Power Lunch - Stocks head for 6-week winning streak on strong earnings 10/18/24

Episode Date: October 18, 2024

The Nasdaq is on the rise, led by a post-earnings jump in Netflix, as Wall Street looks to close out a record-setting week. We’ll tell you all you need to know. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good Friday afternoon, everybody, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Welcome. Once again, the major averages sitting right near all-time highs day after day. It seems week after week. In the month since the Fed cut rates, the Dow and the S&P 500 have gained 4 percent, and the NASDAQ is up 5 percent. So the rate cut tonic seems to have worked here. Not only that. Have you seen the tenure? It's up 50 basis point. Yes. Before they cut by 50. Is it above four now? It is 411 today.

$4.11 today. Amazing. Earnings is also driving the action. Netflix up big. Amex is lower, though, and weighing on the Dow. And CVS is the latest health care named to suffer a big drop. The insurers, Tyler, have had a horrible week. Yeah, they definitely have and changes at the top at CVS. Netflix, on the other hand, defying gravity as it so often has.

And finally, strong language from the head of Amazon Web Services, the company recently announcing a return to five days a week in the office. Imagine that. a lot of pushback from employees. Now, the AWS CEO saying, if you don't like the policy, you can work elsewhere. We just showed you those vacancy rates, 20% for Class A buildings, the Sunbelt, some of those parts of the country are being hit the hardest. Yeah. And you wonder whether this is kind of a backdoor way to reduce staff. In other words, force people out who would take voluntarily leave, not having to do a lay. Absolutely. All right, we start with Invidia.

Why not? Which is trading higher on a bullish call. of A securities raising its price target on the tech giant to $190 from $165, reiterating its buy rating. The firm calling NVIDIA a, quote, generational opportunity with a huge competitive advantage in a growing market. The stock already up nearly 180 percent just this year, and that's after last year where it's something like tripled. Now, here's the analyst behind that call, Vivek Area. Vivek, welcome. Good to have you with us. Donald, thank you for having it. You know, I guess the question in reply to the idea, I have no question that NVIDIA is going to be a great company for a long time to come.

But it has already had that generational moment, it would seem to me. So how do you see it moving multiples higher from here, generationally, I suppose? Taylor, let me actually tell you a story first. So, you know, the first commercial Internet service started in the U.S. in 1989. Amazon started in 94, Google in 98, and meta in 2004. The point here is that, you know, you don't just have one or two-year technology cycles when you are investing in these real big changes to the technological infrastructure. And we think generative AI is one of those really big technological changes that is going to take time to play out.

It is true that it is insanely computationally intensive. You need a very strong linkage between the silicon, the system, the software, the developers. They all need to come together. But this is not something that will just start and end in one or two years. And specific to Nvidia, in the last two weeks, we had the challenge. chance to meet with, we had the chance to interact with and listen to a number of companies in the supply chain to the competitors. And what is coming out very loud and clear is that the opportunity is much larger. Their competitive position is much stronger. And then finally,

when I look at the stock, right, we have a stock that is trading less than one times earnings growth. And if you were to take an average of the other so-called max seven, they are trading at 1.9 times their average earnings growth for next year. That is why we think that we are in front of a large opportunity. The company is executing well and the valuation is very compelling, even at these levels. Vivek, let me ask you, today is interesting because Nvidia is doing well, but the rest of the semis are actually struggling and the socks is lower. What explains that? Yes, Kelly, I think, you know, this week we had the start of earnings. We had one very tough report from ASML.

Very. Then we had a very strong report from TSM. Next week, we will have a number of other earnings report from semiconductor companies. And the challenge the industry is facing is that this, you know, one shiny area of AI is doing extremely well, but it is less than 20% of the overall industry, whereas the rest of the industry, which has to do with industrial and automotive and PC and smartphone demand, that is just not doing as well. So I think it's possible that investors are taking.

taking a wait and see attitude before we get into the heart of this earning season. So I think it's that kind of very normal earnings volatility that we usually see. How wide and deep is the Nvidia moat? Sure. You know, so what I think AI is telling us is that it is not just good enough to be a chipmaker, right? That you need to make sure that you can scale these chips across the system, that you have software that can be optimized to deliver the best computational performance, that you're taking care of all the energy and the power requirements, that you're working at scale with the supply chain in Asia.

And then importantly, that you're working with an enterprise ecosystem. You know, a few days ago we saw Nvidia signing the relationship with Accenture who will train thousands of people to go and deploy Nvidia-based system. So I think it takes that end-to-end knowledge. and only one company today is able to deliver that. And this is not something you overcome in a day or a year or two or three years, because Nvidia has been investing in this kind of silicon and software right from the days when they were just a gaming company.

You know, their core operating system called QDA came out over a dozen years ago. So that's the kind of advantage and lead that they have built both in terms of their early investments in software. And today, their scale and incumbency and partnerships with a number of these enterprise software companies and consulting companies. I just wonder at sort of a last question, Vivek, if the company is inherently cyclical and if there's been any kind of pull forward in demand just to make sure that people have what they need, are we going to look to the other side of that. And I don't know if that's in three or six months' time or maybe beyond that window. But a lot of people who are bullish say they literally don't think it's going to be a cyclical business like many of semiconductors have been through time. No, I think every time, you know, we forget that semiconductors are a cyclical industry. They have a way of rudely reminding us that it is a cyclical industry.

Usually these cycles tend to last for four years where the time to make money is the first three years. So last year, we had a very strong year. This year is a very strong year. We think next year can be a very good year. And then the cycle potentially rolls over in 2026, right? But I think it's only to refresh and then get on to the next technology trend. So we do think there is at least about a year's worth of investment left in this upfront infrastructure deployment that semiconductors are such a critical part of. All right. Vivek, thanks for joining us, making the bullish and generational case, or at least the case until 2026 for India.

The other market 10 poll this week has been Netflix with the stock up 10% today. And it's also more than doubled in the past year as media giants struggled to turn a profit with their streets. efforts. Netflix is the lone wolf on Wall Street. Why is it succeeding when others aren't and how can Netflix keep it all going? Here to discuss is Julia Borsden. And Julia, you know, we heard from the CEO, we heard from an analyst last hour, if they're rolling out a new show every week as they plan, that's formidable. And if they can now charge advertisers twice as much and keep subscriber costs low relative to the others, well, now you see why the shares are doing what they're doing, I guess. That's right, Kelly. I mean, what's happening here is with all

of the content and the very robust content pipeline, especially for the fourth quarter, Netflix says it is confident it can keep momentum going, saying we still see plenty of room to increase our margins over the long term. And at the center of that confidence isn't just the better than expected subscriber growth, but rather user engagement. Now, paid memberships to Netflix average two hours of viewing daily, and that engagement will prove increasingly valuable as Netflix grows its ad business. The company did warn that ads will not be a driver, a primary revenue driver in 2025. But having the ad supported lower price tier is helping ad subscribers. The ads plan accounts for over half of signups in countries where that tier is available.

Co-CEO Greg Peters saying that they are planting a number of seeds for future growth. In addition to advertising, they also have all these seeds that will potentially enable them to raise prices, including sports and also games. His co-CEOO Ted Sarando is saying they already have a huge advantage over traditional media companies and their streamers because of the depth and breadth of Netflix's content. We're seeing a lot of our competitors use bundles to find growth in their businesses. And I get that. It's a comfortable business model for legacy media companies.

And kind of given the narrow scope of the libraries on these services and the fairly limited engagement, it makes sense. for them to kind of replicate some of the older media models. And analysts are certainly buying into Netflix's story of the 32 analyst calls that we've counted today. 26 of them raised their price targets, according to FACSET. Kelly, Tyler? The thing that stands out to me, Julia, with respect to Netflix, is that as you look across the entire media landscape, and we work for a media company, a big one with its own streaming product,

Netflix is the one must have brand in your portfolio, your personal portfolio. Not not your stock portfolio, but it's the one you'd have to subscribe to. Well, it's because it's so broad. I mean, what they were describing, the reason they don't need to bundle with other platforms is because they have a little bit of something for everyone and on a global scale. And what they've really benefited from is the fact that they have local language content for markets all over the world. And what they're seeing is that local.

language content and the shows that might be developed for South Korea like Squid Game, then in turn have this huge appeal around the world. So whether you're looking for a telenovela or something that's more like a sitcom, Netflix is doing a little bit of everything. They've got good documentaries. They've got great dramas, scripted things, unscripted things. I mean, it's, as you say, it's got a little bit of something for everyone. And that, I think, explains their success in large measure. Julia, thank you very much. Appreciate it. Julia Borsden. And still to come, chaos in corporate America,

as CEO replacement at CVS, an activist push to sell Lamb Weston and Amazon, telling employees, if they don't like the new in-office policy, then they can find the exit. We'll dive into all this and more when Power Lunch returns. Welcome back to Power Lunch. Let's do our three-stock lunch here today. A deluxe edition as well.

We'll give you the stories on three stocks in the news and get the trade on each one. James Demert is, here to do the trades today. He's chief investment officer at Main Street Research. James, it's great to see you again. And let's begin with CVS health, which is on pace for its worst day since May, on news of a guidance cut and a CEO shakeup. Angelica Peoples brings us that story. Hi, Angelica. Hey, Kelly, that's right. Today, CVS saying that it will replace its CEO, Karen Lynch, with longtime executive, David Joyner. And Lynch had only been in the job for

three and a half years. And I think that speaks to how quickly things have changed over at CVS. had always been under pressure, but now it's insurance that's really the problem. The company today saying that for the third quarter, it expects adjusted earnings between $1.5 a share to $1.10 a share. Now, analysts were looking for $1.70 a share. And that Q3 guidance does include about a $1 billion charge related to its premium deficiency reserves, and that's for its insurance business. Now, medical benefits have been, the medical costs have been rising for CVS, just like they have been for other insurers. and that is going to pressure the company for the rest of the year.

They are withdrawing their full year guidance, saying that they'll have more to say when they announce Q3 earnings on November 6th. And remember, there's also an activist in the stock, Glenview Capital today. They are saying that they support this move for Lynch to exit the company, but they do still want to see some change on the board. So we'll have to see exactly what this new CEO can do and whether he can turn things around for the stock. Kelly?

We'll see what our trader thinks. Angelica, thank you. James, would you? you be buying shares of CVS at $60 here? Hey, Kelly, no, we would not. We would be a seller, actually. I mean, when the stock is down today, when there's big trouble like there is at CVS, heads are going to roll, and that's exactly what's going on with taking Lynch out.

I'm not sure in our view that that's enough. I mean, the poor performance, the profit deterioration, and as was just recently mentioned, you know, the guidance is going from a buck 70 to a buck five. is really dramatic and then removing all the guidance for the rest of the year. You know, Joyner is a great compliment and replacement, but he's not a turnaround person. There are problems specific to the health care insurance business. That's really where the big problems lie come from the costs, exceeding revenue. You know, they cut costs to get market share.

Let that be a reminder to all businesses, very dangerous thing to do. So now their margins are really skinny. Even at six times earnings, down 28% this year, I think it's a value trial. It would not go near it. So it's the insurance business that's their problem, not the pharmacy, not the PBM, not the stores. The big problem is the insurance, Tyler. The stores have been lackluster, but that big problem is in the insurance. All right.

Let's move on to American Express, which reported a top line beat and a bottom line missed this morning. Is that right? I'm not sure that's right. Sending shares off of yesterday's all-time highs. Our own Husson spoke to the company's CFO earlier today, and what did you learn? Straighten that out for us. Did they beat on the top line and miss on the bottom line or vice versa? It's the reverse. They beat on EPS. They missed on revenue very slightly. That's what I thought. Hey, Tyler. So MX CFO, Christoph LeCayek, telling me that the reason for the stock reaction today is basically they're guiding a 9% revenue growth for 2024. which is on the low end of their stated 9 to 11% range.

And the reason for that, Lecayek cited a soft environment for spend growth, as even their affluent card users are becoming cautious on discretionary spend. Now, the stat for that, spend growth in the quarter was up 6% on Amex U.S. cards, which is below their historical average range of 7 to 8% growth.

Now, importantly, he still believes Amex can achieve north of mid-teens EPS growth this year by keeping expenses in check. And another reminder before today, Amex shares were up a whopping 54% unit date. So today's stock reaction, a bit of a give back from an extremely strong year. All right, Hugh, thank you very much. Back to James.

What's your trade here on Amex? Hi, Tyler. Here we'd be a buyer. I think investors are selling the stock off incorrectly, misperceiving the opportunities that are coming forward in the next four quarters. In some respects, this is one of the best ways to play this new extended bull market in the financials without owning a bank. And also to play that robust consumer spending we have. So we think Amex is a wonderfully positioned company here. Yes, they did be on the bottom line.

They were a little bit light on revenue. But they did guide higher. So fee revenue of 18%. That's a super good number. 3.3 million new card members. That's quite significant. I think this market has misunderstood how robust the consumer has been and also will be. And I think that's what we're going to see drive the stock over the next

four quarters. So I would buy the stock here on weakness. All right. Let's see about Lamb Weston, which is on pace for its worst year on record. And this was a high flyer in a couple of years prior. Now, it's up strongly today. It's best day in four years, in fact, on reports of activist intervention. Let's bring in Kate Rogers with that story. Kate? Hey, Kelly, John of Partners, the activist investor has been building a stake in Lamb Weston of some as it pushes the maker of French fries to explore options for a sale. The Wall Street Journal first reporting that today. According to SEC filings, the activist has been building the stake since August. John had declined to comment to CNBC. Now, the journal's report says it's looking

for Lamb to improve both operations and capital allocation strategy, and it could nominate directors to the board as it works with its former executive chairman Timothy McLevish. Now, while you may not have heard of the company, you've likely tasted some of its products, it makes frozen potatoes. It's a major producer of French fries, customers, including Yum brands, and McDonald's. The stock down just under 30 percent, a tough year, as you mentioned, year to date, but it's up some 10% on the news today. Lamb has a market cap of 11 billion, and we just got a statement saying from the company, we're aware of the 13D filings from John and Partners and Continental Grain. We regularly engage with our shareholders to better understand and consider their views and we'll continue

to do so. Kelly, back over to you. Very interesting. James, to you for the trade, And the company is talking about kind of weakness and markets here, as a lot of restaurants have raised french fry prices, which to me sounds more cyclical than structurally broken. But what do you think? Well, what would Power Lunch be like if we didn't talk about French fries? So that's why I first comment. And, you know, the company, after years of being super successful,

has been quite a mess. I'd say for the last two or three years, operating deficiencies have been a problem. Believe it or not, raw potato procurement has been, not done correctly, overpaying, and they have a very robust compensation plan. Barry Rosenstein of Jana coming in sees a lot of that, and he sees ways to adjust and change a lot of those metrics, get it back to what it used to be. So we would have probably been a seller, maybe a hold of the stock prior to Jana coming in.

Now we are a buyer. We think they will make those adjustments. They'll get board approval. And I don't know if you're aware of this, but over the year, has been a lot of companies acting as a shooter wanting to buy Lamb Weston for that monopoly they have in French fries. So I think they're going to have a lot of potential buyers if they can write this ship. And I think Rowanstein and Jenna can do it. So we would be a buyer.

All right. Don't say monopoly, though. That's going to get them all the wrong kind of attention, I think. James, thank you very much. James Demert of Main Street Research. All righty, from stocks to bonds. After the break, we will dive into the outlook for fixed income. And today's market navigator power lunch will be right.

back. And welcome back to Power Lunch. Take a look at the NASDAQ today, up three quarters of 1%. And what's fascinating about that, Dom, is that rates have been moving higher. 411, 412 on the 10-year stocks are shaking it off. The high-tech stocks in particular, the S&Ps of half a percent. The Dow's up 85. What does market navigator hold? It doesn't seem like a recessionary, right? A rising rate market and a rising stock market? At all. All right. So, Kelly, as this Fed navigates the rate strategy, Your questions are continuing to pop up about the likelihood of a recession. But the bond market is signaling recession is just not in the cards anytime soon. So our next guest says that, in fact, upside opportunities actually exist around the fixed income markets right now.

We're speaking with Joanna Gallegos, the co-founder and chief operating officer over at ETF firm Bond Block. She joins us here now. Joanna, this is amazing to talk about because it was just two years ago, maybe even less, where there was the economist consensus that we were 100% destined for a recession, a downturn, and it never happened. And now things are looking pretty good and the bond market's validating that. Is it not? Absolutely.

I think what the Fed has been able to do, and we've seen, you know, meeting by meeting, quarter by quarter, is that they have been able to get inflation under control while supporting the economy. And so we're telling investors they really need to be lean. into the continued resilience of the U.S. economy. Earnings are good. Balance sheets are strong. And the American economy is doing well. So that means that there's opportunities,

especially at this point when we're in a declining rate environment in fixed income and the income of your portfolio. So we talk oftentimes, Kelly, about the treasury market, the rate side of things. And that's the benchmark. It's the safety and security of the full faith and credit of the U.S. government and the U.S. taxpayer, you and I and everybody else. But it is in corporates and not just investment grade, but also high yield, those so-called junk bonds that are actually showing some attractiveness to you. Tell us why that is.

Yeah, so we see there's a lot of valuable income potential in credit. That is the debt of corporations. And our strongest view is actually in high yield. So the reason for that is that, you know, as I mentioned before, balance sheets are very strong right now. And most investors really haven't looked under the hood of what's going on in these corporations. Their interest rate coverage ratios, which is their ability to pay their debt, are high and good and stable. And so that means you can look at these credits, look at these corporations. High yield is a great place. It's yielding between 7 and 6 percent. And on the triple C side, which is sort of the lower credit rating in high yield, over 11 percent in yields.

And that's an amazing place to search out more income for your portfolio without some of the distressed risk that everybody's been looking for. Like you mentioned, we still believe in a soft landing or if a no landing here at bomb blocks. And so we're highlighting that this is a place of great income and potential return in a declining rate environment. And obviously, if the economy looks better at the margin, Joanna, that would be more supportive for kind of dipping your toe into high yield. My question would be back what you said earlier. and for the landscape in general, are we in a declining rate environment? We've seen the 10-year backup 50 basis points since the Fed cut. So maybe we're looking at more of the five-year portion of the market.

But our investors potentially able to get better yields that they hold off if whatever, if there's the potential for rates to even move higher? Well, I think what we need to just do with listen to the Fed is that they're going meeting by meeting, data point by data point. I think that served them well. They made a bold cut in September of 50. basis points, they've indicated that they are looking to decline to reduce rates going forward. And so I think that if you're looking for possibly, you know, the rates to hold or to go up,

that's just not what we're hearing from the Fed. And I think if you look at the history of the way earnings have come in quarter after quarter and rates and people have been able to endure these higher rates, there's probably a reason that they're going to keep going down. So we wouldn't say that that's a significant fear for us. We are in the soft landing, no landing, lean into these really good fundamentals of the U.S. economy and take advantage of these opportunities in corporate credit. All right, corporate credit. That's the idea.

We're looking at some of these charts right now. But Joanna, what part of the spectrum of the yield curve are we looking at for these corporates, the very short end, the very long end? That's what we focus on. Are they the opportunities or somewhere in between? Yes, probably somewhere in between. We've seen we have an opportunity in investment grade credit in triple Bs as sort of the area of investment grade that has the highest potential for total return and yield. And we're recommending the intermediate space in investment grade. So most for that

and for our rates recommendation, we're saying, you know, get out of that ultra short space on the rate side and the treasury products. Then also as you're taking credit, our strongest recommendation in investment grade is in the intermediate space. All right. Joanna Gallego is at bond blocks with the view on credit and the recession risks associated with it. Thank you very much. We'll see you soon, Joanna. They have a bunch of different ETFs to play that up and down and all around. How we'd like to do that too. I mean, a lot of people use some of the larger ETFs like the YG, the JNK, the LQ, the LQ, and even those places have those income potentials without having to go straight up into treasuries or way out into

some of the really weird parts. And if you're not as worried about macro risk, which we're at the moment, not so much. There you go. Thanks very much. Over to you, Ty. All right, as we had to a break, a quick power check on the positive side. You got your intuitive surgical, the robotic surgical firm hitting new highs on the back of a strong earnings beat on the negative side. You got the global food and agricultural firm, Bungie Global, part of an ongoing sell-off in that name, which some analysts claim is in oversold territory. That's your power check. We'll have more on markets when Power Lunch returns right here on CNBC. Welcome back to Power Lunch. I'm Pippa Stevens, and here's your CNBC news update at this hour.

A setback in the courtroom today for META, a Massachusetts judge rejected a bid by the company to dismiss a lawsuit brought by the state that alleged the social media giant used features on Instagram to addict young users and deceive the public about the dangers its products posed to teenager mental health. META has yet to comment on the decision. decision. The Republican National Committee and the Georgia Republican Party, appealing a judge's ruling earlier this week that struck down state election board rules, calling them illegal, unconstitutional, and void. The rules that were struck down had to do with the hand counting of ballots and election certification. Antique tobacco use is at a 25-year low. The CDC and FDA

released the new data, which also showed e-cigarettes continue to be the most used among students we've reported tobacco use and that nicotine pouch use actually grew slightly this year over last. Kelly Tyler, back to you. All right, Pippa, thank you very much. Well, since the Fed's first jumbo rate cut back in September, stocks have continued to move up hitting multiple records. The major averages heading for their sixth straight positive week, and that would mark the longest weekly winning streak of the year for both the Dow and the S&P.

And while the Fed's recent actions made things clear for stocks and investors, perhaps, Our next guest says what remains unclear is the uncertainty surrounding the elections and the policies that could be implemented over the next few years. For more, let's bring in David Smith, CIO at Rockland Trust Investment Management Group. David, welcome. Good to have you with us. What we don't know is who's going to win the presidential election, and we don't know who's going to control the House in the Senate, which would, if it's not a clean sweep, it would really hamstring whoever is the occupant of the White House, wouldn't it? Absolutely without a doubt. And as you can imagine, here at Rockland Trust, we have clients of all political persuasions. And in this election, it's different than in previous elections in the sense that

they're more concerned about the candidate that they don't like getting into office as opposed to the candidate that they do like getting in. And so as we talk to clients about the outlook, we reinforce that very idea, Tyler, that at the end of the day, the president can only do so much on a standalone basis. They need the support of the House and the Senate to really implement. broad policy changes. Well, when you're talking broad policy changes, you're really talking about taxing and spending programs, correct? Yep.

But there's obviously a lot that a president can do through executive action and in reducing or imposing regulatory actions through the agencies of government, right? Correct. Yeah. So there's clearly some things that the president can do on a standalone basis, but to really have a broad effect on the overall economy and fiscal policy, particularly, they need the support of both the House and the Senate. And that gives us a lack of clarity at the moment because as much as the presidential outcome is unclear, so is the outcome for the House and the Senate.

So as we sit here today, roughly less than a couple of weeks away, I guess just a little over a couple weeks away from Election Day, we don't have clarity on any of that. And so it's one of the major outlooks that we are blurred by at the moment. And the good news is we'll know, in short order. And once we know who's in, we'll have a better sense of what kind of policies might get implemented. I guess there are two things about which maybe you do have more clarity. One would be the path of interest rates, which looks like it's going to be heading lower. The other is the course of the economy, or let me put it this way, of corporate profits, which look like they are going to be moving higher. Correct. So the Fed has made it perfectly clear. The trend is down for interest

rates, the exact path remains unclear. In other words, we're going to get 25 or is there going to be another 50 basis point move at some point along the way. But the pathway is clear. It trend is down. And we know that over time, that's beneficial to the economy. So that's very good. And the economy itself is in great shape at the moment. The soft landing is a really challenging thing for the Fed to manage to. And I give them an A plus on getting to the end result. There were some bumps along the way, certainly in getting here, but as we sit here today, a soft or no landing environment seems a very likely outcome, which is a remarkably difficult thing for them to do to manage to. And just to go back to the election uncertainty, David, I mean, as David Tepper said on our

air, it looks like gridlock is the most likely outcome, that it's just going to be, you know, close enough as to not really allow for any major moves one direction or the other. Gridlock is good. I mean, at the end of the day, and that's discounting future cash flows. And when you think about the cash flows, if gridlock happens, you have a pretty good sense of what the environment's going to be like. And you have a pretty good sense of the trend in rates. And so you can do your discounted cash flow analysis and come up with some pretty clear projections. So gridlock wouldn't be the end of the world. It would make some people unhappy, I'm sure, politically.

But I think at the end of the day, from an investor's perspective, gridlock is not a bad thing. Give us a couple of names that are going to help us make some money over the next couple of years. Yeah. So one of the things we've been talking about a lot is the broadening out in the stock market, which is really good news. I mean, tech in the last couple of weeks has been Lillita, particularly in the semiconductor side. But in the last quarter or so, we have seen a broadening, which is great. And as we look forward, we think the soft landing will be a good backdrop

for continued broadening and good results from the broader sectors in the economy. And that's great news. So right now, one of the things we really like is Honeywell, an industrial name that we feel has got great end markets. That's got a lot of potential behind it with a multiple expansion opportunity. It's trading at a deep discount relative to where it has traded historically, relative to the industrial sector.

So we think there's multiple expansion and a double-digit earnings clip for that company. So it's kind of intuitive based on the recent weather. We actually like Chubb a great deal right here. I know a lot of people are concerned probably are thinking about investing in a property casualty insurance company given the major storms we saw down in Florida in the last few weeks.

But at the end of the day, the great thing about the property casualty insurance business model is that they get the benefit of repricing their insurance every year. So we can see already a hard market, for property casualty pricing. And our expectation is that the recent trend in the storms is only going to extend that hard market. And that's good for earnings ultimately for these companies.

Yeah, I was just going to break in, David, on putting insurers to the side right now, which I think consumers are just so fed up with the high cost. The flip side of it is to own the companies seem to be minting money right now. On the Honeywell thing, did you see that JP Morgan downgrade? I think the analyst who had a buy rating for a decade or so has moved it a notch or two down.

Yeah, I did. I think we still see the opportunity there. I know, I think this probably related to the airlines, and particularly the Boeing strike, that's part of it. But I think this is a temporary phenomenon. Ultimately, the planes are very much needed all around the planet. That's one of their big end markets for Honeywell. We think that this is a short-term blip and a long-term positive trajectory. And what was the third stock? I cut you off. Do you want to make sure that audience get you around it out? In the energy space. I mean, the energy space has completely fallen out of favor. People aren't talking about it. We have energy prices. We have energy prices. that are robust enough that the companies are earning real good profits. And we think that the expectation over time is that the bias is upwards in the commodity prices, particularly given the unrest we see in the Middle East, as well as the situation that continues, the unfortunate situation in Ukraine. So we see the bias towards up in commodity prices, particularly for oil.

And we like EOG resources in that space, a great deal. We think that company is trading at a 50% discount to the S&P 500. We're not suggesting that that gets back to par. but if it gets, you know, 10 or 15% back, you have a nice multiple expansion on top of likely be in that environment, a good solid earnings growth trajectory. All right, David, thank you very much. David Smith, Rockland Trust. Still ahead, going nuclear.

Tech Titans, Google and Amazon, both announcing big plans for nuclear energy on a small scale. When it comes to sourcing power is bigger, always better. We'll dive into that when Power Lunch returned. Welcome back. Google and Amazon. week, both getting involved in nuclear energy, but on a small scale when it comes to having real power is bigger, always better. Let's bring in Pippa Stevens for a closer look at this evolving industry, Pippa. Yeah, so this week, the momentum has all been about small, modular

reactors. They're cheaper, they're faster, they're more flexible in terms of location. And so they certainly have a place in the grid of the future. But there's a whole other camp that says, you know, they are just too small, you know, their name, SMR, small modular reactors. And so we really need commercial-scale reactors as well in order to meet rising power demand as well as decarbonization goals. And so Idaho National Laboratory looked at locations where there's been some sort of preliminary paperwork filed for a reactor as an indication of where they might be able to come online the fastest. So the most obvious site is next era's Dwayne Arnold's nuclear plan out in Iowa. That was actually fully operational until 2020. And so that one could potentially be brought back online

just like the Three Mile Island as well as Palisades. Then INL also pointed to one from Dominion in South Carolina, as well as one in Florida from Florida Power and Light that has that COL permit from the NRC, which is the most comprehensive. Now, it is important to note that none of these are under construction right now and Dominion has even said about that South Carolina plant. They have no plans to restart it.

But the idea here is that if there was some sort of paperwork done, it could be easier to kind of reinstate it. So let me understand. Are some of these plants, they exist, but they have been mothballed? They've been taken offline, or do they, or is it greenfield stuff? So the only one that's been mothballed is Dwayne Arnold. The other ones have existing reactors at their site, so it's easier to build new ones and have also filed some sort of paperwork to get it in motion.

But it's all on pause right now. None of this is active. None of these are under construction, but there's been some preliminary stuff done. And that COL permit, that's the... of them have from the NRC, that takes three years to get. And once you get that, it's good for 40 years. So if you already have that, you could speed along the process. So many of those places that we just saw on that map actually have existing active reactors. Yes, they have existing, exactly. And the paperwork may have been filed to expand. That's right. But they

haven't said they're going to expand. That's right. The paperwork is there. And also if you have an existing reactor, that means you have things like the transmission hookup, you have the security perimeter. You have a workforce. You have all of these things. So it's much easier than a completely green-filled site. I mean, I still wonder if that makes it, if that makes it from like a 15-year, $5 billion project to, you know, is it still cost-effective? I just wonder, these are, these are still massive projects. Yeah, and that's the problem. Right now, nobody wants to take that kind of risk. There are no commercial reactors under construction right now because we saw things like the cost overruns at Plant Vogel. So no utility wants that. What we need is a consortium of a lot of parties coming

together. That's what Rodney Rebello over at Rees-Asset Management. Exactly. See multiple utilities and tech together. That'd be cool. Pippa, thank you. Have a good weekend. Still ahead. Take it or leave it. Amazon's Cloud Chief giving employees a frank message about the company's new five day a week in-office mandate. If you don't like it, go elsewhere to work. We'll discuss that when power lunch returns. Welcome back. Tensions around in-office mandates are reigniting across corporate America. Prime example now is Amazon. Last month, tech giant telling employees to prepare for a five-day in-office mandate next year, a move that

led to significant internal backlash. The company had previously required three days in office, which also caused pushback. So now the CEO of Amazon's cloud business, AWS, is doubling down, saying any employees who are unhappy with the mandate can leave. CNBC.com technology reporter Annie Palmer has been talking to Amazon employees about the issue. How hot are they, Annie? Yeah, so employees are pretty divided about this, just like really any company, I think, right now, where, you know, some folks who are not in support of this five-day mandate are saying, hey, look, you know, we've been working from home or working hybrid since the pandemic, and we were just as productive as we were, you know, in the office pre-pandemic. So we, you know, we really don't support this. But Amazon executives are saying, well, hey, there are other companies that you can go work for. for if you would prefer not to be in the office five days. But clearly, it would seem that the Amazon executives have a different point of view. They must either think, number one, that these out-of-office workers are not, in fact, as productive

as they are when they are in the office, or number two, that significant opportunities for collaboration or innovation are being missed because of the distributed workforce. That's right. Yeah. that Amazon is telling us essentially that, you know, they have some data showing that teams are much more, you know, effective and collaborative when they are in the office. And in the transcript of the all-hands meeting by Amazon's cloud boss that we obtained, he talks a lot about how, you know, a return to five days in the office is really critical for Amazon in order to preserve its culture of innovation. And I think, you know, this topic specifically is really important to Amazon right now as they're competing with, you know, the likes of Microsoft and Open AI and Google around generative AI. They really want their engineers, you know, directly in front of them so that they can work on this stuff.

All right. Annie, thank you very much. Annie Palmer, reporting on Amazon. And more Power Lunch is next after a break. Stay with us. Welcome back. Let's get the latest in the battle over App Stores. Dear Chobosa has the details of a new ruling from a judge. Jirja, do tell. Hey, Kelly, so a U.S. judge has granted Google's request to temporarily pause the injunction that orders the App Store reforms in the Epic Games case. That means basically that the status quo will remain for now.

Google will not have to redesign its app play store to allow for things like opening it up to third parties. Essentially, the walled garden stays up at its current height while Google appeals. We do have a statement from a Google spokesperson that says, we're pleased with the district court's decision to temporarily pause the implementation of dangerous remedies demanded by Epic. Goes on to say these remedies threaten Google play's ability to provide a safe and secure experience. We look forward to continuing to make our case to protect 100 million U.S. Android users, over 500,000 U.S. developers, and thousands of partners who have benefited from our platform. So this is a win for Google for now. Of course, that could change. The stock didn't really move on this much, Kelly, because we know this is just one of many legal battles that Google is facing. Back to you.

Yeah, they're fighting on many, many fronts, and this would maintain, in effect, their walled garden for at least a little while longer, right? Exactly. Exactly. You've got it. All right. Deirdre, thanks very much. Have a great weekend. And you have a great weekend, too. Thank you very much for watching Power Lund.