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Halftime Report
Stocks Extend Record Highs 7/24/25
00:42:37
Scott Wapner and the Investment Committee debate what the AI arms race means for the rally as Alphabet increases its spending plans. Plus, the desk share their latest portfolio moves. And later, Josh Brown spotlights another name on his “Best Stocks in the Market.”
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- [00:00]
Edward Jones
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- [01:03]
Scott Wapner
I'm Scott Wapner and you're listening to CNBC's Halftime Report, the podcast the most profitable hour of the trading day. We record this live weekdays at 12 Eastern. Listen in. Welcome to the Halftime Report. I'm Scott Wapner. Front and center this hour, the AI arms race. Alphabet ups its spending plans, which means we're going to trade that name as well as the other key movers today rally extending its record run. Joining me for the hour, Josh Brown, Jim Lebenthal, Malcolm Etheridge and Kevin Simpson. We will check the markets here. As I said, the record run, the S and P and the NASDAQ extending that. Today we're focusing on our headliner, which is Alphabet. Stocks not doing all that much, up one and a third percent. The last I saw earnings beat, as you know, CapEx up $10 billion, $85 billion search was the key metric. They beat by 2%. Jim Leventhal, I ment on the air yesterday the call that you made the day of the Eddy Q sell off. The Stock is up 25, 26% since that day when you said the sell off was overblown. Can we put the search fears if you want to call them that, to rest for now?
- [02:17]
Jim Lebenthal
Yes. But I think we've also got to put context to it. We're not saying, and I'm certainly not saying that this is a monopoly anymore. It is not. What it is, though, is a competitive race in which Google has a good position. There are of course, people are going to complexity and chat GPT and other things, and that will continue. There are people, and I'm one of them, who like the little AI summary that I get from Google and I'm still using it. If that makes me a dinosaur, guess what? I think there's more of me out there. But I also think, Scott, that this is more than just search. This is obviously a company that has a very good services business in the cloud infrastructure that it's building. YouTube is hitting on all cylinders. I wish Waymo were having more of an economic impact, but maybe that's just a matter of time. Overall, I continue to say that this is a stock that's undervalued. The multiple earnings estimates are going to go up here, so we're probably looking at 15, 16 times next year's earnings. Yes, there is competitive risk out there. I think that is overpriced by a lot in the current multiple. The one risk I don't think this is much of a risk is maybe next month we're going to hear from the judge in the doj, doj case about what the penalties will be there. I think that is more likely to be a clearing event than a real downside risk. I think I like holding this stock here and I think you can buy it right here, Scott.
- [03:36]
Scott Wapner
Kev, what do you think? Can you buy it right here?
- [03:39]
Kevin Simpson
Absolutely, Scott. And I think if the DOJ does go against Google and they break the company up at the sum of the parts are worth more separately than together. Jim, you're not a dinosaur. I don't use ChatGPT well for a lot of reasons, but I don't use ChatGPT on my phone. I'm almost exclusively Google and Even on my PC, probably 70% Google, 30% ChatGPT. And I, like you, think Gemini is going to come back into the picture or at least enter the conversation with perplexity, OpenAI, Claude and the rest of them. So this is a stock that is still undervalued.
- [04:09]
Scott Wapner
Yeah.
- [04:10]
Malcolm Etheridge
I think that we're missing the fact that the only thing that's keeping Alphabet in this conversation right now. The breakup would be great because I'd love to own YouTube as a standalone property, but the thing that's keeping them in this conversation right now is their AI tools on all of the Samsung devices. Blow anything Apple has right now out of the water the moment Apple figures out a solution to that issue that they're behind. Let's say they do buy a search engine powered by AI. That is Perplexity or somebody else. We're not talking about what this company can do on the device anymore. And that's where everything is moving. The AI conversation is moving to mobile. And so I think it's unrealistic to think that they're not going to have this lull for quite a while while they try and figure out how to cannibalize their business to get to a place of relevance again. So do I have to own this company right now? I don't think so.
- [04:58]
Jim Lebenthal
Just real quick. I like that there's a bear on this. I mean that makes a healthy for anybody who's bullish.
- [05:03]
Malcolm Etheridge
Two years, that's fine.
- [05:05]
Jim Lebenthal
I mean I would be more worried if all of us were like hey, this is the greatest stock ever. That would worry me more than you're having a reasonable other side.
- [05:12]
Scott Wapner
But that, that's a real well articulated view about what the future could ultimately look like. You've heard all the opinions. What do you say?
- [05:25]
Josh Brown
I think Malcolm Reese is a really important point. I'd love to hear your take on this. Why was Google paying Apple $50 billion to be the default search engine on every Apple iOS device, iPad, iPhone, etc.
- [05:38]
Jim Lebenthal
Well, I mean you're speaking rhetorically, right? It's to get traffic. I mean it's, it's to get eyeballs.
- [05:43]
Josh Brown
Google that at that dollar amount, let's say the number again so people could process it. $50 billion. Do you think strategically that was important to Google?
- [05:53]
Jim Lebenthal
I mean I'm not sure if this is where you're going, but that's a cost. And when I looked at the results I was actually happy that those costs came in higher than expectations because two months ago you'll remember you were here, Eddie Q of Apple saying hey, Google search queries are going down. Not if you look at the traffic acquisition costs.
- [06:11]
Josh Brown
You absolutely had the right take that day. And I had recently sold Google, still not in it. I'd love an opportunity to buy it back. I do not think we have sufficiently discounted the longer term risks here. Short term. This was a great report. There's really not like if you're a shareholder, they gave you everything you wanted to hear including we're going to spend, we're going to raise our capex on AI. That's actually bullish. Nobody wants to hear about that.
- [06:37]
Scott Wapner
I think you're right. I think that I gave it to you. I like to take.
- [06:40]
Josh Brown
They gave it to you.
- [06:41]
Scott Wapner
It is bullish. They're spending because they want to win it.
- [06:45]
Josh Brown
They want to be in IT services revenue up 12%. Phenomenal. Great number. Google Cloud up 32% revenue. Phenomenal. This is if you're long the name. You needed to hear that. They also had some very positive things to say about the uptake of Gemini at the top of the search results. And they said actually young people are getting a lot of use out of that, which I'm not surprised by. One thing that I helped, I think helped the ad business is that the economy didn't fall apart. This is a highly cyclical company. They are in a duopoly with Metta. Amazon is a distant third in terms of the overall ad spend picture. And they need ad spend to hold up. They need the economy to hold up and they got that. This is. We actually saw a reacceleration in consumer spending at the high end. If you believe the government data and Google coming out and telling you that is a confirmation.
- [07:38]
Malcolm Etheridge
I have to own Alphabet to get that accelerated. If I want exposure to the cloud, I can go Microsoft. If I want exposure to search advertising, I can go Meta. Like there's so many other alternatives that.
- [07:48]
Scott Wapner
There'S no question about it. But of course you don't have to own anything. You don't have to own it. I think the more relevant idea is do you feel like you're going to be punished if you do? Okay, you don't have to have this name in your portfolio. You don't want to have it if you feel like you're going to be jim punished by owning it relative to some of the other names. Now, if you look at what probably is the biggest gift that you get is the PE of only 20 forward.
- [08:16]
Jim Lebenthal
I totally agree.
- [08:17]
Scott Wapner
So in an environment where you're worried about market share of their bread and butter business declining, it's not as if we're talking about a stock that is overly expensive.
- [08:28]
Josh Brown
Absolutely.
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Scott Wapner
So that's the gift you get. If this stock was much more expensive than that. Oh my gosh. The comedown on a fear of search deterioration would be much more dramatic than it is now.
- [08:40]
Jim Lebenthal
I so strongly agree, and I think that was central to my argument whenever I made it two months ago, is that it's simply too much bad news was priced in. You know, Josh, what you said, and again, I love that there's bears on the names here. You know, it's a reasonable, rational discussion. But there were a lot of things that went right here, right. YouTube, the service, excuse me, the cloud business, you know, it's not just search granted, you know, searches, depending on how you measure it, 2/3 to 3/4 of the business. So Those other businesses need to grow rapidly, but I think they can. And there's a thought I want to express here is that when we talk about this Capex, which is huge, right? This is huge, $85 billion. What I think about is whether it's good Capex or bad Capex, we're seeing in these numbers that there is a positive return on this investment that they're making. People of a certain age will remember the late 90s downtown Manhattan. Every day the streets were being dug up to put in new fiber optic networks and found out by 2000 that 3/4 of those were dark. That is not producing any revenue. That's not the case here. There is a return on this investment.
- [09:40]
Scott Wapner
It is though, to what Josh said. It's a. It's a now versus later conversation in the here and now. Okay, Things haven't deteriorated to the point of the greatest fears. On the day of the Eddie Q sell off, will they to a degree that makes you or get you punished, as I said earlier, for owning the stock. We'll wait and see. But the Capex spend. Take a look at Nvidia, look at Broadcom. New record high. Where's the Capex going?
- [10:10]
Josh Brown
The street is telling. The street is. The street is telling Google they want them to be aggressive. The street, the reaction to the increase in Capex spend, without question. The street believes that being a top three player in AI is an egg to existential necessity for this stock. And that's what I think you're seeing playing out on the screen today. Had they just merely reaffirmed or said, yeah, things are good and we're going to leave things the way they are. I don't know that you get this upside result. The street really wants to see these guys spend as though they have to win the war because quite frankly, to Malcolm's point, they do have to win the war.
- [10:48]
Scott Wapner
Which is why I feel like I don't want your take on this. The questions about return on investment I don't feel are all that relevant. Yet we ask them because we feel compelled to ask it. If you're spending X, you expect something in return for it. Well, maybe it's impossible to quantify what the return on that investment is going to be for another five years. I don't know. But why do we ask that question? I think that's the right take. You spend it. The street is rewarding you for the spend, not the reward. Yet it assumes you're going to get the reward.
- [11:27]
Malcolm Etheridge
I would argue there is a reward. We're not paying enough attention to right now, which is the revenue per full time employee. If you look at Microsoft having something like 15,000 layoffs in about nine months and the fact that they become so much more productive that their revenue per full time employee has grown, these companies are all chasing Nvidia right now. Nvidia is approaching $4 million per employee is what they're actually seeing in revenue. And the closest person to that I think is Alphabet with like 2.2 million per employee following. And then the other behind that, Microsoft closer to the bottom. And then Amazon includes, you know, factory workers. So we don't really know what their number looks like, but that is the return. These companies are able to do a lot more with less. And so they're basically saying, saying to their employees, do the thing that you are best at, the thing that you are most capable of doing and then let AI do the rest. And so we're going to use this as an internal productivity tool first while we figure out how we're going to monetize this to the rest of the world five years from now. So I think it's a both and not an either way.
- [12:29]
Scott Wapner
And when you think about where all of this is going, we can look at IBM and the shares being down today. They raised their forecast for their first full year, free cash flow. But revenue and gross margins in the software business were below that. Almost seems like an afterthought in some respects. The stock had ripped into the number. That's number one. And then if you listen to the CEO of both that company and ServiceNow, how about this about the environment? Here's Arvind of IBM. I've turned from being, I use the word cautious optimism. At the end of the first quarter, I would now turn my way, all the way to optimism around the Macro Environment. That's IBM CEO, ServiceNow CEO, quote. I don't think the demand environment changed dramatically. I think the demand environment is wide open for AI innovation. That is we're going to continue spending, others are going to continue spending. We're going to spend because the environment's better than maybe we thought it would be. And you have no choice.
- [13:28]
Josh Brown
We're going to move from the first half conversation, innovation around LLMs and things like copilot all the way into a, hopefully a consumer product and agentic AI for the consumer or for the everyday employee at these companies and for customer service. And that's going to be, I think, the next conversation. It's already the current conversation in Silicon Valley. I mean on Wall street we're going to start to quantify the impact of a gentic AI and of course like Alphabet's going to be a major player there, IBM is going to help companies implement this stuff. ServiceNow will be a beneficiary in 10 different ways. So I really think that as the conversation shifts into look what Salesforce agents are doing, look what all of these companies are rolling out internally amongst their own employees. Why are they able to grow their revenue without adding the commensurate amount of headcount that we've seen in previous bull markets? That's going to be a really big piece of this. Microsoft has a really big role to play there. Obviously. My bet is Amazon is going to be a gentic HQ for the consumer, having somebody help you shop or shop for you because you don't feel like it. Like this is what's coming. And this is why the spend levels I think continue to be rewarded on Wall street, even absent an uptick tomorrow in roi. Street's willing to wait on the ROI piece because they see the revolution.
- [14:56]
Scott Wapner
We Speaking of this conversation about AI, Steve Kovac has a news alert for us right in the heart of this conversation. Steve yeah, that's right Scott.
- [15:07]
Steve Kovac
So the Verge just reporting that OpenAI is planning to launch ChatGPT version 5. That's the next version from the current 4, version 4. It's supposed to launch in August here, Scott, and we actually know a lot about what this is going to look like. It's not necessarily going to be a brand new version or new capability so much as a kind of melding together of all these disparate models that OpenAI already has. There was a tweet from Sam Altman a few months ago, I think it was back in February. We can show you where he talked a little bit about what this is going to look like, how they're going to integrate their reasoning models and eventually stop selling some models separately and jam it all together into this one big chat GPT5 model. Now before that announcement, by the way, Scott, back in February the expectation was this would be some kind of new super capable and leap in advancement type of model. That seems to be taken back a little bit by that tweet from Altman a couple of months ago. Kind of resetting the expectations around this. Nowhere near that super intelligence or artificial general intelligence or whatever you want to call it that we've been talking about so much. And this is also happening as OpenAI and Microsoft are negotiating their agreement about what that AGI looks like in the future. And of Course, Microsoft gets to tap into that technology before most other tech companies. Scott.
- [16:25]
Josh Brown
Hey, Steve, it's Josh Brown. We're using the term reasoning a little bit tongue in cheek because none of these, none of these models are carrying out anything that could scientifically be termed reasoning. They're all still word calculators. They are predicting probabilistically or statistically what the next likely word in a sentence should be based on, I guess, swallowing Reddit whole every day. But, like, we're not at the reasoning stage. I think what people are excited about in ChatGPT version 5 is a lot of the things they're trying to do. Moving, for example, turning tables into a graphic doesn't really work very well. It's a little bit of hallucination. Hallucination, hallucinating. When they try to do things like that, it really seems like this is more of an iterative update versus like, oh my God, my mind is blown. I can't believe it can do this. That is, you have.
- [17:22]
Steve Kovac
That is exactly the rate I have. And like I said before, that February tweet from Altman, Josh, that was the expectation, you know, from version three to four. That was a big leap. There was a lot more capabilities and things like that. They've really diminished the expectations around what version 5 is going to be able to do. It's nowhere, going to be nowhere close to this AGI thing that we keep hearing Sam Altman and his peers and colleagues talk about so much. We're not even close to that right now. It is going to be interesting to see also just where Microsoft plays into that and also how the plans change up to there. There was some talk in that tweet. We only showed you a chunk of it, Josh. But they're going to be changing up who gets what in different paid versions of ChatGPT as well. So if this does in fact launch in August, we've reached out to OpenAI, by the way, to find out if this is true. It'll be interesting to see how they shuffle up those paid plans, what they charge for, what kind of features, and so forth as well.
- [18:16]
Scott Wapner
All right, good stuff, Steve. Thanks very much for that update and the conversation around it. So we go from Altman, one person, obviously right in the heart of the whole AI conference conversation, to somebody else who is as well wants to be even more. We're talking about Elon Musk because Tesla had its earnings as well, top and bottom miss auto revenues down for the second straight quarter. Musk saying there's going to be, quote, a few Rough quarters coming in the near term, autonomous is obviously the big bet. That's what, you know, Dan Ives would tell you that with the stock down 8, 9% is that's the trillion dollar opportunity for this company in terms of additional market cap. You're not making the bet today on the Kevin, you own the stock. On the drop in sales, on the issues around the brand, on what's happening with popularity in Europe, losing market share in there in that region for the sixth straight month. You've got growing competition. You need to keep your eye on the prize. That's what Dan Ives would tell you if he was sitting here. That prize is autonomous and AI and the reward and robotics. And that's the. As he would say. Well, he would say that's the trillion dollar market cap opportunity from this point forward. You say what I mean, here's what's.
- [19:34]
Kevin Simpson
Great to see the companies that do really well get rewarded. We just had a great conversation about Alphabet and how they hit on every cylinder. Even if it's for short term, the stock is being rewarded. I don't think you could have expected anything better or worse from Tesla. It was about as bad as we feared. But for the shareholders who are in here exactly that. We're not looking for this as an automobile company over the next three months, it's can they deliver on full self driving autonomous vehicles, robotaxis and robotics. And that's something that we're going to find out several years into the future. Much like we'll find out if search is really a death meld for Alphabet, which I don't think it is.
- [20:09]
Scott Wapner
Can you make a fundamental case today to own this stock?
- [20:12]
Kevin Simpson
Cannot, Scott, I can't. But the one thing when you talk to Brand or you talk to me, we can write covered calls against this. There's tremendous volatility in this name. So when it's down under 300 you can buy a little bit. When it's over 300 you can write calls you cover.
- [20:24]
Josh Brown
On a day like today, I would not.
- [20:26]
Kevin Simpson
When it's down. Absolutely not.
- [20:27]
Josh Brown
Would not.
- [20:27]
Kevin Simpson
You wouldn't be covering today. If anything you can add a little bit here, but if you see it get back up into 310, 320, you can write 350 calls all day long. And I think you almost have to to do that because this is a multi year story. Before we find out if they are, if they're victorious or not in this pursuit.
- [20:43]
Josh Brown
Free cash flow, 146 million. I think they were expecting a billion.
- [20:47]
Kevin Simpson
It's not that Much money. When you think of a company, if.
- [20:49]
Josh Brown
This wasn't Elon Musk, what would the stock be doing? Down 9 or down 20?
- [20:54]
Kevin Simpson
It depends on the day because when you think of the political stance, it's detrimental when you have a CEO that's this involved. So I think that you have a polarizing character that works for you in a huge way when it works and against you in a big way when it doesn't.
- [21:06]
Malcolm Etheridge
Treating this like a car company though, solve their problem short term, right? They haven't refreshed the body style in 10, 15 years. Rolling out a new one would immediately get people interested. The robo taxi conversation. If my Tesla can go out there and earn money for me for eight hours while I'm at work, I'm immediately excited about owning that company. If the battery capacity was two times better than anything else out of there and could get me 4 to 500 miles range. All of these things are car company issues. And so realistically they should be trying to compete with Ford and General Motors. Not talking about this being an agent company that most.
- [21:40]
Jim Lebenthal
I shudder.
- [21:40]
Josh Brown
The most notable thing they gave us on cars was a Model 2, which will be cheaper than a Model 3 to compete with the new Chinese cheaper EVs. I don't really hear much else about refreshing the lineup.
- [21:52]
Jim Lebenthal
It was a long term General Motors owner. I shudder to think and I know you know this, Malcolm, but if this thing got valued as a car company, it's down 90% and I'm being, I'm being generous and that can't be the thesis for anyone who's long to sell.
- [22:08]
Malcolm Etheridge
Near term, it could buy you time to get to the moonshots. If you focus on the things that.
- [22:13]
Scott Wapner
What buys you time is the cult following.
- [22:15]
Jim Lebenthal
That's it.
- [22:16]
Malcolm Etheridge
Fair enough.
- [22:16]
Scott Wapner
That buys you time.
- [22:17]
Josh Brown
What used to buy them time is selling, is selling environmental credits. And that business was down in half this quarter. They sold 439 million worth of regulatory credits. The same quarter last year they sold $900 million worth. You want to know like where the.
- [22:35]
Kevin Simpson
Why the profits missing? That's the reason, honestly.
- [22:39]
Scott Wapner
Well, that's.
- [22:40]
Josh Brown
And that's the profitable part of the business, honestly.
- [22:43]
Jim Lebenthal
They should do a snap offering, a secondary offering. You know, they're mortgaging. That's a strong word, but they're mortgaging the other companies to pay for this. You know, we've Space X which is the crown jewel of the Musk empire, making an investment. I'm sorry, is it in Tesla? No, it's in. It's in Twitter and Xi, but they're all getting intertwined. He needs some cash. 146 million of free cash flow ain't going to do it.
- [23:06]
Josh Brown
Looks, it looks kind of like a Japanese Koretsu at this point where like, like Mitsubishi credit is stacked on top of Mitsubishi Motors, which is stacked on top. So they've got private selling, big screen TVs. I mean, they have private market assets that they can use to raise additional capital through those vehicles and then make investments from those vehicles into things that Tesla is working on. Think about all the levers they have to pull between xi, which is the combination of the AI efforts and Twitter and then the Space X thing. Space X has Starlink. There are all kinds of deals between these companies. Now. The shareholders, shareholders seem to like it. That's. I mean, they're raising money off balance sheet to make investments on balance sheet things. And it's really hard to disentangle. You just have to. I either believe in Elon Musk or I don't. And that seems to be the bet that people are making at $300 a share. They still very much believe that he's going to pull this off.
- [24:02]
Scott Wapner
Let me just mention real quick what you see on the screen. The IPO of McGraw Hill open for business. It did. Price below the range at 17. Not the greatest open for an IPO. Especially in an environment, let's be honest, that's been pretty darn good.
- [24:17]
Josh Brown
They should have called the Hill.
- [24:19]
Scott Wapner
The most recent IPOs have been pretty much standouts, so we'll see. Early trade, obviously, but opening a little bit lower. Again, price below the range. Back to Tesla for a minute. Tesla's pain is Uber's gain. Uber's up what, 2, 2 ish percent? Is that. Why is that?
- [24:37]
Josh Brown
There's like this idiotic thing that happens with Uber stock, where every time Tesla is about to have news or make an announcement, people get scared because they think like, oh, the cyber taxi news is going to hurt Uber. And then the stock ends up recovering, which is what's happening right now. So if you're a long Uber, you've watched the stock double over the last 18 months, but you've had to live with that pattern, that kind of like, oh, cyber cab news. And then it doesn't matter, and then the stock recovers and that's what's, that's what's happening here.
- [25:09]
Scott Wapner
I want to hit real quick too, before we take our first break. I'm looking. Let's show American Airlines, if we could, because they cut the Profit forecast due to slow demand. Southwest also cut the outlook. I bring it up because let's look at Delta now as well. It wasn't down all that much. There's Southwest, which is down a lot, 12%. But you've got to figure Southwest and American Airlines cut their outlooks. It's going to have an impact everywhere. As I look at Delta, Jimmy, which is down almost 2%.
- [25:38]
Jim Lebenthal
Yeah. I mean, the airline industry has clearly decided that there are two companies that are working. It's Delta and United and the rest are being kind of left behind. Now look, we know about Spirit and Frontier. That's really at the bottom of the barrel. But it's kind of surprising that American Airlines can't pick up the pace here. They have been laboring for years under a very high debt load that precedes the pandemic. They were buying back shares. They should have been buying back debt. Okay, that's water under the bridge. They've made many missteps in the past few years, including alienating their business customers. What I'm going at with this is I really think this is more of an American Airlines problem than an industry wide problem. I do still track the TSA passenger count and there are healthy flows. Yes, there are differences in who's paying how much for what tickets and who's flying to Europe or who's flying from Europe to the US but clearly there is business to be had here and the better two companies, Delta and United, are squeezing the profits from the rest of the airline industry.
- [26:34]
Scott Wapner
So let's take a break. We'll come back. We have moves from Kevin, Josh and Jim to tell you about. We have many committee stocks that are on the move on their earnings or otherwise. And we will discuss that when we come back. Plus, Josh Brown has his best stocks in the market list. A new name just made it. We'll tell you that too.
- [26:50]
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- [28:07]
Edward Jones
On WhatsApp. Your Personal Messages stay private between you and whoever you send them to. So things like the passport numbers for your honeymoon stay between you and your fiance and that video call for your gran's 80th stays in the family. Even your streaming password stays between you and your college roommates who still ask for it every week in your group chat. Because on WhatsApp, your personal messages are yours. No one else can see or hear them, not even us. WhatsApp message privately.
- [28:38]
Scott Wapner
Okay, let's talk about some moves that we have on our desk today. Josh Brown bought more Otis Worldwide. Why?
- [28:46]
Josh Brown
So yeah, Otis reported yesterday and it was slightly disappointing, but I really like the stock as at least an intermediate term holds. And I think the thing that was weak was the thing I care the least about, selling new elevators. It's part of the business, but it's not the better part of the business. The better part of the business is the service and maintenance contracts. This is recession proof. Cannot put skyscrapers anywhere in the world, install elevators and then not have them serviced. Literally. It's illegal. Otis has a ton of room to gain market share in that area. So if you're selling this thing off because of slow construction in China, I think you're missing the best part of this story. Added to my position, lowered my average cost into the mid-90s and I intend to hold it from here.
- [29:32]
Scott Wapner
Okay, getting a bump. Jimmy, you trimmed cheniere. Tell us why.
- [29:37]
Jim Lebenthal
I've been trimming some of the winners in my portfolio recently. Now, to be fair, this has had a wobbly few weeks here. It's down about 10% off of its high, but, but it's had a great five year run. I've been in it for a long time. And my, my point here is not to time the markets, but I'm Building a little bit of cash simply by trimming my winners and waiting for the moment to put that back to work in individual stocks. I just don't see anything today that absolutely demands me to put that money to work. So I've got now about 6% cash and we'll see what the market gives me over the next few days and weeks.
- [30:08]
Scott Wapner
Okay. Kevin, you wrote a call on Raytheon.
- [30:11]
Kevin Simpson
Yeah. We did this in advance of earnings on Monday. Scott. We did something similar with Netflix last week. It worked out for us. Sometimes you get heightened volatility going into an earnings report. We brought in over $5 a share for basically an at the money call. The stock was down about 5% on the open on Tuesday. We bought it back for $0.55. So we netted a $4 and profit in a few short hours. When the stock was all said and done, it was only down 1%. 52 week high today. So. Which we had done in IBM as well. But nice trade for an rtx.
- [30:40]
Scott Wapner
Let's. Let's talk about some other stocks that are moving. Dow cut its quarterly dividend. Since you make your living thinking about and investing in companies that pay a dividend, what do you think about that? It's the second worst stock in the S&P 500 today. You don't own it, but you've got to have an opinion on it.
- [30:59]
Kevin Simpson
Yeah. Just a little trade school, Scott. We haven't owned this in a number of years, but anytime a stock cuts or suspends its dividend, we remove it from our portfolio immediately. Usually you get enough headwind to get out of it before then. I think there were enough red flags that the dividend cut should come as no surprise. The last time we were caught where we actually had to sell a name was literally Disney during the pandemic. So I wouldn't be rushing into Dow. Very negative. And sadly, if you own it, it's probably a sell at this point.
- [31:24]
Scott Wapner
Chipotle, let's look at that one too. Because they missed their comps. It was reiterated overweight at Morgan Stanley, but the stock's getting smoked. The Shake SHACK and the McDonald's owners, do you look at this and have any concern whatsoever for what it means for broader trends in that industry?
- [31:43]
Josh Brown
So I don't follow this closely enough to have a strong opinion. Fundamentally, I do think the honey Chipotle chicken is better than the original chicken. And now that it's a regular part of the menu, I have some confidence here. Let's put this chart up though. Let's give me like a five year chart. This is a mess. Like I don't, I don't buy, I don't buy stocks like this. It's just not my style. This stock has been making a series of lower highs dating back to, I don't know, middle of 2020 for select for a year. Now it rallies. It gets to a lower high than the last high and then it rolls right over again. And if the fundamentals are confirming the weak technicals, there are so many fish in the sea. There's 5,000 publicly traded companies. So this will set up, this will be a great buy. At some point. I'm probably not going to be the one that spots that moment because I ain't looking at the 52 week low list in a market like this. I just can't spend my time on it.
- [32:40]
Scott Wapner
Angelica Peebles. She has her headlines today. Hi there.
- [32:43]
Unnamed Speaker
Hey, Scott. That's right. ICE is directing its staff to significantly increase the number of immigrants with GPS ankle monitors. The Washington Post reporting a memo was sent to ICE field officers in June to put the monitors on all people enrolled in the agency's Alternatives to detention program. Currently 183,000 adult migrants are enrolled in the program. ICE didn't comment on the memo, but said the angle monitors were quote unquote, an enforcement tool. And pro wrestling legend Hulk Hogan has died. Hogan rose to fame with his unique brand of showmanship as wrestling gained mainstream popularity. He also appeared in movies and TV shows, including his family's reality series. In the mid-2000s, according to Clearwater, Florida officials, first responders rushed to his home after a call for cardiac arrest. Hulk Hogan was 71 years old and almost nine years after it was discontinued. The video sharing platform vine is coming back with a twist on a post on Exxon today. Elon Musk said that X is bringing back the platform in quote, AI form. The platform allowed users to share video clips that were six seconds or less. I don't know if you remember that, Scott, but quite popular back in the day. Back over to you.
- [33:50]
Scott Wapner
Yep, Angelica, thank you. That's Angelica Peebles. Coming up next, Josh Brown. His best stocks in the market list has a new name and it's hitting fresh all time highs. Today we reveal that next there's a.
- [34:04]
Jim Lebenthal
Time and a place for a filet of fish, but breakfast is for sausage biscuits. McDonald's breakfast comes first.
- [34:18]
Edward Jones
At Capella University. Learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the course room to the workplace. A different future is closer than you think with Capella University. Learn more at capella. Edu.
- [34:34]
Scott Wapner
Hey, welcome back. Josh Brown, as we said, has a new stock on his best stocks in the market list. One that is hitting a new all time high today. And it is what?
- [34:44]
Josh Brown
Oh my God, you guys, look at the chart of cboe. This is, look, there are companies that actually thrive on high trading volumes and volatility. This is one of those names and it's actually a shame that we don't talk about it enough because it's one of the best returning stocks from its date of inception. The IPO is the summer of 2010, did about 850% versus the S&P 640% in the same period of time. What's happening at CBOE is really simple to understand. On July 3, they put out their June trading report. Report people are trading options to an extent that we have never seen before. Zero dated options. Yes, of course the retail loves those, but just Regular S&P 500 options. SPX 3.7 million contracts. So volumes are going crazy. They're trading the Vix, they're trading the S&P 100, which is the OCS. And these are the products that traders are making use of, making bets in both directions. CBOE is a fantastic company and this is one of the best charts in the market. And this is now one of the best stocks in the market. They have earnings on August 1st. There could be a little bit of a blip. So if you're looking for your entry and they put out a report and it's a sell the news reaction and this name comes in a couple of bucks. That's probably the entry that I would look for. As far as risk management. I would use 220, which has been, which has been support all year so far, or the rising 200 day moving average. But either way, this is an amazing name and should be on everyone's screen.
- [36:19]
Scott Wapner
Other names in that universe that we should be paying attention to that might be benefiting from, if not the exact same thing, but.
- [36:28]
Josh Brown
Well, of course Robinhood environment, which we've talked about a lot and I mentioned Kevin owns it.
- [36:33]
Scott Wapner
You own that.
- [36:34]
Kevin Simpson
I own Robinhood and I own CME for all the reasons.
- [36:36]
Josh Brown
Same phenomenon, same phenomenon. CBOE is a little bit more concentrated in stock options as opposed to futures like cme. But same story. And then the other one, which we nailed it, ibkr, it came out with earnings last week. Another great report. They're adding new accounts at a record rate. And here it is. We picked this one at 59 broke out, hit about 64. This one's going higher to this one will follow. Robinhood up. Trading is hot. It's what people are doing, institutions and retail. Some are hedging, some are speculating. Doesn't matter. These companies are the gateway and they're all raking it in right now.
- [37:17]
Scott Wapner
There's another stock on that list as well that Josh had flagged a few months back. It's in our calls of the day. We're going to do that next. Let's do some calls of the day. We'll start with Palo Alto. Kevin, you own the name. Price Target goes to 235 from 225@Jefferies said we'll call it 200 bucks right now.
- [37:38]
Kevin Simpson
I think I totally agree with the call. Their net security air jumped 34% last quarter. Free cash flow was up by 25%. I heard a rumor on the desk that they're looking to possibly acquire Sentinel One.
- [37:49]
Josh Brown
I can't confirm that, but I think.
- [37:52]
Kevin Simpson
It'D be a great acquisition for them. If they, if they surprise to the upside this quarter and they guide anywhere near what they potentially could, we may see a blow past that, that price target. Scott?
- [38:01]
Scott Wapner
Okay, Spotify is the name that Josh flagged on May 1 for his best stocks in the market list. It was upgraded today to outperform 800 bucks. That's the price target at Oppenheimer. Many tailwinds ahead. They give you six different ones. Gross margin leverage, free cash flow, generation share buybacks, free tier monetization, and on and on and on. Malcolm, you want to take this one?
- [38:27]
Malcolm Etheridge
Yeah. I expect good things from earnings. Q1, they reported 12% year over year subscriber growth. I think that trend is going to continue. They're basically converting a lot of those free tier people into paid subscribers while also pushing into other territories. And so I really like the name right here. I think what we're seeing is investors snapping it up as sort of a one two punch combo with Netflix. Netflix has kind of proven that the model works. And so we're seeing it similar to like a Visa MasterCard kind of situation. So even with the stock up 50% year to date, at this point it seems like investors are loving it. Still got room to go.
- [38:59]
Scott Wapner
It's well put. Kev, you out if you have it.
- [39:00]
Kevin Simpson
To 675 million active users. They're rolling out their super fan version and the free version with ads is unbelievable.
- [39:08]
Josh Brown
How did Apple let this happen? How did Apple let them get to 700 million users?
- [39:13]
Kevin Simpson
I use both products. They're interchangeable, but so much better. They own the display. Spotify blows it away.
- [39:19]
Josh Brown
Yeah.
- [39:20]
Scott Wapner
All right. Coming up, a big deal brewing in the world of sports media. Alex Sherman, our very own sports reporter, following that story for us. Next, we'll tell you about it. Welcome back. Want to show you shares of Chevron which are at session highs. There you go, Pop for the stock. 1 1/3% on a wall Street Journal report that the Trump administration has is green lighting Chevron to resume pumping oil in Venezuela. That stock likes that news. Josh Brown, you own that name?
- [39:48]
Josh Brown
Yes. I bought this terribly. As soon as I bought it, we went into the Liberation Day and they hammered the stock. It's made it all the way back. I actually am slightly in the green here, but I'm sticking with it. It's a core position. I don't have a lot of energy exposure. This is the best energy company, I think, in America and I'm happy to hold it.
- [40:07]
Scott Wapner
Okay, we'll follow that. But it is getting a lift on that Journal report. Now to a big deal brewing between the NFL and espn. Our Alex Sherman following that story and joins us now with more details. What do we know here, Scott, what.
- [40:21]
J
I'm reporting this morning is that the NFL is actually in talks to buy a 10% stake in ESPN as part of a broader deal that would have ESPN owning the NFL Network, NFL Red Zone and some other assets that are housed within the NFL media umbrella. ESPN would not be buying the entirety of NFL Media, but select assets within. The interesting part of this, I think beyond just the structure, which is very interesting, the league taking a stake in a media company is perhaps some of the externalities that come from this deal. In other words, what are all the other media companies going to think about the NFL taking a stake in espn? Does that give ESPN potentially some preferential treatment? There's also potentially some conflict of interest questions with reporters supposedly being objective. This is something ESPN has always had to deal with. But you have the league taking a direct ownership. Kind of bumps it up a level, but we'll see also the price, we don't know that yet. And that will give us a firm valuation of ESPN if in fact a deal gets announced.
- [41:22]
Scott Wapner
I mean, interesting too, when you think about the cost of media rights and those who own them, especially in the NFL, like espn.
- [41:31]
J
It gives espn, you would think, a little bit of protection right now, suddenly the league has a vested interest in making sure that ESPN's valuation goes up over time. Well, ESPN is a bidder against every other media company for NFL rights. Of course ESPN owns Monday Night Football right now. There will be a new rights negotiation potentially after the 2029 season. That's when the NFL has its opt out rights. ESPN will be another bidder there. You would think this would help ESPN securing those rights moving forward again if the deal in fact goes forward. Because now the NFL will want to make sure that ESPN owns some of those rights because it will better ESPN's valuation in years to come.
- [42:13]
Scott Wapner
Sure. Whether they want a home team discount or not remains to be seen. Probably not knowing how these things go. Alex. Thanks guys. Alex Sherman with the scoop there will be. Follow that Jim. You own Disney. And it also just underscores why so much of the conversation within media and major growth areas within it remain around sports.
- [42:32]
Jim Lebenthal
That's where the eyeballs get attracted to the most.
- [42:35]
Scott Wapner
Although Netflix continuing their investment and this news on Disney, what do you think?
- [42:39]
Jim Lebenthal
Well, I mean I think you just pointed out a good thing with Netflix here is that there's a lot of competitors in this space. And when I say a good thing, it's good for the sports leagues. It's maybe not so good for ESPN or Netflix or anybody else who may pay too much for that. And that's what I worry about. These prices go only, only one direction up. That seems to be something that's going to continue. I worry about ESPN having to pay too much for it. But with regards to Disney, obviously this is only one piston in the engine. And it's one thing that gives me comfort about Disney is it's not just all espn.
- [43:09]
Scott Wapner
You want to talk about it from the Netflix point of view, just you go where the money going.
- [43:16]
Josh Brown
I actually would would characterize this as defensive espn. Maybe the business has stabilized in recent quarters. It's not quite in free fall and we're not talking about cord cutting as much. But they have to do something strategic so they don't end up like TNT did with the NBA where the league is just like we really don't need you anymore. Amazon has plenty of money. So does Netflix. We're fine esports. ESPN cannot be in that position. So I think this is really smart. I think this is more defense than offense. Just my take.
- [43:48]
Scott Wapner
We'll do finals next. We'll see at 3 today closing bell. Adam Parker, Ankara Crawford and Ed Yardeni. See what this market does between now and then. Let's do some final trades. Gentlemen, if we could. Kevin Simpson, you are first.
- [44:02]
Kevin Simpson
I'm going to go with Honeywell. The Stock is off 5% after solid earnings. They beat top line, bottom line, line raise guidance. This is a sum of the part story.
- [44:10]
Scott Wapner
What doesn't the market like?
- [44:13]
Kevin Simpson
There's nothing not to like. Scott. Buy the stock.
- [44:16]
Scott Wapner
Okay. Who's Digital Realty?
- [44:19]
Malcolm Etheridge
That's me. Why earnings tonight? Last time they reported nearly a billion dollars worth of backlog contracts they're scrambling to fulfill. Should be a good night.
- [44:28]
Scott Wapner
Okay, Applied Materials.
- [44:30]
Jim Lebenthal
That's me. I don't think Google's news about more Capex index is an aberration. We're going to continue spending on data centers. We're need chips, we're going to need chip factories. And that's where amat comes in.
- [44:40]
Scott Wapner
Okay, and last but not least must be Josh with Carlyle.
- [44:44]
Josh Brown
Hey, don't tell anyone. New all time record high for Carlyle Group. Shout to my guy, Harvey Schwartz. This is in the right sector at the right time. It's moving.
- [44:53]
Scott Wapner
Blackstone beat today too, didn't they? So private equity getting a bump. I will see you on the closing bell. We got a little work to do do as the Dow is concerned, but we do have extended records for the S and P and the NAS. You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern only on CNBC.
- [45:18]
Edward Jones
All opinions expressed by the Halftime Report participants are solely their opinions and do not reflect the opinions of CNBC, NBCUniversal, their parent company or affiliates, and may have been previously disseminated by them on television, radio, Internet or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of an opinion. Such opinions are based upon information the Halftime Report participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Halftime Report disclaimer, please visit cnbc.com halftimereportdisclaimer.
- [45:59]
Jim Lebenthal
Not all meals are created equal. For instance, breakfast has a spicy egg McMuffin for a limited time and lunch doesn't. McDonald's breakfast.