Power Lunch - Wall St’s big week, deal frenzy and trading 2023’s top picks. 12/12/22

Episode Date: December 12, 2022

Wall Street’s big week revolves around Washington. We’ll look at what investors can expect from the Fed decision, the FTX hearings and the government funding deadline. Plus, M&A activity is picking up as the year winds down. Is this the start of a bigger merger wave? And trading some of Wall Street’s top picks for 2023, including Robinhood, Bath & Body Works and Netflix. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch. I'm Dominic Kewan for Tyler Matheson. Here's what's ahead with our fusion-oriented lunch. Wall Street's big week revolves around Washington, D.C., from the Fed decision to the FTX hearing to Friday's funding deadline. But there are also some key stocks to watch. That could give investors some hints about the health of the overall economy. Plus, we've got a deal frenzy. M&A activity is picking up as the year winds down. We'll look at the names that could be takeover targets in the weeks and months ahead. Kelly, it's a lot of fusion cuisine on power lunch today. And the fusion of us today, Dom, thank you very much. Hi, everybody.

Those deals that he referenced helping to lift stock sentiment, you can see the Dow up 312 points. That's about 1%. Two-thirds percent gain for the S&P a little less than half percent for the NASDAQ. And Boeing is the standout lately. It's the best performing stock this afternoon. And reports that it's close to a deal with Air India and a price target hike to 2,000, over at JPMorgan. It's up nearly 3%. Energy is the best performing S&P sector. EQT, Apache and SLB, formerly Schlombardier, seeing some nice gains, not huge, but APA is up 5% today.

Dom, over to you. All right, the week on Wall Street could set the tone for 2023. Two major economic events are on the calendar. The CPI report on Tuesday, tomorrow, and the Fed meeting on Wednesday. Also on TAP tomorrow, you got FTCX founder, Sam Bankman-Fried, SBF, testifying in front of a House committee on the collapse of his crypto exchange, and looming over the week is the Friday deadline to fund the government. Steve Leesman on what to expect from the Fed, Kate Rooney on the expectations for the FDX hearings, and Ilan Moy on the funding deadline. And Steve, we will start with you. Thanks, Tom. Yeah, markets, forecasters and the Fed in good agreement about what happens on Wednesday with an expected 50 base point rate hike. But that could change, or

least we call it into question tomorrow morning if inflation surprises to the upside. Here are the Fed spectations from our CNBC Fed survey. 50 basis points. There is a 91% probability of that in the Fed fund futures market. That would bring the expected range up to four and a quarter to four and a half. By the way, that is right in line with the Fed's year on projection in their summer of economic projections. The peak rate would be 5.15 in April 2023. It's a little more aggressive than the futures market, which is at 5%. Finally, they're expected to stay at peak rate for nine months with a recession probability of 61% in the next 12 months. But 8.30 tomorrow, the government will release the November inflation data, and that could

potentially have a bearing on the rate hike at this meeting, but more likely on the guidance in the future here. Here are the expectations for the CPI. Zero two, so that's pretty good, but it's the, and the year of year goes to 7-3, down from 7-7, but it's the core 0.4% still on the way. way up, although that would bring the year-over-year rate down because of some bigger stuff dropping out from the prior year. Inflation would have to be, I would say, very hot for the 10% of the market that's looking for a 75 base point hike to be right. But another outside

report could shift up market expectations for future rate hikes. I expect the Fed's own projections could be close to 4-8 or 5% for the next year as it is. And Kelly, none of this matters if we have fusion, of course. Nothing else ever matters again. It's all just we solved it all. Yeah, hunky dory. So Steve, though, as we digest these events, so much is priced in in terms of people's concern about CPI now.

I don't know. What's the time frame? Are they going to get it before the decision? It comes Tuesday. So at 8.30 and the Fed usually starts their meeting around 930. So they'll have it in hand for the beginning of the meeting tomorrow. So they'll have all day to look at it. I don't, I think the bar is very high to change the 50, Kelly.

I don't think it's very high, though, for a more hawkish chairman to come out if that number is higher than expected and to guide higher than even a higher SEP might indicate. All right. Steve, thank you for now. Steve Leesman. Let's get to Kate on Bankman-Fried's testimony now. Hi, Kate. Hey, Kelly. Yeah, so we are expecting to hear from Sam Bankman-Fried for the first time under oath as the former CEO of FTX. And now in the meantime, we have the testimony out from the current CEO, John Ray, who we will also hear from tomorrow. He says, quote, the FTCX group collapse appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people's, money or assets. He goes on to say that while many things are unknown at this stage and many questions remain, we do know the following. First, customer assets from FTX.com were co-mingled with assets from Alameda trading. Second, Alameda, which is San Bangman-Frieds quant firm he traded.

He founded rather used client funds to engage in margin trading, which exposed customer funds to massive losses. And third, the FTX group went on a spending. binge, as he put it, in late 2021 through 2022, during which approximately $5 billion was spent buying a myriad of businesses and investments, many of which may be worth only a fraction of what was paid for them. Fourth, he says, the loans and many other payments made to insiders were in excess of $1 billion. And Kelly, a couple things to watch here. So the hearings tomorrow kicking off at 10 a.m. We do expect to hear from Sam Bank, McFeed, remotely over Zoom. We're hearing that from a source. We're also going to hear from John Ray. We had a preview there of his testimony.

We'll also get questions from House members. And then as far as just the big themes here, Kelly, the bar, of course, is much higher. He's now testifying under oath for the first time. There is now a risk of perjury versus what we've heard from him on this media tour lately. And, of course, the company is now going through bankruptcy. So it's quite different from when we heard from him under oath. The last time he was in front of Congress as an expert witness, he is now on the other side of this explaining what happened with his former company, FTX. All right. So, Kate, I got a question here. If this is virtual and not in person, is there an expectation or a view as to when we will see him in person and perhaps maybe just some indication

on where he currently is right now physically? Is he still in the Bahamas and not on U.S. shores? So the legal experts I've been talking to, Dom, say there is a risk that if he reenters the U.S. He is a U.S. citizen, but if he comes here, the feds, the DOJ is investigating FTX. There's a possibility of an arrest, and that's one of the big reasons that a legal expert or lawyer in this case would say, you know, I wouldn't come here and testify. And those I'm talking to say, they would also recommend that he doesn't testify in the first place and that he pleads the fifth. And so there's a lot of people questioning why he's been out there doing this media tour, why he's testifying in the first place, because he certainly doesn't have to. He's not the

current CEO. And there's going to be a lot of fiery questions in terms of how this happened and what led to this. He is what I'm hearing from sources still in the Bahamas. That's where he's been since the bankruptcy unfolded. And we don't get the sense. And sources I'm talking to don't expect him to return to the U.S. unless there is some sort of either subpoena to show up in person or extradition at the DOJ decides to go and arrest him. But I'm also told that they will take time to do this. These things and the evidence here will take a little bit of time to collect. They don't want to rush any sort of arrest. and risk moving too quickly and not have the proper evidence to be able to go through with an arrest.

It's still a very fluid situation, I'm sure, for that. FTX. Thank you very much, Kate Rune for the update there. Now let's move on to Alain Moy with the latest on the countdown to a government shutdown. Elon, what can you tell us now? Yeah, Dom, let's hope we don't have to go there, but the government does run out of money on Friday at midnight, and lawmakers still can't agree on a top-line spending number. Now, we know it'll likely be north of $1.5 trillion, but the two sides remain, roughly $25 billion apart. According to an aid,

negotiators did make progress over the weekend on a bipartisan, bicameral deal. Remember, Democrats need at least 10 GOP senators on board to pass a spending bill. But half a dozen Republicans have already come out against any deal brokered during this lame duck session. They want to wait to negotiate in the next Congress when Republicans take control of the House.

In a recent letter to Senate leadership, they wrote, quote, for the Senate to ram through a so-called omnibus bill, would utterly disempower the new Republican House from enacting our shared priorities. House GOP leader Kevin McCarthy, who could become speaker, is also against passing a comprehensive spending bill now.

So there is talk of a stopgap measure that would keep the government open past Friday, but flatline spending. And that band-day could last anywhere from one week to one year, guys. And how big of a deal is this one, Elon, given that we seem to face these kinds of deadlines and challenges constantly? Yeah, so this is important not only in order to fund the government and to fund a lot of priorities that both Democrats and Republicans once you see completed during the next fiscal year, but it's also important because there's a lot else that's riding on this bill.

Things like the White House has requested $9 billion for COVID relief, $38 billion to help out Ukraine. Unclear if or how those things might move if this comprehensive spending bill doesn't pass. businesses are also looking for a fix for the R&D tax deduction as well as full expensing, very low likelihood that any of that gets done without this big train leaving the station. All right. Elon for now, thank you, our Elon Moy. Let's turn back to what this busy week means for investors in the market.

And we bring in Stephanie Link. She's the chief investment strategist and portfolio manager at Hightower, High Tower Advisor, sorry, Stefan, a CNBC contributor. I'm just so excited to say, welcome back. It's good to see you again. I'm so glad to see you. Welcome back. Thank you. It's a pleasure and a busy, busy week. So it's the perfect time to touch base. And so how do you prioritize between all of the events we just talked with our reporters about all the earnings, Stephanie? What kind of is number one on your list? What jumps out? I mean, I think it's inflation in the Fed. So, I mean, you ask for one.

I'm going to give you two because obviously the inflation number will dictate what the Fed does and how hawkish they remain. So we all know that the numbers seem to be peaking in PPI and CPI, but they're being really persistent in terms of staying elevated. And so even if the number, I think, tomorrow comes in a little bit better than expected, you're still talking to a seven handle on CPI and PPI. So Fed then has to react. They're probably going to do 50 basis points. I think that's priced into the market. So anything above or below would surprise the markets. And I think they're going to stay pretty hawkish, right? I think that they have to at this point in time. So 50 this week, 25 February, 25 March. And then maybe they'll call it a day and see and take a pause and see what the economic data looks like. But yeah, it's all going to be about inflation on the Fed this week.

I mean, data dependency is kind of the Fed's thing right now. And it's probably the investor thing right now. I wonder outside of the macro, there have got to be certain things that you were watching as a strategist and portfolio manager with regard to the kind of more company-specific story, and what those tell us about the economy. Oh, sure, absolutely, Dom. And I think it starts with Yom's Analyst Day that they have this week. The stock has held up pretty well year to date, only down 8%. But I want to listen to and hear what they have to say about the consumer, about the trade down about wages and can they find people and the cost structure, right? I do think they're going to be able to handle it better than most. I think that they're going to reiterate their

algo of low double-digit earnings, high single-digit operating profit. Remember, they've got good visibility because 98% of their stores are franchised. So they're in pretty good shape. Not cheap by any means, but they have the size and the scale on the breadth. So on any weakness, that one I want to take a look at for sure. So that's the first one. Second one is going to be applied materials. that they also have an analyst day, and they just reported last month. So we're not gonna get any a lot of fireworks. But I do wanna listen to what they have to say

about any green shoots in Wafab Equipment Spend. We know it's gonna be down 25% next year. That's what they already guided to. But are there any things to look forward to that they're seeing? Also the China relations and the restrictions and what that means, they actually beat expectations

in terms of China hitting their revenues last quarter. So I think they're being conservative there. And of course, remember, they have a 67% year year increase in their backlog. So they've got great visibility. So you're going to ask me, do I own it? I don't. I'm looking at that. I'm looking at Lamb Research, which also caught an upgrade today. That stock is actually trading three multiple points cheaper. And then finally, real quick, Accenture is on Friday. I think consulting and outsourcing, the trends are still going to be

very strong. Look for double digits and look for their guidance for upper single low double digits in revenues for 2023. Stephanie, I'm curious where you are in big tech these days. about some comments from Charter Worth last hour where he just talked about how Amazon in particular has been a broken stock since October. Yeah, it's been really, I mean, the traditional Fang names have had a really tough time. And the problem is that many of them are just not cheap, Kelly, and higher interest rates hurts those long duration assets, and they are long duration. If anything, I heard Carter talk about NVIDIA and was intrigued because I bought more Broadcom after they reported earnings last week. It was phenomenal, right?

And so I don't own a ton of semis, but I am looking at, that's why I mentioned applied materials and lamb research as well, I think there are pockets of tech that are so incredibly cheap and the expectations are so low. And those are the areas, though, that I want to go to versus the traditional fang. And, Steph, before we let you go, we want to balance it out just a little bit by asking you whether or not there are places that are the opposite of cheap right now that still remain elevated overvalued that you would stay away from in your mind. Yeah, I mean, I'm still away from the staples and the utilities only because, you know, they're defensive kinds of names. And I think you are going to see a rally into the end of the year and into the first quarter. Seasonally, we're positioned for that. And people are all positioned on the defensive side.

So I'm very particular in terms of staples and utilities at this point. All right. Stephanie Link with the latest there on the markets overall. Thank you very much for that. Coming up on the show, is Wall Street more concerned about a slowdown than inflation? What analysts are saying and where retail investors are actually putting their money, plus M&A activity is picking up as we wind down the year. A bright spot in an otherwise lousy 2022. Is this the start of a bigger wave for deals? And as we head out to break, a look at the gap, which was upgraded to buy over at Goldman Sachs today,

the analysts there saying that the brand can thrive as consumer spending slows down. That stock is up about 70% just so far this quarter today. Welcome back to Power Lunch and Market Flash for you on shares of Tesla falling hard again today. We're talking about another 6% drop. Investors concerned that Tesla's brand is suffering as Elon Musk focuses his attention now on Twitter. New Street research saying that impact on brand perception in the general public is visible and material. Again, could potentially hurt the size of its market. This stock is now down 52% this year.

You heard Carter Worth last hour say he doesn't like the stocks that haven't traded up with the market since October. Dom is one of them. All right. So, Kelly, while the Fed still grapples with the inflation story, Wall Street appears to be more concerned about an economic slowdown. Wells Fargo downgrading Qualcomm in part because of a slowdown in the consumer smartphone market. And Goldman Sachs cut Cheesecake Factory on concerns of a spending growth pullback. But our next guest says, don't ignore inflation.

It's still one of the biggest worries for investors out there. We are speaking right now with Gunjan Banerjee over at the Wall Street. Street Journal. She's also a CNBC contributor. Gunjin, I wonder, this is an interesting story, only because for the longest time, we've known that inflation represents the bigger threat overall to markets and the economy. But more and more CEOs are citing that word, recession, in their commentary and analyst calls and investor days, is now the threat of a recession greater than inflation. Thanks, Dom. Look, I think there's a recession.

throughout the year, there's been this really, really big disconnect where you're right. CEOs are mentioning a recession. Everyday Americans are concerned about a recession. Wall Street is concerned about a recession. However, when you look at the data, it certainly doesn't seem like we are in a recession or that one is imminent. You know, you look at the labor market data. Unemployment near a record low.

And last month, we did see that prices are coming down just a little bit. So I actually think that Wall Street, as the Wall Street Journal reported over the weekend, has been kind of warming to the soft landing thesis in recent months. And a recent Goldman analysis showed that many investors, mutual funds and hedge funds, are overweight things like materials, cyclicals, energy stocks. You know, the types of companies that would do well if the economy were doing well. And the recent New York Fed data this morning also showed that consumers' inflation expectations are coming down. and they're feeling confident about the job market, all of which points to that soft landing thesis.

The slowdown fears you think might be overblown. Yeah, it's certainly become more consensus, Gungent, that maybe we can have that slowdown without a hard landing. And you think maybe not so much the case. Well, I do think that they may be overblown. They have been such a big worry throughout the year. And think about how many investors were warning, hey, we're going to see a recession in 2022. It's imminent. It's imminent. And we just have not seen that show up in the data. I think that the economy has held up so much better than many feared. And that really is putting, you know,

the onus on inflation. It's making investors hyper-focused on the CPI release date, which have just been growing more and more volatile throughout the year. Think about, you know, the NASDAQ's 7% move last month after the CPI came in cooler than expected. People are really watching for signs. but that's going to keep on easing up. Gunjin, the one thing that we've been talking a lot about is this kind of conflict, right, between the jobs data, not supporting this recessionary narrative and other signs that do. I wonder throughout your reporting, has there been any kind of a tilt, perhaps in the story about recession and jobs? Do you think as though all the layoffs that we've been reporting on, all of the job cuts that we've been saying,

are not enough, and I say this in a very kind of tongue-in-cheek manner, are they not enough to move the needle because they are only affecting a certain small part of the tech and media sectors as opposed to, say, the broader manufacturing, industrial or energy or utility sectors? Totally. I mean, it's just a tale of two worlds when you think about what we're seeing in tech layoffs, right? And tech is in one of its biggest downturn since the dollar bubble burst. But at the same time, there's just so much demand for workers in other parts of the economy. You know, I'm thinking of my Wall Street Journal, all colleagues article about how some people are hiring without even interviewing candidates, right? There's just so much

demand out there. And we saw that trickle into the wage figure in the recent jobs report, where there's just so much competition for workers. And again, that takes us back to, I think, inflation being a top priority for investors right now. Before we let you go, the markets have been reacting in a certain way. They've been very kind of wait and see, if you will. And a lot of that has to do with the Fed meeting we understand this week and whatnot. But there are expectations that at least the first part of next year in 2023, Gunjin could be one in a situation where the markets are fairly range-bound for a certain part of it

as people try to figure out what that economic story is and what the ripple effects on the markets are. Is that the way that folks are looking at it from an investor standpoint? point in your mind? You know, instead of range bound, I would argue that people are positioned for things to go even lower from here. I think Wall Street is so, so bearish right now. We saw mutual funds increase the percentage of their portfolio that's sitting in cash to 2.5% recently, up from around 1.5% at the start of the year. We've seen investors ramp up bearish bets against the market through stock futures, NASDAQ futures, S&P 500 futures, Russell futures, to set up.

of the highest levels ever. They've paired back on some of those positions lately, but they are far, far from bullish right now. So I think Wall Street is still pretty bearish out there right now. And I think, again, that brings us back to inflation and the Fed raising rates. Yeah. Gunjin, we'll leave it there. Great to have you. Thanks so much. Thank you. Gunjin Banerjee. Coming up, which investment is the best way to build wealth? Is this the wine and whiskey or no, that was last week? Liquid assets, right? We'll share the results of a new survey. Plus, it's Merger Monday.

Biotech, software, grilling. Look at Weber. We'll look at these buyout binge and see if even more deals could be on the way. Power Lunch will be right back. Welcome back to Power Lunch. CNBC just released its first Make It Your Money survey today, asking them about their financial future, where they invest, all these folks out there.

The survey found that Americans say the number one way to grow wealth is through the real estate market. Now, unfortunately, few are actually doing it. 38% of those surveyed say owning rental properties is the best way to earn passive income. Now, despite that high number, only 12% of Americans have actually invested in real estate. So what have they invested in?

27% of Americans invested in the stock market. Last year, 15% in dividend-paying stocks and 11% in fixed income instruments. For ideas on investing in how to increase your earnings power heading into the new year, check out the Your Money live stream tomorrow. Just go to CNBC.com for the latest there. Let's now get to a news update with Contessa Brewer. Good afternoon, Contessa.

Hi there, Dom, here's what's happening right now. CVS and Walgreens have just agreed to pay $10.7 billion in a multi-state settlement over their pharmacy's roles in the opioid crisis. CVS will contribute $5 billion with the rest of. coming from Walgreens. The deal now goes to individual states for a review and the money is intended to help fight addiction. Richmond, Virginia has removed its last city-owned Confederate statue. The statue of Confederate General AP Hill was lifted from its base and laid on a flatbed truck. It took fewer than three years to take down the statues from what was the capital of the Confederacy for most of the Civil War. Russian President Vladimir Putin has canceled his traditional year-end TV news conference.

Putin has used these December news conferences to showcase his command of issues and his stamina as he answers questions often for four hours or longer. This year, though, Putin's war in Ukraine has bogged down after 10 months of fighting. And so a Kremlin spokesman says, Putin intends to find other ways to communicate with journalists. Maybe he could try Twitter. Kelly? I guess he has his ways. Contessa, thank you very much. Ahead on Power Lunch, we'll get a check on the markets with the Dow rallying today. There it is, still near session hings, up about 300 points, and by far the best of the major averages.

And if you thought dealmaking was dead with the market, bare market, we can call it, you thought wrong. After a slow 2022, we've suddenly had a flurry of deals over the weekend. Which companies could be next? That's coming up on Power Lunch. Don't go anywhere. Welcome back to Power Lunch. Markets are higher today ahead of tomorrow's big CPI report and Wednesday's Fed rate decision. Right now, the Dow is outperforming up about roughly 300 points. Boeing also adding more than 30 points to that total on its own. That stock is up 40% in just the past two months alone.

Also contributing to the Dow's gains, American Express and Visa, nearly everything in the payment sector is seeing gains of about 1 to 2% today. So FinTech payments and Focus, Kel. Back over to you. Yeah, it tells you what kind of market it is. That's a highlight. Mergers are back. Amgen is buying Horizon Therapeutics and a deal valued at nearly $28 billion, easily making it the year's biggest farm merger. But it wasn't just that deal. We've also got

Kupa going private by Toma Bravo in an $8 billion deal. And Weber going, it's just barely been public. They're going private again for a little under $4 billion. Joining us now is Dan Primack. Dan, it's great to see you. Busy Day. Surprisingly busy day. Who else is ripe for a takeover at what Dom points out, a lot of these were low valuation levels. So there's got to be no shortage of candidates in that sense. Yeah, I think Weber is maybe the most interesting one because Weber, as you said, went public just last summer, summer of 21. And there's all these companies that went public in 2020, 2021, maybe a little bit at the beginning of this year. And a lot of them are ripe for takeovers because they are just trading so poorly. And you've gotten an enormous amount

of private equity money sitting on the sidelines trying to do deals. It's hard for some of those private equity firms to get debt, but Toma Bravo does it today with Cupa and continues being able to bring tech companies private. So I think if you see a company that went public in the last, I don't know, 24, 36 months and its stock is really dragging, maybe even below the IPO price, that's a company that if it isn't talking about going private, private equity firms are at least thinking about making an ask. Dan, it's Dom, one of the things, I mean, to Kelly's point, If you look at the charts, I mean, Weber has been such a short public stint as a company about a year and a half or so. But you look at Kupa. I mean, during the pandemic highs, this was a $370-some stock, and it's going to get taken out at 81.

And then if you take a look at Horizon, the day before some of those headlines first came out that there was interest in kind of buying the company, them selling themselves out, maybe to Sanofi, maybe to Amgen, maybe to Jansen, which is Johnson and Johnson. And that stock was closer to $79. If that's the situation, shareholders at these takeover companies are agreeing to get taken over at these relatively low levels. What does that say about sentiment right now among investors?

Well, I think Horizon is still a pretty good premium, particularly to where it was trading back as you said, late November before they had to announce. They're a little tricky. They're an Irish company. An Irish law means when they get approaches, they actually have to announce them. So that's why there was that little weird thing.

And it's a different situation because Amgen, apparently decided wanting to get into rare orphan drugs. And so that's kind of a one-off. For the rest of them, though, I think it is investors acknowledging that there was a massive bubble. There was a huge tech bubble. And there comes a point where, you know, you don't want to, there comes a point where people kind of want to cut their losses and get out or willing to, if somebody's offering a premium

to where it was a month or two ago, not thinking it's going to get back up to those pandemic level highs. So, Dan, now we also face a 2023 environment of tremendous macro. uncertainty, how do you think that's likely to factor in here? I think, well, again, you have a huge amount of private capital, some strategic, obviously, MGen buying, MGen's a strategic, but you have this huge amount of private equity capital, and they're not under enormous pressure to spend it right now, but they do have a lot of money, and I think they are going to go bargain hunting, particularly for, you know, we've heard a lot over the last couple of years about how a lot of these tech

businesses were, quote, real companies, right? The idea was these weren't dot-com sorts of things. these were real businesses. In a lot of cases, that's true. There is cash flow. There is real revenue. And I think private equity is going to go really bargain hunting in the first half of this year. And to Dom's point, I think a lot of shareholders are going to say, thank you.

You know, this isn't what we wanted. We're possibly taking a loss depending on when we got in. But it's not the loss we had started to bake in for ourselves. And look, and I think also I'd say the last thing is there is a general belief, I think, within the business world that we might have hit a bit of a nadir when it comes to some of these kind of some of the economic trends, not that we're going to have a massive recovery next year, anything close, could be a technical recession, but nonetheless, that we're not going far deeper down. So, Dan, you mentioned kind of this notion that there could be this,

this, at least acknowledgement, maybe even throwing in the towels too strong way to put it, for some investors that the valuations were too high before. I wonder what industries or sectors out there then that you would be tracking for where we could see some of those private equity deals emerge. Would it be in certain places like in, say, industrials or utilities, or is it more towards the energy market? Or are all the beaten up names worth doing still pretty much in technology media and telecom? I still think technology media and telecom. That's the sector that's gotten beaten up the most and has the most issuers who are relatively immature as public companies. You know, you look at the things that, you know, the Toma bravos, the vistas, the Silver Lakes,

keep buying. You've got a lot of enterprise SaaS businesses. Just think of, it felt like there was a period of time dom and say in 2021, where there was like five enterprise SaaS companies going public every single week, a lot of those are underwater. And that's where I'd be focusing. That's where I think you'll see a lot of takeover activity. All right, Dan Pramak, over at Axios. Thank you very much, sir. We appreciate it. Thank you. All right, coming up on the show, today's clean start, how one startup is using artificial intelligence and data to make recycling more efficient and less expensive. Power lunch. We'll be back after this. Welcome back. We have another market Flash on shares of Under Armour, which are jumping 9% today.

Coming after Seafel turned bullish on the name, upgrading it to buy from neutral. The analysts bullish on their inventory management and profit certainty. Seafel says the company has an opportunity to expand beyond athletic performance where they like it. This although is a stock that's off more than 50% this year, Dom. All right, Kelly, recycling is an imperfect process at best, especially for big businesses with a big waste factor involved. but new companies are trying to tackle trash with technology. Diana Oleg explains in her continuing series on climate startups. Diana.

Well, Dom, the estimates vary slightly, but suffice it to say the vast majority of the waste that goes into recycling containers ends up in landfills. That's due to expense and improper handling. But what if you could use AI to solve both those problems? Disposing of waste costs money and recycling that waste costs even more money. Companies like waste management and Rubicon are legacy businesses expanding their recycling, but startups like recycled track systems and Pittsburgh-based Roadrunner recycling are taking it to the next step,

customizing recycling. We're using world-class technology to gain very specific insights about businesses to make sure that their waste and recycling operation is sustainable and efficient as possible. Roadrunner uses artificial intelligence and data to know exactly what type of waste a business is generating and where it should be recycled. For example, a hotel. Usually its waste just goes into one container. So Roadrunner is using data to make accurate predictions of what materials that hotel generates. We're then matching those materials to outlets in those cities that accept them. And we're really solving for the logistics.

Ryan says this not only improves the amount that actually gets recycled, but it reduces costs by up to 15% for the customers because they're not paying to recycle items that inevitably end up in a landfill. The easiest way to think about this is like an Uber for waste pickup. VC firm Fifth Wall, which focuses on climate solutions for real estate, is one of roadrunners investors. It provides this kind of end-to-end, you know, commercial waste management service that really helps businesses generate. saving. In addition to Fifth Wall, Roadrunners' backers include Beyond Net Zero, Greycroft, Franklin Templeton, Headline, and Volo Ventures. Total funding, $149 million. Roadrunner CEO says he now has more than 12,000 business customers and is growing at a rate of about 70% year-over-year. As the competition heats up, though, some of the legacy companies may now have to step up, Dom.

All right. So, Diana, what exactly is keeping the larger legacy waste management companies? I can think of some big ones, right, from moving more into that recycling trade as that seems to be where the demand is actually rising. Well, the large companies have a very large market share because there's so few of them. And this is a very expensive process to transition from the typical waste management to more recycling. Some of the harsher critics might argue also that the large waste management companies out their own, most of the, landfills and they get some tipping fees for when things are dumped there. And so it's not in their best interests to move away from landfills and into more recycling. And, Diana, is there a broader vision, I guess, for the recycling slash waste management industry about what some of

these things can be used for application-wise? I know personally that now I've kind of made a little bit of an effort, a slight one, to buy like clothing, right? A fleece jacket that's made of recycled materials or made from plastic waste bottles. Is there something more that can be done bigger picture for where this industry could be in, say, the next five or ten years? Well, Dom, it starts with businesses, and I know it's great that you're looking at the clothing. That's wonderful, and we should all be recycling our items. But the vast majority of the recycling material that needs to get to where it needs to go is coming from big companies, big corporations, big businesses. And that's where the sorting has to happen.

And that's why we need new companies like this that are able to kind of streamline the process and make it also cheaper to get these products and this waste to where it needs to. to go to actually get recycled because so many of the things we throw out and companies throw out just never end up getting recycled. Exactly. Diana, thank you so much, our Diana Oleg. Ahead the top picks keep coming. Wall Street making us calls for the best stocks to buy ahead of 2023. We'll walk through three of them, Bed Bath, Robin Hood, and Netflix. Stay with us. Welcome back to Power Lunch. Time now for our three-stock lunch. We're trading some of Wall Street's top picks for 2023. Mizuho is naming Robin Hood, a top pick in financial technology, Goldman Sachs, calling

Bath and Body Works a best mid-cap idea, and Evercore ISI naming Netflix a best idea for the new year as well. So with us to break it all down is Chris Grosanti, Chief Equity Strategist at MAI Capital Management, a guy who knows all about stocks and all about these kinds of valuations, Chris, if you will, let's start with Robin Hood. The question here is whether or not this company can recover from the pandemic highs to the pandemic lows that we're currently at right now. Well, you're asking exactly the right question. I mean, this is a post-COVID hangover stock. And there's a lot of those, including Bath and Body Works, which we'll talk about a minute. But really, Robin Hood is a

bull market stock, and we're just not there anymore. There's still a lot of froth. in the customer based on the largest 10 holdings of Robin Hood customers, GameStop and AMC and Neo, the Chinese battery companies in there. So it's hard to grow a sustainable business on that kind of customer. Now they'll say they want to do a cash app like Venmo, but that's a crowded field, too, and with players that are a lot stronger than Robin Hood. So I'd look elsewhere. I don't like the risk or reward here. And Chris, just a follow up on that one. How big in your mind is the crypto part of the Robin Hood story as opposed to the stock trading part? Well, you know, I think you mentioned a good point. However, I'm a little contrarian there

because I do think crypto is not done and down for the count. I think it's having one of its, you know, semi-annual or biennual 70% pulldown. So that might actually work out okay. I just don't think the business model of Robinner, which is focusing on young, small accounts, is going to work. Because as these account holders get more wealthy, I think they're going to go to a broker's firm with more services and a deeper bench. All right. Chris, it's Kelly. It's great to see you again. Let's move along. Hi. And let's talk some bath and body works. What do you do with the stock? Well, you know, this too is a tough way to make money. It's another post-COVID hangover stock. There's so many of them, like housing, like Amazon, and some of them are real opportunities. And Kelly, you and I have talked about housing before.

But I do think this is a tougher one. Sales are slumping at the same time that Bath and Body Works has to get their margins up. So that's a really tough dynamic to get your margins up as sales are going down. Now, as your viewers may know, a third point, the activist investor has gotten involved, and they have some heavy lifting to do. They're troubled by the executive comp at Bath and Body Works, and they should be. But I don't think that's going to clear up the problem, even if they fix that. I would use the stock went up a bunch when Third Point announced their entrance about a week ago.

And I'd use that upturn as a way to take profits there. I really would. All right. And the final part of our three stock lunch is a name that has recovered tremendously off the lows as of at least for right now. and that's Netflix. This is a stock that's rallied some 70%, I want to say, off the lows that we've seen just over the past several months here. Netflix, you could call it a blue chip name, Chris, at least when it comes to tech media and telecom. Is this one that you want to own for 2023? Yeah, of the three, I really do like the Netflix. And, you know, you have to be careful. You're

absolutely right. It's come awfully quickly off the bottom, although it is down from $700 to share. Look, the streaming battles are clearly raging, and Netflix has been at harm. And like a whole bunch of tech stocks from Google and Amazon on down, they need to switch from the growth mode to the cost savings mode. The biggest change that Netflix, of course, is making is to an ad-supported option. But here's the key. What a lot of investors don't realize is that Netflix will actually end up making more money on the ad-supported subscribers, even though they're paying less, because, of course, of the

ad revenue that's going to be brought in. So as that works its way through the system, one, I think that's the way. I'll add subscribers. And two, I think investors will be pleasantly surprised by the top line revenue growth in a tough tech environment. So Netflix would be a sleeper for me for 2023. I like it. Chris, before we go, thoughts on the market as we head into the Fed meeting this week. How do you feel about things overall here as we look to close out the year? You know, probably more optimistic than consensus, Kelly, which frankly wouldn't be hard. I mean, I think we can see the end to Fed hikes from here.

I think we've got two or three more in the offing. But, you know, we're getting there. And as long as they don't go beyond five, five and a quarter, even five and a half, I think we'll be okay because I don't think earnings are going to be crushed like some more pessimistic pundits are saying. So I think if earnings can hold up okay, they can slump a little, but not a lot. You know, I think we could be set up for a decent market with low expectations. So that's a good thing. All right. That's Chris Grissanti with the three-stock lunch from MAI Capital. Thank you very much, sir. Happy holiday season. Nice to be with you guys.

Still ahead, why bond investors are ditching mutual funds for ETFs at a record pace. We'll dive in. All right, investors looking for some cover from stock market volatility can sometimes turn to the bond markets, but that has not been the safest place to turn this year. Now, as a result, Some investors in bond mutual funds have been looking for other places to put their money, but they're not staying away from bond funds entirely. In fact, this year has seen more investors turn to swap out bond mutual fund holdings in favor of bond-related ETFs. Now, according to Dow Jones and Strategis, bond mutual funds have seen outflows of roughly $454 billion through the end of October this year, while bond exchange traded funds have seen net interest.

inflows of nearly $160 billion. Now, that would mark the largest net annual swing towards ETFs from mutual funds in this asset class on record. I shares tells the Wall Street Journal that nearly 60% of bond ETF inflows have gone to U.S. Treasury funds, which is the largest share in more than a decade. And you can see why. ETFs that are more closely linked towards U.S. Treasury bonds have outperformed. Some of the ETFs attract the broader bond market and corporate bonds overall.

What's curious about this, Kelly, is we've been talking about this idea of the death of the 6040 portfolio, whether or not the losses and bonds and stocks together could be something to watch for. But this is very much about whether or not there is tax-related selling as well that's going on right now. You lock in some of these losses and then maybe move towards some other parts of the market and assets that could be, at least in some way. I'm struck as well. If you look at the performance of the Treasury market, I mean, it's outperforming, let's call it some of the other asset. And maybe that alone is spurring some of this interest. So what's also curious about this, too, is there has been more interest in some of the junk bond or high-yield credit funds as well.

If you could show a chart of the ticker JNK, which is one of the junk-related funds are H-Y-G, it does show some economic downturn fears, but not panic just yet. So some people are chasing some of those returns and yield in some of these high-yield junk bonds. As we've discussed in our wonky but worth it, unofficial. I love working shows with you because we talk about. markets like this. Speaking of markets, we are pretty much near session highs up 3.58 here as we look to hand things over. Thanks for watching, Power Lunch, everybody. Closing bell starts right now.