Power Lunch - Sports Betting & Streaming, Pharmaceutical Stock Tailwind 6/28/24

Episode Date: June 28, 2024

CNBC’s Tyler Mathisen 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 pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson, and we will get to that presidential debate. But let's start with the markets. As stocks have given up all their earlier gains, the NASDAQ and the S&P 500, did hit new record highs earlier in the session, following some inflation data called the PCE, showing that inflation is still rising, but slowly and as expected. And as we wrap up the first half of the trading year, look at the gains for the major averages. Okay, 4% on the doubt. Wow, 15% on the NASDAQ and nearly 19, I'm sorry for the S&P and nearly 19% for the NASDA. And dragging on the doubt today is that big drop in Nike, which is costing the index more than 120 points. Goldman Caterpillar, UNA, helping to balance out Nike's negative impact.

So let's talk more about the setup as we now, believe it or not, head into the second half of the year following a great and epic first six months. Let's bring in David Spica, chief market strategist at Turtle Creek Wealth Advisors. All right, who's going to be the turtle? who's the rabbit, David, for the back half? Well, you're right, Kelly. It's been a very strong first half. If you told me at the beginning of the year when expectations were for six rate cuts and that we would get through the middle of the year with no rate cuts and that expectation

falling to one, there's no way I would have said we'll be up 15%. So the key has been earnings growth. That has been the key and that's very good to see. Historically, earnings do drive the market and fundamentals drive the market. But what we've seen since 2008, it's been monetary policy. And I feel like we've gotten way too dependent on monetary policy. So earnings growth is driving this year. Earners are outperforming non-earners for the first time since 2021.

And in the second half, I think that continues. And there's a lot of tailwinds for this market that I think will continue to drive stocks higher. Tailwinds like? Well, tell wins like liquidity. Tyler, we've seen deficits increase for the U.S. government. So they're going to have to issue more Treasury. increases liquidity. That'll be positive. The market generally responds well after a presidential election, so we're likely to see a rally in the fourth quarter. And the disinflationary traction

continues. You mentioned the PCE data. The disinflationary momentum continues, and we're likely to see a Fed rate cut in the second half. All that bodes well for stocks. So soft landing, rising stocks. Absolutely. And again, the beginning of the year, that was a tough bet. But where we are to today, given how strong the economy continues to be, and inflation continuing to fall, that's very much a likely scenario. And that's good for earnings growth. That's good for stock prices. And quite frankly, don't overlook bonds. With rates continuing to be at an elevated level relative to where we've been over the past 15 years, investors can do very well on the bond market today. What happens to Nvidia? Second half like the first? Well, you've seen Nvidia trail off a little bit.

I think the evaluation got a little ahead of itself. But one of the things that really has been the key for Nvidia has been earnings growth. It's been AI and the exposure to AI and that tremendous earnings growth at Nvidia's seen. I would rather own other companies that can benefit for the same trends, like a Broadcom, that is trading in a much more reasonable evaluation. Broadcom is trading about 25 times next year's earnings, still going to grow 15 to 20 percent. Has that exposure to AI? I think that's a better place to be than a company like NVIDIA that I think accounted for about 35% of first half gains.

There's other things you can do to benefit from AI, but I wouldn't put it past NVIDIA continue to go higher. I mean, that's a bet I don't want to make at this point. You also like consumer discretionary. Give me some examples. Well, one of the names we like, Tyler, is Costco. Now, admittedly, trading to a very premium valuation. But think about whether a consumer is today. inflationary prices are still hurting the consumer.

They need to be able to shop someplace where they can get a good value. Costco is that place. I can tell you for a fact, my 93-year-old father shops no place else, and he is very much a value buyer. Costco also saw a significant increase in re-enrollment of their membership. In fact, the high since we're seen in the last quarter, so it's another revenue stream that most of their competitors don't have. It is expensive, though. I mean, it's ironic that we talk about, you know, what's been happening with Nvidia or Broadcombe somebody's stocks. I think it's Costco 50 times still or has it come off that? It's still trading pretty close to 50 times, Kelly. You're right.

And it's growing at about 10%. So that really doesn't jive. But at the end of the day, consumers have to have their staples. And quite frankly, Costco saw some pretty good discretionary sales in the last quarter, but they've got to have their staples. I know we've seen Walmart have some pretty poor results. But Costco continues to chug along. And again, we've got to shop someplace.

We've got to get our staples someplace. And Costco's a place that we think. will do well in that environment. It's like my mother-in-law, she's cheering the TV right now saying, I told you, I should have bought the stock when, not the membership, but you can't. David, thanks so much for your time. We appreciate it today. All right, Bond yields.

Thank you, David. Bond yields falling slightly after that inflation date that came out this morning. Rick Centellie's been following the market all day long, as he always does. Hi, Rick. Hi, Tyler. Indeed, they did fall. But the story changes. This is a big U-turn, but let's start at the beginning.

You expressed it quite well at the top of the show, Tyler. We still have inflation. It's just that it's growing much more slowly, which is a good thing. Now, if you look at intraday and we put twos and tens on one chart, a short maturity associated with the Fed, which is much more responsive to any good news on inflation moderating because of the implications for the Fed affecting it more dramatically than longer maturities, which has one eye on debt and deficits.

So, the initial response, you can see both maturities, yields went lower. Then if you put a two-day something, should jump out at you. The long end, the orange-red chart, you see, is above yesterday's high yields. Short maturities, not quite. And if you open it up to one week, it is quite revealing. And remember, we had a two-year note auction, which had a negative role, meaning the new guy, the on-the-run, has a higher yield than the off-the-run. But that's because it is important that these metrics are responsive to current conditions. And what you see on a week-to-date chart is that two-year notes are virtually unchanged.

I'm sorry, the new on-the-run has a lower yield by about six basis points than the two-year that we now have is off the run. So 471 is unchanged. But look at 10 years on the week. They're up eight basis points. They said the last week, right around that 426 mark, which is virtually the low of the session. So big U-turns there. Why U-turns? Well, I think mostly because end a month, end, a quarter, end of half year.

And if you look at how much lower inflation is and how much lower yields are, how much higher bond prices are, usually you see the adjustment reverse those, just like in equities. Equity's had a good month, quarter, half year. and to adjust and adjust for that, you have to go in the opposite direction to reload your positions. So some of this is going to disappear. But also remember, earlier in the week, we basically were at minus 50 on Tuesday 10s. Right now they're at minus 37, just to show you how the realignment of short and long maturities has made such a big move this week.

Kelly, back to you. Wow, Rick, thank you very much, Rick Santelli. turning to the debate last night and the focus, not so much on what President Biden said, but the way he said it, his health, and the possibility even of him not running. What had always been out there seemed unlikely, but is it more realistic today?

Let's bring in Aman Javvers now for more. Amen? Kelly, what a difference a day makes. We just saw an entirely different Joe Biden at a rally in Raleigh, North Carolina. He's on the campaign trail down there. He appeared entirely differently today than he did last night.

He was energetic. not give the impression of somebody who's at all considering dropping out of this race. He did at one point acknowledge the reality of his disastrous performance in the debate last night, but he tried at some point to turn that into a bit of a rallying cry for his loyal supporters who were in the crowd. Take a listen. I don't walk as easy as I used to. I don't speak as smoothly as I used to.

I don't debate as well as I used to. But I know what I do know. I know how to tell the truth. Right from wrong. I know how to do this job. After you heard Biden there saying, I know how to do this job, we saw the crowd rallying to his support saying, yes, you can, yes, you can. An echo of the Obama era chant, yes, we can.

So the question now is, for the Democratic Party, what can they do? There's a number of scenarios here after that very poor performance last night from Biden. with just simply gutting it out, right? That seems to be the most likely scenario as we sit here today, given what we're hearing from Democratic Party leaders and the president himself. It avoids chaos at a convention, gives Biden time to stabilize things. It does risk going into a general election with a candidate who's seen by the public as unfit to serve, though. Another option is force him out, some kind of hostile challenge to Biden to try to win over Democratic voters at the convention on the convention floor.

that could accelerate the campaign of a successful challenger, but it really risks hard feelings, protracted struggles, a divided party. That is by far the least likely scenario here. And then the one with the question mark on it as we come to the end of the day today is a graceful bow out by Biden, a chance for the Democratic Party to pay respect to a president that they have admired. Even that, though, is a bit of a messy scenario, guys, because that risks a messy internal struggle over red-hot issues like Gaza. We saw at the rally today. today in Raleigh, we saw one heckler trying to heckle the president over the issue of Gaza and Israel. That is a huge split inside this Democratic Party that the president has been able to keep

a lid on for now. If the president were to go and open this up to a food fight among other Democratic politicians, you could see that split among others reaching a fever pitch. So not at all clear what Democrats will do today. Elected officials so far today have been expressing their support for the president. So we'll see what happens. The graceful bow, the time for the graceful bow out was probably a year and a half or two years ago. It might have been October, right? Yeah, exactly. Has he got rocky in him?

I mean, that's what it's going to take. He's got a channel his inner rocky. Yeah. I mean, you saw him trying to do that today in North Carolina, right? This speech today was an absolutely make-or-break moment for the president to show his party leaders that he's still up to it. He was loud. He was convincing. You see him there.

walking on the stage with Dr. Jill Biden in her vote, vote, vote dress. You know, this was all the hallmarks of a campaign rally showing that the president still has the energy to do this job. The question is, you know, whether elected leaders in the Democratic Party feel that this is the horse they want to have in the race in November. And if it's not, is there anything that they can really do about it? A lot of this is so psychological for Joe Biden and sort of what's in his mind, the end of his career, facing his own mortality. his own aging. All those things are deeply psychological, deeply personal. It's not clear, you know, who else could weigh in in any way that would have an effect on him. Yeah, what do I know? I would put

the possibility of him pulling out very, very low at this point. Very, very low. Amon, thanks very much. I bet we'll be talking about this again. I bet we will. Thanks a lot. All right, coming up, the AI haves and have-nots, big tech sprinting into the second half of the year, but those names not betting on artificial intelligence are limping. More on that in tech check when power lunch returns right here at CNBC. With the first half of a very good year for the markets so far coming to an end, we asked investors, strategists, and our own CNBC contributors for their thoughts and the results from our delivering alpha survey tells us it's still all about tech.

Their biggest investments right now, almost half said big cap tech was their top holding, followed by energy, but they admit they don't love this dynamic. 80% say the fact that major indices have become heavy with a few stocks makes them nervous. 80% say, I don't like it. Kate Rooney has more on big tech's domination so far this year. Kate? Hey, Kelly. Yeah, so mega-cap tech has dominated the market, but investors are now describing this as a split

between the AI halves and the have-nots. So once loved software names think of MongoDB, Snowflake, UiPath. You guessed it. Those ones are considered the have-nots. You can see it clearly in their share prices, way underperforming the S&P and the Q's. And then you look at Mag 7, really, aside from Tesla, having a banner year, thanks to the AI story, and really strong earnings growth, especially in VDIA, topping $3 trillion this year. Amazon joining the $2 trillion club this week.

It does really come down to IT spending. So enterprise customers, they're feeling the pressure to bulk up their own AI offerings, and then with smaller budgets for the rest of software out there. Gartner, for example, sees spending growing 8% when it comes to IT this year, but mostly for generative AI, calling it a gold rush level. of spending. We are seeing the same dynamic out here in Silicon Valley. AI startups are really the only ones people talk about. They're the ones generating all the buzz. And according to Pitchbook, they're the ones bringing in all the money. They now represent 45% of so-called unicorns,

those valued above a billion dollars, and they account for over 60% of the recent added value. Mega Cap Tech's really full circle. They're also investing billions in the hottest startups out here. You've got anthropic, open AI. That tends to push up prices. And it makes it harder for sort of the normal venture capital group to get into those deals. Some are hopeful, though, that this dynamic, the haves and the haves not have-nots, at least in public markets, I think that's going to shift into the back half of this year. Mizzouho this morning pointing out a breakout move in the IGV says that for a sector that's been out of favor, June has been a revival, and they say clearly semi-money is rotating out of semis and into software and internet. We'll see if that continues, guys.

All right, Kate, thanks very much. You better have AI in your initials somewhere. Thanks a lot. All right, coming up, surging insurance costs, majorly hurting the solar space. We'll give you the details when we return. All right. Welcome back to power lunch. Stocks right now, as you see with the slightest of gains, the Dow has turned, excuse me, of losses, has turned gains into losses with the industrials still above 39,000. Meantime, insurance costs are going up for a lot of things lately, but the solar industry has had to pause projects as a result.

Pippa Stevens here to explain. Hi, Pippa. Hey, Tyler, while as solar energy becomes ever more popular, a razor being built in places with more extreme weather, putting panels at risk for more weather damage. And because of that, insurance costs are becoming a really big problem for solar developers. In some places, they've quadrupled over the last five years, which changes project economics. This is especially true for Hale insurance, since Hale can have devastating impacts on solar farms. In the last five years, the number of Hale-related claims has been low, about 1.4 percent. but it's the costliest category at roughly 54% of insurance payouts, according to G-Cube.

Not only have insurance costs risen, but underwriters are offering less coverage, and lenders require comprehensive policies to protect their investments. Insurance is now often the highest operating cost at a solar farm, and I've spoken to several developers who are pausing projects because of the cost. Now, the industry is taking action to protect panels, including putting them in what's known as stow mode ahead of a storm. that's a 75 degree tilt so that damage isn't as acute. You see it there.

That one's from NextTracker. Now, of course, all projects are also not created equal. A lot of this depends on the developer's size and then also where the project is. That's fascinating. You show some of those pictures. I mean, the damage is big on those things. Yeah, I mean, well, imagine you're out in the middle of the field. The panels that are made in glass are pointing directly up.

A hail storm blows through, and there were a couple of instances of total wipeouts. And so then insurance company says, we can't be the underwark. We can't bear all of this. And so they've changed their deductibles and changed their coverage. What kind of insurers write this kind of insurance? Are they specialty insurers? Are they the ones we know and would be household names? So it's the ones you've heard of like a chub or an AIG.

You also have the aggregators like a Martian and Aeon. But one issue is that this requires specialty knowledge. You have to have very sophisticated weather patterns. Things like, you know, the size of the hail makes a massive difference on how much damage is done. So we've also seen companies like G-Cube, KWH, who are new and up. and commerce who specialize in this, and they can then advise the insurance companies and recommend which projects to underwrite, which wants to steer clear of. This is going to be an unfair comment, but you sometimes wonder if the whole solar thing is just a massive waste of capital. I mean,

right, I mean, the intermittency issue, which can never be solved until the batteries or the transmitters get online, and would that capital be better off all deployed into nuclear? I don't know. It's just maybe the costs are coming down so much that this is really truly becoming another great backup option, but is it still an open question? I think the issue is. is that the easy projects have been built. So where it made the most sense, where there was no risk, those ones were the first ones. They were the early adopters. And now we're getting to the next stage where it's, you know, we're trying to push a needle. We're trying to get more online. But with it comes, you know, maybe you're in a convective storm area, but there's no other option.

So they're still developing it. I'm not to mention the land space required for a really big installation. These things are football size, airport size installations. Pippa, have a good week. Get some sun. Let's get over to Kate Rogers for a CNBC News update. Hi, Tyler. Russian President Vladimir Putin today called for resuming production of nuclear-capable intermediate range missiles. They were banned under a previous treaty with the U.S. signed by President Reagan and Mikhail Gorbachev in 1987. Those missiles have a range of about 300 to 4,300 miles. The Trump administration withdrew from the treaty in 2019, citing Russian violations.

The Biden administration today announced a new temporary protected status to more than 300,000 Haitians who arrived in the U.S. on or before June 3rd, saying it's meant to shield those who entered illegally from being sent back to Haiti amid growing gang violence there. And the Texas Supreme Court today refused to block a GOP-backed state law banning transgender minors from gender-affirming medical care, such as hormones and puberty blockers. In an eight-to-one vote, the court rejected arguments by fissioning. families with transgender kids, rather, that that law deprives parents of their rights to make decisions about their children's care. Kelly and Tyler, back over to you. Kate, thank you very much. Coming up, growing criticism against pharmacy benefit managers. Claiming these companies, these middlemen, drive up the cost of drugs for millions in the U.S. We'll debate when Power Lunch returns.

Welcome back to Power Lunch. As we mentioned at the top of the show, United Health is helping to boost the Dow today, and at least one analyst is actually pointing to last last night's debate as a potential positive for the company. Bertha Coombs is here to explain, Bertha. Kelly, you know, the big Medicare advantage insurers appear to be getting a lift today from last night's debate with RBC analyst Ben Hendricks saying that President Biden's weak performance is boosting sentiment around the prospect of an easier regulatory environment for the group under a Trump administration. Humana and CBS especially have faced pressure on changing Medicare reimbursement. rates and quality ratings on their plants.

Cigna, which is more focused on commercial plans, has outperformed this year as a result. But Hendricks says a federal trade commission under a second Trump administration could pose less of a headwind to M&A. Recall that Cigna had reportedly looked to buy Humana. But Cigna, CVS, and United Health also face regulatory pressure over their pharmacy benefit management units or PBMs and how their business. models impact drug prices. That's not just coming from the FTC under Lena Khan. There's still a lot of bipartisan support in Congress to try to rein in their businesses as well. Tyler. All right. Thank you

very much, Bertha. And those PBMs are under fire for their perceived role. In the alarming rise of prescription drug prices in America, according to new data from Good RX, the cost of prescription meds has increased almost 40 percent over the past decade, but the price hikes. have slowed a bit this year. The average American spends about $16 out-of-pocket per prescription. A recent New York Times investigation says pharmacy benefit managers or PBMs are largely to blame for those rising drug costs. Critics argue there are positives to BBMs as well, which act as middlemen overseeing prescriptions. But they say improvements are still needed. Here to weigh in on this is Dr. Scott Gottlieb, former commissioner of the FDA, as well as the CNBC contributor and David Fields.

He is CEO of Navitus, a pharmacy benefit manager, partly owned by Costco. A gentleman, welcome. Dr. Scott Gottlieb, let me just begin by sort of disclosing my bias. And that is that it seems to me that an awful lot of the health care insurance and coverage system is cloaked in opacity, and intentionally so, and nowhere more so than in pharmacy benefit managers. They profit, I think, because they keep things behind the curtains and opaque. Am I wrong? No, I think there's fairness to your analysis there.

I think there's ways to bring more transparency into this market and we would benefit from that. I think we need to start a discussion around PBMs with first acknowledging the benefits that they provide to the system. They do extract significant discounts from the drug makers that might not exist without their purchasing power. They also provide other services to patients like medication, therapy, management, which helps patients understand their medications, drug utilization review, which makes sure patients aren't exposed to unintended side effects. They look for drug, drug interactions. They also maintain patient assistance programs.

The problem is that the way that the discounting happens in the marketplace right now, we've talked about this before, is through back-ended rebates. So what happens is the PBMs negotiate with the drug makers to extract discounts. Those discounts are paid in a form of rebates that are paid after the transaction takes place. So if you're a patient and you go to the pharmacy and there's a $1,000 medication, the medication is listed at $1,000 list price. So take, for example, the weight loss drugs that we've talked about. The PBM might have negotiated with the drug maker for a $500 rebate on that drug. But when you're at the pharmacy counter, you're going to pay $1,000 and your insurer is going to pay $1,000.

So if you have a 20% copay on that medicine, your co-pay is going to be $200. Now later, perhaps six months later, the drug maker will pay a $500 rebate back to the insurance company. So the actual cost in the insurance company was $500. What the drug maker got paid was $500. But what the patient paid at the pharmacy counter was $200. And those rebates, when they go back to the insurance company, the insurance company typically doesn't give it back to the patient. What they do is use all those rebates collectively to pay down the cost of the premiums.

And so there's heavy discounting in the marketplace driven by the PBMs, but those discounts aren't always flowing back to the patients who are out of pocket for the cost of their medications. Now, some PBMs like CBS and others have launched initiatives to try to get the rebates back to the patient at the pharmacy counter through their true cost initiative and other PBMs are doing this. But employers who are ultimately responsible for setting those contracts, they like the rebates because it allows them to offset other costs in their administration of their health benefit. So they don't often engage in the contracts with the PBMs where the rebates would go back to the patient. And that's the problem. There's also policy fixes. I'll pause here, but there's policy fixes I think we can implement to bring more transparency into what's being paid to whom

that would collectively, I think, put pressure on some of these practices that you outlined at the top of the set. As always, Dr. Gottlievy, you've given a very thorough answer here, but I think you've kind of made my point. My head spins at what you just described there. I can't quickly do the math on that. David Fields, I'd like you to react to what Scott said. And it seems to me that whether or not the PBMs, have the, one of which you run, have the saliatory effect of extracting a bigger discount from a drug maker. What is the incentive for the drug maker not to raise the price higher and higher and then

give yet another bigger discount back to the insurer of the PBM? In other words, if I'm a PBM and there's a thousand, in Mr. Dr. Gottlieb's case, there's a $1,000 drug. I'm getting a $500 rebate. Why not price the drug at $2,000 and give a $1,000 rebate back to the PBM? Well, Tyler and Kelly, thank you for having me on today. Dr. Gottlieb makes a lot of really great points in his commentary. And in fact, the traditional PBMs do drive up the cost of medications. They have no incentive to deliver the lowest cost to their customers. And in fact, the more rebates, they can generate, the more that they can keep a percentage of that. That's my point, is that the incentive there is for them to keep the price going up so that

the rebate, the fees that they get, that they may or may not pass back to consumers are higher. Your PBM is different, though. Explain how and what the transparency different is and the rebate policy is. So our PBM was founded 22 years ago for the Express. It was founded by disaffected customers of the big three PBMs. It was founded on transparency. It was founded on passing through all rebates and fees and retail discounts back to the customers that generated them. The important thing is that the traditional PBM model is very much like a casino.

They set the odds. They set the rules. They set the definitions. And it's virtually impossible for a, for a customer to reap the benefits because the traditional PBM steps in and takes part of that. So our business model was founded by customers who wanted that transparency and wanted to get rid of the opacity that exists. Dr. Gottlieb, I'm struck by what Mark Cuban's trying to do in this space to basically, again, kind of drive out the old system and maybe replace it with something newer and more transparent. Are we overdue? And I don't know whether it's called Stockholm Syndrome or something, but even looking at Walgrain's results this week, they didn't go the PBM route. The company's clearly struggling as a result. So the ones who did go that route are being rewarded, albeit perhaps for the wrong reasons, as it just never really improved the consumer experience or lowered cost. Yeah, look, with the current structure that we have in place, there's a lot of different ways to make money. It's not just the rebates, but also fees that get paid. The problem is there's a lot of discounting in the marketplace, and we often talk about the list price of the drugs, but not the net price of the drugs.

And net price is often very lower, much lower, especially in competitive spaces. But the problem, again, is that those discounts aren't always flowing back to the patients that are out of pocket for the cost of their drugs. And the other players in the system have preferred the rebate structure. The employers like to get that rebated money because they use it to offset other costs. to lower their premiums, which is important to them, so that most of their members have a lower cost product, even if the patients that are out of pocket for the cost of their drugs face higher costs. The drug makers oftentimes, as much as they decry the rebates, they like them when they're using them to buy access to a formulary. So they'll go into a PBM and say, we'll pay the highest

rebates if you put us into a preferred tier in your formulary. So because of a lot of the players in the health care system are benefiting from this structure, the structure stays in place, unfortunately. I think there's ways that we could put pressure on these arrangements so that more of the goes towards things like what CVS is doing through the true cost initiative, where the rebates and the discounts that are being acquired in the marketplace are going back to the patients who are out of pocket for the high cost of those medications. I don't think we need to blow up the current system. I think the PBMs put a lot of pressure on the drug makers, and I say that as someone who's been around the drug industry for a long time, it continues to be. They put a lot of pressure on the drug makers to lower their prices. It's just that the discounts that are being extracted aren't benefiting the patients who are paying for the highest-cost drugs. I think what Mark Cuban is doing is outside. standing. It's largely affecting the marketplace for generic drugs. He's providing another low-cost option. That's friction-free for a lot of patients. I think there's things that we could do to make sure that when patients go into the pharmacy as well to purchase a generic drug that's paid for under a PBM contract, they're not paying a higher price. Right now,

the pharmacies are sometimes reimbursed on a basket of generic drugs rather than on the individual generic drugs. And so even if overall what the pharmacies are getting is a fair price and all their generics, Certain generics might be higher cost to offset the lower cost, offset the cost of another generic drug. And the patient, again, who is purchasing a generic drug at the pharmacy counter, might be facing very high cost on what should be a cheap drug. We have to leave it there, gentlemen. It is a deep and woolly topic, and we appreciate your efforts today to try and brush away some of the wool. I think we can all agree that there's a lot of gaming going on from lots of different sort of vectors in this space. Gentlemen, thank you once again, Dr. Gottlie and David Fields.

We do want to mention we reached out to Cigna, CVS, Health and United Health Group for comment on that New York Times investigation. They own the three largest PBMs. We are awaiting responses. Coming up, the NHL draft, going big and heading to Vegas to be the first sports-related event at the Sphere. We will speak to the NHL Commissioner about that next. Just days after an epic Stanley Cup, the NHL returns tonight for its draft. The two-day event will be the first live televised event from inside the sphere in Las Vegas.

Joining us to talk all things hockey is Commissioner Gary Bettman and our Vegas and gambling correspondent, Contessa Brewer. Who's been to the sphere? I have, and it's amazing. It's supposed to be spectacular. I can't believe that the hockey draft is going to be there tonight. Yeah. So, Commissioner Bettman, you've had a busy week. You had a thrilling game seven.

I guess I can't remember what night it was. Maybe it was Monday night. Florida won the cup from Edmonton, the Ruffman. ratings were really good. It's a great time to be at the NHL. What takes place on the ice has never been better. People are saying competitively and aesthetically, we may have had our best season ever. Business is booming.

Ratings are great. And we're in Vegas. We celebrated our awards last night with a special show. And being here in amazing, amazing company at Sphere of Vegas is just simply incredible. And what I think we're going to show for what's typically a business meeting is going to be nothing short of dazzling. I mean, what's really remarkable is that this is the first time the sphere will have anything sports related and the first live event coming from the sphere. And the very first time that what's happening inside the sphere is actually broadcast on the outside of the exoskeleton. What does hockey and the draft get out of that, commissioner?

All the attention, including what we're discussing now. Actually, it's a testament to James Dolan and his vision for Sphere. The crew here at Sphere has been incredible. And our own events people, headed by Steve Mayer, have really gone to school on figuring out how to make this work and make it a lot of fun, both for the people who are going to be here in attendance and people who are watching from afar. Look, I was covering gambling when the Supreme Court overturned PASPA, which then cleared the way for the states to embrace sports gambling. As soon as that happened, you were about first in line to say, yep, okay, sign us up. You got the Knights in Vegas, the hockey franchise that's happening there. But now all of a sudden we're getting a lot of headlines about professional athletes and referees and others associated with sports involved with gambling in ways that are calling into courts.

question, the integrity of sports. How do you look at how that impacts fan enthusiasm for the sport? Actually, sports betting, for those who want to participate, create another connection point to the games that people are fans of. What's happened with legalized gambling is that the monitoring of betting, which it was going on illegally, is much more rigorous. We've had more one incident and it had nothing to do with betting on our games. It had to do with not adhering to the protocols that the online companies want you to adhere to. We discipline the player, but it's about education. And we have complete confidence in our personnel, players, officials, who's involved with it takes place on the ice. And it's really, hasn't been an issue for us, and we're

intent on making sure that it's not an issue. But the difference between legalized and non-legalized, It just means we have a better opportunity to supervise and monitor what's going on. Let me ask a little bit about your television situation because obviously that landscape is changing. I watch your games on ESPN and Turner. I guess it's TBS. That's where I find them. Are you going to branch out into the streaming services? Or maybe you already have, and I don't know it.

Talk to us a little bit about it. Yeah, we already have. Go ahead. Our first arrangement that involves streaming was 10 years ago in Canada with Rogers, where we granted streaming rights. And our current arrangement with Disney, ESPN and ABC, and ESPN Plus, involves our out-market package being included inside E-N-P-N-plus. What we did, we think, was extremely consumer-friendly

because we took our standalone out-of-market digital package, and merged it in at half the cost when you subscribe to ESPN Plus as one of their services. Viewership has increased dramatically, not just over the year because of how well ESPN has been taken care of us, but also with respect to the digital engagement that fans are doing through ESPN Plus. So this has been a win-win for us and for Disney. Is it just random or is there some reason behind the fact that no Canadian team has won the Stanley Cup in 28 years or something? I issue, well, the first time I gave out the cup was in 1993.

That's how long I've been doing this and it went to the Montreal Canadians. There are those who think there's some conspiracy going on, but I assure you that there isn't. You know, who wins the cup as a function of how well the players play, the team is put together, the team is managed and coached, not where your geographic location is. Well, it was a thrilling finish to the season. The Edmonton team Oilers almost came back there from three games down to nothing and lost two to one in the final. Commissioner Bettman, thank you.

Go ahead. Great. And the viewership for Game 7 was simply off the charts. And it's gratifying to see our fans gravitate to the game the way they have been. Yeah, awesome stuff. Gary Bettman, thank you. That shot is so amazing. Now can you imagine where they put fighting in there and they have corporate events.

in that stage. HP just did a big corporate event in there. That sphere is unbelievable. That spin-off. You got to give Dolan credit. I mean, it's really game changer. Wow. Tessa, thanks. Sure. Still to come, we'll get the trade on Nike and other key movers in Three Stock Lunch. We'll be right back. Welcome back. Welcome back. It's time for Three Stock Lunch. Eva Ados is our trader today. She's ER shares, CEO, and Chief Investment Strategist. Ava, welcome. And we've got to start with Nike. Those shares are having their worst day ever, a publicly traded company down 20% after that revenue problem and disappointing guidance. They now expect sales to drop 10% in the current quarter.

Eva, are you a buyer? Nope. It's a sound. Unfortunately, it was once a great entrepreneurial company. Now it's a tired brand. We're speaking about flat growth as of now and now negative up to 10%, negative 10%, as you mentioned. And most importantly, their profits have come down since COVID. And we are speaking about an area, a category that's traditionally slow.

It's a very, very flat industry, very unexciting. New upstarts, young companies such as on-running or Hoka, they're taking away market share from Nike. And fortunately, there's bleak outlook for them in the future. That's what we're predicting. Wow, a tired brand, Nike. Wow, that is really, that's harsh, Ava. But yeah, good. That's all right.

I love when you say. When you go at it right there. Let's talk about chewy. That stock dropping just a day after Roaring Kitty's dog post share. Freezes, you never thought you'd have to say. Roaring Kitty's dog buying, no. Shares had risen as much as 34 percent following the dog post from Roaring Kitty. What's your trade on Chewy?

I'm buying it. It is a mean stock now at this point. but we actually own it. And there's 20 million shares that are being shorted, but there's plenty of liquidity. Most important, what we like is that the company, the stock is well off its highs, its COVID highs. But back then, they were not profitable.

Now the company is making money, and its revenue growth is significantly higher than its peers, 7% compared to flat for the rest of the category. And on a relative valuation, they are completely aligned. It's exactly on the industry average. And so when you have revenue growth, that's higher and you have relative valuation that's in line with fears. And also we're speaking about an industry that we have millennials,

especially getting more into owning pets. And we saw this trend starting during COVID. I think the outlook is good for them. People will spend on their pets. That is for sure. She's jumping on the meme trade, huh? Interesting. For our final name, Ava, we asked you to give us your top pick for the second half.

And of all the stocks and all the world, you chose Arista Networks, which has more than doubled in the past year. It's up 49% so far this year. Why is this one a strong buy? So it's an alternative AI play to companies such as Nvidia, and what we like about them is that there are many companies speaking about AI. There are many companies saying claiming that they use AI to improve their margins, but there's not really any evidence when you look at their fundamentals.

This is a company that you see margins have improved from 31, to 41% in four years. Revenue growth is 25% compared to negative 1% for the category. And the most revealing statistic of all is that their EBITDA growth is 39% compared to negative 10% for the category. So this company, such as Nvidia, are one of the, there are two of the few examples that we see globally of companies that are able to take all their market share away from their computers and grow in an exponential way. Eva, thanks very much. Have a great weekend. We appreciate it.

And we'll be back with more on the markets. All right, so we check the markets? I think you'll look at the Dow, which has gone from the green, as you see on that chart, for much of the early part of the day. Now moving deeper into the red off about a third of a percentage point. The NASDAQ is down two-tenths of a percent or 36 points, up 18 percent so far for the year. There is a comprehensive look.

The big three, the Dow, the Air, the Air, S&P, NASDAQ, all negative. Russell, a little bit higher, and there you see the yield on the 10-year at 4.34. Yeah, we've gone negative on the trading session, but it's still a very strong, very positive starts in the year. Very positive start. Yeah, have a good weekend. Second half coming up. Have a good weekend. Thanks for watching Power Lunch. Closing bell starts right now.