Power Lunch - Stressed consumer, deal drought and Wall Street’s top picks for 2023 12/9/22

Episode Date: December 9, 2022

Credit card balances are up, savings rates are down but there are retail stocks to own amid signs of consumer stress. Plus, the state of venture capital with deals on track for the sharpest drop in 20 years. And Wall Street’s top picks for 2023. 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 for Tyler Matheson, and here is what's ahead. The consumer stretched thin. Credit card balances are up, savings rates are down, and now a Walmart-backed fintech is reportedly ready to launch a new way to buy, now, pay later. The retail stocks to own with the signs of consumer stress. Plus, venture capital deals on track for the sharpest drop in 20 years is the era of tech unicorns over. We will discuss that later this hour, but first to Kelly with a check on the market. John, thank you very much. Hi, everybody. We have stocks edging lower, although the NASDAQ's back in positive territory as yields rise after the PPI report this morning. So the Dow is down 81 right now. The S&P's down for it and the NASDAQ is up two points. Netflix, meanwhile, is trading higher this afternoon on two bullish Wall Street calls. Wells Fargo upgrading the stock to overweight from equal, citing content growth. The shares are up 5%, we should add, nearly. Cowan also naming it a best idea for 2023, and we'll have more on that call later in the show. Meanwhile, it's been a rough week for some of the bank stocks. Goldman down 5%, Wells Fargo off 7% Bank of America down more than 10% since Monday, John.

All right, well, consumer confidence coming in stronger than expected today, but how confident are investors in the consumer? Bank of America says e-commerce spending dropped 2% year over year right at the time when it should be peak holiday shopping season. Additionally, a Walmart-backed fintech startup is expanding the retailers buy now, later options, a sign perhaps that consumers are relying more heavily on credit, which Jeffrey says is exactly what shoppers are doing as savings rates fall and revolving credit spikes. So are consumer cracks forming and how do you invest in this retail environment with us?

Jeffrey's retail analyst, Corey Tarlow, who says the consumer is stretched. Corey, stretched to the point of breaking. When is that point? Well, it certainly appears to be on the precipice of arrival. So we look at savings rates and we look at revolving credit balances and revolving credit balances are expanding at historically high rate up 15% in the last month. Whereas savings rates, which pre-pandemic, the trailing 12-month average, were closer to 9%, now closer to about 2%. So people aren't saving as much and they're spending more on credit. What does that mean?

Well, we tend to favor those retailers that are value-oriented and sell a lot of food because frankly, consumers are stretched with inflation running at 8% through the first 11 months of this year, and gas prices about $3 a gallon USD. So I also saw a stat this week over the last couple of days that a lot of consumers are tapping into their 401Ks, those redemptions, just at a rate higher than we've seen since Vanguard has been tracking that. But it's one thing to talk about the consumer just in aggregate. there are different consumers with different financial profiles who are weathering this time differently. Is this just a continuing story of the divide between that working class Walmart shopper that's more affected by inflation

and then the higher-end luxury consumer who's less affected? It's a great question. And we've certainly seen a bifurcation between higher-income consumers and the retailers that cater to that customer and lower-income consumers and the retailers that cater to that customer, while both are clearly pressured, the lower income consumer has continued to be a little bit more pressured as it relates to discretionary spending. And the retailers that cater to that customer have suffered as well. So a couple that with elevated inventories and markdowns, it's been a relatively rough time for a lot of these retailers. But one of the things that is perhaps a little unique to a retailer like Walmart is that it's gaining a lot of share. And it's not just gaining

share from lower-income customers like you would have thought. Three-quarters of Walmart share gains are actually coming from higher-income customers that are trading down into the retailer. Same with Dollar General. Dollar General, the average customer earns about $35,000 a year. But Dollar General is seeing a retailer, a customer, excuse me, that earns $100,000 trade down into the retailer. That's roughly 3x, the average customer. So it's clear that it's not just the lower income customer that's feeling the pain right now. All of that, Corey, comes as Walmart is looking at this entry into the buy now pay later space. What does that tell you? And is it something that could actually increase the fragility of their customer base in the longer run?

Well, I think this is just an extension of Walmart's personal finance initiative. It started in January of 2021 when Walmart launched an investment firm. Company then within the next 12 months acquired two firms to help build that out. And then in April of 22, the company hired John David Rainey to become CFO, and he's a former PayPal executive. And if there's one person who knows a lot about payments and to help facilitate the personal finance arm and the growth of that within Walmart, I think it's him. Also, Corey, as we look at their entry into that space and whether it's just about sort of technology and whatnot, you know, can they continue to, uh, perform well in an environment in

2023 where we just might simply see more demands on the consumer than we have so far in 2022. I mean, to the discussion we were having last hour, the consumer has had a lot of wealth. They have had those savings to draw down on, but it's not clear, especially if wages start to slow, what's going to kind of

be left to keep even the big players going at the pace that they've been going? Well, and the other thing is that inflation has been a bit of a good guy to some extent. for these retailers because it's helped drive higher sales. But at the same time, it's also helped to increase costs a lot too.

So it's been a bit of a dual-edged sword, if you will. And as we look to next year, you actually, even though you might have a bit of a shaky consumer in the face of a potential recession, you might have the opportunity to drive better profitability as all of these costs like elevated inflation, freight, supply chain, and elevated inventories, which have driven really high promotions as well, start to go away. So while this year might be an issue from a margin standpoint for a lot of retailers like Target, for example, which is probably going to generate an operating margin in the 4 to 5% range. Maybe next year is better.

Next year, it's probably going to be a little bit better. So I wonder, though, going back to what you said about that core dollar general customer, I think it was, where you said it tends to be 35K income, but now you see 100K shopping. there. How much of that is because, A, you know, salaries have gone up, so who's making 100K now might have been more 80K before. But then also, the question is how much disposable income you've got after you've paid the rent and paid for food. And now the folks who have 80K are probably looking more and the money they have left over like the 35K group. Well, higher wages have certainly benefited consumers. But at the same time, you know,

consumers because of COVID, they didn't have all these other places that could go to shop. If, let's say, for Dollar General as an example, where this company has 19,000 stores within five miles of 85% of the U.S. population. But many independent mom and pop retailers or grocery stores closed because of the pandemic, and they were marginalized because they didn't have the funds or the capital structure to withstand the COVID issues that they did. And now a lot of these other consumers that earn a higher wage, they don't have a place to go other than Dollar General

or other retailers that are present in the neighborhood in which they operate. All right. Great overview. So inherently makes those. It does. Yeah, yeah, great insight. Corey, thank you. Corey from Jeffries.

Now the consumer may be slowing as Fed rate hikes ripple through the economy, but our next guest says he's waiting for the to materialize before becoming more bullish on equities. Let's bring in Dryden Pence, Chief Investment Officer with Pence Capital Management. Dryden, it's great to have you. So explain overall you fundamentally bullish or bearish for next year. Well, it's great to be here. I mean, we're fundamentally, fundamentally cautiously bullish, if you'd say that.

And a lot of it depends on the pathway of, as you said, the peas. Where are we on the paws of the Fed and where are we on the peace in Ukraine? We think we've seen the peak on inflation rates and that those are beginning to come down, but they're probably not coming down at the rate that the Fed would want. I mean, the old adage is don't fight the Fed, but nobody really told the consumer that. So there's a lag period of time of six or eight months, but for really budgets begin to show both companies, a Fed can change it in a day, markets react in an hour. Consumers react in months and companies react in months.

So we really think that it's going to take a clear signal that we have paused on rate hikes before we're going to get, you know, what I would say is move from casually or cautiously bullish to significantly bullish moving into next year. Because I think there's risk of the Fed kind of going, you know, too high for too long before they pause. I don't think we peak, but I think we need to pause. Well, and maybe the way to translate all this is just quite simply into the stock picks that you're recommending as a result. And you've got some defense names. Consumer-wise,

you've got Walmart, which kind of goes back to the trade-down comments. Our last guest was making. You also have LVMH and then ASML Holdings, which is kind of more of a technology play, if you want to call it that. But what did these picks illustrate about how you expect the markets to perform and why do these names jump out to you? These names jump out because we think they're going to be resilient into what we would call what happens no matter what. When you talk about, LVMH Walmart, we think there's a barbell consumer, as your previous guest talked about, people are trading down, so Walmart's going to do fine. People at the upper end of the economic spectrum kind of spend no matter what. So we think if you barbell the consumer,

you're in a good position there. When you talk about ASML, you know, the world is trying to get away from its dependent on China for chips, and therefore we're going to have to create new chip manufacturing facilities. ASML is pretty much much got a monopoly on the ultra- ultraviolet or extreme ultraviolet light production facility. Everyone has to buy their machines. They've got over a two-year backlog. So if you're going to fix the strategic problem that we have in chips, you're going to have to buy from ASML. And then when you look at the fact that the war in the Ukraine is not going to, we're not going to spontaneously break out in peace anytime soon.

You'd like to see that. But what's going to happen is you have, you have Raytheon and Lysen. Lockheed Martin are both big suppliers of the key ordinance that's necessary for this fight. We still have the National Defense Authorization Act is going through with over $800 million in additional aid to Ukraine. You have a strong demand signal and you have all of Europe needing to up their defense spending to keep up with their NATO obligations. So we think that regardless of what happens with the economy, big recession, little recession,

whatever it is, you're pretty well positioned in defense stocks. that are going to need to, you know, be used during the current war, and also as we rebuild the armories of nations that have been depleted. Well, let me, let me press you on that a little bit, because for ASML specifically, I think it's up something like 30% off the lows of just two months ago, right? It was at around 4.11 or so, and now it's up at 577 a share. And then the S&P, I mean, we were under 3,600, and now we're around 3,950. So was all of that bounce warranted, even if some of these names are going to do relatively well?

Well, they do relatively worse once we digest what's perhaps happening with the consumer right now. Well, I think when you look to ASML, it's not driven specifically by consumer. It's driven by a demand from the folks that are needing to be long-term strategic suppliers of the consumer. You've got to build the factory today that's going to provide the chips for next year, the year after, the year after, and the year after. And you're doing that in different places other than China. So we think that even though this stock has had a quite attractive run, the demand signal continuing into 2023 and 24 is still going to continue to be robust.

They're going to have a long backlog and a deep backlog for a long time. So if you're thinking about companies that can weather, storm whether it's a big one a little one uh what happens to the consumer or otherwise you're looking at companies that are going to have strong demand signals regardless of that variability all right dryden pence thank you absolutely thank you appreciate it now coming up the game is not over what microsoft and act division have to do to get their deal across the line plus venture capital investment on track for the worst drop in more than two decades does that signal of further drying up of the IPO market in 2023.

As we had to break, a look at shares of Chewy, which are higher after delivering a surprise quarterly profit and raising its full year sales forecast. Good boy. Power Lunch will be right back. Welcome back to Power Lunch. The Federal Trade Commission is suing Microsoft to try to block its planned acquisition of Activision Blizzard, calling out anti-competitive behavior. The tech giant had offered $68.7 billion for the video game developer in January with the intent of closing the deal in June 2023. While the FTC may have hit the pause button on the deal for now, our next guest says it's not game over. Let's bring in Andrew Marocque. He's an internet and digital media analyst at Raymond James. Andrew, why is this not deal over? Do you think game over? Do you think

the FTC just wants to put up a fight even if Lena Khan thinks she can't win? Well, thank you for having me. I think that if we take a step back and look at the broader gaming market, this is a massive market, nearly $200 billion in revenue. And even a consolidated Microsoft and Activision Blizzard would only be the third largest player in the market behind Tencent and Sony. There are so many, we think, remedies or potential concessions that Microsoft or Activision could make to get this deal over the line. We still think that it's more likely than not that the deal gets done, but the FTC suit and the various international regulatory processes are likely to complicate the issue and make this more of a drawn-out process than maybe Microsoft

or Activision had expected at the outset of the deal. I mean, does this come down to the question really of consumer harm? Are consumers actually hurt by this or a more European style? Are competitors? hurt by it because it seems like the strongest argument is, oh, well, Microsoft's going to potentially hold back some games or features or capabilities from Sony, from others in the marketplace. If Microsoft simply promises not to do that, if there are remedies, how doesn't that take care of the problem? Yeah, I think it's a little bit of both in this case. I think in contrast to some of the other, certainly some of the other consolidations in the gaming industry, I think some of the

competitors or the other parties to this merger might have been a little bit more loud and a little bit more strident in their opposition than normal. So I think the anti-competitive and anti-consumer cases are both being taken into account. The other issue is around Microsoft's acquisition of Xenamax, their last sizable acquisition that they did in the gaming space. They had made assurances that they would not wall off the Bethesda content that was associated with the acquisition, and then we've come to find out that some of these upcoming games like Redfall and Starfield are likely to be exclusive to Microsoft platforms. So I don't think that in this case, in assurance would probably be enough. I think you would likely need something more concrete

as a result of that. Andrew, I'm also curious where you think Activision is valued or would be trading if there were no Microsoft deal right now. And I'm glad you asked that question, because I think this is something that has a part of the story that has changed pretty significantly over the course of this acquisition saga, which has now lasted most of 2022. In contrast to earlier in the year, now Activision is in what we think is a pretty attractive situation, even on a standalone basis. So even if the regulatory process does not go well for the completion of this deal, we still think that the standalone Activision Blizzard is looking pretty good at this point. You know, with Call of Duty, Overwatch, both having recent releases that are, you know, very, very strong,

the upcoming Diablo for, and we think a couple of other things still on the pipeline, Activision Blizzard is looking pretty decent as an investment in its own right, which was part of the catalyst behind our upgrade of the stock to outperform last month. Well, Andrew, how bad would it really be, even for Microsoft, if this thing came apart? I mean, I don't think many people are arguing Microsoft's gaming business needs this to survive or compete particularly. And this is a transaction that was proposed near the top of the market. It's not like they're getting a huge bargain either. I would say that really this acquisition from Microsoft signals bigger ambitions in the gaming space.

obviously with the Xbox hardware and their collection of first-party studios that they already have, they already have a fairly sizable gaming business. But I think Activision and to a lesser extent for them, Xenomax, are bullets in the chamber, so to speak, for their GamePass subscription service, which I think is what they really view as the future of gaming and the way that consumers are likely to engage with multiple forms of content. I think that Activision Blizzard is a key component. of that. All right. Andrew Mark from Raymond James. Andrew, thanks. Thank you.

Further ahead on the show, out of the frying pan and into the fire. Sam Bankman-Fried agreeing to testify before Congress, are his attempts to appeal to the public just making things worse? We'll discuss what to expect. Plus, some big earnings movers following their results will trade docu-sign, Lulu, Lemon, and Broadcom in today's three-stock lunch. Welcome back. It has been an action-packed week in the bond market. Rick Santelli has been tracking the action at the CME following that hot inflation report, courtesy of the producer price index, Rick? Yeah, it definitely moved the markets, John, no doubt about it. Look at Intraday 10, far left of the chart. 8.30 Eastern rates popped. 10 o'clock Eastern on better than expected Michigan rates popped. And if you look at 10 year,

starting from June 1st, and this is important, folks, look at the mid-June, 614. We had that top, A whisker under 3.5%. Basically where we're trading now. This zone is important we're trading now. And something tells us how important it is. The knob spread. Tens versus 30s. You see that chart?

Also from June 1st. You see how big it moved on the 14th of June? Of course, because tens versus 30s includes tens. That's the point that extremes in the knob are something to pay attention to. And yesterday, it inverted for the first time since October. And finally, one week of twos versus tens were the least inverted in a week since last Thursday. Also very important. If you're trading the fixed income side, today's data shows you maybe peak inflation, but historically high inflation.

The duo there is going to make trading complicated. John and Kelly back to you. Thank you very much, Rick, Rick Santelli. Time now for our weekly ETF tracker. This week, we're looking at energy funds, huge outflows this week, $1.3 billion. Of course, this week, oil prices fell to their lowest level since late last year. We had the OPEC meeting, the price caps on Russian oil, and it all comes as China is starting to reopen, which many thought would increase demand and therefore prices.

The oil and energy ETFs have taken a big hit. Just look over here. The energy sector spider down about 7, almost 8% this week. The Vanguard energy ETF 8.2%, the S&P, oil and gas E&P ETF, down more than 11%. This one more specifically focuses on that X&P. exploration and production. So a really tough performance log, of course, now we're seeing the flows follow that as well. All of this data comes from our partners at Track Insight. More information is available on the F.T. Wilshire ETF Hub. Now let's get over to Kate Rooney for the CNBC News

Update. Kate. Hey there, Kelly. Here's what's happening at this hour. Criminal charges have been dropped against former Michigan Governor Rick Snyder in connection with the Flint water crisis. Snyder faced two misdemeanor counts of misconduct. In office, he was the first person in Michigan history to be charged for alleged crimes related to his service as governor. Walmart reportedly investigated one of its store supervisors two years before he shot and killed six coworkers last month in Chesapeake, Virginia. The Wall Street Journal reports,

the investigation is being cited in two lawsuits brought by employees who survived that attack. It's not clear what actions Walmart took as a result of that probe. And defense secretary Lord Austin says Russia is expanding and modernizing its nuclear arsenal. At the same time that the Russian president, Vladimir Putin, has suggested that he could use nuclear weapons

to protect Russia. Austin says Putin has engaged in, quote, deeply irresponsible nuclear saber rattling. Back to you guys. All right, Kate, thanks. Now ahead on power lunge from done deals to deals are kind of done. Venture capital activity on Pacefort's biggest drop

in two decades. The founder of Mendoza Ventures weighs in next. Plus, listening in to Street Talk. Analysts releasing some top picks for the year ahead. We're going to lay them out. Power Lunch. We'll be right back. Welcome back.

Let's get you caught up on stocks right now. Markets are choppy this afternoon. The NASDAQ actually peeking into the green, but the S&P and the Dow just about flat. It's still going to be a down week for the markets. It looks like media stocks having a good day. Some positive analyst commentary on Netflix. We're going to have more on that in a moment. But Disney, Warner Brothers, and Paramount,

also gaining shares of Beth and Body Works higher. Dan Loeb's third point disclosing, it increased its stake in the company to 6%. Other companies making stuff for your home. Also, Kelly, having a good day. All right. Rising rates and economic uncertainty, putting a cap on IPO activity and on venture capital investing. According to one estimate, the value of new VC deals globally has plunged 42% the first 11 months of this year compared with last year. Will next year be more of the same or could we see a bounce back? Joining us is Adrian Mendoza, the founder of Mendoza Ventures. Adrian, welcome.

It's great to have you here. And what do you think? Yeah. I mean, it's been really interesting. We've seen a lot of the name brand funds in the last six months stop deploying. We've seen IPOs come to a grounding help. And really, what does that look like for 2023? 2023 is going to be a still a slowdown of IPOs.

They're going to remain flat, as well as we're going to see still a continuing of the tightening of the belt of the IPO tech companies. And in 2023, I predict we're going to see a trickle down into pre-IPO and mid-to-early stage companies. And this is really what we're going to see very, very interesting next year, because one of the interesting facts about VC is they're still reportingly. $290 billion sitting on the sidelines of LP dollars within funds that hasn't been deployed. Even if estimates that we're seeing are it may be as small as 160, that's billions with the beat. But, Agent, isn't this what a lot of venture capitalists wanted? I mean, I kept hearing over and over again, boy, these valuations have got out of control, but hey, this is just what it costs to get in now.

So we're in there. But, boy, we can't wait for this stuff to rationalize. Isn't this what it takes for stuff to rationalize? I mean, when the market doesn't want to pay. John, you are absolutely right. And the VCs love a deal. And the reality is we're still going to see, you know, most of these name brand funds, you know,

kind of stall in fundraising. But here's where what's been pretty amazing in this market, emerging fund managers in the space have taken the pool position of come in at these great valuations, much better stakes, much better economics for them and their investors. And mid of 2023, these VC dollars at $290 billion that's sitting on the sideline is going to have to get deployed. Because LP dollars can no longer sit for six months to a year to two years, not receiving gains. So we are going to see a bounce back.

I feel like it's going to be a wave that's going to come in and crash down. and 2023 is going to be an interesting time for VC deployments. Deployed where, though, Adrian, because there are a lot of people with egg on their face about their crypto investments, for instance. We know that's not going to maybe be the place to go. Where is it that you think funds are likely to be welcomed? Well, the funds will be welcomed anywhere. Where do you think they're likely to go? The interesting thing about the FTX debacle is it not just affected venture. It actually affected the pension funds, the large institute,

institutional allocators that are now going to be a lot more gun-shy about some of these technology deals. And this is where for me, I see a lot of movement in the emerging fund manager space, that first, the third-time fund, because, you know, the economics here in the U.S., innovation is still being created by VC. And this is my worry about that $290 billion, that it may just be sloshed around into things that may be VC ready, things that may not be VC ready. And this is my worry about 2023. I think we're getting a lot of good movement, a lot of amazing founders are still building profitable companies.

It's whether or not, you know, what's going to happen to that $290 billion? Is it going to be smartfully and skillfully deployed or is it going to be like when the wave comes and crashes leaves destruction and damage in its wake? I mean, doesn't this also shake out some of the money? that was in risk and maybe in VC, not because it really wanted to be or believed in that future, but because of Tina, because there is no alternative that couldn't get yield elsewhere.

I mean, now people who want a little bit of yield are gonna be able to find it elsewhere. Is that perhaps eventually a good thing? Well, I think this is a great thing because it's also gonna shake up a lot of things that we're seeing. We just saw the SEC Sue of venture fund just yesterday about it being a Ponzi scheme. and fraudulent activity.

We're going to see a lot more stuff of the excitement of VC in the three months is we're going to see a lot of these issues come up more and more often as the funds that actually are deploying and building gains will be doing the day-to-day business of doing VC. And that's really going to be a shakeup. You know, the excitement. And really a lot of it was led by crypto and a lot of the new technologies where there may have may not be anything there. I mean, we saw this five, six years ago in our, you know, the last crypto winter. This is really what it's very important that good due diligence is done

perhaps. Perhaps. Yeah. A return to get rich slow, not so bad for everybody. Crazy thing, John, a return to profitability. Profits. We like those. Those are good. Those are good. Adrian Mendoza. Thank you. Up next, Wall Street. Looking ahead to 2020. Some key firms betting big on chips, casinos, and streaming. We've got details next.

Welcome back to Power Lunge. Busy Friday is Wall Streets, got several brokerages making calls on their top picks for 2023. Christina Pottenebel is looking at chips, Julia Borsten, tuning into Netflix, and Contessa Brewer has the details on casinos. Let's start with Christina, that kind of chips. Christina? Yeah, John, it seems like what is J.P. Morgan not bullish on in their latest semi-note? believe chip stocks as a whole are de-risk enough, in other words, fallen enough to price in

potential risk in the coming months and a 30% year-to-date drop in the stocks must be enough. They also believe any revenue weakness from the recent U.S. export regulations to China is already priced in. Even if there is a more tempered tone or a slight miss in earnings in the next quarter, semi-stocks have stopped pretty much plunging on bad news. So that's another good sign for them. And then lastly, they believe that the sector will be driven by demand. and in cloud data center, enterprise infrastructure, and lastly, auto-industrial.

And so that's why their top picks are analog devices, Marvell, Global Foundries, as well as Micotrib, and then you got KLA for equipment makers and synopsis for chip design. Sounds like they don't expect a PC turnaround, though. Exactly. That's what was missing from their report. More specifically, you had a report from city analysts just yesterday, and they're way more cautious, signaling PC demand is going to remain weak. in 2023 and that inventory levels will continue to be high and that's going to hurt. Who else? Intel. Intel shows are already down 46% year to date. The company is faring much worse

than the entire sector as a whole. And they also say AMD isn't immune either given their exposure to PCs. But it's interesting to note that unlike JPMorgan and they're, you know, pretty optimistic note, City believes that data center market or the data center market will be the latest shoot at fall and is headed for a correction. Kelly? Wow, so some widely differing views on where that's going. Christina. Yeah. Yeah, thank you very much. Meantime, let's take a look at shares of Netflix, which are the best performing stock on the S&P over the past three months. Cowan thinks the worst may be over. Julia Borsden joins us with those details. Julia? Well, Kelly Cowen making Netflix its top large cap pick for 2023. Cowan calls Netflix the best

recession play in their coverage and raises is price target for the stock to $405 from $340. Now it's at $3.24. Now, Cowan's three key drivers going forward, including new monetization levers, including the advertising tier and also page sharing, which is coming next year, revenue reacceleration as comparisons, ease, and free cash flow growth ramping up next year. Now, it is not just Cowan with the bullish outlook here. Wells Fargo, also upgrading the stock to overweight and raising its price target on Netflix as well, saying lower churn, stable subscribers in the new ad-supported model is making them bullish. Now, Netflix is one of the top gainers on the NASDAQ 100 today. Kelly? Wow. So the ad-supported model, they rolled out, Julia,

will it add to profitability or will people just trade down and maybe undermine that prospect? Well, look, they do, analysts really very much do think this ad-supported version of Netflix will help add more subscribers to grow that subscriber base, which really has been stagnating, especially in the more established markets. Just looking at this Wells Fargo note, they say that they believe that this new ad supported tier will drive around 23 million incremental subs by 2025. So really adding growth. And also, there's this idea that if consumers switch from ad free and paying a little bit more to a lower cost ad supported model, that they will either have a revenue neutral or actually end up generating more revenue for the company because of the value in those ads. So trading down

should not mean any loss in revenue for Netflix. All right, Julia, thanks. Meanwhile, casino stocks have been in the news this week as China reopens. I'm willing to bet Contessa Brewer has some analyst picks for it. You talk about casinos, John. You call me in Las Vegas Sands as one of the few casino stocks with positive year-to-date returns up more than 25%. And then look at win resorts. It's near even since the start of the year. Deutsche Bank analyst Carlos Santorelli raised the price target on both today, calling them best ideas for outperforming the market next year as China reopens and demand returns to Macau. He warns, though, this recovery outlook is still uncertain. It could be choppy. Still, we've seen with other Asia markets, namely Singapore, where LVS has a big presence.

They've seen swift ramp in demand as COVID restrictions eased. The analyst says he likes gaming stocks with sound balance sheets, organic pipelines, and capital returns. And shares of win in Las Vegas Sands are negative today. You can see both down more than a percent. Though look at competitor Melko. This is based in Hong Kong. shares not only positive for the day, but up triple digits over the last three months for, well, we don't have it up for Melco there as well.

It's really incredible performance from those Macau-facing stocks, John. All right. Well, that's Asia. What about the U.S.? What about Vegas? I was just there and it seems like it's hopping. Can that keep up? Yeah, they've seen a huge post-pandemic rebound. What we're seeing is that Carlos Santorelli says, look, there is a warning for investors that gaming stocks tend to overcorrect when you have negative revisions.

If the consumer gets hurt next year, if recession comes, that could affect them. But look at the gaming reits, which the tenants have positive balance sheets and they can probably keep paying the rent no matter what comes down the pike. Look at the digital providers like sport radar, he says. And especially look at those with huge presence in Las Vegas. If you're looking at, for instance, Seizers and MGM resorts, you've got a packed conference calendar. You have a packed events calendar and you have the return of international travel. All of that should still see Las Vegas with even more ramp coming in 2023.

All right. Well, investors have to play the hand there, Delcintessa. Thank you. He's the best with the quick pun. Still to come, doocines surging up more than 14. just as some were saying the work from home and COVID winners were the old news. But the company is seeing big sales. We'll trade that and some other earnings movers in our three-stock lunch up next.

Welcome back. Time for our three-stock lunch. And today we're sipping on some big post-earnings mover, she said. DocuSign is surging on better than expected results, including an 18% jump in revenue year-on-year. Lulu Lemon is sliding on a weak outlook and a glut of access inventory. and Broadcom is higher on a big beat. They are raising the dividend and resuming a share buyback. Here to help us trade all three is David Wagner.

He's portfolio manager at Aptus Capital Advisors. Great to see you again, Dave. And let's start with Doc. You sign. Do you stick with it? Well, first of all, welcome back, Kelly. Love seeing you again. As we all know, given the performance of this name,

this story has been really far from normal. I mean, first, I do think that the new management team has done a great job setting reasonable expectations, not only for this quarter, but for the fourth quarter. The upside surprise here driving the stock today is obviously a better profitability guidance. I do think that there is some skepticism or concern regarding billions that may weigh on shorter medium term growth. But hopefully the major team, you know, maybe they're just setting up another conservative guide. I mean, the market, specifically tech right now, has really been focusing on names that have tried to throw out the

kitchen sink with their guidance. So the big question, at least for me, is did DocuSign de-risk their expectations enough today? tell you, I'm not sure of the answer, but it does feel like the management team has done a great job kind of managing the street and their expectations. And that's really the first step for a stock and company to regain their credibility. I mean, you know, DocuSign, they're becoming a lot more interesting right now. You know, I'm obviously worried about valuation still, but this report does grab my attention to start watching the consistency of execution for this new management team. Yeah, and I can see the kitchen sink right behind you. So maybe it is salvageable.

Next up, Lulu Lemon, down 13. and a half percent. Can this one get back in shape? Yeah, it's going to be tough, I think, John. You know, the price moving really heading into this earnings report was horrible. I mean, the stock was up, say, 40 percent over the last two months. I mean, honestly, I don't think anyone could have been a fan of this name heading into the report. But I do think that investors can walk away with some positives for a long-term thesis. And that actually says a lot for a guy who thinks that the only brands that matter are, you know, bushlight and crocs. But, you know, listen, this stock gets down today to the volatility, profitability, and inventory levels.

where I think that the market may be a little bit draconian given its price movement on this name is actually around inventory levels, which may surprise people because, yeah, they were high. But half the increase in inventory levels, well, they actually came from core goods, which is not subject in my mind to markdowns in the future. Yeah, you know, John, a lot of those positives don't really put me over the edge for ownership just yet because I can't get comfortable with valuation and the sustainability of margins moving forward, especially as they move into lower margin businesses, such as shoes. Let's move on from your disdain for that for that lower margin business, David. Get your take on Broadcom before we go. What do you make of the beat? Well, this is in a lower margin business. And I'm excited.

I love this name. I don't know how you could dislike this name, Kelly. I mean, they're holding their own in a very, very difficult environment. I mean, just look at the last few earnings reports. The resiliency of these earnings for this company are astounding. I mean, once again, the company's outperforming on broader market trends with strong year-over-year growth in basically every single line of business that they have. look, what makes this name quality to me? It's the fact that they do not allow any type of push out in orders. And that policy per the CEO, well, you know what? It looks to be continuing right now.

So, you know, I really like this name, Cashflow Jugger, not here. You know, I know the CEO always sounds very optimistic, especially when it comes to Brockham, but this man, he is a cost-cutting machine. And in tech right now, that's what they love. They love profitability and cost-cutting. I'm long and strong here. Dave, you always have a way with a way with a lot. words as well. Thank you for joining us. Dave Wagner for today's three-stock lunch. Coming up, Elon Musk's warning for the Fed. That's next. Five days. Welcome back. The Fed meeting is five days away. But before Wednesday's decision, we'll be hearing from a lot of, should we call

amateur policymakers, the Shadow FOMC? Well, let's start with Elon Musk, who just tweeted moments ago. If the Fed raises rates again next week, the recession will be greatly amplified. Now, does he mean his own personal recession, or does he mean everybody's recession because, I mean, Tesla stock has not responded so well to rate hikes, and he's got a lot of debt with Tesla, oh, with Twitter at the same time. Right. I mean, he's been bearish, we should say. This is not the first time he's warned about rate hikes and that he sees a recession coming.

We've heard about it from Jeff Bezos. We've heard about it from a lot of prominent people. What do you make of that? I mean, I'm just, I'm amazed at how much the soft landing has been come consensus for so many people over the past several months when at the beginning people are like, oh, there's no way there's going to be a soft landing. Why are we even talking about that? I'm curious how that became a base case for so many.

That it's even still on the table or something that people think, yeah, realistically could happen. So you think, yeah, not so good. Well, and that goes back to will all of this public commentary persuade the Fed maybe to lean back a little bit or not? And we know the data, obviously, is probably the main factor. Yeah, there's commentary, and then there's the PPI that we just got. We're going to get CPI what on Tuesday? Well, and that probably adds to the recession case. You know, when you get a PPI report that hot, it's hard to see the Fed backing off.

We're going to talk about Sam Bankman-Fried, too? Let's. He got another tweet thread this morning, seemingly agreeing to testify in front of Congress next week. He says he doesn't have access to all the data, quote, but as the committee still thinks it would be useful, I am willing to testify on the 13th. That is Tuesday. He had previously brushed aside an invitation from Representative Maxine Waters saying he didn't want to testify before he had completely finished figuring out what happened.

Now he says he can talk about getting customers their money back and what caused FTX to crash. This is a man who was so certain, right, months ago about so many things, or at least seemed it. And now he's the absent-minded professor. Yes, and I think that is not going over well. I mean, people are furious. They want answers. They want accountability.

And they just don't accept the sort of oops excuse right now. How forthcoming he chooses to be is going to be very interesting, to Kate Rooney's point, as she's been reporting on all day, you know, it's going to be. against legal advice to put himself under oath and then try to take that way out here. There have been people out there criticizing, for example, Andrew Ross-Sork. Why would you have him a deal book? Why would you talk to him? I think it's good to talk to him. Get him on the record. Have him say something. And then he has to answer for those things later. Well, let's put it this way. Sam took himself on a global media tour effectively. I mean, there were multiple

different places he's spoken to. He's reached out to people. He's DMed them. He is everywhere. he's going in front of Congress. Interestingly enough, we see the dominoes continuing to drop the block. Crypto sort of research and news website issues there about funds that were coming from Alameda to support it and people just finding out. I think there's going to be a lot more dominoes to fall here still. So many people in crypto, for better or for worse, they're not all the same, who have gotten so far on believe me, believe me, believe me, believe me. Sure. Right. Now, trust me in this environment is a whole different argument.

And we can bring it full circle because the less fed liquidity we have, the less any of these are going to be left. I think. John, thanks so much again. We appreciate it. And thanks for watching Power Lunch, everybody. Closing bell starts right now.