Fed rates, Tesla Supercharger backpedal, Novavax's 'new chapter': Market Domination

On today's episode of Market Domination, Yahoo Finance Hosts Julie Hyman and Josh Lipton break down the latest earnings and major trends Wall Street analysts are eyeing.

Sweetgreen (SG) shares soar after the company topped first quarter revenue estimates and raised full-year guidance. Similarly, Taiwan Semiconductor Manufacturing Company (TSM) shares are rising after the company reported that its sales jumped nearly 60% year over year, largely due to AI demand.

Morgan Stanley Wealth Management Managing Director Dan Skelly joins Market Domination to discuss some signs pointing to the Fed potentially cutting interest rates several times before the end of the year.

Novavax (NVAX) shares skyrocket after the company announced a $1.2 billion vaccine deal with French drugmaker Sanofi (SNY). B. Riley Securities Managing Director & Group Head of Healthcare Research Mayank Mamtani explains how the partnership marks a "new chapter" for Novavax after a post-pandemic slump.

Yahoo Finance reporter Pras Subramanian joins to discuss Tesla (TSLA) CEO Elon Musk backpedaling his recent move to shrink the company's Supercharger team. As many legacy automakers signed up to participate in Tesla's Supercharger network, Subramanian says Musk is trying to fix the issue he created after laying off a majority of the Supercharger team.

A new edition of Good Buy or Goodbye analyzes two companies in the finance sector: PayPal (PYPL) and Goldman Sachs (GS).

This post was written by Melanie Riehl

Video transcript

Hello and welcome to market domination.

I'm Julie High in that just lift in live from our New York City headquarters.

We are giving you the ultimate investing playbook to help tune out the noise and make the right moves for your money.

And here's your headline blitz getting you up to speed one hour before the closing bell rings on Wall Street.

You know, I think the consumer has definitely been a little bit weaker since 2021 and we've seen spending in discretionary categories.

Uh not quite at the levels that we saw pre um for during the pandemic and coming out of the pandemic.

Um We're definitely seeing examples of consumers trading down, uh looking to buy, you know, better priced items and maybe not getting the premium product.

Big Pharma coming in to help Nova back out.

No, back in that deal $1.2 billion.

And that includes a co commercialization of the COVID vaccine.

That's the one that's currently on the market as well as a future.

The combo flu and COVID vaccine that they've been working on for quite some time.

If you recall, Novavax was initially working on just a flu vaccine before the pandemic.

So this is kind of going back to the roots.

We had a really strong quarter.

We grew 26% year over year, we expanded our margin to over 18% at the restaurant level and we comped 5%.

So we think that the consumer is still very resilient and we're very excited about some of the things we're putting out there.

You know, we just launched steak this week on Tuesday, we launched a grass fed Pasture raised steak and had a record day for the company on Tuesday.

So a lot of good momentum all around.

We got one hour to go until the market close on this Friday.

So let's take a look at the major averages sponsored by Tasty trade.

We've got the dow here, uh leading gains once again today and set for its eighth straight gain, uh eight sessions in a row.

We've got it right now up about 100 points, about a quarter of 1%.

The S and P 500 up about 1/10 of 1%.

And the NASDAQ little change lately to the downside all of this step back to what we heard this morning on consumer sentiment at a six month low and inflation expectations ticking up.

Now lately, we've had a sort of bad news is good news dynamic in the market.

But on the flip side, we had some Fed speakers today saying that they were going to hold the line where they expected likely to hold the line on rates this year.

So that doesn't help matters then for stocks either.

And if you look at what's going on in the treasury market, whereas that worse than expected data this morning might lead you to believe that yields were lower.

They're not, they're higher by a little bit ticking back up to 4.5% on the year.

So let's look at the sectors here in the S and P 500 to see how that all of that is shaking out here.

That's a year to date.

Let me change it on over to what we're seeing in today's session energy in the laggard position here today along consumer discretionary and real estate, consumer staples and financials are up the most today, but really not necessarily a lot of rhyme or reason.

And I want to take a quick look here at the trending tickers that we are watching here on the Yahoo Finance platform today and then we'll dig a little bit more deeply into them in just a moment here.

So here is what is trending today.

Let's wait for it to populate.

We got Novavax, which is almost doubling in today's session up by 94% on a new partnership with Sanofi having to do with its COVID Vaccine Taiwan semiconductor trading higher by about 4% as well.

So those are a couple of the trending tickers that our users are taking a look at today, Josh.

All right, Julie, let's check in on another trending ticket here.

Sweet green shares are surging after the company raises its sales predictions for the year.

So this stock moving higher.

A couple uh couple of metrics to point out revenue did top estimates.

They also did raise their same store sales forecast for the full year.

So now they're telling the street we're looking for same store sales growth.

They set up as much as 6%.

So that was a tick up analysts at Citi looking things over now.

They are actually neutral names so that they're on the sidelines.

But uh they say, listen, this company on multiple cylinders, they highlight the top line momentum, they're seeing improving margins and and new product pipeline.

You know, this stock Julia surgeon today, it's up about 100 and 75% so far this year.

So you've probably heard about Chippy the robot that makes chips, but there is also a salad making robot that apparently there's a lot of enthusiasm.

Infinite kitchen, infinite kitchen.

It sounds just so big brain, doesn't it?

Infinite Kitchen.

Um And the company says it going to open seven new locations with that salad making robot this year and then they're going to retrofit 3 to 4 restaurants with the robot as well.

Also Jonathan Nieman, the CEO saying that those robotic kitchen locations will generate sales about $2.6 million.

This year on average.

So that's interesting as well.

Speaking of Jonathan Nieman Young Finances, Morning Brief had the chance to speak with him today and this is what he said about the latest results.

We do expect to be adjusted ebit profitability profitable this year.

We have not guided to a timeline on net income profitability, but you will see significant leverage on the business this year as we continue to grow our top line and hold our G A relatively flat.

So, you know, profitability is still not quite there as of yet.

Although if you look at the adjusted ebita, that's the, that's the metric.

It hasn't, I'll tell you, it has not discouraged investors 240%.

It's the NVIDIA of salads.

That's what it is.

It's the NVIDIA of salad.

OK.

Wait, wait, you, you folks, if you don't know this famously, Josh Lipton has never been to a Chipotle.

Have you?

I can remember, have you been to a which actually is just as bad as saying you've never been, have, have you been to a Sweet?

I have not, I have not.

I think if I'm gonna make a choice there, it's gonna be the burrito just so, you know, I'm open Sweet Green.

I was off it for a while.

I did it too much.

No, maybe we'll go next week.

Don't lie to me, Josh, take a look now at shares of Taiwan Semiconductor that stock is rising as April sales jumped nearly 60% from last year.

Why do we care about Taiwan semi Julie?

Because listen, this, this is the biggest contract chip maker on the planet.

That's why we care.

And they, they had good news.

They say listen, April saless rose 60% to about 7 billion from a year ago.

Um and why we talk about them, they make chips for pretty much everybody we talked about on this show, right?

Apple to Qualcomm to a MD to NVIDIA, everybody you can think of.

Um And so when you see that kind of strength from TS MC investors, I think, begin to think, ok, well, maybe some of those customers are seeing some better trends ahead for their businesses too.

Yeah, I mean, not only is it the biggest contract chip maker, it's pretty much the biggest one specifically for NVIDIA to make its most advanced chip.

So that's also why people see this as a sort of bell weather if you will or a good indicator as to what's going on in the broader industry as we keep reminding folks, we don't get NVIDIA earnings until May 22nd.

So people are reading every little tea leaf that they can get here, Taiwan semi um definitely part of the those tea leaves to see how the broader chip industry is doing and move really move the chips as a whole in the trade today, moving on stocks, mixed today with the dow on track for another day of gains here.

The headline for the economy is consumer sentiment.

We know the preliminary report from this morning coming in much lower than economists had anticipated.

For more.

Let's bring in Dan S Kelly managing director at Morgan Stanley Wealth Management.

Dan, it is good to see you.

So I got some more green on the screen today.

J the Dow here on track for its eighth winning session in a row.

Dan, what, what do you make of this market?

And, and where do you think we go from here?

Sure.

And thanks so much for having me on this afternoon.

So what we would say is the sell off that we saw since uh late March uh was really more of an adjustment selloff, right?

And you saw frankly a lot of the same leaders heading into the, the peak in March uh outperform during the sell off, be it technology or energy or some of the others.

And you actually saw um some of the traditional and more yield oriented sectors continue to lag.

So again, this informed us that it wasn't so much a growth scare.

It was more of an adjustment in the markets where the market obviously, as everyone has talked about all week continued to price out, um aggressive fed cuts, um aggressive fed cuts, but that's not what we're hearing from the fed, right?

You know, you had a couple of other fed uh speakers today who seem to indicate they're gonna be quite patient.

Do we believe that?

So listen, I would say there's been and our economics team led by Ellen Zenner has highlighted, there has been some notable surprises in the first couple of months of this year that we could actually see reversed in the next couple of months.

So namely shelters and rents, we think might be on more of a disinflation path in the second half.

Uh We continue to see widespread uh penetration of immigrant labor which is happening at lower wages on average.

So we think the slowdown in wages that we've seen somewhat may continue.

Uh and then just lastly good, uh seemingly continue to disinflate with China exporting um deflation with all the excess capacity going on there.

So look, I think there's some reasons to believe some of these surprises may reverse our official call at the moment is for still three cuts starting in September of this year.

Dan I'm interested as you look ahead here.

What do you think the next catalyst is for this market?

Some are, are already looking ahead to NVIDIA earnings.

What do you think?

How important is that print for the market?

So that's an excellent question.

And I would argue a lot of the pup if you will for NVIDIA has already been revealed because we just heard from all the big hyper scalar tech platforms over the last two weeks increase their capital spending.

So the likelihood that NVIDIA is going to at least meet if not, maybe even again, exceed expectations has been rising as all the big tech players are saying, hey, we're spending more on these themes.

Where else is that playing out?

Uh very kind of uh uh nuanced in some of the power plays.

You've seen utility, nuclear and gas plays start to see big earnings revisions because all of the big tech platforms are spending on data center infrastructure.

This is all coalescing around the same theme you mentioned, which is Nvidia's leadership and A A I. Yeah, I would say it's certainly a catalyst.

But more to the point, we want to see overall earnings achievable.

And as we've now printed, 90% of S and P market cap weighted, the reality is we're on track for mid to high single digit earnings growth this year, which is kind of a slow grinding catalyst.

But one that we think is a little more than amid all this uncertainty.

Um And when you're looking at where to deploy right now, would you rather play something like NVIDIA directly or are you looking at that sort of a I adjacent ecosystem?

Yeah, another excellent question.

And, and look even looking at the 1st 4.5 months of this year, the magnificent seven from last year has narrowed into the Fab four and you're not seeing all of the same monolithic performance that you saw 18 months ago.

So we've had exposure to NVIDIA, we continue to in in the portfolio.

Um But to your point, we are seeing this tremendous uh opportunity across other idiosyncratic uh ecosystem and infrastructure plays like power uh and potentially gas.

We're seeing that also just in what we call the Fortune 100 the companies that are well capitalized, quality names frankly across uh a host of industries, whether it be manufacturers, healthcare, financials.

And to your question, this is where you're truly starting to see some players starting to kind of gradually adopt A I and it's starting to see some improvement in their earnings now.

It hasn't been widespread just yet, but this is almost acting like a put option on the rest of the market because I think the general consensus is that more often than not A I adoption is gonna lead to better earnings power, Dan next week, you know, we're gonna hear from some, some retailers, I wanna get you out here on this, including the world's largest retailer Walmart, a bellwether for the consumer.

What is your general take there, Dan on the consumer right now, you know, healthy resilient or, or showing some signs of cracks.

Yeah, I don't mean to punt on the question, but it's a mixed bag and it's really a reflection of this phenomenon of a two track economy where interest rates have really become the dividing line between the haves and the have nots.

This is playing out across frankly the corporate sector in terms of large versus small cap uh co companies that are strong balance sheet, net cash and strong free cash flow versus unprofitable.

And to your point, this is playing out very cute in the consumer sector.

And we've heard about uh this kind of again, bifurcation among consumer spending trends in the last three weeks via earnings season in a way frankly, I have been seen as acute in years.

And so if you just look at a handful of examples, whether it be uh restaurant spending and more rotation to food at home, whether it be the divergence between corporate travel with some ex expectations of fed cuts.

As we talked about the potential M and A and deal flow versus domestic vacation spend, which was a completely kind of reopening revenge travel, uh tailwind a couple of years ago, you're seeing this bifurcation in terms of the high end, the well capitalized companies and everyone else.

And the question has always been, everyone's trying to figure out, is it a hard landing or a soft landing?

The way I'm looking at it is more so in terms of this being an unknown flight path coming out of this pandemic with historic uh inflation and then uh aggressive fed tightening.

I don't think there is gonna be playbook for this.

But the one thing that we continue to look at is whether or not the one track can continue to hold up the overall averages and I think there's some meaningful evidence that the second track is starting to drag things down overall pretty meaningfully.

So this is something we continue to uh monitor closely.

Dan Kelly.

Thanks so much.

Happy Friday.

Happy Friday.

Thank you.

Thanks.

We're just getting started here on market domination.

Coming up.

No backs announcing a multi billion dollar deal with French drug maker.

So of those shares are soaring and then some, we're going to speak to an analyst on the other side about that deal and it's the latest se of our series.

Goodbye or good by.

We will take a deep dive into two stocks to help you make the best choices for your portfolio state t more market domination after this, Nova shares are skyrocketing up nearly 100%.

The move higher comes after company announced a multi billion dollar deal with French drug maker, Sanofi.

The terms of that co exclusive licensing agreement include co commercializing Novavax COVID-19 vaccine as well as developing a COVID-19 influenza combination.

Seen here with more on the new chapter for the biotech company.

We've got my young mom to be Riley Securities managing director and group head of health care.

Um An interesting situation today that seems to have effectively brought back Novavax from the brink.

There were cash concerns around this company.

Is that how you would characterize that announcement today?

Yeah, tha thanks for having me.

Yeah, I think that going concern status on their balance sheet.

That coming away is, is a big deal.

Uh obviously having a conglomerate of Bell Vaccine, Bell Weather like Sanofi uh choosing to partner with a company like Novavax, which does have this adjuvanted next generation recombinant protein platform.

Uh obviously uh is, is a a validation from a platform technology standpoint.

But the the big takeaway from uh what what headlines have been about, you know, French conglomerate, rescuing a US pharmaceutical company that was struggling in a post panem era.

Uh That, that is absolutely true and, and it makes the uh the company and the stock investable for many investors today, you know, more investable me.

It was interesting just to hear some of the language your colleagues were kinda using on the street today to describe this.

You know, I I saw one analyst um say this was transformative for the company in his words.

Um Do you think that's true?

Transformative or is that overstating it?

II, I think I, how I look at it is, is more like the next chapter to be written in the Novak story.

Um Again, II, I don't want to be in any way, not, not be honest about an objective about the realities of what needs to still happen about the uh execution on the COVID market as a whole.

Obviously, uh you know, in the past couple of years, uh we have completely misread how the vaccination uptake rates would look like.

And then in terms of Neova being able to come to the market in a, in a timely way uh like uh in line with when we saw vaccines in the, in the pharmacy stores in the physician offices, how we saw from pfizer and Moderna that, that was just not the case but, but from what today's deal is telling us that, you know, under this new management regime which has seen, I think what's transformative here is the relationship that they built with their partners in, in including in the FDA, who are allowing them to have a path, you know, which is very streamlined when it comes to having a variant based vaccine.

But I think I'm sure you are interested in also understanding the COVID influenza combination vaccine that uh the regulatory path for the late stage vaccine.

Uh There has also been an alignment with the FDA uh on uh that becoming available for the public in 2026 only a year after we, we could see shots from Moderna and pfizer, which which is projected to be next year and, and we'll learn in short order some data on those on that combination product uh in, in the coming months.

And Mayan our, our health care reporter Angelique Kamlani had the chance to talk to uh Novavax, Co John Jacobs and this is what he told her.

He says what this does is in and of itself, it doesn't save Novavax.

But what it does is now put us toward a future of growth.

Back on our biotech strength, back on a platform based growth strategy that allows us to drive growth.

Now, as you just mentioned, there are potentially other products or at least other combinations coming down the pike here.

But you know what does the future growth trajectory look like for Nova backs?

Yeah, I mean if you if you take a step back on on the size of the market of the opportunity we are talking about.

And if you just look at flu and, and take out the pandemic from the picture, you know, we were vaccinating roughly uh north of, you know, 50 to 60 million uh adults every year and a large majority of them were and elderly, right, the vaccination rates tend to be higher on that.

So if you think about that market is at least what you would look to protect.

And um there is obviously a data, you know, as, as you might, as you guys are aware that Nova was working on a, a flu vaccine before COVID even came along and they had positive phase three results.

So what today's uh update and development does is actually bring that back almost from the uh uh ashes to be able to develop as a stand alone vaccine, a flu vaccine.

Uh And then uh the combination points up uh vaccine would be in addition to that stand-alone flu vaccine.

So again, it's, it's a little unclear how the market would segment out which uh parts of the population would only prefer flu and not uh you know, take a COVID combination.

But I think we'll see the guidelines in the medical professional bodies.

You know, the recommendations around uh having protection for both and, and if safety and efficacy and importantly, immunogenicity, which we've seen already on a stand alone basis from the COVID vaccine for NOVA and also from the flu vaccine.

Uh there's a very high likelihood of success for them to hit on this phase three trial, they're looking to execute and then in terms of the market opportunity uh and especially in a premium segment market or elderly market where it's a little unclear how the MRN A companies would pan out in terms of their profile.

You know, you're looking at them tapping into a, you know, multibillion dollar uh uh uh market opportunity that um they could, you know, share, have a, you know, anywhere between 20 to 30% market share.

So that, that I think is, is the work that needs to happen for people to get comfortable in the story again.

And my final question here, you know, this company has been under activist pressure sha capital.

I'm just curious um how if at all, you think the news today kind of impacts that dynamic?

Yeah, we, we, we try not to comment on activist uh situations, but I think just at the highest level, it, it it was, I think directionally uh pointing to the things that the management was already working on and today's deal actually confirms that, right, like one of the uh uh recommendations or uh you know, ask for the, for the management was to engage in a process or engage with a credible partner that we have in Sanofi that they, you know, they've been working on for several months deals like these don't come together as you know, overnight.

So I think that maybe that urgency to act or deliberation was uh you know, catalyzed by having an activist uh uh interfere, but clearly management had been uh you know, we looking at some of these strategic options for a little while and, and as you know, over the past year, they've uh cut cost uh you know, right size the organization and they continue to do that into the, into next year.

So um getting that balance sheet uh situ uh you know, uh issue that they had to uh get over was already in the works and, and um and, and execution related issues that were, I think also pointed out uh from regulatory standpoint, from a commercial standpoint.

Those were already things they, they were uh you know, on track, on track with and hence, you know, you saw a partner like Sanofi buy into uh their, their strategic operational plan and, and how I, I think everyone uh it's a win win for everyone, including the activist investor who was uh uh vocal about about the company in the past few days.

Mayan.

Thank you so much for joining the show today helping us navigate make sense of this news.

We appreciate it.

No problem.

Thank you.

The Biden administration reportedly set to announce higher tariffs on clean energy goods from China electric vehicles expected to see a hefty levy.

Yahoo Finance's pros Sumera joins us now with those details.

Yeah.

Hey, Josh, you know, not a surprising turn here.

We knew these were coming.

But um I guess we're surprised also to hear about the reports about how big these tariffs might be in particular for evs the Wall Street Journal reporting that early next week when Biden supposedly will give these new, new guidelines.

Uh they're going to quadruple the, the, the uh the uh sorry, the tariff for evs but to 100% tariff on evs currently there's around 25 27% ish uh tariff on just all Chinese cars in general, but they want to make it 100% for the evs and potentially with that.

Would that make those cars, you know, not competitive here in this market?

You know, it remains to be seen sort of what Biden will do because there's also a threat in Mexico where uh Chinese automakers are making cars in Mexico.

What happens if you, if if they import those cars will they will they be considered um you know, uh free trade cars because from Mexico or they considered Chinese, we'll see, we'll find out, I guess more information, um, next year, potentially.

Uh we did see some shares of the uh Chinese ev makers a little bit lower earlier today on that news.

But, you know, for the, they make most of their money from their domestic market and also some parts of Europe, so not really going to hit their, their sort of bottom line just quite yet, but it is a sort of a big headline number there in of course, an election year, right?

And more question what happens down the line for their growth prospects.

I want to shift gears here though while we have you because Elon Musk is changing his tune on a supercharger network halt.

Yeah, I, you know, I don't know who's gonna do the work at Tesla anymore considering how many people they laid off in superchargers, but tell us what we know.

Yeah, I'm sort of like a backtrack here for, for, for Elon Musk, kind of uh trying to fix the situation or, or chaos that he created in the first place by basically nearly uh laying off everyone in that superchargers team.

You know, this is a product that many people thought sort of separated Tesla from the rest of the pack.

Also, we know many legacy automakers signed up with Tesla to be a part of that network for their evs so big deal here.

But basically must saying today earlier this earlier today saying just to reiterate point in, in a tweet, Tesla will spend over 500 million expanding our supercharger network to create thousands of new chargers this year.

That's just on new sites and exp exp expansions, not counting operations costs, which are much higher.

So he's sort of saying nothing to see here.

We're, we're gonna keep on investing.

Don't, don't think it, don't look at those reports that saying that I laid out everyone including the woman uh Rebecca Tucci who actually uh negotiated the deals with Honda and GM and Ford and others to kind of join the network.

So sort of a backtrack here.

I think there's a lot of partners, not just automakers but also their suppliers who make the superchargers who develop sites and real estate uh projects who are concerned that they are trying to email people at Tesla, their emails are getting bounced back.

They have no idea who to talk to, who get paid, things like that.

So it's a big problem that he's trying to address right now.

Pros, thank you so much for the update.

Appreciate it.

Thank you.

Coming up.

It's late edition of our series.

Goodbye or goodbye.

Stay tuned.

More market domination after this.

It's a big noisy universe of stocks out there.

Welcome to, goodbye or goodbye.

Our goal to help cut through that noise to navigate the best moves for your portfolio today.

We're dissecting the battle of financial services between versus traditional banking.

Joining me here to discuss is Great Hill capital chairman and member Thomas.

Hey, Tom, good to see you.

Great to be here.

What they call tr five versus Fintech, I guess if you're in certain segments.

But let's get to the fin first because that is the stock that you like.

Although it's sort of an older one in the universe of fintech and that is paypal, the stock has had a bit of a rocky run, but let's get to why you like it.

First of all, there's a new CEO and there's been a lot of optimism, sort of baked in there with the company coming out with its latest results.

Yeah, Andrew Chris came from into it.

So he ran the small business division that into it, which was 50% of the revenues.

While he ran that division, the stock was a 40 bagger over just over a decade.

So he's bringing some of that experience to paypal to revitalize the brand.

He put out the six initiatives which he said was gonna shock the world.

It fell a little flat except for the fact that he's delivering on it.

We saw them, he set expectations low, he set guidance low and he beat already in the first quarter.

And the big problem that everyone was worried about with paypal was margin contraction.

We saw an expansion of margins in that first quarter by 98 base points.

That was a good deal.

Yes.

All right.

So let's talk about what we've seen happen in the stock here.

We re rating perhaps this is, this is a big deal because the stock trades down to 15 times earnings relative to the general S and P at 21 times.

So why its historic multiple is about 30 times as margins contracted and growth slowed the multiple contracted.

Now, what you're seeing is a re acceleration since Andrew Chris came on board margin expansion.

You saw a total payment up 14% last quarter revenues up 9% earnings up 18% total transactions up 11%.

So as we get more consistency, a few quarters under his belt where the market can believe that mar margins have stopped going down and revenues continue to grow, earnings continue to grow.

Cash flow continues to grow.

We could see a multiple expansion on top of the business expansion.

So maybe back up to 18 times, 20 times 22 times.

I don't know if we're going back to historic multiples because that the Halcyon days of the 30% growth may be behind us.

But a normalized multiple would really do a lot to raise the stock price from here.

And then there's one more financial metric you're looking at and that is free cash flow.

Yes, this is my favorite metric.

This is the one that can't be manipulated.

They generate about $5 billion a year of free cash flow.

It's amazing that I'm talking about a turnaround situation that generates $5 billion of free cash flow has got $9 billion of cash on their balance sheet.

So all the runway in the world and further to getting the stock price up, they're actually using that free cash flow to buy in stock.

They're buying about $5 billion a year at a $67 billion cap.

They could buy in the entire company in 12 or 13 years.

So we like that situation.

We like that.

It's cash generative and that gives them all the runway they need in addition to the $9 billion on their balance sheet of cash.

Interesting.

All right, we always like to talk about what could go wrong in a scenario like this.

And that's maybe, you know, there's a lot of competition in this space.

Yes, there's no question.

Obviously, Apple pay is a big threat.

Everyone's worried about that.

The regulators are cracking down a little bit on Apple not being able to control everything.

The other thing is the historic legacy.

Fear of Braintree.

They actually have 10% of global enterprise spend.

They process about $500 billion of $5 trillion.

So when you think about paypal through Braintree, so when you think about people's like, oh, I don't use paypal anymore.

Oh, have you used Uber today?

Have you used Ticketmaster?

Have you used booking?

You bet.

And that's where they're starting to get a bottoming a trough of margins and they're starting to re accelerate because they're bringing data, they're bringing A I, they're bringing faster checkout, higher conversion at checkout.

So now they can start to charge a little bit more interesting.

Ok. And you own paypal, we own paypal.

It's a big position personally and for clients.

Ok. Let's get to the, you don't like.

This is very much traditional finance company talking about Goldman Sachs.

The stocks actually rally back pretty nicely over the past year.

So let's get to why you don't like it.

You think it's still too dependent on trading profits?

But isn't that like part of the reason you buy Goldman Sachs?

Yeah.

Well, let, let, let me, let me clarify.

We like Goldman Sachs.

We don't like Goldman Sachs at today's prices.

Ok.

So we wouldn't put new, new money to work at.

Go in Goldman Sachs.

It's doubled since the October lows.

It's run ahead of a lot of its uh opportunity.

You know, a third to a half of their business though in any given quarter is trading profits.

So to eat what they kill, if you, if you have low volatility or you have a miss in trading profits, it, it's too lumpy in terms of the long term and they're getting a premium right now.

They're trading above their average multiple, they're trading about 14.4 times tangible book peak cycle.

Maybe they can go up to two times tangible book.

But, you know, one time it's a bargain, they're kind of in that uh middle of the range space.

So am I excited to put new money to work after they've just doubled in a, in a few few months?

Uh The answer is no, on a pullback.

Would we get interested potentially?

But it would have to be a very nice pullback.

Ok. And we can also say, and, and this is your point number two, the thing that they tried to do to become less dependent on trading profits didn't work out so well.

Complete train wreck.

So, uh you know, the message is blurry.

Uh They tried to do Marcus for many years, they tried to do Apple Card credit card.

They tried to get into the credit card business.

That's not their bread and butter, what they need perhaps to David Solomon, Ceo, David Solomon's credit.

He said he sort of cut their losses in that.

He said it wasn't, it didn't work.

We're done.

Leaders always come to the correct conclusions after, after trying everything else.

But leaving that aside, I think the message is getting clearer and they do want to spend more time building out the reoccurring revenue businesses like the asset management, which is a relatively small portion of their overall business to 0.1 every quarter.

They got to start from square one.

All right.

And let's get to the third thing here that we need a rate cut.

This is a key.

They've got a peerless investment banking franchise M and a debt refinancing ipos.

It's just been a little bit anemic with such an aggressive rate hiking cycle over the last year and a half, 2021 was an amazing 2223.

Anemic.

It's starting to come back in fits and starts, but we're really gonna need to see a cut or two cuts for animal spirits to really kick in the M and a game to get on boards to say I gotta buy that company before someone else does.

It's time to refinance all of our debt.

It's time to do equity offerings and then for companies that want to go public now is the time animal spirits are back.

We're not quite there yet.

I think a cut towards the back half of the year and that may take a quarter, quarter and a half.

And that's why we're probably a pass on goal for new money at these levels.

But on a pullback, we would consider it to have to be meaningful pullback.

Got you.

Ok.

So pull back, we talk about, you know, what could be the upside case here.

The other one would be as you mentioned, if there are rate cuts.

Yes, and they could come sooner than we expect.

We saw the jobless claims yesterday were higher than expected and Chairman Powell was very explicit about that.

Yes, we're watching the inflation numbers.

He's kind of in the camp that we all are waiting for those owner rents to come down.

They've just been stubborn.

We all look at Zillow rents and everything else.

But he did make an explicit note about the labor market because that's the second part of the mandate.

And we're seeing some signs that maybe that softening a little bit, which could give them cover to at least do one cut.

You know, the earlier they go, the less they're gonna have to do if they were to go over the summer, which is lower probability, maybe they only have to do one or two.

If they wait longer until maybe after the election, it might require more cuts.

I love to you snuck in some macro stuff for us, which we love.

Thanks so much.

All right.

So let's sum up what you're telling investors here.

Basically, you say by paypal on performance under new leadership, the play on value add margin, real acceleration and healthy generation of free cash on the other side, you said for now, avoid Goldman Sachs a little pricey and so dependent on trading profits.

It's playing catch up on asset management and it is waiting for those rate cuts to ignite capital markets.

Thanks.

I have a great weekend and thank you so much for watching.

Goodbye or goodbye.

Be sure to tune back in next week for all new episodes at 3:30 p.m. Eastern.

It's been another a I centric earnings season as investors track the next best move in the A I trade.

But what if instead of just investing in A I traders could also use A I to power other public and private investment strategies we're here to discuss is Kaiju worldwide CEO and global chair Ryan Pannell Ryan.

Good to have you here.

Thanks, thanks for having me back and it's nice to be here in person this time.

So, so Ryan, let me ask you maybe just to start your focus is predicted A I, correct, right?

As, as opposed to gen A I, which we spend a lot of time talking about on this show, right?

And all kinds of companies spending a lot of time, money and effort there maybe start there, Ryan explain to viewers kind of the differences between the two and then how Kaiju is, is really integrating that tech, right?

So I think as you say, the, the A I that most people are familiar with this generative A I where you're taking uh a non defined non standard data set.

In most cases, the internet uh where your ownership of the data to train the models isn't necessarily well defined.

You've got free use versus copyright infringement and you're trying to answer like any question that somebody could answer and or ask and then create something new out of it.

Paint me a picture, write me an essay, make a you.

So make me a movie and you get problems with hallucination that come with that.

I mean, no question.

It's a very powerful technology with a bright future predictive A I is using either easily purchased or collected at source data for us, price time and quantity, for example.

And it's trying to answer a specific question.

So in our case, it's trying to identify patterns and price time and quantity that immediately precede a price action that we want to take advantage of.

And we see this over and over again and there's a reasonable amount of certainty and we can use it to to that end.

And so basically, it's all, it's not fundamental analysis at all, it is just based on.

So it's effectively predictive A I based on technical analysis to some extent, if you wanna share the the secret sauce rii I knew that was coming.

Um If you think about it, every positive investment decision results in a transaction, right?

It doesn't matter what the asset class is, you know, real estate derivatives, equities options, you know, you do your analysis, whether it's fundamental technical, there's an investment committee and at the end of the day, if it's go ahead, you're going to affect a transaction and we can see the pattern in the transaction, not always but for specific transactions, you can with some degree of certainty.

Reverse engineer the investment decision that resulted in the transaction example would be, you know, if you're watching rotation versus distribution they're very different intentions.

And so they are very different patterns, panic looks different, you know, buying quietly because there's, you, you have some certainty there's going to be a positive earnings and you don't want to disturb price versus buying indiscriminately because you think in five years the stock is going to be more positive, different patterns, different outcomes.

If you can identify them, then you can predate on them.

I'm, I'm interested.

So, you know, it's interesting, right?

You, you, so you found some tasks where you think?

OK, predictive A I in my world, it doesn't make sense.

Are there ones where you think, you know what this tech, this tech is not up to that task ones you wouldn't want to see it apply to?

Yeah.

Sure.

Absolutely.

Obviously, anything with a long term time frame, I don't care if it's human or machine, there's no person, there's no system, there's no predictive A I that's going to tell you with any certainty where a stock is going to be in six months from now.

And anyone who says different is just trying to sell you something.

So it's not well suited to that global macro, you know, Putin invades Ukraine what will be the global economic response to that over the next 12 months?

There's no system that's going to do that immediate short term predation on price action and equities derivatives.

Yes, it's very good at that.

But the longer term stuff.

No.

And I don't see that changing.

So you made a comment here in the beginning when you drew the contrast with generative A I.

And it sounds like you're a little bit skeptical of that models the, the way that it collects information or its ownership or lack thereof of the data.

Correct?

So I'm curious your view on whether you think there should be rules around those kinds of things when it comes to gender A I?

Well, I mean, that's a, it's a big question to ask and answer in terms of the capacity to potentially answer any question that you might ask.

No, it it needs to have this latitude.

These large language models are enormous and obviously incredibly costly to run because you can't determine what someone is going to need, require or want to review.

It can be information collection, it can be creation.

So you're going to have to allow it a lot of latitude with predictive A I, whether it's flying a plane or driving a boat or trading stock, you needed to do one specific task with a high degree of certainty.

And so the hard landscape surrounding those data is important and thankfully that aligns with that type of technology.

But for the larger systems, I don't see how you constrain the data and achieve the same, same performance.

Ryan, thanks for coming in.

My pleasure.

Thank you.

Coming up.

We're bringing it down what to expect from big box retail earnings.

That's coming next week and the best ways to invest in that sector that's in today's playbook.

Stay tuned, more market domination on the other side.

Mhm.

Welcome back.

We're looking at how to navigate the retail sector with today's Yahoo finance investor playbook.

Another big week of earnings season has just wrapped up, but there are still a handful of big box retailers on deck and joining us now to discuss which companies are best positioned as we approach earning earnings releases in the next two weeks is Chris Graha Argus, research, senior analyst and Chad Morganlander, senior portfolio manager at Washington Crossing Advisors.

Uh Welcome guys both to the show.

Chad, maybe I'll start with you.

Um me the big picture.

Chad your take on the consumer and, and where they are right now, it was just sort of interesting to walk through this earnings season and try to read the tea leaves um just where you thought they were.

Uh so some executives, I I actually was impressed when I heard something like like Uber and Lyft and how generally optimistic they sound the consumer.

But what was your take so broad based?

I think that the consumer is quite strong.

Uh They, well, they, they got a lot of tailwind regarding savings, uh wage inflation has been going higher that bodes well for consumption uh as well as a full employment picture here in the United States.

Uh So for us, we think that it bodes well, overall in aggregate or big box retailers, of course, there are certain retailers that will do much better and then there are others that are going to lapse doing in part because of the big post COVID surge.

The normalization cycle is around the corner.

Well, maybe on that front, Chris, I wanna bring you in.

Uh, you know, I think that the Walmart's the world more squarely fit into our idea of what value the value proposition is right now.

Maybe we struggle a little bit more with the Home Improvement retailers which I know you cover as well.

Talking about Home Depot and Lowe's, I think you have a buy rating on both.

How, how do they fit in into this current consumer environment?

Yeah, I I and I think the multi year strategy is that there is a huge portion of the population who has locked in very low mortgage rates.

Uh We've seen in the housing numbers that they're not moving.

So maybe a lot of people you also have uh baby boomers who are aging in place and you have a large number of millennials who you know, are going to buy a house.

Uh but it's probably not going to be the house they dreamed of.

And I think all of that spells Home Improvement, the baby boomers are gonna upgrade homes so that they, they can stay longer, whether it's showers or baths, um or railings or other things.

Uh a lot of people who are saying, you know, we've got a low mortgage, we're going to stay in our house.

They're probably gonna do kitchens and bathrooms and all kinds of things to make their existing home more livable.

So, you know, there may be a couple of near term challenges but, but longer term, I think, I think it makes a lot of sense.

Well, that's what I wanted to follow up on Chris.

You know, what you're describing, that sort of longer term trend?

Are we gonna see that in the upcoming earnings or is that more just something investors should kind of ride out and wait for?

I mean, they, they're good quality businesses, they, they pay dividends.

Um, and the thing is, I don't think we know exactly when the turn is going to be and, and the other thing is like, all we need to see is a little bit of sign of an inflection.

So I think the long term thesis makes a lot of sense looking at the, you know, Harvard's leading indicator of remodeling activity.

It's probably later in the year before we, before we see a turn there.

But, I mean, I think it's a thesis that makes a lot of sense.

And, um, I think the businesses are, you know, are going to weather that and if the change, whether it's from the Fed or somewhere else happens a little bit earlier, you know, you're there with good quality businesses rather than chasing Chad.

I want to bring you in here as well.

Get your, your take on Home Depot.

It sounds chad like about that name you're saying, listen, um some short term headwinds but longer term smart place to be right.

And I completely agree with Chris, uh when it comes to Home Depot, uh we own it in our rising dividend portfolio.

We've owned it for over five years.

It, it has very little debt.

Uh, it is consistently growing and, uh when it comes to profitability, it's, it's has a high return on invested capital, capital.

Uh, and like Chris, I echo that you want to own this as a core position over the next 3 to 5 years.

When that turn comes in the housing market, uh this stock will gap higher.

Uh So, uh, we would be a buyer within that, uh within uh uh with, with Home Depot.

Um Let's chat.

Let's get to then the others, the, the Walmarts and targets that are coming up as well.

Um Do you, uh, I'll take you first on this chat.

Do you like one over the other?

Do you think those are both gonna provide um, a go a good opportunity for investors, especially with the catalyst of the upcoming earnings as well.

Yeah, we, we like and we favor Walmart.

We have it in both our rising dividends and all c portfolio.

We've owned it for over over seven years.

We believe that their their diversification in regard to omni channel has been quite successful.

They're now able to compete, I believe, head on with Amazon.

So we favor that one over target.

If there is a softening within the consumption, consumer or consumption, we think that Walmart will be able to take market share from Target Chris.

I wanna get you back in here.

Get your thoughts on those two names as well.

How are you thinking about Walmart?

Walmart and Target?

Yeah, I, I like Walmart.

I think they've built a tremendous amount of goodwill, um, over the last several months in lowering the prices of things like French bread and rotisserie chicken at times where people are concerned about prices.

You know, they, they look to Walmart as a place that can help.

Uh, the other thing we've seen is that, you know, households that make over $100,000 a year are going to Walmart.

So when this change or when it's a little bit of turn with the consumer happens, Walmart's gonna try to retain those customers.

Uh, they're investing in their, their discretionary stuff, their home products and that should be good for them.

Um, you know, the, the question I think clients, others ask is, you know, we see the case for, for Walmart right now, but what's the next step, whether it's three or six months down the road?

And I think it's a little bit similar to what we were saying with, with home Depot, uh, Target has, uh, more of a discretionary business and, you know, I think when we see that turn, I mean, in the meantime, they, they still have, um, you know, staples and they still have decent traffic and they're still, you know, appealing to people who want convenience.

But I think once their, um, their home and apparel comes back in a stronger way, we should see that go right to margins.

Chris Chad.

Thank you guys both for joining the show today.

Have a great weekend.

Thank you.

Thanks.

Well, wrapping up today's market domination.

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