Power Lunch - U.S Tech vs China Tech, housing’s hard landing and a spooky three stock lunch. 10/31/22

Episode Date: October 31, 2022

U.S. tech is in a slump. China tech stocks are risky. A top strategist puts the two groups head-to-head and has some surprising advice for investors. Plus, home builder stocks are struggling but there are other names best positioned to weather a real estate recession. And a Halloween-themed three stock lunch. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to Power Lunch. I'm Tyler Matheson, along with Contessa Brewer. Here's what's ahead on a busy Monday. Last day of the month, Halloween, U.S. Tech in a slump. China Tech is risky, but which has the better near-term prospects. We've got a top strategist here who's going to put the two groups head-to-head and has some surprising advice for investors. It says walk. I follow directions. All right. Plus, we've got a housing, hard landing. Builder stocks may be in the basement, but there are other names that are best positioned to weather a real estate. recession. We'll tell you what they are later this hour, Contessa. Don't let him fool you. He follows directions when he wants to. The major indices is pulling back today, but on track to close October with big gains, snapping a two-month losing streak. Right now, the Dow's industrials off 70 points or two-tenths of a percent, but up 14 percent for the month. That would be the best month since 1976. You've got the S&P off half a percentage point right now, but up

eight percent for October. And right now the NASDAQ composite off three quarters of a percent. up 4% this month. Peloton on pace now for its best month since December of 2020, up more than 7% today and 24% months to date. And meta hitting a fresh low in today's session going back to January 2016. You can see off by 6 and a 3rd percent. Mehta on pace for its second worst month ever down 31 percent, Tyler. Well, Contessa, let's begin in China where the country's strict COVID policies. Well, they're wreaking havoc on the economy and people's lives over there. Eunice Yun is live in Beijing for us. Eunice, let's start with that Foxcon plant as Foxcon today denies reports of 20,000 COVID cases there and people fleeing the premises.

Absolutely. That Taiwan company has been in full on damage control mode because they have been denying that report, as you had mentioned, and also saying that the production won't be affected. Now, the company had also, through the local media today, had renewed their pledges that they would improve the lives of the workers at their factory in Zhengzhou in central China. That's the one that people say is right in smack in the middle of iPhone City. And they said that they have put into place new measures to make sure that workers who are sick or are suspected of being ill will be sure to be taken cared for, that there would be transportation. so that they could be taken to isolation facilities and handled well. They also said that they'd be offering new bonuses for anyone who decided to stay

to the tune of about $14 a day, which is a big amount there, because it would be about half of a salary, half of a monthly salary all in all. And this all comes after we've been seeing all weekend videos emerging of Foxconn workers trying to get out of the facilities, walking by foot over fields, and going a very long way to try to reach their homes, again, to escape these COVID restrictions are brought on by a very persistent outbreak in the city. And, Eunice, that Foxcon plant supplies Apple. So does that disrupt Apple's productions?

Well, there have been several reports that have been quoting people who are close to the matter, saying that it could hit production as much as 30% for the iPhones in that factory. the company, again, has said that that wouldn't happen. They said that they are coordinating their production with other facilities around the country. All right. Thank you very much, Eunice. It is not just this one factory, of course. Shanghai Disney also shut down because of COVID. So what can you tell us about that situation?

Well, the latest in Shanghai Disney is, it is, as you said, temporarily shut down. but even just a couple of hours ago, people were posting on social media that they had only just emerged from the theme park because you cannot leave, or at least you couldn't today, without a negative COVID test. The company itself had said that they were offering refunds to people to try to make things a little bit better. Some of the visitors said that actually the rides were still on today so they could at least sort of enjoy themselves, even though they weren't allowed to go outside. But this is something that we're seeing in various parts of the country, as well as in other jurisdictions such as Macau. MGM said that they had to shut one of their casinos, Guangzhou, which exports about a quarter. I was responsible for about a quarter of China's exports last year. Guangzhou said that they were shutting a district.

And then we just heard tonight that there are a lot of truckers complaining that they are not able to get back and forth and especially get into Beijing because there's just this increased level of fear about the spread of the virus. And, of course, Beijing is the most important, at least in the eyes of Beijing, because it's the seat of the government. Right. All right, Eunice, thank you for that. You know, just one more note on this zero COVID policy that we've seen from President Xi. And you heard Eunice mention this. Mikau, the MGM, Koti, had to shut down.

One dealer got positive, tested positive. for coronavirus. They shut down the whole resort casino, no visitors in and out, no employees in and out. For three days, they're going to have to quarantine. I've been told that they have now tested everyone else, and everyone else has tested negative. And yet at the same time, tomorrow launches the day where they start the e-vases, once again, this makes it easier for people on mainland China to apply for a visa to go to Macau and to gamble there. It seems at odds with the policy of shutting down over one coronavirus infection. So the people who were in that resort were quarantined there? That's right. Everybody. Everyone who was in the resort. Employees,

attendees, visitors, guests. And anyone. For three days, they have to stay put inside the MGM cotai and then testing. And not just for those who were under quarantine, but the whole city now has had to undergo, we'll have to undergo rapid testing. At a time when they're supposed to be relaunching, I've talked to sources in the industry and some of my casino contacts who anticipate there will be a gradual lift in Macau, but they think it's going to be rather slow. All right, Contessa, thank you. And Eunice Yunn, thank you as well. All right, in spite of all the challenges that Eunice just laid out, our next guest, says China stands out as an attractive opportunity compared with the rest of the world. Well, he favors China tech over U.S.

tech, by the way. Dan Suzuki Deputy Chief Investment Officer at Richard Bernstein. I almost gave you a promotion there, Dan, to Chief Investors. You'll take it anytime. I'll put in a good word for you next time. So you sit on my year and review, please. You got it, my friend. You know, a lot of people view China as uninvestable, but you don't. Why? No, I don't think so, Tyler. I mean, even if you look at just the past several years where clearly the geopolitical issues have been front and center, you know, really what's driven the outperformance and the underperformance over the years has really come back to, you know, brass tax fundamentals, looking at profits and valuations and things like. like that. You know, 2020, when China was the epicenter of the pandemic, you know, it was one of the safe havens because their profit fundamentals were one of the best in the world. You know, since then,

you know, they've lagged the recovery. You know, they've lagged that sort of surging profit recovery as the rest of the world is reopened. And therefore, their profits lag and their markets have lag. So I think it really just comes down to those normal fundamental things. You've got to separate out the politics. And if you do, you know, China looks pretty attractive. It may be one of the few regions of the world where the next couple of quarters, you could actually see profits start to improve. You really can't see that for most parts of the world, Tyler. So is it, so, so let's, let's take it apart here. Liquidity is one thing that sets it apart, sets China apart. Profits may be bottoming. That's another thing that you say sets China apart and creates these attractive valuations,

right? Exactly. Profits, liquidity, and sentiment. That's the lens with which we view any investment opportunity. And unfortunately, for much of the world, profits are slowing, liquidity. Then how do you grade them on sentiment? How do you grade them on sentiment? I mean, I get two out of three ain't bad, but is sentiment literally good now? Well, it's a contrary an indicator, right? So the more bearish people are, the more attractive, the opportunity is returns are greatest when capital is scarce. So the more fear you have over China, whether it's because of the the regulatory risk or the COVID and zero COVID policies or, you know, where the fears are, you know, that creates the opportunity. And that's why this market trades at a huge discount

to much of the world and including the U.S. Let me squeeze one more in before Contessa takes over here. Right now, the major theme in our portfolios, you say, is quality defense. We are overweight cash and long-term treasuries. How do you square that with the idea that now's the time to go into something that surely does not speak to me of defense? Yeah, absolutely. I think, you know, Tyler, it's a great point. When everything in the world is going one way, we get excited about things that are showing, you know,

very different trends. I mean, that's at the heart of what diversification is. But if you look at the overall world, you know, it is pointing toward, you know, slowing profits, tighten liquidity, and that's the time where you want to get defensive in portfolios, and that's exactly what we're doing. And I think with long-term treasuries, the big shift going forward over the next.

12 to 18 months, that I think what's going to drive interest rates going forward is going to be less about inflation in the Fed, and it's going to be more about growth. We think growth is going to continue to slow. That's going to put downward pressure on Treasuries and creates, you know, potential significant upside for those types of investments. I'm just curious, Dan, about why you think you can divorce politics in China from the investment process. Yeah, I mean, I think you can divorce politics from everywhere in the world and you'll be better off. You know, like I said, you know, really the outperformance, the unreformance of China, that market has been very much a function of, you know, profits and liquidity. But even if you look at our own markets, I mean, just look at this administration, the signature, you know, focus was about green energy.

Well, what's worked in this administration? Dirty energy. If you look at back in the Trump administration, the focus is on deregulation and heavily regulated industries like energy and financials and protecting U.S. industries like steel and coal. Well, what were the worst performing parts of the market during that administration? Everything I just mentioned, and even going back to Obamacare, just to keep things bipartisan, you know, Obamacare was the signature, you know, legislation during that period. But in health care and insurance companies. Okay, but in China specifically, the, the part of the, you know, the policy. party line has been a zero COVID policy. Let's talk about what I know best, right, casinos.

The estimate is the six concessionaires in Macau, the casinos that have licenses to operate, have been losing roughly $1.3 billion per quarter because the policy of the party, and then by transitive Macau, is that there should be no COVID infections. I just don't know how you can divorce that from what you're hoping to have happened. I mean, when the casinos are hoping that there's going to be pent up demand like they've seen in Las Vegas, but until something changes with the policy, I don't know how they get there. Yeah, it's a great point, Condessa. It's certainly a huge headwind to that recovery story, but it's going to be, in my view, it's going to be recovery nonetheless. You know, certainly it's going to be choppy. It's going to be a lot more gradual than it otherwise

would be because of the zero of COVID policy. But the reality is, are things that? Are things is going to get worse from here? Because really, what prices of the market's priced on is not level. Certainly, things are bad. But are they going to get better six to 12 months from now? Are they going to get worse? My view is the lockdowns are probably going to get better incrementally from here. And that's enough to show a recovery where most of the rest of the world is actually going to show

further deceleration because of what's happening with the rest of the economy and less about COVID. All right. Silver lining there. Dan Suzuki, I like ending on that note. Thank you. Thanks, guys. And we'll put in the good word for you, get you that promotion. They're all watching.

They're all watching. We know Bernstein's watching. We know Bernstein's watching. Coming up, steals and deals. The latest credit card data is dropping hints about the holiday shopping season. And the stock that could do well have a few things in common.

Plus a housing, hard landing. Economists say the risks are rising, but there are real, there are real estate-related names to buy now to weather that downturn. And before the break, take a look at Chevron and Exxon hitting now all-time.

Hi, Chevron up almost a percent. You've got ExxonMobil up 0.6 percent in today's sessions. We're back in two minutes. Welcome back to Power Lunch on this Halloween. A strong month for retail. The XRT up 12 percent, led higher by the gap, up 38 percent, and Macy's up 33 percent. But headwinds are forming for the holiday season. According to Bank of America, credit card data from September points to a slowdown in spending as consumers feel the squeeze of inflation and wait for deeper discounts. Here to discuss what's ahead for retailers and how to invest in the sector is Bank of America. Retail analyst Lorraine Hutchinson. Hi, Lorraine, nice to see you. Hi, thanks

for having me. Can you give us a little more insight into what the credit card analytics tell you about how customers are spending? Sure. So our BAC credit and debit card spending indicated a slowdown in September. And we think this is a result of the consumers just having a little more pressure on their wallets. When you think back to last year heading into holidays, people hadn't really spent as much on vacations, on going out to restaurants, on travel. And this year, they've reprioritized a lot of their spending toward those other parts of discretionary. At the same time, you're seeing fuel prices rise, food prices rise. So there's really a pinch on the discretionary good side of the equation. And as a result, we're forecasting a more

muted holiday outlook for the retailers that we cover this year. We've talked an awful lot about how retailers trying to get ahead of the kind of supply chain crunch that they saw last holiday season may have pre-ordered this year and are sitting on lots and lots of inventory. So what are we going to see from the retailers moving toward Christmas? Look, inventories, retail inventories are at record high, all-time high levels. And that's because of what you just said, Contessa. They ordered early. They also ordered too much in many cases because they were basing it on a snapback in demand in the first half. We've since seen that demand slow.

So this leaves retailers with a lot of product. The good news is the supply chain is working, so they'll have products this holiday season where last year we saw lots of stockouts. The bad news is it all came in, it all came in early, and it's too much. Do you have any? Oh, I'm sorry. I beg your pardon. I thought you were finished. We'd expect, yeah, we'd expect the promotional cadence to run.

really pick up leading into Thanksgiving and through the holiday season, and then for the clearance levels to be high in January as they try to get clean for spring. So as you talk generally about inventory, what did they order too much of and who ordered, who is in the worst inventory position among the universe of companies that you follow? In other words, was it clothing? Was it appliances? Was it small household goods, whatever? And who's out over their skis on inventory?

Yeah, it was a lot of the pandemic winning categories. So cozy, athletic, stay-at-home type of things, outdoor furniture, you know, things that we're working and everyone expected them to continue to work. Now people are looking to go out to spend more on parties and different types of clothes to go back to work and things like that. So I think it's really that stay-at-home category that we're seeing an over-abundance of. We've heard it from some of the athletic retailers like Nike. We've heard it from some of the retailers catering, a slightly lower income demographic,

like Gaps Old Navy and Coals. So they are in pretty dire positioning. On the flip side of that, though, who cleans up the problems? It's the off-price retailers. They buy a lot of that inventory at rock-bottom prices. So it's Marshalls, it's T.J.X. It's home goods. It's whatever.

My wife is going to be so happy. at home goods. Oh my goodness. You have no idea. It makes me miserable to go there, but that's okay. But when you walk in, you see brands you haven't seen in yours. The quality of the brands is very high because they're there to clean up everybody's mistakes. And I think that's a really interesting trend that we'll see over the next several quarters is the quality and quantity of inventory available for the off-pricers to buy is really high. Do you have any picks of retailers who have sustainable pricing power that are not going to have to engage in those markdowns or promotions? Yeah, our top holiday pick is Tapestry, which owns Coach Kate Spade, Stuart Weitzman.

We think they have pricing power for a few reasons. The first is they cut back on about 40% of their skews during the pandemic. They really transformed their business by reducing costs and reinvesting in marketing. And they launched a new e-commerce business for their factory channel. So we think these factors add to a real sustainability to earnings post-COVID versus everything else we see out there. The stock trades at only five times EBITDA, and we think that they will buy back 7% of the stock and give you a 3% dividend every year. Pretty compelling returns. All right. Off 63.63% today, or a little more than half a percent. Lorraine Hutchinson, thank you so much for joining us today.

Tyler. And up next, chipping in semi-mobile. manufacturers hunting for new partnerships to aid U.S. manufacturing, including a new deal, the team Jaguar, and chip firm Wolfspeed, those details next, plus a biohome dome. We'll take a look at a startup that seals home air ducts in order to reduce waste in today's clean start. And before the break, a quick programming note. We want to learn, you want to learn how to maximize your finances and invest in a brighter future. Yes, you do. Of course you do. Join us virtually on December 1.

When is December 1? That's tomorrow. That's tomorrow. For CNBC, it's November 1. For CNBC and your money, you'll hear from top financial experts. Kramer would be one. The other guy would not be one, folks. Register at CNBC.com slash your money.

See tomorrow, November 1. I think it starts at noon. Maybe one's part. Oh, you'll find that. Welcome back to Power Lunch, everybody. Shares of Wolf's Speed are down 5% today and 20% in the past week. The chipmaker missed earnings estimates, blaming supply chain challenges, but the company is building a new factory,

and today announced a deal to help pay for it. Christina Parts in Avelis joins us now from the NASDAQ with the details. Christina. Wolfspeed makes these silicon carbide chips that help transfer energy from the battery to the motors and cars. And today they announced a partnership to supply Jaguar Land Rover with those specialized chips to help fuel the automaker's EV ambitions. The chips, which would be in the cars by,

by 2024 aimed to improve efficiency. That efficiency is obviously going to help those cars go further, but it's also going to support their goal of being net carbon neutral by 2039. Wolfspeed plans to build what they call the largest silicon carbide materials fab or manufacturing hub in North Carolina. And that's a big investment. And the $52 billion chip stack will only go so far, which is why they and many other chipmakers are seeking financing from third parties,

such as customers who want to get a spot in line and avoid any chip shortages in the future. In return for that, they get an assurance of supply. That's become a real positive thing for us. And then there's project-based funding where different organizations are interested in doing some sort of private funding for us. Right now, U.S. EV sales, I should say, were $254,000 just two years ago, and are expected to hit over $2 million in the next three years. That extra financing that Wolfspeed is going to get will help them capitalize on that growth. All right. We've seen chipmakers get battered, Christina, by weakness in smartphones, PCs, and even now industrial uses.

Why is the auto sector still seeing this kind of strength? Well, because you have carmakers around the globe that are just racing to create these electric vehicles. And these cars, you have to think them in, like, giant computers. They're going to have infotainment systems. They're going to do special things with parking. They're going to have heated seats, the Internet. you could do watch Netflix and everything will be connected through these tiny little chips, which is why it has been a more resilient vertical among a lot of chipmakers.

For example, Texas Instrument believes Auto will be the only vertical of growth just in this next quarter. And just this morning on Om Semi, the CEO was on Tech Check earlier, cited continued strong demand in the automotive, I should say, Edmarkett, despite weakness elsewhere. All right, Christina, thank you very much. Christina, Parts of Nevilleis reporting. Time now for our CNBC News Update and our friend Brian Sullivan has that. Hey Brian. All right, contest. Thank you very much. Here's the news that's happening at this hour. Former President Trump has made an emergency appeal to the Supreme Court to stop the release of his tax records of Congress. Trump's lawyers say a House panel has no valid reason to receive the documents,

but they have failed to convince courts at a legal battle that has now gone on for years. In the Philippines, well, than 100 people have died in a major storm that brought flooding to at least 2 million others, dozens more are feared missing after villagers fled in the wrong direction and then got caught in a mudslide. And the United Nations says no ships were in the Black Sea grain corridor on the night that Russia said its war ships were attacked by Ukraine. Russia says the alleged attacks are the reason it suspended participation in that deal to allow Ukraine to resume grain exports. Ukraine denies any involvement. Hundreds of ships are effectively blocked due to Russia's opposition to the export deal. Back to you. Brian, thank you very much. Head on Power Lunch. Emergency at home, home builders teetering on the edge as rising rates wreak havoc. Could those companies be in for a catastrophic quarter?

Plus, speaking of wreaking havoc, trick or treat, it's a special Halloween edition of three stock lunch. Our trader will weigh in on names with some scary and shocking moves this month. Power lunch will be right back. We've got 90 minutes left in the trading day. Let's get you caught up on the market, stocks, bonds, commodities, and the battered home builders, by the way. Let's begin with a check on the markets. Lower across the board now, but off the lows of the day, significantly still on track the Dow for its best month since January of 1976. The NASDAQ leading the way lower right now, down nearly 1%, about three quarters of a percent, to be precise. Now, meta is once again a big drag. It is down 6 percent today, down 28 percent over the past week following earnings reports that were not very, very optimistic, very nice.

Lowest level for that stock since 2016. Other big tech names also falling today, you could pick them, Google, Amazon, Apple, Netflix, all of them lower by about 1% in some cases more. That would be alphabet by 1 and 2 thirds percent. Chips also lower as On Semi reports its results. The numbers were okay, but the guidance that's what's taking the bite out of the stock. and Intel, AMD, Invida, falling in sympathy high. Did you know that stocks have sympathy moves?

They have their feelings, too. Let's move on to the bond market, shall we? Yields are higher across the board. They have no sympathy across the board ahead of Wednesday's Fed meeting, where they are expected to raise rates by three quarters of a percentage point. We've been talking about that a little bit,

if you've been listening. The 10-year closed just above 4% on Friday. There it is right now. 4.05, few basis points higher than that at this point. The three-month yield, everybody's been watching that one at 4.1%. That means the three-month and the 10-year remain inverted, which many view as a serious recession indicator. Let's move on, and somebody's going to help me here.

And that would be Pippa Stevens, who is going to help me oil down nearly 2% today. Pippa's at the commodity desk. Bail me out of this, Pippa. Hey, Tyler. Well, oil is down, but today's action is centered on natural gas, which at one point was up more than 12% today. It's since retreated from the session high, although stills holding about 11.5% higher. Now, this comes back to weather with forecasts now calling for a cold blast during the second week of November. OTC Global Holdings Campbell Falkner saying the market's setting up for normal winter volatility against the backdrop of a tighter supply environment.

He added that 10% swings have basically become normalized over the last year due to the drastic tightening of supplies. Now, turning to oil, WTI is retreating today, although it is still on track to post the first positive month in five. And energy stocks are the only S&P group in the green, led by EQT, which is getting a boost as natural gas prices surge. Exxon, Chevron, and Conoco, also in the green, excuse me, all hitting record highs today. Now, President Biden is set to speak later today about oil companies' profits this year. he's repeatedly accused the industry of enriching shareholders at the expense of everyday Americans. Tyler. All right, Pippa, thank you very much.

Let's turn now to housing that calls for a housing recession. They are growing. Home builder stocks down 30% or more so far this year. But there are some real estate related names that our next guest says offer opportunity into a downturn. Buck Horn is Director of Equity Research, Homebuilding, and Residential Reits at Raymond James. Buck, welcome. Good to have you with us. Yeah, thanks for having me back, I appreciate it.

So where are you seeing opportunity in what has been a really sort of a wasteland in terms of the home builders so far this year? Yeah, it's been tough in the builders, no question about that. We still see a base case now with mortgage rates over 7%. We're preparing for home prices to fall. All else equal, probably median prices need to come down 20 to 25%. That's going to be tough sledding for us. long time for many months ahead. Where we do see some opportunity, I think, at least within the builders, certainly, we think being the low-cost price point, I think D.R. Horton being the low-cost

producer of U.S. housing, has an advantage and also has a nice head start in single-family rentals. And single-family rental platforms that we think are going to be an increasingly important component of meeting the demand that's out there and where there's still a pretty significant supply shortage. Where we also see, you know, an opportunity is within the SFR REITs, single-family rental REITs. American Homes for rent is our top idea there. We think AMH has a great platform, also a build-for-rent platform that's going to help them gain some traction and growth, trading at big discounts to NAV. And with the cost-to-own versus cost-to-rent spread, at just historically high levels, we think you're going to find an ability for the single-family

rental reits to continue maintaining outsized cash flow growth relative to a lot of other subsectors in real estate out there, particularly, I think, core multifamily. And that's one area we do have some caution at the moment is apartment rent growth is decelerating dramatically month over month and quarter over quarter, much more so than we would have anticipated as we have a lot of new apartments delivering at the same time that we're seeing a pretty significant consumer pullback in terms of household formation. I'm wondering what you think is going to happen, say, with timber and lumber, if people are feeling like they're priced out of homes, which we've seen in many markets across the United States. What do you think happens with these sort of housing materials?

That's a great question. And I think that's an opportunity, quite frankly, is we've seen lumber prices come down dramatically already. In many cases, lumber has been leading the market and already pricing in a housing. a housing recession. And so what we see is that lumber is already trading down to cash production costs, particularly in terms of what it costs to produce in British Columbia, for example, around $500 per thousand board feet. We're seeing pretty significant capacity curtailments in lumber production. So believe it or not, even with housing production on this single family and multifamily side coming down, one area we think is going to hold up is the repair and remodeling market as basically households hunker down and they're already locked in with these really

attractive sub 4% mortgage rates. They're not going to move. They're going to reinvest and they're going to still do a pretty big ticket projects. They've got a great balance sheet and savings lined up. We think that's going to be steady demand for lumber and wood products. And we think names like Wirehouser and Potlatch Deltaic, two names on our side on the reed list that have significant lumber production and leverage to lumber prices are going to hold up really well. And they're already priced for recession, trading at big discounts to NAV, and offer some very sizable supplemental dividends for investors based on cash flow that they've already earned earlier in this year. So, can I just ask you about that? So are those reeds,

those timber and lumber reeds, they own the forests and then somebody else manages it and produces the timber? So they own both. They own the forest land. So you have cash flow from the growing the trees themselves. So you have a base of assets. which is the trees, which also offer carbon optionality, which is very attractive for investors. And then they also own sawmills, sawmills and wood products manufacturing facilities. So they bring the logs straight to their own sawmills, cut the wood themselves, and sell it into the open market. So those two names are vertically integrated operations, and the leverage to lumber prices is what's not being factored into the value of the stocks. So I want to go back to the rental market that you were talking about to make sure that I own.

understand what you liked and what you say shy away from. Single-family rentals, the companies that are in that market, you like their prospects better, as I understood it, than the companies, the REITs that are involved in multifamily rental reits, where you see too much supply coming on. Did I get you right? That's exactly right, Tyler. And we think those two product types are not quite as fungible as investors or many people would think they are. We're talking about, you know, For single families, suburban houses, people are looking for space. They're looking for work from home options and their young families, typically in their mid to late 30s. And we're actually seeing a nice little boom in some of the birth data suggesting that households that have been delaying families are starting those families.

They need the space. They need the suburban lifestyle. Apartments are a little bit more of a, you know, there's a little bit of a delay factor where households can defer. They can double up. They can consolidate roommates. They can live with mom and dad an extra year or two to try to save up some extra money. And that's what we're seeing is significant household consolidation at the multifamily level, whereas single family rentals are growing.

All right. We're going to leave it there. Buck, thank you very much. Buck Horn of Ray J. Raymond James. Thank you. Coming up today's clean start, we're looking at a startup that seals air ducts and envelopes your home in order to reduce wasteful leakage.

I'm pretty sure I just turned a net. into a verb. Power lunch. We'll be right back. If you live in an old home, you know, it leaks air. And if you live in a new home, it can also leak air. The energy inefficiency is at its height, but what if the answer is in the air? Diana Oleg joins us with a look at a company that offers a sticky solution in this continuing series on climate startups. Hi, Diana. Hi, Kandesia. Leaky air ducts and walls are the single largest reason for wasted energy in our homes, contributing both to energy costs and to climate change. Typical systems can lose between 25 and 40 percent of the heating

or cooling energy put out. Enter Aero Seal. We have made it easy to seal any leaks in the building, whether it's an HVAC ducts or in the building envelope. And Ohio-based Aero Seal does it often without getting physical access to the leaks themselves. Gupta likens it to fixing a flat tire. So imagine if we can pressurize the building with a fan, and we inject few micron-sized particles, and these particles, as it tried to escape the building or any space we are trying to seal,

they automatically seals that leaks. Since air ducts are often inside the walls, sealing them can be difficult. But this technology does it from the inside, working through the ducts without ever cutting into a wall. It's already working with big builders like D.R. Horton, Lenar and Beezer, and mid-sized builders like Denver-based Thrive. We built our brand on energy efficiency, and this is really the most foolproof way to get there. I think energy efficiency and carbon reduction go hand in hand. We're really focused on carbon reduction in our company.

Aero seal is now available across the U.S. and in 29 countries. Its backers include Breakthrough Energy, Energy Impact Partners, Building Ventures, and $2150. Total funding, $30 million. Now, selling new homes under construction seems like a no-brainer. It's really older homes that are the biggest carbon offenders. Gupta says to seal the average size home would cost somewhere around $2,500, but he claims that it will pay for itself in energy cost savings within four years. Contessa. Okay, number one, what is the stick? material and does it land on, say, your faucet handles and your, okay. Now, I knew you were going to ask that, so it is non-toxic, non-flammable.

I'm going to get this right. It's an emulsion of water and vinyl acetate to put it more plainly. It's the same thing that goes into a lot of chewing gums and baby pacifiers. So pretty safe, I'm thinking. Okay. And then are there other applications than just your air ducts? You showed them using it in air ducts, but where else could it be used? Great. So it's not just the air ducts. It's the whole envelope of your home. So you can do it number one into the air ducts, but you can also do it within the walls and seal around the windows or anything else that would cause leakage. I know in my house. It's not so much the air ducts, but it's around the windows, the frames. I have an old 100-year-old stucco home. That's the kind of thing that it can also adhere to.

Thank you. Very interesting. I second that emotion. Thank you. I am. All right. Still to come. Viewer, beware. You are in for a scare. We're trading some stocks. Stock jump scares. Oh, I blew that rhyme. I apologize. It was nicely done. S&P stocks, they've got moves up or down. It might cause goosebumps. As sometimes as the anchoring does as well. Sometimes the anchoring. It's like fingernails on a chalkboard, right? Occasionally, it's very, very frightening. We're going to talk about something when we get back. We'll be right. Okay, time for today's Halloween edition of Three Stock Lunch. I promise not to mess it up. We're going to take a look at some shocking, shocking October moves.

Shocktober. Tesla down 14% as Elon Musk closed his Twitter deal. Tesla on pace for its worst months since April when Musk first announced the purchase of Twitter. Halliburton, one of the best October performers, up 46% on strong earnings and an OPEC plus production cut. And Norwegian cruise lines up 50% after the company dropped all remaining COVID restrictions and gave positive updates on bookings and its ability to pay down its debt. That's good for the best month ever for Norwegian.

Although our graphic says Royal Caribbean, but we're saying... Didn't I read Norwegian? Let's find out what Tim Seymour says. Let's see what Tim Seymour says. Which stock do you want to talk about here? Is it Norwegian or Royal Caribbean? What would you like?

This sounds like when you reach into that trick-or-treat bowl and you pull out a Mr. Goodbar and you hate peanuts. I mean, Tyler, come on. You tell me, where are we going here? Well, I thought we're... I think it's Norwegian. I think it's Norwegian.

Let's go Norwegian. That's my countryman. Go ahead. Okay, so if you're talking cruise lines, the treat is that the exposure here is still very much to North America, despite the name. And if you look at Carnival,

they're the ones that really have, I think, the most EU drag. The bottom line here is if you look at cruise companies and if you were looking at Royal or Norwegian, it's a story still, though, of enterprise value in 2019 versus today. These companies are 2.2 times the debt load that they had. In other words, three and a half times EBITDA, three and a half times net debt versus about seven times.

And while we're at pricing in the second half of the year, that is ahead of 2019 and bookings that are catching up, it really is the profitability of these companies. So I think for now, the trick was, clearly 2020. The treat is ahead for investors that are patient. All right. What do you like about Halliburton? I mean, other than the fact that it's up 46% this month. Yeah, I like everything. And I'll say, has been investing in energy aggressively for a couple years. And what you're getting now is a trickle down to the oil services company. So it really was E&P, then the

integrateds. But you're starting to see the drilling capacity really pick up, especially international, which is particularly well suited to Slumberger. But Hallie Burton, as the The Pure Play North America is starting to see rising operating margins. And again, if you think about net debt levels, this is a company that had targeted a two-time net debt. If you annualize where they were on this last quarter on EBITDA, they're going to be there soon. If you look at their balance sheet, there's no question. They paid down $2.5 billion of debt. But the real story for investors is the treat that comes in the form of some cash payback and returns and possibly dividends.

So the free cash flow from the sector, much better capital discipline. That's why you want to own oil services. All right, let's move on to Tesla. What do you think? Well, the trick is, Tyler, that this is actually an auto company. And so as much as we've said for years that it wasn't, here they are using 50% production growth as a reason to really move that valuation up. And that may, I think, come under a little near-term pressure.

It comes down to a valuation story. I think people probably confuse some of the price cuts in Shanghai with higher production, which is ultimately good. I think there's a margin uplift from China. You just can't pay this for this company. And if all other autos are struggling with the consumer here, so will Tesla. And I think that's a part of the story that's not really priced in. Valuation makes no sense to me at these levels, especially after the big goose of the story for the last couple of years was the S&P inclusion, the share splits. And now that you're getting real profitability, it's just not worth what you're paying. All right, Tim, we can even throw you, mullable stocks. He just picks up the

The ground balls, man, the guy can go deep in the hole, pick it up, throw them out. It's almost, though, it's like Halloween itself. There's just so much practice because you've done it for 10 days already. Can we just move on past trick or treating tonight? You know what I'm saying, Tim? All right, Tim, thank you, sir. Love it. Ahead.

Record car prices come down to Earth, and record profits for endowment's come to an end. Those stories ahead. Well, welcome back to Power Lounge. Here are some other stories that caught our attention this day. The Wall Street Journal reports that new car prices are starting. starting to come down, inventory levels are ticking higher, and there is some discounting, though limited, I guess according by models, according to J.D. Power, the average price paid for a new vehicle hit a record of about $46,000 in July. In October, consumers paid an average

of about $45,000 for a new car or truck, a slight decline, but still about 30 percent higher than before the pandemic. The whole equation, Contessa, of negotiating for an automobile has been turned inside out. It used to be that you would go in and you'd look at the MSRP and you'd negotiate down from there. Now, you negotiate up from that MSRP and try and keep the price as little an increment to MSRP as you can possibly find if you can find the car you want. You have to wonder if the translate, and we just had the analyst on talking about retail, if the supply chains have eased and therefore there's more supply on hand, maybe it gives buyers a little bit more bargaining power than they had before?

I think it's highly model specific. I think it, because I've been looking for for something in the marketplace, and you just don't find inventory on the lot. They'll say, well, we've got one coming in in December and one in January, but I don't da, da, da, da, now, so it seems like the supply is still really, really restrictive on the kinds, maybe at least on the kind of cars I'm looking at, which are high mileage, not terribly expensive. Clearly everyone feels like you. They're all after the same model. I think they're all after the hybrids or the electrics or whatever.

By the way, college endowments posted their worst year since 2009 in the recently concluded fiscal year. Many endowments for universities posted losses. These schools post returns on a fiscal year basis ending June 30th. The S&P 500 fell 12% over that span. The losses are especially shocking since they come after record gains for many endowments in the year from July 2020 to June 2021. Harvard, for example, lost 1.8% compared to a 33% gained the year before. But look, these are endowments that still stand theirs, for instance, $50.9 billion. I was talking to the head of investments for California regions.

And he said, really, the trick is when you're going into this to be very strategic about where you're putting your money, because, again, you have to do it for the long call. Yeah. All right. Thanks for watching, Power Lunch, everybody.