Power Lunch - ‘There is an alternative’, the dating game and the Crocs CEO 11/3/22

Episode Date: November 3, 2022

‘There is an alternative’ when it comes to investing in stocks. A market pro shows you how to build a fixed income portfolio as investors hunt for return. Plus, as valuations collapse, are some stocks more attractive takeover targets? A venture capitalist plays the dating game. And the Crocs CEO on why he’s not seeing a consumer spending slowdown. 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 am Morgan Brennan. Here's what's ahead. There is an alternative. Just look to the bond market. Fields are spiking as the Fed signals that rates will reach a higher level than previously thought. We're going to show you how to build a fixed income portfolio in a fast-changing market. Plus, as valuations collapse, some stocks are now more attractive takeover targets, but which companies should get together? We're going to speak to a VC who has some surprising ideas. Brian? All right, Morgan. Thank you very much. All right, caught a post-fed hangover. The major indexes, they are all lower. The Dow's S&P and NASDAQ, you can see down. The Dow's not down much, about 86 points. A NASDAQ

continues to get hit the hardest. It is down over 1%. That has been the trend for the year, as has this. Energy, old oil and gas, is the best performing sector once again. We're led higher today by Conoco Philips. They had blowout numbers. APA, which used to be called Apache and Marathon Oil as well. They were all, look at, 5%, 6%, percent. 7% all the time. The White House is actively calling for more fossil fuels. More drilling could be very good for these companies. In the Treasury market, yields they're popping. The yield on the two-year note trading in its highest level since 2007. Let's get more on that. Rick Santelli is at the CME as yields. They continue to pop. Rick. Yes, sevens are wild. Two-year note yields on pace for the highest close since July 2007. Brian nailed it.

The three-year note yield was dabbling in and out. It needs to close above a 465 yield to make a new post-cycle high-yield close. It's currently a 463. Why does any of that matter? Because it's very important to realize that when we have T-bill auctions on Monday and Tuesday, you're going to see those yields jump because the Fed raised rates. And short maturities are going to tack right along with what the Fed's doing. But the further down the curve you go, the more baggage these maturities carry.

Things like, hey, people might want to buy them pushing yields. down. So right now, that's the only maturity post-cycle. Hi, look at a one month of tens. Its high yield close in October was 4.5%. Hyg, well, it's a high-yield ETF. Why am I showing it? There's a three-day chart. You notice how flat it was, then boom, right after that statement and before the press conference, all of a sudden, it fell out of bed. And if you were to talk to any of the swap traders, just vanilla swaps, FRA, OIS swaps. You don't need to know what any of that means other in the fact that if you were going for a mortgage now,

you might want to go for a fixed mortgage, thinking floating would go crazy. Well, that's what a swap is, fix for floating. It's getting very expensive to fix because floating has so many dangers associated with a rising Fed rate. It's at the most expensive level since March of 2020.

If you look at GILTS, yes, the Bank of England Monetary Policy Committee raised rates to 3%. But look at a two-week chart of the GILTS, they hardly budge because 4.5% from political turmoil, still a high watermark weeks ago, and finally the dollar index. Listen, we could talk about what it does to multinational companies. It hurts their profits.

We could talk about it makes imports cheaper, fine. But it's a financial issue. The dollar being so strong, it popped over 2% from yesterday's lows right in between the statement and the press conference. Huge bounce. It makes many countries and lesser economies in the U.S. have to really scramble to come up with the ex-examble to come up with the ex-examble. money to buy dollars to satisfy financial arrangements.

Brian, Morgan, back to you. Yeah, that's exactly where I was going with you, Rick, was King Dollar. The fact that we did see this pop and the fact that we do see debates emerging on our air about how resilience, the strength in the dollar is going to continue to be as we start to look to 2023. Yes, and, you know, with the Fed on its current glide path, I continually see a lot of volatility in foreign exchange, but even those down days, in dollar like up days and stocks, they could vaporize so quickly as this two and a half percent

rally from yesterday's three o'clock lows demonstrates. Vaporize. It's a good word for it. Rick Santelli, thank you. With yield soaring, Bond King Jeffrey Gunlock had some positive things to say on CNBC about investing in fixed income now. Bonds were just terrible, but not anymore. Everything has changed. Stocks are, of course, way less overvalued than they were at the beginning of the year, but bonds have done really badly. And they've gotten so cheap to stocks that that whole relationship has reversed. So not only our Treasury is now potentially a profit maker, I mean, if the long bond is four and a quarter, it can go down. Well, for more on the outlook for the beaten down fixed income

market, let's bring in Joanna Gallegos, co-founder of bond blocks. The first ETF issue were focused entirely on fixed income. Joanna, thanks for being with us today and get your response to Jeffrey Gunlock there. I'd imagine you'd imagine you'd go. Great? Absolutely. I think you really can't ignore that you don't have to have a strong call on this market, given even all the uncertainty we're all facing, to think about treasuries. I mean, the six-month treasury is over four and a half. You know, this is real yield is back in your portfolio. It's helping with your total return. And so I think that the treasury market is a great place to start on the short end of getting, of doing something, like making a decision of what you're doing with their money on your sidelines and even potentially. outperforming some other areas of your portfolio. It's just an intuitive, pragmatic thing to think about right now in treasuries. Yeah. I mean, earlier this week on this show, we were having a conversation about tips versus

eye bonds. Want to get your thoughts on, especially for folks that maybe don't trade in the market on a regular basis, but are potentially looking to find ways to reclaim some gains, given the losses we've seen across so many different markets so far this year. how they could actually go about doing this? Yeah, so we think of risk assets in a simple way that you really need to pick your spots. And there is significant dispersion across credit industry sectors

and also credit ratings in bonds. Once you are moving past the risk-free assets, like in treasuries, and you're thinking about credit exposure, you really need to think through how you're doing that. For example, one thing I think that's overlooked, we think is overlooked or should be considered, is that, you know, pre-pandemic and even just in before 2022, companies were spending a lot of time reinvesting the debt on their balance sheets

at much lower levels than they are today. So there is runway for these companies to endure economic downturns. And we think that some areas, even in high yield, are important to look at. We like single Bs in terms of looking for a space that is performing really differently than, you know, higher risk credit. but, you know, that's the thing to do is to really pick your spot and consider this is a potential entry point over the long term. Joanna, outside of high yield energy, oil and gas, we know you like those. They've been held

out. Cash flows are very strong. Is there any reason to own anywhere down the credit spectrum? I mean, how junk bonds have been just crushed? How bad could it get? Well, I think that's the issue is that if you're going to try to call a bottom in this market on the risk side, we do need to remember there are some known quantities that we're working with. And one is we understand and know the Fed has conviction to continue to raise rates, except that you can be more precise, like I just mentioned, and looking at spaces where maybe the fundamentals are actually a small silver lining in the type of credit you're investing in.

And I think the difference in industry sectors and ratings is we like to talk about a lot, you know, between energy and health care just this past month in high yield, there was a 228 basis point difference of performance. So, you know, I think there are definitely areas to consider, you know, it's something that somebody that is thinking about risk assets needs to take another look at. Yeah, to step back and I guess take a more macro approach to this entire conversation, every day we're debating about the rising risk of recession, what that means for corporate America. talk to me about the state of credit right now, the health of credit.

Are there areas that are sending off warning flags? I think we don't understand. I think we're waiting to really absorb more data on the health of the economy. It's difficult, but we don't want to paralyze ourselves in terms of making sure we're doing the right things for our clients' portfolios. Again, it's something that if as long as you have access

to more specific exposures, you should be able to make some of those determinations. But on the triple Cs versus the Bs versus triple Bs, there's just such meaningful difference. I think you really have to look opportunistically at each space. Joanna Gallegos, thank you for joining us today. Thank you very much. All right.

So let's move from credit to stocks. Your next guest says that rate-sensitive stocks are at continued risk, so he's investing in staples, like the sector, not the retail store that sells paper. He's expanding the definition of the group to include things like medical, gaming, and even pet health services. Peter Anderson is the chief investment officer

at Anderson Capital Management and joins us now. Let's start off with Seizers, obviously the casino company, online gaming. You know, though, that maybe the most attractive thing about Caesars is the fact that they've got a user database of like 55 million people. CZR, why do you like it?

Well, you hit it right on the head there. Absolutely, that database is invaluable. I mean, that is the largest database for gaming clients. So try to put a value on that. But also, you know, I've been a follower of Caesar for many, many years pre-bankruptcy. If you can think way back to that period, when it went into bankruptcy and came out. And this company is just totally focused. You know, I'm a former high-heeled manager. So I look at stocks through the land. of a fixed income analyst. And one of the things that's really shining about Caesars now is, even though they're loaded with debt, the CEO in every conference call makes a point to say that we are going to de-lever. And indeed, they have in the most recent quarter, they paid down almost a billion dollars in debt, and he made forward guidance to continue that. So in spite of what the Fed is doing, I think it's all been said. Maybe not all of us have said it. But in spite of what the Fed is doing, you know, you have to find companies that wouldn't it be great if you just didn't care about the Fed guidance? And I think Cesar's, among these other two stocks that I mentioned

for you, are in that category that make you free of thinking about where interest rates are going. Yeah, Shockwave Medical, another company I want to highlight, not a name that I'm not sure. Morgan, do you ever talk about this company? I don't. I've not talked about it. But we forgot during COVID, that there's a lot of other bad things that are out there. And Shockwave, you like this sort of unique treatment that they've got for clogged arteries that has become a bigger problem in the United States. SWAV. Absolutely.

You know, it is the number one killer in the United States and perhaps across the world. This is an ingenious invention. You know, I have a physics background, so I love to find the origin of these things. but it is a simple catheter, minimally invasive, which actually most arteries are clogged by calcium deposits that are rock hard. This is able to pulverize that calcium in place and open, clogged arteries. So we've often heard of the phrase hardened arteries. This apparatus is designed particularly to take care of that. And its revenues have been growing over 100% every quarter. do you think people that are going to have booked for that kind of procedure, they're never going to put that off,

depending upon what the Fed chair said yesterday or what interest rates are going to be years from now. They need that now, and that, in my sense, is a staple. And in terms of a third staple, pet health services, what do you like and why are we having this conversation on a day where Zoetis is down 12% those earnings right now? I know that. Well, Zoedis is a little bit more complicated story. Trupanion provides insurance, mainly for cats and dogs in this country. Only a million clients so far. It is massively underpenetrated.

That's only about 2% of the entire pet population. People got a head fake thinking that this was only a strong, attractive stock for during the COVID period. But I will tell you, the continued personification of pets and the devotion that pet owners have to making their pets healthy definitely lead to a stock like Trupanion. On top of that, it has signed selling agreements that are hardly covered by anybody in terms of this, but Affleck and Chewy have signed on to co-sell this service. That's approximately 50 million prospective clients out there. So can you imagine, Tupendon only has a million pet clients now. And so the addressable market has just expanded for them tremendously.

Peter Anderson, a couple of new names. There's Shockwave, Trupanion, as well, and of course, seizures. Really appreciate you coming on, giving us some actionable ideas. Thank you. Thank you. Do you own a pet? I do not. I have three kids.

That's enough right now. There's a lot of comments. I'm just going to move on. Coming up. I have two of each. Roku shares dropping after warning of a soft holiday season. Now down more than 75 percent this year. is an attractive takeover target.

And who would buy it? We'll play the dating game next. Plus, Crox isn't seeing a consumer spending slowdown. The company beat Street estimates. It boosted its outlook. Even as it battles, higher freight and inventory costs. We're going to talk to the CEO. But before the break, two stocks hitting all-time highs in today's session.

Conoco Phillips, which reported a big profit, beat and Humana. We've got more Power Lunch in two. Welcome back to Power Lunch. The decline in the stock market means a lot of companies have seen steep declines in their own valuation. So which ones should or could be bought? Which should be doing the buying? Let's do some matchmaking, shall we? Duncan Davidson, partner at Bullpen Capital, joins us now. Duncan, let's kick it off with the first name that you've put out there, which is Microsoft. On a day where Roku is falling dramatically, you think Microsoft should buy Rope? Very natural partnership. They need something. They're way behind Apple, Google, Amazon, and the streaming wars. And they know how to deal with hardware and operating system. This is a perfect acquisition for them. They would jump right in. They'd have an ad tier type of service, which is where the market's going. And they have a really interesting trick up their sleeve,

which is to tie their Xbox games and do streaming games through Roku. I think they're crazy not to do this. Can they do that if they're still in a pending acquisition period for Activision Blizzard? Well, is that going to happen? But, you know, Blizzard would help more games through here. Yes, they can handle two of once. It also, by the way, sets them up downstream to buy Netflix, which a lot of people have thrown out as an idea. Seems a little early right now. I'll give you one more thing about Roku. They hired Charlie Collier, who used to be at AMC and Fox, and he's a guy that launch Madman. So Roku with Microsoft heft can develop original content like Apple and Amazon are doing. This is a match that has to happen. A match that has to happen. All right,

here's a second one. And this one, I don't know if it has to happen or if it'll ever happen. It's an interesting one. Carvana, obviously the stock's been wiped out. The company seems like it's struggling. eBay, though? Why would eBay motors just bringing in Carvana? Exactly. So here's the logic. Now, the use cars went through a huge pandemic bubble. It's bursting. In effect, wholesale prices are starting to fall rapidly. But the other side of it is Carvana has dropped so much. It's relatively cheap. So the play here is to pick them up. I think eBay will have a fairly good run with this because new cars are still in shortage. They're probably going to stay high priced for a while to make room for EVs. In other words, the VMs are going to play that game. Use cars are the place to be. And eBay needs something like this. It's interesting that you would say eBay and not, I mean, I guess it's not interesting because Amazon's so big, it's already under antitrust scrutiny. Is that why you would say a name like eBay, which also has that sort of e-commerce aspect to it? Well, eBay already has a play in the car business. So this is a thing that could really get hefted up. That's why it makes sense. Amazon, no, no. Amazon's got other fish to fry, not this one. Yeah. Okay, finally, SpaceX. Should it buy Boeing? This one got my attention.

Yeah, this is the big idea. This is the big idea. Come on. Elon likes to fix things. Boeing needs to be fixed. And this is a clever deal because the art of the deal says you pick up Boeing, but you sell off the military, the old one, Donald Douglas, probably to Northrop. And you spin out the commercial, the jet business, or maybe try to sell it. It may be the space segment of Boeing. Boeing, which is what Elon would want, would be relatively cheap because I think Boeing is selling at a huge discount to a breakup value. The reason why Elon's the right guy, by the way, is that Boeing has to get back to an engineering culture. Let me give you a simple story. They had been thinking about launching a new mid-market airplane, the 797, which would have transformed the core of the airplane business. But they didn't do it because it didn't pencil out. So the engineering culture would have launched it, the finance culture doesn't launch anything. And Boeing is sitting there with huge

management blowed. It needs to get fixed. But SpaceX and Boeing actually compete, right? They compete under commercial crew for NASA. I mean, I would have a hard time believing that the, that the U.S. government would want to see two competitors in an already reduced environment where aerospace and defense is concerned come together and become even mightier. It's a great, great point. I think their joint venture for launch vehicles, the United Launch, has to get spun out. But I think from the U.S. government point of view, the reason why Boeing CEO was fired, what, a year and a half ago was because they couldn't deliver on their start line. They can't execute. The U.S. government needs them to execute, and SpaceX knows how to execute. So I think they could

clean it up and then execute. And from the point of view of SpaceX, they have a vertically integrated set of systems for U.S. government business versus launch vehicles. And these contracts tend to be much longer term and more guaranteed than commercial. So it really improves the SpaceX business. So we've seen M&A. It's picked up maybe a little bit in the last couple of weeks, but in general, it's been pretty quiet and don't get me started on the IPO market. But given the fact that we do seem to be going into or poised for more of a downturn, we have seen so many stocks beaten down in general, do you think we are going to see more deal-making, whether it's any of these ideas you're throwing out there? Some deal-making? Any of these ideas around? Or elsewhere, do you think

we're going to start to see some more creative combinations actually become reality now? Well, you know, there's an old Wall Street thing, don't catch a falling knife. So when these valuations drop, you don't want to wait until they start to bottom. I think they're starting to bottom. I mean, these things are, like Roku is going through its bottoming process right now. But Boeing, in effect, is probably beaten up so much that it's not going to get much worse. So this is a great time for somebody to buy it. Wow. Duncan Davidson. Some food for thought there. Some interesting ideas. I got to give them credit. He's throwing some big things out there.

But when I found out I was going to anchor with you today, I was like, you know what I'm going to do? I'm going to get her started on the IPO market. But you just said, don't get me started on the IPO market. So I won't do that. Now I can't do that. Morgan, thank you. All right, on debt. Is Bitcoin ever going to really break back out? We'll talk about it. Plus is now the time to buy Amazon. And by the way, is Amazon's founder, this Bezos guy thinking about buying a certain Washington NFL team? Huh? And Heaven's the... Speaking of an interesting deal. There you go. How's that for a tease? And Heaven's the Betsy.

Betsy. The stock is actually up. See what I did there, Morgan? We're back right after this. Welcome back. Let's talk a little crypto. Fidelity is getting in. on the action and plans to open commission-free crypto trading to retail investors, the firm saying today that it has opened an early-access waitlist to users for, quote, Fidelity Crypto. It will allow investors to buy and sell Bitcoin and ether, and while the commission is free, it will factor in a 1% spread into every trade execution price. Now, Fidelity is following the footsteps of Robin Hood and Binance,

which already offer commission-free crypto trading. And we know crypto has had an incredibly rough year. It's down 55% just since the start of this year. But Brian, it does speak to the fact that their companies are making these bets, and I realize some of them were made before the so-called crypto winter, and they've taken a while to actually build out, rollout. But they're continuing to bet that there will be a marketplace here for these cryptocurrencies. Listen, when they say crypto winter, we've gone through many of these.

If you look at the history of Bitcoin, read Digital Gold, I think his name is Nathaniel Popper, There's some great books out there. Bitcoin has fallen 75% like 10 times. I mean, some of those were like from 12 cents to 8 cents or, you know, four cents at its early days. So I think for the people that are real acolytes, really in love of this, you know, they don't mind it going down. They probably bought it a dollar. So Bitcoin at 19,000 is still hugely profitable for them. And if you believe it's going to 60, 50,000 again, are you upset about 20? I don't know. Well, the believers are never, you're not going to have their minds changed, which I respect. That's right. So we'll have to see how it goes. Let's get to Bertha Coombs in the meantime, though.

For the CNBC News Update. Hey, thanks. Thank you, Morgan. Here's what's happening at this hour. President Biden has left Washington to kick off a four-state campaign swing. He's starting in New Mexico with a rally for a gubernatorial candidate, Michelle Lujan Grisham. Next up will be California, Illinois, and Pennsylvania to help other Democrats. in competitive races. A federal court has ruled that the Miss USA pageant cannot be forced to allow transgender contestants. The judge, a Trump appointee, ruled that excluding transgender individuals was not discrimination,

and he agreed with the pageant organizers that ordering them to change their definition of, quote, womanhood would violate their free speech rights. And NASA's Artemis Moon Rocket is heading back to the launch pad. The Artemis I will start its slow trip this evening in preparation for a launch on November 14th. The last test flight was scrubbed due to Hurricane Ian. I think this is the third time, Morgan, hopefully the third time's a charm. We will see, fingers crossed. They're targeting November 14th.

And speaking of Boeing, the SLS, this space launch system, this rocket, the most powerful rocket to have ever flown. Ever. That is the most powerful. It is contracted by NASA out to Boeing. powerful rocket ever? It will be. So when we move to Jupiter, that's the rocket that's going to power us? First of all, thank you, Bertha Coombs.

And this was built. It's been many years in the making, a decade in the making many, many billions of dollars. And it is going to take us back to the moon. And it, at some point, potentially would go to Mars. Elon Musk and Starship, which is also expected to have its orbital test flight before this year is out, is going to challenge some of the. records that the SLS will make if it gets flying before Starship. Listen, if we go to Mars, I just, I want to take Matt Damon with me because he knows how to

make potatoes. I don't want to go to Mars. I'd go to the moon, though. Read Ray Bribery's all summer and a day, and you won't want to go to Mars. You get locked in a closet on one day that there's sun. All right, ahead on Power Lunch. Money and politics. They're like, what did Forrest Gump say?

they go together like peanut butter and chocolate or something like that. We're going to tell you where the biggest billionaires are putting their money in these midterm elections. That's Robert Frank, by the way. Yes. And Crocs rocking today of 8% on earnings. We're going to talk to the CEO about what's working. But also the challenges facing the company. Costs, currencies, much more. Power Lunch. We'll be right back. Welcome back to Power Lunch. Business is on the ballot this election season, fixing the economy, a top issue. for Americans, from the growing cost of living to the rising risk of recession, we have two reports this afternoon. Robert Frank is looking at the billionaires putting their mark on the

midterms, and Elon Moy is in Arizona, the epicenter of every hot button issue in American politics right now. We begin with Robert. Morgan, billionaires spending a record $880 million in the midterms. That's up 44% from 2018, and their spending could hit a billion dollars by Tuesday. That's according to Americans for Tax Fairness. Billionaires funded both Republicans and Democrats, but they favored the GOP by three to two. One of every $10 spent on political action committees or PACs came from a billionaire. The top spender is George Soros. He spent $128 million. Most of that on a super PAC called Democracy 2. That funds largely Democratic candidates. Richard Uline, the Wisconsin Shipping Magnate, he was second with $67 million spending largely on Republican super PACs.

Ken Griffin spent $66 million on Republican super PACs and candidates. That is in addition to the $50 million he spent just in Illinois. And the new money bags in politics is Sam Bankman-Fried, the Crypto King, spending $40 million this cycle to fund candidates, who are friendly to crypto regulation. Of the 18 Democratic primary candidates, he funded 16 of them won. So good ROI for him. Now, the other big donors this cycle include Michael Bloomberg, Peter Thiel, Larry Ellison, and the hedge funder Stephen Mandel.

Guys? So it's kind of like, I mean, that's the usual suspects, right? To quote the movie, Robert Frank, in terms of big political spending, Is there any sign of any time that there will be eventually some sort of cap on this kind of spending? Because this kind of spending, whichever party you're in, right? Political parties are now just billion-dollar corporations, both of them, really. And, you know, people get suspicious, money in politics. Peas and carrots is actually apparently with Forrest Gump said, Robert.

Yeah. Look, you're right, Brian, although there are some new actors this cycle. Ken Griffin is sort of, you know, many people see him as the new Coke. of the Republican Party in the Koch family that used to fund a lot. Now Ken Griffin is funding a lot. So he's new in terms of the amount he's spending. San Bankron-Fried hasn't been around for previous cycle,

certainly at this level and is vowing to spend even more in the 2024 cycle. But on the cap question, until Citizen United is revisited by the Supreme Court, which is very unlikely given that court's makeup right now, there will be no cap on spending by these billionaires. Robert Frank, thank you very much. All right, now to a different tack on politics,

and Alon Moy, who is in Phoenix, Arizona, where the growing homeless population is a flashpoint on the campaign trail, and business finds itself once again, the center of the issue. Probably not the only issue, Alon, is my guess as well. Immigration, I'm guessing, that is, and this is, like a lot of other states,

Nevada, where you just were, a tight race. Well, that's right, Brian. Phoenix has the highest inflation rate of any major city in the country. Housing prices are up 17% from the previous year. And you can see the fallout of that just right behind me here. This is called the zone. It is the largest homeless encampment in the city of Phoenix. And the situation has gotten so dire that local businesses are now suing the city over it. Debbie Falachi, who owns the old station sub shop with her husband, Joe, is one of them. I don't know what we're going to come across in the morning.

someone sleeping, someone passed out tents, urination, defecation, violence. So it's been very, very difficult. Now the zone stretches for several blocks downtown. The lawsuit alleges that mental illness runs rampant along with drugs and crime. The Republican candidate for governor, Carrie Lake, is taking a tough love strategy. She says it's get treatment or get moving. Meanwhile, the Democrat, Katie Hobbs, is calling for more affordable housing and a $200 million investment in the trust fund for the homeless.

Joe Falachi says he's just trying to protect his life's investment. I'm a sandwich maker. I'm not a politician. I'm not a lawyer. All I know is this is not fair. Now the city has filed to dismiss this lawsuit, but it did tell us that it's committed to working with the businesses involved on a solution. Guys.

Elon, you touched on it briefly, but just to dig in a little bit deeper here, What are the proposals specifically that are in play to help not only the people, but also the businesses? Yes, I talked to the lawyer involved in this case, and he said that some of the ideas they suggested are a more structured tent encampment, as well as more temporary structures. He said they're not trying to send anybody to jail or get anyone arrested, but they want this declared a public nuisance. Because as you can imagine, this also feeds into voters' concerns about drugs and about crimes, both of which will play heavily into next time. next week's midterm elections. All right. Elon Moy, thank you. Coming up in three-stop lunch, we're looking.

And pandemic darlings that have fallen on hard times, including Moderna, which is down 40% this year. What could give this stock a shot in the arm? On the other hand, Crocs got a boost. I see what you did there, shot in the arm with Moderna. Yeah. You got to get up pretty early to fool me, Brennan. I know. You're up earlier than most.

I just don't sleep. All right. The Dow's flat. We'll be back in two. All right, welcome back to Power Lunch. Shares of pandemic winner Croc surging today after record third quarter results on strong back-to-school sales.

Footwork company also raising full-year guidance in spite of higher freight and inventory costs. That stock has doubled in the past three years, but has fallen back a little bit, down about 40% so far this year. Let's bring in Andrew Reese. He is the CEO of Crocs. Andrew and I know you got a full lineup.

If our viewers on the radio, picture a guy standing in front of a bunch of shoes, that's you. Andrew, thanks for joining us here. It said pandemic winner. I would kind of go against that. You guys were hot before the pandemic. Obviously, where do we stand now in terms of, quote, back to normal, which I can't stand,

but I'm going to say it anyway. Where do we fall from your perspective? Yeah. Look, I think we are getting back to normal. I kind of agree with you, Brian. I can't stand it either, right? So as you rightly pointed out, Crocs was really trending very strongly before the pandemic. We were able to win in the pandemic.

We were able to gain market share. We're able to gain a lot of traction and attract a lot of incremental customers. As I think about the consumer today, I think about the consumer where they're shopping in store online with brand dedicated websites. I think that's relatively normalized. But I think what you're also starting to feel a little bit is the consumer feeling some of that compression. as they see inflation, as they see interest rates rising, so they're starting to be more cautious about where they spend. Well, you know, listen, we talk a lot about inflation on this network.

As you probably know, Andrew, and the last couple of years, everyone's pointing fingers. Here's the realities, and please, that's as I see it. If I'm wrong, please tell me. During the pandemic, right, we had a lot of money that came into the system. A lot of people that were locked down didn't have anything to do, so they went online, and they shop. You didn't have to discount, is my guess. people would pay full retail for everything, which is why corporate profits, across everything,

by the way, tended to soar. Where is the consumer now? Do you have to start discounting? What are your inventory levels? And how does it compare to two years ago? Yeah. I mean, you're absolutely right, Brian. So the peak of the pandemic, there were two major factors affecting companies. One is their costs for hire, right? It cost you a lot more money to get your goods into the country and get your goods to the consumer. So you felt pressure to pass that along. Second, there were constraints, right? There was a shortage of supply. And so you really had no need to discount. And the consumer, if they saw it and they liked it, they knew they had to buy it because they probably wouldn't get it later. So today, I would say we're in a more

normalized kind of promotional and consumer incentive environment. Where the consumer is looking for some incentives, they're waiting for those key holiday periods where Black Friday, Cyber Monday, when you typically expect promotions. I think we're in a much more normalized environment. And there's a little bit of additional pressure from excess inventories. Because a lot of companies order too much relative to what is now consumer demand. So there's a little bit of excess. I would say in that environment, Crocs is managing that really well.

We are a little bit more promotional and we do have to incentivize the consumer, but we're still able to translate that into, into, you know, very significant operating profits. And we're really best in class in our sector in terms of how much revenue we can translate into operating profit for shareholders. Andrew, we have the conversation daily on this network about, you know, the resilience of the American consumer.

But we also have the conversation about a strong dollar. So it really jumped out at me to see that you're forecasting such strong growth internationally. What do you attribute that to? And is that in spite of currency headwinds? Yeah, that is very much in spite of currency headwinds. As you can see, we have a very large international business. And that has been impacted both on the top line and also from a margin perspective as the dollar has strengthened. And obviously, I think the dollar is continuing to strengthen with the additional interest rate rises we saw yesterday. So that is in spite of

that. So why is that happening? That's really happening due to the strength of the brand. So we've seen tremendous brand strength here in the United States over the last three to four years. That is now starting to mirror in key international markets. We can see that in Western Europe. We can see that in the Middle East. We can see that in key parts of Asia as we get to really execute our playbook in terms of engaging consumers with collaborations, with innovative marketing, with new product, and really energizing the consumer. I think additionally, we have an opportunity if the consumer is feeling more,

constrained over the next, you know, 12 months or so. If you think about a potential recession, you know, we sell up very approachable price points. Our average price points, 50 to $60. You know, we're not trying to get the consumer to pot with $100 or $200 or $300 for our shoes. So I think we're in a great place. Okay. Andrew, Risa Crox, really appreciate you coming on. Some fine looking shoes behind you, Andrew.

Have a great day. Thank you. Thanks. Our three stock lunch today, three pandemic darlings, which have fallen out of favor. Peloton, Moderna, and Amazon. Amazon trading in its lowest level since March 18th of 2020. That's the pandemic bottom for that name. Is there a hope for a turnaround? That's next. Welcome back. It's time now for three-stock lunch. And today we're taking a look at some once-hot pandemic stocks. Peloton is lower on a wider than expected loss, a week holiday outlook, now 90% off the highs. Amazon shares back at its pre-pandemic levels. And Modellon, Derna lower after missing estimates and lowering its sales outlook, now 60% off the highs. Is it time to buy or run for the Hills if you're an investor? Let's ask David Wagner.

He's portfolio manager at Aptus Capital Advisors and has our trades today. Dave, let's kick things off with Peloton. Yeah, I think I'm running for the hills, Morgan, here. I think the biggest question for Peloton is right now, does the business story turn around? And it did feel as if a little bit this quarter, investors saw some stabilization in inventory and some sequential improvements and free cash flow. I'll give the management team a lot of credit here for Peloton. On the call, there was a lot of optimism from them and also the analysts. But it's no secret that revenues have dropped off a cliff, almost 20% over the last three quarters.

This quarter right now, I mean, they're coming across four different quarters, difficult quarters of difficult tough comp. And this was the third quarter of that four quarter cycle right now. So this quarter should be the last tough comp. So there's one more quarter for investors really to worry about. And that quarter, just during this earner call, well, that bar was lowered. But then what? What if demand does not pick back up in 2023? Then you have other overhangs such as inventory and negative free cash flow, which was still

negative $250 million this quarter. I believe that the stock's going to be in the penalty box until the inventory problem is behind them and that there is some clarity on demand moving forward into 2023. I mean, don't get me wrong here, Morgan. I mean, the company has made a lot of improvements in these areas, especially on the free cash flow side. But I think that there's probably some risks still to the downside, especially if the market doesn't believe the new fundamental evolution of the company moving forward. And that's why I'm on the side. Is there a data play here with Peloton?

I don't know if you use Peloton or not. Like, they know a lot about you. Like, so we always talk about the value of data, right? They know the user. A, they probably know what your income level is. We got to move on. I just want if there's a one if there's a data. level there as well. Let's move on now. We called it a pandemic stock. It's not. It's Amazon. They've been

around for 25 years. Amazon's probably getting a slowdown because, you know, a little bit, but what's their take on Amazon right now? I mean, compared to where it was versus where you think it's going to go. Yeah, they've definitely caused the ruckus here, Brian, Sully. But I think that the only stock that probably infuriates me more than Amazon right now is FIS. But right now, basically, everybody owns FIS. It's overowned has definitely become a funding mechanism for people to be buying the average stock. So the one thing that has surprised me is if you look at Wall Street, the rating system, there's only one cell rating on Amazon. I mean, I get it that it's only 10% off of its COVID bottom. But you really think that people would have would have started throwing in the towel by now.

But I think one of the biggest things that we've learned this earning season, it's actually come from Google and meta. It's that the markets absolutely hate any type of increase in spending. For Google, it was jobs for meta well is basically everything. But now we're learning today that Amazon, well, they stopped hiring on the AWS side. They stopped hiring on the retail side. And today, they stopped the hiring on the corporate level. So what I've been saying about Amazon on this program in the past is that this stock does really well when it's harvesting, now when it's investing. So what does that mean? It means that, hey, margins matter. Profitability is king. But if you go back to last quarter, you saw the stock rally really hard off of better profitability and expectations. But fast forward to this

quarter. This quarter, it's slowing AWS growth and rising costs for reducing visibility on the operating marginally forward. So it's tough to own here for me. All right. One sentence, Moderna. I don't think that analysts are correctly modeling the potential readouts right now on the PVC drug and the cancer drug that have gotten a lot of great momentum here, especially after the $240 million put in there by Merck. Dave Wagner, appreciate it. Three stock lunch, Peloton, Amazon, Moderna. More Power Lunch. Straight ahead.

All right, welcome back to Power Lunch. Got a few stories before we go. And this one, if you haven't heard it, is interesting. According to numerous reports, Amazon founder Jeff Bezos, is reportedly interested in bidding for and maybe buying the Washington Commanders football team. According to numerous reports, that deal could include rapper Jay-Z as well. It's according to People Magazine, The Washington Post, TMZ. ESPN recently reported the embattled owner, Dan Snyder.

is exploring options to sell the team. He bought it in 1999 for $800 million at the time. That was a record for a sports franchise. Morgan, whether it's Bezos or somebody else, Snyder's going to probably have to sell the team because of a lot of issues with him and his staff. It's going to go, what, $4, $5 billion? Looks like it.

I mean, I'm looking at an estimated valuations of almost $5 billion. So somebody like Jeff Bezos, one of the richest people in the world, certainly could do this. And of course, CBS has reported that as long ago as 2019, he's expressed interest in buying a team within the league. So I'm going to tick off all of our viewers in Denver. And don't be mad.

I love you, Denver. You're an amazing town. Union Station's got some great restaurants. Check it out. If the Broncos went for 4-6, I think the commanders, just because the media market, probably have to go for maybe north of $5.5.5 to $6 billion. Maybe, I'll say. We're going to find out. Juicy.

The Washington football team. All right. Well, that's going to do it for us here at Power Lunch.