Power Lunch - Wall Street’s big week, unsustainable dividends and trading big tech into earnings. 7/25/22

Episode Date: July 25, 2022

A big week for investors. From a likely rate hike to a third of the S&P reporting earnings, we have a playbook to help you navigate the deluge of data. Plus, dividends are on pace to set a record this year but are all of the payouts sustainable? And the mega cap tech name you may want to sell into earnings. 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. Happy Monday. I'm Tyler Matheson this hour, President Biden to meet virtually with the CEOs on the Chips Act. The bill set to move ahead in Congress, and it could lead to an unprecedented package of subsidies for the semiconductor business. And dividends on pace to set a record this year, but there are a few companies that our guest says have unsustainable payouts. A market veteran has some names to be wary of. That's coming up, Kelly, later this hour. Thank you. Hi, everybody. Let's start the week with a look at the markets. Right now, everything's in the red, but the Dow has been kind of fluctuating in a very narrow range. It's down seven points. The S&P's down six. The NASDAQ is the clearer underperformer. It's down two-thirds of one percent right now with a lot of nervousness about big tech results. Most of those names are under pressure today. Check out Newmont Mining, which is the worst performer in the S&P after they reported a quarterly loss. The shares are down 12 and a half percent, hurt by a drop in gold prices there for NEM. Energy, meantime. the best performing sector today. Diamondback APA and marathon leading to the way, and we're seeing gains of about 6 percent. The energy sector up about 3 percent for its part. And this week is being called the most important of the summer. We've got earnings. We've got Fed Chair Powell setting the tone

for the back half. Let's get to Bob Bassani down at the NYSE. Bob. And Kelly, Apple and Microsoft earnings and the Fed meeting will set the tone for the second half of the year. You're absolutely right. Now, for the Fed, the problem is very simple. Nobody is quite sure. what version of J. Powell will show up for the press conference. Will it be the J. Powell, the fire-breathing, J. Powell, or the Powell that sees signs inflation is easing, or maybe somebody in between. We don't know. What the Bulls desperately want right now is for Powell to undercut the case for a major recession. The Bulls don't want a major recession. But he can't do that yet. There's not an evidence that inflation and the battle against inflation is being won. But the Bulls already are arguing

that the Jackson Hole Conference, now that will be August 25th, might be the opportunity to note that inflation is improving and the economy is indeed slowing, arguing for a pause in the rate hikes later in the year. That's what the Bulls are trying to convince everyone is going to happen. Maybe we'll see. Meantime, Apple and Microsoft are the most important earnings this week. Everyone is afraid of a slower spending environment and the effect of the strong dollar.

Yet Bulls are insisting that iPhone demand will hold up better than feared. expect to hear a lot about managing expenses and the bull spitting forward to a better fourth quarter and a better 2023. You want an example? Dan Ives at Wed Bush. He's in this camp. He says, as of now, we believe iPhone demand is holding up slightly better than expected. That said, the street is well aware of weakness this quarter and we believe ultimately is looking past June numbers to the September and December quarters with all eyes on the iPhone 14 in production and cycle for the fall. on track, he said. He said that note to clients last week. Now, like everyone, he is hedging his bets, but arguing

that the street is well aware that a slowdown is underway. He said, in a shaky macro environment, there will be many casualties as a slower spending environment is on the horizon with darker storm clouds. A lot of weather metaphors there, Tyler, but the bottom line is, the street is arguing

don't look here. Might be difficult near term. Look into the fourth quarter where things are going to be a lot better. You'll hear a lot about that in the next couple of days. Tyler. All right, Bob, thank you very much. Bob Pisani. Our next guest watches it all very closely and says there are a few names beyond big tech to pay attention to right now. We'll get those in just a moment from Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors. Also a CNBC contributor. Let's start with a macro picture, Stephanie. Take us through some of the numbers that you'll be

looking for. And with particular note that some of the inflation numbers we will be seeing are rear view mirror kind of numbers. Yeah, it's a huge week, Tyler, this week. The next five days, we're going to learn a lot about the economy and where we're going, where we're going, and we're also going to learn about monetary policy and the Fed. And then, of course, we've got profits. In terms of the data, the three data points I'm looking for from the economic side of things, is the second quarter GDP, the preliminary number. Believe it or not, the number expected is still 2.3% positive. That's a year-over-year number, probably a bit too high. In terms of the inflation figures, core PCE at 4.8% year-over-year is expected. We know the Fed likes this gauge, and they want it to

be 2%. So the number is still going to be high and hot. And, of course, we get the employment cost index, which will also be pretty hot as well at 6.7%. Again, year. year over year numbers. The inflation story isn't going away. And then, of course, we do get the Fed on Wednesday, as Bob was just mentioning. It's expected to be 75 basis points. I think they're going to do another 75 in September. And then we kind of have to hope that they're going to just step back and look at the economic data. But the data is definitely slowing at this point. And that's why last week, Tyler, the markets rallied, believe it or not, because of the Fed pivot talk, right, because the economic data came in so soft. So, and then lastly, it just on quickly,

on the, just a big picture on earnings, 35% of the S&P reports this week, but it's 49% of the market cap and 21% of consumer stocks within the S&P report. So we're going to get a real-time gauge of the very important consumer. So let me just spend

one more second on the GDP number. If it comes in negative, as it did in the first quarter, and that first quarter number was kind of pooed. There were technical reasons why it was negative. But this time, if that came in negative, would that be more worrisome to you?

Yeah, I mean, is it technically a recession to negative quarters in a row? Yes, but you're right. The first quarter inventories you have to adjust for export and that sort of thing. This quarter is going to be definitely a more softening of demand side of things. That's why I think the consumer companies are going to be super important to watch. We got General Mills a couple weeks ago, and they were able to see 13% organic growth, and they did not see demand destruction yet, even though they put in 12. percent price increases. So we have to hear a lot about what the consumer is doing, but we know it's

weakening. Steph, tell us, and hello and happy Monday. Tell us while you're watching Boeing and Caterpillar and Chevron especially. Yeah, well, so everyone's focused on Fang. So I tried to give you a couple of names that were a little bit off the beaten path. But they're super important companies, right? They're global companies. So Boeing is going to be commentary versus the numbers, right? It's going to be a 7-87, do we get any clarity on the delivery resumption? 737 max has got to get recertified in China. I don't think we're going to hear that tomorrow, but any kind of color at all. And then, of course, the recovery and travel. We saw American Express, T&E rose 84% year over year when they reported on Friday. So I think that's just an indication travel is actually

picking up. We all know that. We all go to the airports and we see that kind of thing. So that should help the overall demand equation. Watch the free cash flow number. It's going to be a negative of 900 million, but I think in the third quarter, that actually inflex positive. It goes positive. So that's a good thing. So let's listen to that. They have an investor day in September. Just quickly on CAT, it's a global proxy for demand. Want to hear what they have to say. Total revenues, they said at their analyst day, is going to be better than the prior peak highs, which was in 2012 at 66 billion. Watch free cash flow for them as well. They have a $15 billion buyback. And I like that stock a lot. If it weren't a weekend, that would be one I actually might take

look at and buy back. Finally, Chevron, we know all the energy companies are printing money. We saw it with Slumberjay on Friday. They're going to have a great quarter Chevron is on Friday. I think they're going to beat on the upstream because of oil prices downstream, because of refining margins. And then again, this is a free cash flow story too. Break evens are at like $50. So we want to see what they're going to do with that 11.2 billion in free cash flow just in this quarter alone that they're going to generate. All right. Stephanie, as always, great to see you. Thank you. Stephanie, link. Appreciate it. What a busy week and a busy afternoon as well because in just a few minutes, President Biden is scheduled to host a virtual meeting with CEOs and labor leaders on the Chips Act.

The bill earmarks $52 billion in incentives for chipmakers to build plants in the U.S. Those in favor say it'll help counter China's growing tech dominance. Those against say chip companies themselves should pay. Kayla Taushy is covering the event for us. Elon Moy is here to tell us where this bill stands in Congress. Kayla, let's start with you. Well, Kelly, this is the first time that we will see President Biden in three days as he's been isolating with COVID. Certainly, this has been an issue that has been top of mind for the White House. You'll see top administration officials like the Commerce Secretary, the National Security Advisor,

and the Director of the National Economic Council attending. But amid some of the criticism that the makers of these semiconductor chips should not see this windfall of tens of billions of dollars. The CEO guests that you will see at this virtual meeting are instead the executives leading Cummins, Medtronic and Lockheed. The administration here is going to argue that these end users of chips who are making medical devices and jet engines and those javel and missile systems that the Pentagon has estimated use up to 200 chips per system, that it is these companies and the labor unions who will be providing some of these jobs who will be the ones benefiting. So look for that argument to be made. But it's also worth noting, Kelly, that this is a fight that has long been in the making. In February 2021, that's when the White House first announced a task force to start studying the supply chain logjam. And then about 100 days later announced that it was semiconductors where an acute shortage was being felt

and trying to put policy solutions in place discussing with the industry what sort of incentives were needed to go forward from there. The industry has estimated that it takes about six months or up to six months to produce a single, one of these very advanced chips. And it's several years to produce a factory that actually makes these chips. But as we've now seen, Kelly, it also might take several years for the political process to play out to actually get some of those factories back here in the United States. Yeah, absolutely. That's another story. Kayla, by the way, Caleb, should we expect anything else from the president policy-wise?

And I know this is more a question for Elon in terms of the timeline on this through Congress. But it sounds like there's maybe two big things we can expect between now and the midterms. The Chips Act and possibly this health care thing that would cap prescription drug prices and not let subsidies expire. I mean, this in particular, is this a big issue that would galvanize voters one way or the other? It doesn't feel like it would be. Well, perhaps not, but it has been the fight against China and the competition against China that has really been a bipartisan issue. Kelly and I think you can read some of the tea leaves about how the White House is discussing both of those pieces of legislation that you just referenced as to the likelihood or the possibility

that it's ascribing to either of those getting across the finish line. The White House today is holding a big public event tying the president to this legislation and this issue in essence to try to help the president get any sort of halo effect from this issue if it were to cross the finish line. By contrast, when you talk to White House officials about that slimmed down health care package that will no longer include any of that climate funding. They say, this is really Senator Chuck Schumer, the Democratic leader in the Senate. This is really his ballgame. He's the one who's leading those negotiations and we'll see how they proceed. So they're trying to establish some distance from that health care bill, even as they're trying to establish some proximity to this

one, Kelly. All right, Kayla, thank you very much. Let's go now to Elon and the timeline for a possible vote on this. What do you got, Elon? Well, Tyler, the Senate comes back into session just about 45 minutes. The next procedural vote on this bill is scheduled for 5.30 this evening, and that means that final passage could happen as soon as tomorrow or possibly Wednesday. House Speaker Nancy Pelosi has committed to voting on the bill in her chamber this week as well, and then it would be on to the president's desk for his signature. The official cost of this bill is $79 billion, that includes $52 billion for chips, roughly $24 billion for an investment tax credit for FABs and tooling equipment, and another $2 billion for the public wireless supply chain.

Now, this measure got bipartisan support during an earlier procedural vote. It passed 64 to 34. And there's some speculation that margin could grow when it's time for the Senate to take up final passage. But the business community is not taking any chances. IBM has been one of the most vocal proponents of this bill, and this week, 60 of its senior executives

are flying into Washington to lobby lawmakers and the Biden administration to get this across the finish line. That includes IBM Vice Chairman Gary Cohn. In a statement, he told CNBC that this is a historic investment in an industry that America created and will put our country back at the forefront of chip innovation and manufacturing. And, guys, as you alluded to earlier, this could end up being the last major piece of legislation that Congress passes before the midterms. Back over to you.

All right, Elon, thanks, and I know you'll be watching it for us. So coming up, folks, our cracks forming in the auto lending market, Ally Financial, One of the country's largest auto loan originators may hold the answer to that. The analyst behind today's power call will be with us, plus the big tech trade into earnings this week. Find out which stock our trader says will bring short-term pain but a long-term gain in today's three-stock lunch. So we had to a break. Take a look at shares of Weber, the grill maker, of 13% after the company announced the exit of its CEO and suspended its quarterly cash difference. We'll be right now. Welcome back to Power Lunch, everybody. Allied Financial downgraded to

underweight from neutral. At Piper Sandler, in part because of headwinds in the auto market, the company, which is one of the largest auto lenders in the U.S., reported its 30-day auto delinquencies increased 58% year over year last quarter. That's up from a 41% increase in the first quarter of the year. Those are big numbers. Joining me for today's power call is Kevin Barker, managing to at Piper Sandler. Kevin, what are you seeing here and why does it have you so unnerved? You've cut the price target to 34 from 45. So we're seeing that to your point, the rising delinquency rates are rising at a faster clip than we would have expected. There is a normalization of credit that needs to happen because losses were so low for so long after the pandemic.

And while we expect losses to go up, the growth rates that we're seeing now are a little bit worrisome. And if they continue at those rates, we think losses could really hurt earnings in the future. What is driving those losses? It's not rising unemployment. It's not falling wages, per se. I have to assume it's the rising price of automobiles and that people have just taken out more loan to buy more expensive cars than they can afford? Yeah, the loan numbers have gone up a lot. The duration has extended. I think underwriting standards overall have been, you know, fairly consistent going into it, but use car prices are so high. So you add in, inflation is really making it difficult for people to make payments or to even handle their bills on a day-to-day basis. And I think we're just starting

to see some of that flow through. Part of that is a normalization. of consumer balance sheets, but a part of it is also, you know, payments are much higher than they were two years ago. But it's not a case like in the financial crisis of, or at least you seem to be saying it's not a case as in the financial crisis of lenders lending to people who shouldn't be taking out loans. In other words, that these are loser loans or junk loans? No, they're not junk loans at all.

I mean, I think the auto market is incredibly mature. and there's lending for everybody with no if it goes all way up to the top. So I'm not too worried about the auto market. So how does this trickle through and affect the profitability of ally, its margins, and its EPS? Yeah, so delinquency rates lead charge-offs, and eventually you're going to see higher credit losses in the future, just given that delinquency rates are rising. If used car prices continue to soften like they have, that will make the charge all the credit losses even higher. The likes of ally or any other consumer lender that is involved in the auto space will likely have to either maintain reserves where they are now or potentially increase them depending upon how the economy plays out over the next six, 12 months.

Yeah, so how much is that potentially going to hurt profitability? And, you know, it doesn't seem maybe car prices can just plateau from here, but you're saying if they go down, then, you know, you know, they're going to be kind of stuck in a downward spiral some of these stocks. Yeah, a lot of the underwriting stance that happened over post-pandemic were similar to what we saw pre-pandemic. So with used car prices up a lot and new car prices up a lot, if there's any softening, the recovery rates on default loans is going to go down. So that's going to increase the severity on any losses that are going to happen.

And, you know, we could see not necessarily a normalization back to pre-pandemic, but something maybe a little bit above that, especially we see higher unemployment. So we're watching that really closely and worried that these delinquency rates could continue for the next, you know, several months, especially we're in the recession. People are going to be underwater in these loans, aren't they? Yeah. Usually the recovery rates on auto loans are about 50%. They've been running above that.

It's possible if we do see persistent declines in use car prices, it could be much lower. And it looks like this cut in price target that you put through this morning or today is abrupt. A month ago, you had it up at 45, not so many months ago, you were in the 50s. So these numbers must really have gotten your attention. Yeah, I think it's partly delinquency rates. I think it's partly less excess capital with book value coming down and equity values coming down because of interest rates. then it's partly due to the fact that, you know, we're seeing declines in NIM due to higher funding cost as well. So that could impact profitability of the company.

Kevin, thank you for coming on and discussing your call today on Ally. A warning on Ally, Kevin Barker of Piper Sandler. Thank you. Thank you, Tyler. Coming up, saving lives and the environment, a mobile disaster unit that runs on clean energy, plus tech on deck, a key week for big tech earnings, and we'll break it down in today's three stock lunch. Welcome back to Power Lunch. It's not only a big week for tech earnings, the industrials as well,

and as we're trying to gauge recession, obviously. This is an especially important time. Sima Modi is here with a look at what we can expect, Sima. And it just speaks to how bifurcated this economy is, Kelly. If we talk about the consumer spending data that we got from American Express, and the banks, you would say, well, the consumer is, holding up pretty well. But the industrial economy, less so. The manufacturing flash PMI print was the weakest in two years, while services PMI fell into contraction territory. That's below 50.

The data out of Europe has not been faring any better. You can see new orders have been in contraction for the past two months. So 3M, that is the first industrial set to report tomorrow. At an investor conference earlier this month, the company talked about how its numbers reporting to a 3% negative impact from that China shutdown. also citing currency headwinds and continued concerns around inflation. JPMorgan's price target out today, $134. So that's exactly where the stock is trading at right now. A similar story for General Electric, which has seen its earnings estimates cut on those continued supply chain constraints.

Both 3M and GE have been trailing the industrial sector, really by a wide margin. You'll see industrial sector down 14% this year, 3M down 24%, GE down 27. And we've seen the earnings growth rate for the sector come down from 30% earlier this year, now down to about 26. So here's where investors see opportunity. Morgan Stanley says stick with names like Eaton, train technologies, which specializes in cold freezers. Oppenheimer is going with names tied to secular themes in the industrial space. So Emerson Electric, Westcoe International, they both operate in the electric utility space, Kelly. And we have John Deere.

And this has been with ag absolutely in the spotlight, first in the positive sense for much of the year, and then it's also been part of this correction. Yeah, this has been a fascinating sector within industrials, John Deere and Agco. They've been underperforming as of late. At the onset of the Russia War, we saw these names both outperform on the idea that there's going to be a shortage of wheat and other agriculture commodities by these names, because their equipment will be in high demand. But since wheat prices have collapsed, these names have come under a little bit of pressure. but there was a note from Oppenheimer.

They're still sticking by John Deere, a $365 price target ahead of earnings, which come out on the 19th of August. They think that the second half rebound for industrial ag equipment will stay intact. Amazing to see both deer and wheat prices down year on year. But like you said, whether they stay there, now the big question. Seema, thanks. Seema Modi. All righty.

Let's go to Christina Partsenevolous for a CNBC News update. Christina. Hello, Tyler. I humbly beg forgiveness for the evil committed by so many Christians against the indigenous people. Those are the words of Pope Francis within the last hour as he apologized for the Catholic Church's support of Canada's decades-long policy of forcing native children to attend residential schools where abuse was rampant. At the site of one of those schools, the Pope called the forced cultural assimilation effort catastrophic and a disastrous error. A former U.S. representative is one of nine people facing inside of the United States. trading charges today. Stephen Byers, a Republican who represented Indiana from 1993 through

2011, is accused by the SEC of buying Sprint shares in 2018 when he was a consultant after attending a golf outing where a T-Mobile executive told him of the company's secret plan to acquire its competitor. And Britain will host next year's Eurovision song competition on behalf of Ukraine. The UK entry in this year's contest came in second behind a Ukrainian group that won widespread public support in the wake of Russia's invasion. But organizers are saying today it would be too dangerous to keep with tradition and have Ukraine host next year. Tyler, I'll send it back over to you. All right, Christina. Thank you very much. And ahead on power lunch, a dividend dead end. Companies paying record dividends, but are these payouts unsustainable? We'll discuss

that. And we will name names next. Welcome back, everybody. Just 90 minutes left. Markets are negative, especially the NASDAQ. So let's get you caught up on stocks, bonds, commodities, and the question of unsustainable dividends. Before all of that, though, let's check in with Dom Chu. How are we looking on the market, Dom? All right. So this is very much the kind of wait and see, Kelly, markets ahead of a Fed decision, GDP release, and of course the busiest week of earnings season type scenario playing out right now. So the training range today has been pretty narrow and calm on a relative basis. At its peak, the large cap S&P 500 was up roughly one-third of 1%. At its lows of the day, it was down roughly 1 third of 1%. So how is that for symmetry

in a measured trading day? So the sector action, pretty interesting so far. Energy, by far the best performer, up 3.5% on the day. But it's also utilities and consumer staples. So a very economically sensitive sector and two defensive ones are leaders. Meanwhile, ahead of a big earnings week for mega cap tech comm services and consumer discretionary earnings, those are the biggest laggards on the day so far. As for some of the bigger stock stories, the day. Check out Newmont Corporation, worst performing the S&P by a wide margin, the gold miner reporting disappointing earnings that fell from a year ago amidst the drop in gold prices. It also forecast higher costs for the full year. Outside of the S&P, check out Weber Inc.

That company behind its namesake, outdoor cooking grills, getting smoked, if you will, in trading today. It gave preliminary quarterly results that fell shy of analyst estimates. It's dealing with inflation and supply chain-related issues. What else? It also gave disappointing sales guidance for the current quarter. that its CEO is stepping down. So you're seeing some real earnings movers-ish, Kelly, even though we're not even in the heart of this busiest week of earnings season. I'm just shocked that Weber is doing so poorly, Dom.

It just, you know, you would have thought the boom and outdoor grilling, all these new homeowners that they would at least give them something more of a lifeline. Tough comps, right? I mean, the pandemic drove a lot of that outdoor grilling spending. I don't know if you can replicate that in that kind of environment. I know. I'll think about it. As I grill, actually, I don't even think I've been out there this summer.

It's too hot. Don, thank you very much. Let's get to the bond market now where treasury yields. I mean, we could say higher, but 282 is still so much lower than where we were at the high point of the year, up closer to 3.5%. So we've come a long ways down, but that's where we are as of this afternoon, 2.82%. Part of the curve also still inverted. We're talking about the twos relative to the tens. Yep, still by about, call it 20 basis points, so pretty significant, something we're always keeping an eye on. Oil closing out the day with about a 2% gain. Meantime, making energy one of the best performing sectors in the market, and that gas continues climbing for a lot of supply-driven reasons. Let's get to Pippa Stevens. Pippa. Hey, Kelly, well, Nat gas is up about 60% for the

month, and that puts it on track for its best month going back to September 2009. A combination of factors boosting prices. We've got extreme temperatures across the U.S., which means higher demand for natural gas. also rolls on Wednesday, so we're seeing volatility ahead of that expiration. Now, we also saw a bump as Russia's gas prom said beginning Wednesday. It will cut gas flows through the vital Nord Stream 1 pipeline by about 50% to 33 million cubic meters. So in total, that's roughly 20% of the pipeline's capacity. Now, European Nat Gas Futures jumped 10% on the back of that news.

This comes as Europe looks to refill storage ahead of winter. And then there's also, of course, economic consequences from these higher prices. Bank of America is saying that Europe is, quote, choking on the highest energy costs ever. Now, turning to oil, a more muted gain here with WTI up 2% at 96. 71 energy stocks are responding to strength from oil and gas, and they are leading the S&P 500. Upstream players are the outperformers with APA, Diamondback, and a marathon, all up more than 6%. Kelly? But thank you. Let's turn to dividends now on track to set a record this year, believe it or not.

But are all of these payouts sustainable? Let's bring in Jack Ablin. He's Crescent Capital's founding partner in CIA. Picking up Jack on a discussion we're having last hour as well, but take a case like Verizon. Not saying the dividends in any danger, but how do you know when a high dividend is a sign of promise versus a warning sign? Yeah, it's a double-edged sword because an attractive dividend certainly looks like a great place. to be, but sometimes that dividends too high for a company to sustain. And so walk us through your methodology. What to you tells you strong dividend, you know, exciting and enticing investment versus an unsustainable one? Sure. So I started, Kelly, with the S&P 500. And let me just start by saying the S&P 500 generally is in very good shape in terms of dividend and dividend sustainability overall.

all. I also, from that point, took out all of the real estate investment trusts and pipelines, because these are structures that are designed to pay out most of their cash flow and dividends anyway. So stripping away there, I looked at companies that have had a difficult time making their last dividend payment. Their payout ratio relative to their earnings was over 100 percent, or in some cases massive, if earnings were negative. So here are some of the names I came up with first was PPL. PPL is a regional utility. It earned 117 over the last 12 months, but paid out 166. Its holding company is low investment grade, triple B bond quality, and its equity is rated as C plus on the service that I use. Next is,

the CME, the CME group, the Exchange, Chicago Mercantile Exchange, this is an interesting one because the CME pays a very small regular dividend, but then has an extremely high special dividend. And so that special dividend that they paid at the end of last year was double what they paid in the four quarters. So I suspect, while they'll be able to maintain their regular dividend, they probably have the optionality, no pun intended, to cut back on that special dividend that they reward their holders in the fourth quarter of the year. So really the numbers, excuse me, Jack, if I might, the numbers are the ratios to look at. It's not that necessarily a high dividend signals danger.

I'm looking here at a list, and there's Diamondback with a gaudy almost 11 percent yield, according to this sheet that I'm looking at. But its payout ratio is just 14%. Nor does a low dividend necessarily offer you solace or protection. That's it. I mean, take Ford, for example, which is really probably the most controversial name on my list. You know, they're only paying a 15 cent dividend,

but their last four-quarter earnings was negative seven cents. So as long as they'll be able to continually crank out positive results, they should be able to cover that 15 cent dividend. But keep in mind, Ford has had a track record of eliminating the dividend. In fact, in 2020, they withheld the dividend for two consecutive quarters. So, you know, I wouldn't be surprised if things got tough for Ford, that 15 cents would disappear for a little while. So when a company pays out in dividends more than it earns in a given quarter, where does the money come from? Sure, it can come from cash flow. They can borrow to do it, which would also be part of cash flow. So you really do have to look at kind of the operating earnings

in order to understand what the sustainability is of that cash flow. And I think the other thing is, You know, here at home, you know, dividends are sacrosanct. When a company issues a dividend, if they have to come back and cut, as we know, that's a big issue. But if you're looking at dividends in Europe, for example, that's not the same case. So just because you're enjoying a great dividend, management has no hesitation of cutting that dividend, and it doesn't carry the same stigma that, say, an S&P 500 company would. All right, Jack, thank you very much. We appreciate your time. As always, Jack Ablin.

Up next, today's Clean Start, the story behind disaster relief startup, Sesame Solar. We'll be right back with that one after this. Well, it's an increasingly familiar side. Mobile disaster relief moving in after fires or hurricanes, tornadoes, and now heat. But those are just adding to the problem in the fight to stop global warming. There may now be an alternative. Diana Oleg joins us in her continuing series on Clean Startup. Hi, Di.

Hey, Ty. Yeah, think about how much goes into disaster relief, mobile communications and command, mobile medical, kitchens and housing, all usually powered by diesel fuel and all that dirty energy just adding to the cause of these disasters in the first place. But a startup called Sesame Solar is now making fossil-free relief possible. The whole concept is that no fossil fuels are required to be able to have days or weeks of energy autonomy after an extreme weather disaster, like a hurricane or tornado or wildfire, or in the event of grid outage in California like PSPS or a cyber attack or any time the grid is just down.

It's clean energy in turnkey mobile systems that have been preloaded and can be ready for use within 15 minutes of arrival, water, power and communications that can be towed and deployed almost anywhere. We combine solar and battery storage or we also have. other sources of renewable power. We use green hydrogen as backup power, and we can do small wind turbine if conditions are right. Sesame Solar sells the systems for anywhere from $100,000 to $300,000 or higher in the case of perhaps a full medical clinic. It's sold more than 50 units so far since it launched just this past June. Its customers already include the U.S. Air Force, as well as telecom companies like Cox and Comcast, parent company of CNBC.

Its first investors say they see huge potential. There has been 18 multi-billion dollar climate disasters in the U.S. in the last 18 months. And it's rare you're going to find a company that already has revenue, already has customers, already has impacted the world, and has done it on a shoestring budget. Sesame Solar is backed by Morgan Stanley, VSC Ventures, Pax Angels, and Bell Capital. Total funding so far, $2 million. dollars. And that two million may not sound like a lot, but it is expected to grow quickly, and Flanagan says she's not concerned because of the strong revenue growth already.

She's also looking at a model where rather than sell the units, she can rent them. Her dream is to get FEMA on board with that, which would be a game changer for this startup, Ty. And they've already sold 20 in just a month or thereabouts. 50. As you said, 50. That's just amazing. Given all that goes into these units is the company having supply. chain issues that could could retard that growth? Well, they say no because they are fully made in America. In fact, made in Michigan. So they're not seeing any of the kind of supply chain issues that others are seeing right now. That's fascinating. Diana, always good to hear from you. Thank you,

Diana Oleg. And still to come, today's a three-stock lunch and it's our mega-cap tech earnings edition. There you see them will reveal which of these names our trader says could be a sell in the short term amongst alphabet, meta, and Apple. Don't go anywhere. Welcome back the moment we've been waiting for. The busiest week of earnings season is upon us. We get the tech titans all set to report. We'll sample a few of them for today's three-stock lunch. Alphabet is after the bell tomorrow.

Meta after the bell Wednesday and Apple after the bell on Thursday. Here to help us trade them is Matt Maley. He's chief market strategist at Miller-Tayback. It's great to have you here, Matt, and we're very much talking about the very short-term into results. What's priced in? How do you think they could move? Let's start with Alphabet. Yeah, Alphabet, I mean, as you mentioned, how have they already set up?

I mean, the stock is down, you know, it's down testing its lows for the year. And, you know, I understand why, you know, people are worried about what happened with Snap last week. I mean, most people are saying we know Google's much better than Snap. And there are concerns about, you know, the issues of ad revenues. Okay, but we've got a situation coming this year that's very unique. I mean, this year is a midterm election year, which is usually not a big one for ad spending, but it's going to be this year. I mean, speaking with my expert in the first year,

field, Matt Maley, Jr., they've had records amounts of fundraising this year. They're not going to use a TV spending. That's kind of gone by the wayside. We continue to use it in their email programs and move over to areas like the Google apps, Google Search, I'm sorry. So that's a great thing. But the big thing for the stock is it's cheap. It's priced at least some of a recession of 17 times earnings.

Their market shares off the charts. I think if this thing sees any kind of weakness on their earnings, it's going to be a great opportunity to buy it right now. A stock that's even cheaper by that measure is meta at 15 times earnings. You like it, but not with both hands. Right, Tyler. The thing about, I think, you know, a lot of people are getting very cautious on the stock and more so as the months go by, worried about how, you know, Mark Zuckerberg so focused on the metaverse, etc. And I understand some of those concerns, but I think he's been more crafty than people giving credit for. I mean, all these companies are talking about going in and throwing the kitchen sink this quarter with their earnings reports.

Well, that's something Mark Zuckerberg did six months ago. And he knew they had a little bit of a target on their chest. And so he's fine out there. So if they can turn things around, you know, start to, you know, monetize the WhatsApp situation. You know, that's going to be something where it can really, you know, help the stock. Again, I don't think it's going to be one that's going to bounce right away like a Google can. It's something where you want to buy it, you know, a little bit every month between now and the end of the year. And five years from now, you're going to look back and say,

I'm really glad I bought Metaverse back in 2022. All right. So you're positive on Alphabet, a little more neutral, we'll call it on meta. Apple, you sound a little more concerned. Why? Yeah, well, obviously Apple's a great, great company. And, you know, Kelly, and sometimes the stock isn't as good as the company. And, you know, this is a stock that's 17% off its lows versus a Google, which is right on its lows for the year.

And, you know, they're starting to throw some negative hints at us. I mean, they're talking about with it. It wasn't, you know, today they talk about, you know, lowering prices on some of their iPhones in China. That's the biggest deal. But last week, you know, they talked about, you know, hiring freezes. More importantly, talking about cutting back on spending. These are the type of hints that tell me that they haven't priced in any kind of recession here. And with the stock trading, it seems like 25 times earnings.

Oh, that's great. Well, it's actually historically, it's still quite expensive for Apple. So my concern is that as if they report some problems, it's much more expensive than Apple, this has been a flight to safety trade for the big cap tech sector. People are going to say, hey, maybe we should look at Google instead of Apple. And so therefore, I still think it's going to be a great opportunity to buy Apple later this year. I just think it's probably going to be in the fall months rather than right now. All right. Matt Maylee, Miller-Tayback.

Thank you, sir. We appreciate it. Thanks, Kelly. Three-stock lunch. All right, sticking with big tech, folks. Which stock could see the most volatility after reports earnings? What the Options Market tells us next. Welcome back to Power Lunch.

Dom hinted at this earlier, but the options market is telling us it could be a more razzle-dazzle. I mean, are they good fireworks? Are they bad fireworks? You don't know. You is back to explain. What is this telling us about these results? That's the thing.

But the options markets right now are there's traders jockeying for position. They're using put options and call options ahead of these earnings reports. And what it can tell you is a little bit about the pricing, how things could move. The magnitude, but not the direction, because they can. can't tell you exactly what's going to happen. But check out the QQQ trust, which measures the NASDAQ-100, an ETF format. Since the lows in mid-June, we're up about 11%. So is the market right now already getting set for some kind of a move higher here, given what's happening with earnings? Well, if you take a look at some of the biggest stocks in play, we've talked about the big five

that are reporting this week. If you look at Apple and Amazon right now, they've had some rough kind of years so far, but the big moves that you're seeing up here translate into roughly 18 to 19% moves off the lows already for Apple and Amazon. Now, as for what the options market is telling us about the trade, what it could be for Apple is a plus or minus 4% move in that stock on the heels of earnings. For Amazon, it's about plus or minus 6% in terms of the overall move there. So some of the more volatile ones that we could see this week. These are the three, though, that could become pretty interesting.

They're the ones that haven't really seen as much of a move off the lows. about 5 to 7% that we're seeing here. But when you look at Microsoft and Alphabet, you're talking roughly 5 to 6% plus or minus, right, in terms of these particular moves here. But it's meta platforms that's going to be the real outlier because right now the options market is pricing in what could be a plus or minus 10% or 11% move in the stock.

Now, it is pretty big. But now you're also talking about meta platforms, a company that's already lost 50% of its market value over the course of the last year-to-date period. But we know that with Snapchat's earnings, SnapInx earnings, that online advertising spend and some of the trends there could be huge. Now, people have already used companies like Snap or Pinterest as quote-unquote bellwethers. But let's be honest, alphabet and Facebook slash meta-platforms control the bulk of online advertising out there. So when you want to talk about bellwether, it will be meta-platforms. the options market is already pricing in a pretty massive move around that stock, up or down.

Yeah. It's going to be. Yeah. That is a tease. Thank you, Dom. You got it, our Dom Chu. Thank you very much. Well, welcome back, everybody.

Another week, big week ahead. Thanks for joining us and watching PowerLine.