to see more problems.

And that's where I say, again, the value-based retailers are going to thrive, the companies that never really fix their business, we're going to see that they never really fix their business. And it can be big problems in some of those sectors. Well, that's what I'm wondering about. Jerry Storch, thank you. My pleasure.

And coming up on Power Lunch, our Powerhouse Road Trip heads to Cleveland. The national housing market showing signs of slowing, but a frenzy of activity is happening in Ohio. We'll look at what's making the moment. market stand out. Plus investors hitting the software stocks hard this week with the ETF down more than 7% some names down more than 10% which are the ones worth buying on the dip that's coming up on Power Lunch. Stay with us. Welcome back to Power Lunch everybody. We're on the next leg of our

powerhouse road trip hitting six cities this summer for a look at how the housing market is changing. Today we arrive in Cleveland, Ohio. According to Zillow's latest report, the median home price there is a little under $187,000. Sales are up 30% year on year, 50% for the month. Inventory, down 10% from last year, still up from last month, and 51% of homes are being sold above listing price. For more, let's welcome back Kim Crane, broker at Howard Hanna Real Estate Services. Kim, it's good to have you. That median sales price sounds a little low. Maybe you can expand on it for us. What are the price dynamics you're seeing? You know, we're seeing high demand and low supply, as you mentioned. We're still not up to the 2018 and 2019 numbers, and people are really wanting to lock in those rates and take advantage of where we are now before things climb at this time.

Right. But what are some of the properties that you're seeing? I mean, if these numbers are right and sales are up 50% month over month, 30% in your review. I mean, this sounds like 2021. It sure does. It's actually even stronger. Our second quarter of 2022, we were seeing multiple offers, homes that were listed, for 289, selling for 335, seven offers or more, no inspections, waiving appraisals. People are just eager to get in and lock in that rate. How much is the market shifting, though, and how active are investors in this market? I keep hearing from various regions, you know, friends who are either trying to sell or whatnot, saying that even week to week, things are changing. You know, it always simmers down a little bit in the summer seasonally, but we can say that's still

strong here in Cleveland, Ohio. And we're proud of that. We have multiple offers, sold multiple homes over the weekend. People want instant gratification. They want to move in and have everything turnkey and ready to go because it's so hard to get work done anymore, whether it's a painter or a kitchen remodel, just there's not enough workers in high demand, you know, to get projects done. So people are willing to pay a premium for things done right. Who are these people? Where are they coming from? And what about mortgage rates? Well, you know, It's still for a jumbo at 5% or, you know, a conventional five and a half. It's all reasonable.

It's not code black here yet. So we are in a good place. You know, we do see people relocating back to Cleveland who are in bigger cities and finding that they don't need to live in the bigger cities anymore. And they're trending to the suburbs and they're finding, you know, to trend as a little smaller communities. Let's see. Lower inventory.

Let's see, 51% of homes being sold above listing price sounds still like a terrible environment for first-time homebuyers. What are they doing? It is hard. You know, we're trying to give everyone an advantage here. We do see a lot of cash in the market. But if they can get in and lock in now, you know, just waiving appraisals and inspections when possible, you know, it is, it's hard to get in with FHA and other situations. We try and come up with some creative approaches to get them in here. Where do we go from here, Kim, if you had to predict what the summer and fall are going to look like in Cleveland? Well, you know, we don't have enough new construction or national builders here. So it is, you know, the supply is just not enough. So we are glad to see that things are still strong.

And, you know, we're hoping that continues and we don't want to be all doom and gloom. We're still in a good place here. And, you know, it's a good place for buyers to get reasonably. and then sellers, you know, take advantage of this market at this time. Well, it's a remarkable counterpoint to the housing crash narrative that's going around on a macro level. Kim, thanks for your time today. Thank you. Kim Crane.

Coming up, more on this market climb today. The indices is currently higher across the board. The Dowland pays for its best day since late June session highs are near them across the board. But it's been a cloudy week for cloud stocks. ETS, tracking the space all down more than 5%. Are there hidden gems in this drop? Plus three firms reiterating their bullish calls on big tech while slashing their price targets. We're going to discuss in three-stock lunch.

And the crypto-cracks spreading between crypto bankruptcies and price declines. What's the scope of wealth destruction in the space? We'll see. Power Lunch is back in two. Welcome back to Power Lunch. I'm Dominic Chu. Check out shares right now of United Health Group, are higher by nearly 5% so far today, the best performer, by the way, in the Blue Chip Dow Jones Industrial Index.

After the health insurance giant reported quarterly results at topped analyst expectations and also raised its full year forecast, due in part to stronger result at its Optum Health Unit, which does things like pharmacy benefits management and provides health care services. Now, by the way, not only is United Health the best performing stock in the Dow. It's also the most heavily weighted given its high share price, meaning that out of the roughly 560s, 70 points we're up right now. 170 of it is just UNH alone, John. I'll send things back over to you. Wow.

That's a healthy contribution. Let's get to Courtney Reagan now for a CNBC News Update. Cortt. Hi, John. Good afternoon. Here is your CNBC news update at this hour. The House passing the Women's Health Protection Act. On a 219 to 210 vote, the bill prohibits governmental restrictions

on access to abortion services. Texas Democrat Henry Colner was the only Democrat to vote against the bill. joining all Republicans. The House also passed the right to travel for an abortion. Both bills now head to the Senate where they are expected to be defeated. Donald Trump's top White House trade advisor, Peter Navarro, rejected a plea offer extended to him by the government in his ongoing contempt of Congress criminal case. Navarro was indicted earlier this year on two counts of criminal contempt of Congress after refusing to comply with demands from the

House Select Committee investigating the January 6th Capitol attack. And the Centers for Disease Control, and prevention releasing new data, saying people ages five and older in the U.S. who aren't vaccinated had a six-time greater risk of dying in May when compared to those who had at least one vaccine. At this time, 67% of the U.S. population is fully vaccinated, while 78% have received at least one dose of the COVID-19 vaccine. Kelly, back over here. All right, Courtney, thank you very much, Courtney Reagan. Time now for our ETF tracker.

This week, we're looking at the cloud computing stocks, which have taken a dime. The sector saw outflows of $178 million as of last night. A couple things driving the action that lowered outlook from Unity Software, job cut announcements, and some of the big players having cautious commentary like ServiceNow CEO Bill McDermott in a CNBC interview. Add it all up, some of the names seeing outflows include the First Trust Cloud Computer ETF, the Global X cloud ETF, and the Wisdom Tree Cloud ETF,

all down 8% or more this week. Now, the data comes from our partners at Track Insight. more information is available on the F.T. Wilshire ETF Hub, she said, John. Well, let's say more about that. Still ahead. More on the cloud and software stock slump. Underperforming the broader markets this week. We'll be right back. We've got 90 minutes left in the trading day and we want to get you caught up on the markets. Stocks, bonds, commodities and the software stocks coming back down to earth. Let's begin with the rally and Bob Pisani. Bob.

to one advancing the declining stocks, John, that's a pretty good number for a generally down week. This is the only up day for the week. The problem is the volume's not there yet. We're not seeing enthusiastic buying. It's sort of an exhaustion of the sellers at this point. But what they are going for is a little more of the growthier part of the market. So Arc Innovation, Kathy Woods, having a good day. Tech and General's having a good day. Consumer discretionary. Retail on the strong retail sales numbers, good day. These are all growthy sectors of the market here. look at some of the other sectors. Big Cap Tech, good day overall. You know, mixed week. You know, Apple's up about 1% overall for the week, but that's up today. Microsoft's still overall down for the

week, but they're mostly on the upside. Invita up, Google up, but Google's had a tough week alphabet, down about 6% for the week. Elsewhere, another strong day. People are playing the travel and leisure play right now, so we've got some of the casinos that are strong today. The airlines generally are up. Hilton and some of the hotels also having a very strong day. They're among the biggest performer in the S&P 500. Banks are having a good day because Citigroup helped turn everything around. But don't kid yourself.

Yesterday, we were putting up 52-week lows for all of the banks. All the Money Center banks, all of the big regional banks like PNC Financial. We're at 52-week lows. PNC had a decent report today, so they're turning around a little bit. but again, not a good week for the banks overall. Finally for the S&P 500, we're down about 1% for the week, John, but still in a trading range. 3660, that was the old low for the S&P.

That was back in the middle of June. We're 3660 to 3,900 right now. You can see that just about 50 points below that. Not bad, considering all the pressure the markets are under. John? Yeah, a lot of distance travel. We can see those hills on the S&P chart, Bob. Thanks.

Now the bond market, where yields are falling, the yield curve narrowing as we wait to see what exactly the Fed's going to do with interest rates later this month. Rick Santelli, tracking the action, Rick. Well, you know, if you look at retail sales, maybe in certain ways you could say it was about right with respect to the Fed. Now, tell you what I mean, the numbers look pretty good. Adjusted for inflation, they didn't look quite as good, but Fed Fund futures for December at the end of this year are up about eight basis points today. and we see that interest rates like a two-year note yield are unchanged on the week.

What I garner from that is that the market isn't acting as though retail sales was strong enough to be that 100 basis point push. I'm still in the three-quarters of a basis point camp. And while two-year notes are basically unchanged on a week, look at this week in tens. At 292, they're down four on the day. They're down 16 basis points on the week.

Open the chart up to early June. Boy, it was in mid-June. we close just a whisker below 3.5%, not only has that become very elusive, just 3%'s 's been elusive. Think about that. Look at the week in Boons. Boones closed down 22 basis points on the week. They're at 113. Three weeks ago, they're at 177. H.Y.G, the high-yield ETF, as the intensity in fixed income moderates a bit, they're going to close it a five-week high. And finally, this week in the Eurovers of the dollars you see, Tuesday, Wednesday, Thursday, we flirted with 100.

Today, we weren't really close to it. And even though it moved away from that level, on a weekly chart, it's still the lowest close since the third week of November 2002. John Fort, back to you. All right, just try to predict what comes next. Who knows? Thanks, Rick. Oil closing for the day as the president touches down and fist bumps in Saudi Arabia in an effort to lower energy prices. Pippa Stevens has the numbers.

Pippa. Hey, John. Well, oil is getting a boost today, but still on track for a fourth negative week in the last five as recession fears way. Brand crude is back above 101 with WTI right around 97, 74 for a gain of 2%. President Biden, as you said, arriving today in Saudi Arabia, but officials saying no immediate output boost should be expected from the kingdom. Now, the White House officially announced this trip back on June 14th, at which point WTI was trading at 1.19. Obviously, a lot has changed since then and we're now below 100 bucks. So PVM noting that ultimately the president's case here, four more Saudi oil has been significantly weakened by this latest price drop. Now looking at Nat gas, it is up another 6% today and crossing above that $7 level for the week up more than 16% for the best week going back to April.

And all this translates to a boost for energy stocks. Every component is in the green, led by the refiner's, Marathon Petroleum, Phillips 66, and Valero, John, all up more than 3%. All right, Pippa, thank you. Software stocks higher today, but having a rough week, S&P Software and Services ETF, underperforming the broader market, down about 6% week to date on pace for its second negative week in three. Unity Software, Fresh Works, and E2 Open Parent Holdings all down double digits since Monday. Joining me now to discuss the software Slump, Brent Braceland, senior research analyst at Piper Sandler. Brent, confusing action to be sure, but also there just doesn't seem to be a lot of belief in software, right? I mean, there's a couple different ways that you could look at, for example, what Unity did this week. maybe they picked up a good acquisition at a decent price, or maybe they're just spending money.

Yeah, I mean, listen, I think you have to put it into perspective looking at one week. Let's put the software group into perspective looking at a group has been down consecutively for eight consecutive months. This is a group that's down about 52% since November alone. So, yes, it's been a tough week. You've had some specific catalysts that are weighing on some. of these indexes, but we're still up month to date. July actually is the first so far, month to date, slight bounce that we're seeing in cloud software, but there are a lot of

concerns out there. We took our numbers down on Microsoft last week around FX. We're going into earnings season here in July and August where we expect pretty challenging kind of numbers as you think about the possible growth resets in the software space. As you start to think about some of is increasing recessionary risk, starting to impact cloud spending intent. So it's been a challenging eight weeks. Yes, it's been a challenging week. Unity Software specifically made a very strategic acquisition, but that's basically going to create an environment here where the ARBs take over the

stock for the next basically six to nine months until that deal closes. So more of a company-specific issue there around Unity. Which makes me wonder, is it even worth talking about software as a whole in this environment, where on one end you've got Microsoft, which is sort of Fortress Software, and people feel like, well, even in a down environment, they're so diversified, they've got consumer, they've got Enterprise, they've got small business, they've got subscription, and then you've got smaller players that aren't necessarily enterprise, maybe they're gaming players, maybe they're dealing with small business, maybe they're pre-profit, and they're a lot more volatile. Software is a big category, and it's a big category because of the attributes of software. These are reoccurring revenue models, generally high gross margin models. Yes, over half of the cloud 100 that we track is unprofitable. The other half is profitable. So it's painted with a higher risk lens.

That is completely appropriate. But if we go back and look at some of the lessons from 0809, what we saw when Salesforce was a high-risk, high-growth company it would not generating profits. It was one of the first names to see a sell-off in the names, but it was also one of the first software names to actually rebound. Salesforce in 0809 actually went up on the first number cut there. And a year later, when growth trough, the stock was actually double from where it was when it first cut numbers. So there is a lag. The market overreacts here on the upside. These were names that were overvalued. We overshot the upside. We're likely to overshoot the downside as well. But it is important to note that software typically bottoms from a

stock perspective four to 10 months before fundamental bottom. Just as we saw it top out, four to 10 months before the rest of the market, Brent. So Salesforce has now returned 4,000% in 20 years. What are a couple of names that you think have that kind of upside potential in your coverage space. So we think it's really important to be selective. We've actually outlined four different routes that have different risk characteristics. Maybe I'll just stick with the play it safe route. These are the names that are the names that have the highest free cash flow potential. These are names like Viva Systems that sells software and has helped digitizing that drug process, trying to reduce the time it takes for life sciences companies develop drugs. That's a company with

40% pre-cash low margins, very attractive entry point here. If you want to play it safe route, we also like Salesforce, again, here with the sell-off. It looks pretty compelling. It's actually a lower valuation multiple than Oracle. So those are two names in that plate safe camp that we would recommend. What if you really wanted to take a flyer and just go furthest out on the limb that you can go, where would you have people look? Yeah, two of our favorite flyer names that we think could be very big businesses longer term or MongoDB.

This is a modern database company powering modern applications and Bill.com, which is really digitizing the small business finance stack for small businesses. So those are two names. If you're willing to close your eyes, take real of risk now, look out five years. They could be big companies. And in the break, John will explain to me what they do. Well, David Ocheria and Renee LaCert running those veterans who have been through downturns before. Ah, very. That's an endorsement, if I can call it one. It's an observation.

An observation. Brent, thanks very much for your time today. Brent Braceland of Piper Sandler. The crypto chaos continues. Both investors and companies still seeing big losses amid the volatility. We will break down the action next. But before the break of programming note, tonight at 6 p.m. Eastern, we have a CNBC special report taking stock the state of the markets. We're all trying to figure out what exactly state.

They're in. We're going to hit every corner of the market to get actionable trades from leading analysts. You won't want to miss it. Stick around. We're back in a moment. Welcome back, everybody. Cracks just keep forming in the crypto market. And battled crypto lender Celsius now filing for bankruptcy. It owes nearly $5 billion to users. And it marks the third major crypto firm to go bankrupt following Voyager and Three Arrows. Here to discuss the losses we're seeing as our own McKenzie Segalos. Mackenzie, welcome. I wish it were a better topic, but I guess the biggest question everyone's asking at this point are that are people who put their money onto these platforms going to get it back? Right. So you take the example of Celsius, which just went bankrupt. It has 100,000 creditors, which includes Sam Bankman-Fried's Alameda Research,

and then it has 1.7 million customers. I mean, who do you think is last in line to get their money back? And if the setup was such that these customers who gave the money to the platform, they weren't getting collateral back, there was no protection there, so it was this high-risk, high-reward situation, and customers are very much the ones less. holding the bag. Wow. Yeah. Wasn't necessarily presented that way, though, because it was an idea of APR.

You're going to get this guaranteed crazy high interest that you couldn't get from a savings account in the environment we were just in. Is that whole model likely to go away or stick around? Well, that's exactly it. There's actually a lawsuit right now that's related to the implosion of the Terra-USD stablecoin project, which is where a lot of this crypto-contagion began back in May. And Binance was a platform that was saying, hey, this is a safe. You know, this is a safe investment to make.

So people are taking issue with that. To your question of, is this going away, this easy money, these double-digit APYs? It's certainly looking like the riskier platforms that didn't have a strong business model aren't going to survive. I mean, you had Celsius that was essentially bringing in new depositor funds to pay out old obligations. They were also, they're being accused of running like a Ponzi scheme, and they were investing their own money in other platforms offering double-digit API in order to keep this whole thing afliferation. afloat. That being said, there are some platforms that operate a completely different business model. You've got AVE and you've got compound, and they're investing capital in a money market. They're, you know, over collateralized. They've taken different precautions. They're not offering you

as like 20% APY, but it is a place where you can park your cash. We're seeing the tokens associated with those lending platforms up around 20% in the last 24 hours. There is confidence in the space. Meantime, the miners are still going strong in some cases. We saw them, though, pausing. activity in Texas for that blackout. And energy usage has been another controversial part of crypto and Bitcoin, obviously six Democrats in Congress, including Elizabeth Warren, say that seven top crypto mining companies use as much energy as all the homes in Houston. We should expect, I imagine, this scrutiny to continue if the entire industry isn't decimated by, you know, the end of the year. Right. But the narrative that is coming from

the other side, those proof of work miners, virtually synonymous with Bitcoin miners, they're saying we're flexible powers, like power buyers, right? We'll turn off if there's a lot of demand on the grid. And the reason why it's good to have more demand is because Texas has all of this renewable energy. And adding like wind and solar power to the grid isn't like automatically a win. You need to be able to even out that demand, even out that duck curve. And that's what Bitcoin miners are saying that they're doing.

They're like, okay, we're at peak demand. Everybody's using their AC units. We'll turn off. But when nobody is using power as often at night, we're going to come. come back up. And that's key for pricing, right? Because you can have power prices go negative. You can have them go very high. And so when you can even that out, have it be stable, it's a win. I just wonder if a casino can easily convert into an arcade. Because that's what they're trying to do, right? It's going from this gambling. Everybody come, and then the buffet is running off from the hotel rooms to

actually, you've got to put a quarter in this, and then you play, and then you got to put another quarter in. I guess it's probably 50 cents now. Right, exactly, a dollar. You know, we'll see what happens to the industry and demand for all these coins when it's not so, yeah. attractive. Yeah. We're seeing liquidity washed out and the people who remain are going to be well placed to do well because a whole lot of others are being swept out. Yeah, and very quickly. Mackenzie, thanks.

We appreciate it, McKenzie Segalo's. Coming up, tech target cuts. Brooms cutting price targets on Microsoft, Snap, Netflix. Should you buy big tech, our trader will share a take next. Welcome back. Time for today's three-stock lunch. Three big tech analyst calls today right ahead of the start of earning season. UBS reiterating Netflix is neutral, but cutting its price target in half on subscriber growth concerns. Maybe a little late for that. BMO, reiterating Microsoft out-performed, but also dropping the price target to 305 a share on 4X issues cutting into forecast. And JP Morgan, reiterating Snap as overweight despite the brutal stretch for the stock, saying the company just needs time to reestablish credibility. Let's bring in Scott Nation. nation shares president and CIO to trade these names today. First up, Netflix, do you think it's gotten cheap enough, Scott, to binge on it here? And that is what really matters here, John.

Absolutely. I would be a buyer of Netflix. Congratulations to UBS, figuring out subscriber growth is going to be a problem. Welcome to the party, pal. It is gapped down really horribly the last two earnings announcements. But investors have overreacted. acted. Company went from doing no wrong to can't do anything right. And the changes that they're making, that is, ending password sharing and the new ad-supported platform that they're going to launch with Microsoft are really going to help.

PE now of 16. Surprisingly, Netflix is quite a bargain, and I'd be a buyer. Well, we're starting to hear a lot more cautious bulls on that one. It's going to be interesting next week. What about Microsoft? You know, Microsoft is the blue chain. chip in the tech space. They do have some legitimate problems. FX is going to be a problem. The consumer PC market is going to be a problem. That's about 30% of their revenue. Those are all valid. It's not quite as defensive as we would have hoped. It's down from its 52-week high, just about the same amount that the NASDAQ 100 is. You would hope it would have been a little

bit more defensive with a trailing 12-month PE of 27 and a current year PE of 22. It's not cheap, but it's a strong number two in the cloud space. I think it's a hold to accumulate. And the interesting thing about the cloud space, somebody is going to spin off their cloud division. I don't know if it's going to be Microsoft and Azure or Amazon and AWS. When that happens, that is going to be fun to watch. Will it, though? Okay.

Final name, Snap, it's crackling today, but can it pop higher? I remember when Snap came out. We all love the idea that our messages would eventually. disappear. I think all that's disappearing with SNAP is the opportunity to make a profit. They pre-announced disappointing Q2 revenue and earnings expectations, and now they're expected to post a loss. John, I don't know why you'd play in this space at all right now. Twitter is 50% from its 52-week high. Meta more than 50% from its 52-week high. J.P. Morgan says that SNAP's problems are macro in nature. I think they're specifically micro, specifically.

their inability to monetize users. Company is trading it four times current year estimated revenue. Snap is a sell. All right. That's the one you don't like. Scott Nations. Thank you. Thanks, John.

Up next, the beaten down S&P stocks that are bouncing the most today. We'll tell you about some of the biggest movers. Welcome back to Power Lunch. Dow is up 598 points. Just a little bit off the session highs. we had been up as many as 657, I should say, JPM, Goldman and United Health, all leading the Dow. Interestingly enough, with JPM because it was the laggard yesterday. Some of the most beaten down S&P 500 names are seeing a big bounce, though, and Dom Chu is here to catalog them for us.

All right, so if you take a look, I mean, we went through the count, and John Kelly about maybe as of 30 minutes ago, there were about 30 stocks in the S&P 500 that have fallen by around 50% or more from their recent highs. So if you put that in context of the S&P, remember from the record highs that we've seen, we're down roughly 20% from those levels. So some of these stocks are brand name, large-cap stocks that have taken a huge hit. And this is the debate about whether or not there's a certain value that you can fall by where you start saying, hey, maybe it's worth picking up, even if I don't think the prospects are enormously great going forward.

So I've picked out the top three, the three biggest drawdowns from their recent highs. The number three spot for this, a name that we kind of been talking about for a while, That's Netflix shares. We know that since the highs, it's down around 70-some percent from those levels. So that precipitous drop there, but you can kind of see that consolidation area down at the bottom here. Is there a point at which you can start to see a little bit more buying interest? And the reason why I bring it up is it's one of the best performers in the S&P up by about 7.5% right now. The number two biggest fall in terms of the overall from the highs is it a name we talk about as well, Etsy.

Again, you can kind of see this consolidation area coming down here, but also, again, some like two-thirds. plus of their value gone. So one of the best performance on the Chessing today in the S&P up about 4%. And the one that has fallen by the most, tech and tech adjacent. We're talking about PayPal. So FinTech has been one of those hard hit areas. And remember there was a time when we were talking about PayPal as rivaling the market value, some of the big banks out there like city, B of A, even JPMorgan at one point. Was it on track to kind of get up there? Well, that move that we've seen now lower, has it up by about 6% so far today, even though, as you can see here, it's lost three quarters of its value over the course of the last year. It's been a steady decline.

So as we talk about this notion about the stocks that could see some of these more volatile bounces, it's not that anybody is trying to call a bottom. We know that's a fool's errand. But as people look at some of the stocks that have had a precedent of being very high before and have lost a lot of their value now and are now kind of big on some of these up days, that's kind of kind of be where you look. So you look at the list, you say to yourselves, which stocks have been there before, will they be there again? And then you make the fundamental arguments for why the valuation may or may not be relevant at this point. Dom, how much of today's action quickly do you think is a recalibration from a bet that the Fed has to do a hundred basis points to today?

Oh, no, just 75. I think a good amount of it, right? Because, I mean, you can make the academic arguments all you want. But at the end of the day, a lot of people use formulas to assess values. And some of those things involve capital asset pricing model, where risk-free rates, into play, and those treasury yields matter at that point. So how much more are you going to pay for a stock? What's it really worth if you can get risk-free guaranteed money of a certain level at a higher rate? Who knows? No, I think you're right. University of Michigan was a biggie.

Right. Dom thanks. John thanks. This was fun. We appreciate everybody. Thanks for watching, Power Lunch.