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Halftime Report
The Fate of the Rally 12/27/24
00:43:19
Frank Holland and the Investment Committee debate the fate of the rally as stocks come under pressure one of the last trading days of the year. Plus, Josh Brown shares his bull case for Starbucks as the stock heads into year-end down over 3%. And later, Kevin Simpson reveals his latest portfolio move. Investment Committee Disclosures
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- [00:00]
Frank Holland
Stripe helps many of the world's most influential companies grow their revenue and build a more profitable business. Whether it's Hertz making checkout a smooth ride for their customers, OpenAI answering unprecedented demand, or PGA chipping away at back office inefficiency, Stripe's financial infrastructure platform helps companies achieve ambitious goals. No matter what success looks like for your business, Stripe helps ensure the complexity of financial systems doesn't get in your way. Learn more@swepe.com what's your boldest, truly ambitious life goal?
- [00:33]
Josh Brown
Everyone has one and everyone deserves a way to get there. That's why State street offers a wide variety of ETFs to give all investors.
- [00:39]
Jenny Harrington
Access to the market and the chance.
- [00:41]
Josh Brown
To reach their goals.
- [00:42]
Kevin Simpson
Like with DIA, where you get 30.
- [00:44]
Josh Brown
US blue chip stocks in a single trade. Wherever you're heading, getting there starts here with State Street.
- [00:48]
Jenny Harrington
Before investing, consider the fund's investment objectives, risks, charges and expenses. Visit ssga.com for prospectus containing this and other information. Read it carefully. DIA is subject to risks similar to those of stocks. All ATF's are subject to risk, including possible loss of principal Alps Distributors, Inc. Distributor. I'm Scott Wapner and you're listening to.
- [01:04]
Frank Holland
CNBC's Halftime Report, the podcast the most.
- [01:07]
Jenny Harrington
Profitable hour of the trading day. We record this live weekdays at 12 Eastern. Listen in. Brian and Sarah, thank you very much. Welcome to the Halftime Report. I am Frank Holland in for the judge. Scott Wapner, front and center this hour, the fate of the rally as stocks come under quite a bit of pressure today. We're going to debate it all with the investment committee. Joining me for the hour we have Josh Brown, Jenny Harris, Harrington and Kevin Simpson. But first, get a quick check on the market as you've been talking seeing all day long. And I'm talking about the major indices. They're all down across the board. The S and P is trying to avoid its third straight week of losses. The Nasdaq's down 2%, the Russell 2000 on pace for its worst month since September of 2022. One other area we have to talk about, bond yields right now. Take a look at the 10 year pulling back from the levels that we've seen in recent days at about 4.64 right now at 4.6 pretty much flat right now, but still elevated from the levels that we've seen earlier this year. And that's really where we have to begin. Josh, I'm going to start with you. We're seeing a bit of the pullback, some of its profit taking it seems like some of the best performers, the big winners this year. Pulling back, we're talking Palantir, Applovit and also Vistra. Some of the best names at least. Palantir and Vistra, the best names in the S and P year to date. How do you view all this as we look at some of these last days of the trading year?
- [02:24]
Scott Wapner
Look, I think, Frank, it's a good question. Is there more meaning to this than maybe we think on the surface or is it just simple profit taking? I think it's maybe a little bit of profit taking. But we talked about yesterday, the big thing that's going to happen this January is rebalances. And not just in wealth management, which I discussed, but in target date funds. You're going to see it. These are oceans and oceans of capital. We're talking about trillions of dollars, people with SMAs like strategies at the big brokerage firms, ETF model portfolios. When you have a year where the S and P does plus 30% and you've got gigantic stocks that have gone up over 100%, you have to expect that somebody owns too much. So like today, what you're seeing is on low volume, I don't think it's particularly meaningful. Maybe it's some people sussing out this idea that there are going to be big rebalances this particular January, trying to front run a little bit, get ahead of it. It's perfectly natural, perfectly normal activity on desks are light, a lot of shops are closed. I don't really have anybody sitting around executing tons of orders today for example. So I just think the important thing here for us all to keep in mind is it's one day, it's one week, it's the most meaningless week of the year usually unless something's going on. Let's not extrapolate it beyond that if we don't have to.
- [03:52]
Jenny Harrington
All right, so keep it in context. Sounds like basically what you're saying that it is a low volume day. As you mentioned, a lot of shops close. Jenny and Kevin, I'm gonna come over to you. Jenny, let me start with you. Are you seeing any more meaning in this other than some profit taking, low volume day, maybe algorithmic trading taking hold? But one thing I do have to point out, every sector right now is lower with the exception of energy, which has been one of the worst performing sector. Kind of a reversal on one of these last trading days of the year.
- [04:18]
Josh Brown
Right. And so I think there is a little more meaning in this. And I do want to riff off of something Josh said. So Josh said like rebalancing and there's trillions of dollars. But I want to put the numbers to that just to give you like a really concrete idea. So let's say you went into this year with a 6040 portfolio. Let's say your stocks are up about 30%. Bonds are flat, by the way, like long dated bonds. The Barclays AG 10 Year Index is down 4% year to date. So if you started the year with a 6040 equity fixed income split, right now you've got 66% in equities and 34% in bonds. So when Josh talks about rebalancing, those numbers really are huge. Right. That's an enormous divide to need to think about peeling off 6% of equities and then bumping up another 6% of bonds just to get back to where you started. And I've had this weird sense this whole maybe the last quarter that a lot of the rebalancing that usually people kick to next year, the tax last harvesting that happens at the end of the year, things didn't happen this year. And I don't have any actual proof of this. It's just kind of like, you know, when you're in it, you feel it things didn't happen in the normal time frames this year. And my sense is that people are positioning for next year, this week and last week and the week before. So I actually do want to read into this a little bit. I think, I think people are trying to be preemptive because they know that that rebalance is going to happen. Jan1, December 31, right around then, they want to be ahead of that by a couple of weeks. I also have seen profit. What really surprised me, right, is the huge stocks that were up so much. There hasn't been as much profit or, sorry, there has been profit taking in the last couple of weeks where I thought it wasn't going to happen until after the first of the year. So I think, I think this is kind of telling of what we're going to see as we cross the end of the calendar year.
- [05:56]
Jenny Harrington
It sounds like you're saying there's been a pull forward of the tax loss harvesting that you're expecting in January. It's been over the last couple of weeks. So what does that mean about the market going forward?
- [06:04]
Josh Brown
Well, I think, okay, so if you think about what we've seen in some of the Mag 7, how they've just kind of cooled off, I thought they were going to go gangbusters like Full throttle into year end and that no one is going to sell anything until after the first of the year. So we've seen some of that, but I think it's probably going to happen even more after the first of the year because there's still a ton of people out there sitting on the sidelines saying, like, I want to wait and not see that tax bill until next year. So I think that's why, like, we're getting a hint of what's to come. And what's to come is going to be a real, to Josh's point, rebalancing. And we see it. I think one of the things that surprised me, too, is small caps down so much because everyone's talking about how small caps should be up next year. I think that's tax loss harvesting. I think those are kind of coiling up, maybe ready to spring, but it just doesn't seem like things happen in their normal pattern this year.
- [06:48]
Jenny Harrington
All right, Kevin, I want to come over to you. I do want to hit on the fact that every sector is lower with the exception of energy. And by the way, energy is not gangbusters. Up about a quarter of a percent right now.
- [06:56]
Josh Brown
Oh, sorry, I forgot that part.
- [06:58]
Kevin Simpson
Well, I think to Jenny's point, there is a little bit of advanced tax selling. The amount of gains, Frank, that people have are so massive that the idea that they're waiting for the calendar to turn is. Is real. It's valid. It will happen. Josh did a great job yesterday talking about the rebalance. I won't hit on that again, but I agreed with all your points. And I think that there's just this idea that the volatility that we're going to see for the first couple weeks of January should not necessarily dictate the year. We like to say, as goes January, as goes the year. And that may be the case for January as a whole. But I wouldn't look at the first two weeks as anything but a bumpy ride. Volatility. And we're poised with a nice cash position, Frank, to go in and buy whatever dip we may see.
- [07:39]
Jenny Harrington
I do want to note max7 seem to be leading the gains right now. Kevin, I want to get your take on this. Max seven down two and a half percent. You're looking at the S and P a minute ago, down 1 1/2 percent. You look at the equal weight only down 1%. Again, it's a low volume day. We want to keep that in perspective. But when you look at the Mag 7 actually leading the market lower is There anything that we can read into? I mean Jenny was talking about it, you know, Josh was talking about it. Some people with big winners have to sell. Is that all this is?
- [08:04]
Kevin Simpson
Yeah, I wouldn't read too much into it because if you think where most of the trading takes place, both with retail and institutions now, it's within those names. So we've been hoping for years that we'd get the broadening out and that we'd see breadth of this market. 2023, 2024. That really didn't happen. So I would expect that when we see high volume on any trade on any name on a really low volume day that it would take place in those big names. So that shouldn't surprise or panic anyone. I would look past today.
- [08:30]
Jenny Harrington
Just stay on this theme for a minute. I want to get to our delivering alpha survey. We asked some of the biggest names and investing in finance their thoughts about the year ahead. One of the questions we asked them about in 2025, which one will do better? The other 493s and P500 stocks or the Mag 7? Of course, we all know who those are. 77% said the other 493. Kind of betting on the broadening. Josh, I want to come over to you. Are you someone that sees. We did see a broadening earlier this year. We've seen a narrowing in recent weeks. Do you see another broadening happening in 2025?
- [09:02]
Scott Wapner
Respectfully, there is no broadening. There are the MAG7 stocks this year and then there's this category of almost mag 7 stocks. And then there's everything else. I know we had like this mini rally from August to November that people got fired up about. But let's just recite the numbers because when we talk about tax law, selling and rebalancing, I don't think the average viewer has any clue how insane the degree of outperformance has been. And this is coming into a year where most people would have said the Mag 7 had too good of a 23 and they're going to take 2024 off this year in video had its fourth best year ever since coming public. 176%. Tesla did 76. Meta did 70. Amazon did 50. Alphabet, which quote unquote is falling behind an I did 40. Apple did 32. Microsoft did 14. If you equal weighted the MAG7, you did 73% this year. I want you to think about that. The S and P is up less than 30. Okay. You would have done 45% over the last five years. Equal weighting that Mag 7 portfolio. So there is no broadening. It's fake. Yes, you had rallies in other stocks and thank God, but the reality is nothing has kept up with, with this particular subset of stocks. I know it's tempting to say the calendar is going to turn over and everything's going to be different. Maybe it will. Maybe you'll get this big Correction in the mag 7 stocks that we've all been saying is long overdue. But like, do you want to deliberately underweight them to the extent that you are not in those names and you're betting on, I'm not sure, health care? Like, no one's really ready to do that yet. So I do think that while there could be profit taking and rebalancing and maybe undoing some window dressing in January, I'm still thinking of those names as remaining dominant in 2025. Could be wrong, but I just think that's the easier guess.
- [11:09]
Jenny Harrington
Are there tiers in these stocks? Is the Max 7 and the almost Max 7 or a tear down? I'm assuming you're talking names like a Broadcom in the almost Mag seven.
- [11:17]
Scott Wapner
Yeah, I'm thinking about stocks that have a big enough TAM that they could someday be trillion dollar companies. Broadcom is already there. So I'm really interested in names that are the next tier down. I don't want to be overweight data centers. I think that the money has been made. It's not that I want to sell the Max Sevens, but I'm not like, oh, can I add more Microsoft here? That's not what I'm doing. So I'm looking at names like CrowdStrike, like Uber. These are $100 billion market caps that could 3 and 4x if the right set of things play out and they execute. To me, Trade Desk is another name Reddit. These are more interesting situations than like adding to Meta here. So that's, that's me personally. That's not everybody.
- [12:02]
Jenny Harrington
All right, great segue. I want to come over to Meta. Jenny, you're an investor in Metta. What's your view? Are you sticking with the Mag 7? Do you see a lot of opportunities there or do you actually believe in the other 493? Again, our DA survey says 77% of respondents believe the other 4, 493 will be better performers.
- [12:17]
Josh Brown
You know, I'm in the perma camp of the other 493. So the only MAG7 that we own, that we've ever owned is matter. And we have trimmed that a couple of times. It's pretty rich right now. Earnings growth still looks good. I think it's like plus 40% next year and then mid teens the following years. It actually has a decent valuation compared to the rest of the Mag 7. So we'll continue to own that. We'd love to own others in the Mag 7, but like the cat, the free cash flow yields aren't there. The growth rates are too low for what the, for what the multiples are trading at. So that kind of holds us back. So we're always in the 493 camp. And what I've said over the years is, by the way, you can do very well by owning the other 493. You don't need to own all 493.
- [12:54]
Jenny Harrington
Well, explain that. What sectors in the other 493 do you like? If you look at energy, the next 2/4 earnings estimates are down year over year. You look at health care, I mean a lot of different things are happening in health care we don't have to touch on, but health care seems to be under quite a bit of pressure. What areas in the other 490?
- [13:08]
Josh Brown
That's the thing. So we run and I'm going to talk right now about our discipline growth strategy. Right. Because that's the one that most parallels the S&P 500. We don't, we don't invest by sector. We're bottom up investors and we look for opportunities. So in that portfolio, things that have worked really well include companies like United Rentals and like XPO that have really carried significant weight this year. And I think, you know, like if you want to be in the Mag 7, great. If you have a really disciplined strategy like we do, where you say okay, it needs to have a 5% or better free cash flow yield and really specific earnings growth targets ahead, you can still do that. Yes, it's harder, but it might protect you if in fact next year isn't, isn't as great for the Mag 7 if you have another 2022, which could happen. Those valuations aren't cheap, you know, so it's not looking by sector, Frank. It's literally screening everything that's out there and looking for high free cash flow yield and high earnings growth. You know, we just added TripAdvisor to that portfolio too, which is really interesting. It's down 50% from about this time last year. It's got really decent mid teens earnings growth as a 14% free cash flow yield. Do I think a stock like that could be up 25 or 50% next year? Yes. Do I think the Mag 7 is likely to be up another 50% next year after the plus 73% that Josh just mentioned? No, I just don't, I don't think they're necessarily going to trade down but like why can't they plateau? And then I think this gets into Josh mentioning Uber and CrowdStrike and those kind of companies. Like there could be leadership rotation. And the leadership rotation doesn't need to mean that Mag 7 deteriorates, it just means that it takes a breath.
- [14:36]
Jenny Harrington
Okay, Kevin, I want to get to you. You have a lot of ownership of the Mag 7. You own a Metta, Microsoft and the Devo ETF that's a Dividend Focus ETF and then Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla, all of them in the QD, VO ETF. What's your view for 93 or max 7?
- [14:52]
Kevin Simpson
Well, for Jenny and I as value and dividend investors, I have to really focus on the 493. But I will say that trading this Q Devo strategy as a covered call trader is a heck of a lot of fun because there's tremendous volatility there and people will always pay up for innovation. I mean that's what makes it so much fun. When you have companies that have the potential for 30, 40, 50% earnings growth, you're going to see them trade at higher multiples, you're going to see them have far, far greater performance. But when you get right down to it, Frank, the way we have built true wealth, real wealth creation over time is through dividends and distributions reinvested. So if we don't participate in all the Mag Sevens and our, our flagship strategy, well, we do own Meta, we do own Microsoft, we have owned Apple, we have owned Broadcom, we do own IBM. So you get some exposure there. And I think when you look at strategies like Jenny and I manage, you pay. Pair us with a hardcore growth manager so you can have that. And that's what a diversified portfolio looks like. But for me it's always about slow and steady wins the race or at least get you to the same place.
- [15:53]
Jenny Harrington
What about Josh's almost max 7 theory? Any names that you think fit that category that you're into or you might even think about adding to one of your ETFs during a rebalance.
- [16:00]
Kevin Simpson
Yeah, well we like all the names that Josh mentioned and we own except for CrowdStrike, all of them in the QDVO. This has a lot more holdings and again when you think about these high volume names, we write Covered calls. Covered calls are priced on time, price and volatility. They have massive volatility. So we can write the heck out of option premium on these names. And the that second tier, Mag 7 has the potential for total return upside option premium. And with, with any type of volume, when you're going for option premium, you have to face the fact that there's a lot more risk there. Jenny mentioned 2022 wasn't that long ago. Russell, 1000 growth was down 36%. So it takes a lot to crawl out of that hole and it sure did. I mean, the Magic 7 did in 24 and 25. That's 23 and 24. Let's see what 25 has to offer.
- [16:46]
Jenny Harrington
Yeah, I think we're all trying to figure out exactly what's in store for 2025. Again, we do want to point out all three major indices are in the red right now. Every sector, with the exception of energy, also trading lower. And with that, we want to bring in senior markets correspondent Bob Pisani. He's looking at, he's taking a look at the possibility of a rotation in 2025. That's the conversation we're having. Perfect time to bring you in.
- [17:07]
Bob Pisani
Yeah, and I agree with Josh's point. There's no rotation now, but there's hopes for rotation next year, largely based on a deceleration in earnings growth from Big Cap Tech and a modest acceleration from the other 493. Let me just show you some of the earnings expectations for 2025. Why these stocks are still holding up because the earnings numbers are still good expectations. So Nvidia is still expecting a 50% earnings increase next year. If you look at that, Broadcom about 25%. Amazon 20%. The point about all of these is that they are still expected to be up, but not as much as this year. So Nvidia was up 127% in earnings growth this year and next year is talking about 50%. That's a deceleration still pretty good. The envy of anybody out there. Alphabet, Microsoft, Apple, all doing really well in terms of the expectations. Broadcom is one of the only ones that are expecting an increase in earnings expectations. So let me just show you this simply. If you look for the fourth quarter of this year for the magnificent seven earnings expectations, a group is up 24% next year. Fourth quarter as a group, up 18. That's still really great. But it's decelerating earnings growth here. So now let's look at the other 493 out there. Right now for Q4 this year, up 4%. Next year, up 14%. You see, that's accelerating earnings growth. Now, it's not spent spectacular, but it is accelerating. So here's Josh's point. What would get anybody invested, an investor excited about the rotation story? And, well, tech is still the king of earnings growth. Look at the expectations for next year just on tech, up 21%. There's plenty of sectors that have very healthy profit growth, including health care and materials. Jenny was just talking about health care. These sectors have been ignored. The valuations are very reasonable here. But is it enough to get investors off the crack cocaine of these massive increase in earnings from the AI plays? I don't know. But this is the core argument of the value players. It should be on a valuation, but that argument has not been proven persuasive for nearly a decade. It's not clear if that's still going to be enough to get people off of the fence. It should be in theory, but you know, the value players are pulling their hair out. By the way, if people ask me, why are earnings so strong next year? We're talking about 15% growth. This is one of the best handoffs you could ever get from one year to another. If you just look here, we've got a strong economy, 3% GDP, we've got companies raising prices, we've got better cost controls. And here's the single most important thing. Look at that net profit margin, 12%. Not only are the profits up, but they're retaining more of the money from the revenues. That's what a net profit margin is, 12%. In case people don't know, that's just about a record. When that holds up that well, that's one of the main reasons the stock market is continuing to hold up. So you have high, you have high returns, you have high profits, and you have high margins on top of that. My heavens, this is one of the best handoffs you could ever look for from one year to the next.
- [20:11]
Jenny Harrington
All right, Bob Pisani, thank you very much, Josh. I had to come back to. Everybody's giving you your flowers right now, Bob, kind of spelling out why next year is going to be a strong year for tech and why the broadening story. He agrees with you. It's not really a narrative that he believes in. I want to go back to something we talked about yesterday. You're looking at landmines ahead for 2025. One of the things that you flagged were Nvidia earnings. They're a bit away. It's February 20th but in between now and then, how do you see the market moving and what do you think about some of the other landmines? You're looking at one that's going to come a lot sooner. Tariffs, very likely on January 20th.
- [20:46]
Scott Wapner
Well, I think it's important that I'm using the term landmine and not time bomb when somebody says these are the time bombs. These are things that are inevitably destined to go off when enough time comes off the clock. When you talk about landmines, you have the potential for sidestepping them. It's not a fait accompli that you're going to detonate a landmine. And obviously you hope that you don't. One of the things I was trying to point out is that if you think about the big risks in Q1, it's that the tariff rhetoric becomes reality faster than anyone thought it could or sentiment starts to move in advance. That's a big one in video. Not blowing it out and raising guidance for the, for the full year. That's a big one. You don't want to step on that one. And then obviously the dollar getting out of hand, the dollar, the rally that it's in the midst of right now versus, I don't care what currency. You could look at the basket, you could look at the trade weighted basket. You could look at versus Canada, versus the yen, whatever. What are the games you want to play? The dollar could become a wrecking ball if it breaks out here. And if you actually look at a chart of the dollar versus the trade weighted basket, technically it looks like a big breakout is coming. We should not be rooting for that. I'm not, I'm not running for office, so I don't have to say stupid things like King Dollar, King Dollar is problematic for S&P 500 forward guidance. They're all going to use that as an excuse to sandbag. They're going to complain about K currencies. We don't want to see that in Q1. So to me, those are the big Q1 risks. Now, of course, everybody's making these lists and the thing that actually shakes the market might be something nobody's thinking of. Like, for example, if an alien exits one of these drones in New Jersey. But I'm trying to be realistic. These are the things that I think we need to have in front of us as big potential risks.
- [22:40]
Jenny Harrington
Wow. I didn't, I didn't see aliens out of drones coming out of this conversation, Josh. But I do want to lean on something I purposely didn't mention the dollar. Yeah, I can see. I want to get your take on the dollar. You gave it to us right here. I want to come over to you two about the dollar risk. We were hitting this yesterday. Dollars up over 4% since the election. Josh talking about Q4 earnings in Q1, expecting to see currency being flagged as a headwind. We got to keep in mind, remember back in 2022 when Microsoft, Johnson and Johnson Salesforce flag the dollar as a hit on their earnings? Well, it's higher than it was back then. So I think you do have to factor that into your expectations for Q4 earnings, which right now we're at almost 10%. Is that something you're worried about, Jenny, that earnings missing and creating some volatility?
- [23:20]
Josh Brown
No, I think people tend to look through earnings when it's like forex related and so they see it as temporary. They see you give some one year, you take it back another year. I don't think it's permanent. It's not something that we're worrying about.
- [23:31]
Kevin Simpson
All right, Kevin, very quickly, 23% of our revenues come from outside of the U.S. so we do worry about it. Not to the extent that you might think it's a little bit more muted. Like Jenny says, we have to pay attention to everything.
- [23:42]
Jenny Harrington
All right. Still ahead, we got a trade update. The bull case for a stock that Josh bought earlier this month and his strategy from here. Halftime. We are back in two minutes.
- [24:02]
Frank Holland
Stripe helps many of the world's most influential companies grow their revenue and build a more profitable business. Whether it's Hertz making checkout a smooth ride for their customers. OpenAI answering unprecedented demand or PGA chipping away at back office inefficiency, Stripe's financial infrastructure platform helps companies achieve ambitious goals. No matter what success looks like for your business, Stripe helps ensure the complexity of financial systems doesn't get in your way. Learn more@swepe.com Are you still quoting 30 year old movies?
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- [25:30]
Scott Wapner
Eduardo, welcome back.
- [25:49]
Jenny Harrington
You saw a lot of red across the board, but right now we're going to switch gears. A trade update on Starbucks. Josh initiated a position just a few weeks ago. Shares are down 10% in December, on pace to break a five month winning streak. But he says this could be an opportunity to add. Josh coming over to you.
- [26:06]
Scott Wapner
Yeah. So look, this Stock was down 13% in 2022. It was down about 2% last year and if it closed today, for the year, it would be down about 2%. This stock being down three years in a row is a pretty rare thing. You don't really see that very often and quite frankly, it's understandable why. But it's also understandable why things should be changing very quickly. They're going to report earnings on January 28, so you don't have to wait a long time to see if the turnaround can be trusted. They're going to, they're going to do 9 billion in revenue, which would be down 1% year over year. About 1.1 billion in EBIT, which would be down 23% year over year. So analysts expectations are extremely low. The stock is effectively trading at its 10 year median valuation on all the important measures. And they just hired arguably the best living QSR industry CEO in Brian Niccol, who's going to turn this thing around. So I like the risk reward here and if it gets into the low to mid-80s, I'm going to add an irresponsible amount of stock to my own portfolio because any time Starbucks has been down, it's never been out. It's always been an opportunity and I don't think that's changed this time.
- [27:31]
Jenny Harrington
All right, so stock's been pretty much flat since nickel took over. We're just showing it up, just about 1%. Is your confidence in the brand? Is it a nickel? Is it a combination? I mean, what's giving you so much confidence? Because we have seen a lot of competition and in previous shows I've seen you be very bullish on another name in that similar space. Dutch Brothers, you know, they just face a lot of competition from a Dunkin donuts, from a McDonald's. There's just a lot of competition in the coffee space.
- [27:54]
Scott Wapner
That'll never change. That's a That's a. That's a permanent condition when you sell. You sell food to humans, this competition. So it's never been a reason to not be invested in Starbucks. Never been a good reason to be out of McDonald's. Like, competition is what. What forces these companies to innovate and get better. You don't want there to be no competition.
- [28:19]
Jenny Harrington
All right, Jenny, you have your own take on Josh's pick of Starbucks. By the way, shares up almost half a percent.
- [28:25]
Josh Brown
So when I was a kid, my dad's favorite joke was, you know, the fastest way to make $2 million in the restaurant business? Say what? He'd say, start with 10 million. I think there is too much competition, and I think it's a little dicey. I think Starbucks is overpriced. The coffee is mediocre, depending on who you talk to. And I think the competition has really increased, Josh, in the last 10 years. So for me, it's a little rich. It's not where I want to play.
- [28:46]
Jenny Harrington
Is it simply just competition? Is there something else? I mean, the relatively elevated. Almost 30 times.
- [28:52]
Josh Brown
Let me give you this example. Last week, I was on the phone with the management team from Wendy's. We were looking at it for the dividend portfolio. By the way, we're not going to add it. I'm not sure how committed to the dividend they are. Hopefully they are. We'll learn in March. Okay. But I'm on with. With Wendy's. You know what they're looking at? They're looking at coffee because it's the highest margin, easiest way to expand. And they're talking about how well McDonald's has done with that, how Dunkin's coming back. Like, everyone wants to be in coffee because it's easy to add and it's high margin.
- [29:20]
Scott Wapner
If you can go out on the street and find me one person, find me one person walking around with a straight face with a coffee cup from Wendy's saying that they used to go.
- [29:31]
Josh Brown
To Starbucks and now they don't have that.
- [29:33]
Scott Wapner
Find me one.
- [29:34]
Josh Brown
Okay, but you know what the point is? The point is that people used to get Joshi. Joshi. Listen. The point is that they used to get Starbucks and now they have a McCafe. They used to get Starbucks and now they have a Dutch Bros. They used to get Starbucks and now they have a Le Pencotedian. Right. It's the same as the athleisure space.
- [29:48]
Scott Wapner
That used to be just 10 years ago with.
- [29:51]
Josh Brown
Right. And look at what Starbucks is. A really tricky time.
- [29:54]
Scott Wapner
And the Coffee Bean is Getting tougher was going to. Was going to put them out of.
- [30:00]
Josh Brown
I'm just saying.
- [30:00]
Scott Wapner
So it's always the same spiel. It's okay the names change, but it's always.
- [30:04]
Josh Brown
I'm not saying they're going to be put out of business. I'm just saying the competition is real. The restaurant business is hard. There was a really great article, it was in the Times this morning about tgif. Like TGIF used to be the be all everything for fast. For fast dining, fast casual. Right. Competition flooded that space. They're dying on the vine. It's a hard. The restaurant business is a hard place to be.
- [30:26]
Jenny Harrington
We got to do have to move on very quickly. Kept just taking Starbucks dividend, 2.6% something. You see opportunity there with the dividend to basically two and a half.
- [30:34]
Kevin Simpson
We've owned it in the past. Certainly there's a china overhang there. But to Josh's point, when you've got great management, you've got an opportunity for a turnaround.
- [30:42]
Jenny Harrington
We want to switch gears when we get to one of your committee moves. Kevin, you actually recently bought doordash. What are you seeing there? When we look at doordash.
- [30:49]
Kevin Simpson
So doordash is in the growth strategy, the Q devo. Because obviously this is a much more risky position. We look at this for something that is a convenience that will never go away. When I first got out of the business and I was walking around here, I saw something Frank called couch potato video. And I was like, who's going to, like, order up a video to their apartment? Well, obviously, we've come very. We've grown very accustomed to delivery services. So they have 67% market share. They were profitable for the first time last quarter. 40 forward PE still kind of high. But if you go back to think about earnings growth, margins.
- [31:22]
Jenny Harrington
Well, what estimates you. I'm looking at our system. We see you guys are 96.
- [31:26]
Kevin Simpson
It's 40. Okay, I'm sorry, but 23% to 30% revenue growth. We're talking about a company that's got great margins, great cash flow. This is risky. This is, you know, whether it's a 96% p. E or 40 for value investors, you know, it's still high no matter how you look at it. But we think that there's opportunity here. They've got 67% market share. And again, we can write the heck out of covered calls on a stock like this.
- [31:50]
Jenny Harrington
I do want to ask. I just think we're at peak food delivery, peak delivery, period. I mean, this holiday season People went back to the store. Yeah.
- [31:56]
Kevin Simpson
I was thinking about how to say this. You know, are we lazy or are we just addicted to convenience? And I think it's a little bit of both. So I don't think that this is the peak. And sadly, I 25 to 30% growth seems a little bit low to me.
- [32:09]
Jenny Harrington
Yeah. By the way, I'm saying that I'm going to Uber eats my dinner probably later tonight as I say all that. All right. Time now to get to the headlines with our Pippa Stevens back at CNBC hq. Hey, Pippa.
- [32:17]
Eduardo
Hey, Frank. White House vote spokesperson John Kirby said North Korean troops are experiencing mass casualties fighting in Russia's war against Ukraine. Kirby told reporters earlier today a thousand North Korean troops have been killed or wounded in just the last week in the crux region of Russia. The mother of Oxford High School shooter is requesting she be released from prison pending her appeal. In a motion filed Thursday, Jennifer Crumbley's lawyer argued that she posed no danger to the public. Crumbly asked the court earlier this month to overturn her conviction of four counts of involuntary manslaughter in connection to the 2021 shooting. And NASA's Parker Solar Probe is safe after it made the closest ever approach to the sun. The space agency said it received a signal from the probe after it was out of communication for several days following the flyby. The probe passed within 3.8 million miles from the sun's surface surface on Christmas Eve. That is seven times closer to the sun than any previous spacecraft. Frank, that video, my goodness, very impressive stuff.
- [33:20]
Jenny Harrington
Yeah, you know, great visuals. I got to be honest, the numbers, I don't even know what that means. It's like millions of miles away from the sun. Is that close? Is that far away? Pippa? I have no idea.
- [33:27]
Eduardo
I guess seven times closer than we've ever been. That's all you need to know.
- [33:31]
Jenny Harrington
Basically, yeah. Our Pippa Stevens. Thank you very much. All right, coming up next here on halftime, we have your dividend playbook. The committee is ready with opportunities for the year ahead. Halftime. Back in just two minutes. Stay with us.
- [33:46]
Pippa Stevens
Are you still quoting 30 year old movies? Have you said cool beans in the past 90 days? Do you think Discover isn't widely accepted? If this sounds like you, you're stuck in the past. Discover is accepted at 99% of places that take credit cards nationwide. And every time you make a purchase with your card, you automatically earn cash back. Welcome to the now it pays to Discover. Learn more@discover.com credit card based on the February 2024 Nelson report.
- [34:16]
Julia Boorstin
Is it time to reimagine your future? The right business skills may make a difference in your career. At Capella University, we offer a relevant education that's designed to focus on what you need to know in the business world. We'll teach professional skills to help you pursue your goals like business management, strategic planning, and effective communication. And you can apply these skills right away. A different future is closer than you think with Capella University. Learn more at capella. Edu.
- [34:49]
Jenny Harrington
Welcome back. The tide it may be turning for dividend stocks. They're tracking for their first positive year in the last three, but the question is, will the gains continue in 2025? The committee is here with their top picks in the new year. Jenny, let's start off with you.
- [35:00]
Josh Brown
Okay, so I've got conagra, Honda Motor and UPS for you. All are down significantly from their highs. So it really is that contrarian play. It's as we look into 2025, I do not think that what worked so well in 2024 is going to work as well in 2025. I want to kind of be hiding out as we go into the new year. So you've got these stocks, they're all down a lot from their highs. You've got Conagra with a 5.1% yield, Honda Motor with a 5.7% yield, UPS with 5.2. Right now they're trading at between 6 times earnings and 14 times, as you look out past 2025, they all have decent little earnings growth. 5, 6, 7%. So, like nothing, nothing crazy on all of these. Kevin made a really good point earlier when we were talking about what percent of the total return from the S and P comes from dividend yield. What do you say? It's 39%.
- [35:48]
Kevin Simpson
Over time since 1926, the S&P 500 has delivered a 10.2% return on average. And of that, 39% of the return is dividends and distributions reinvested.
- [36:00]
Josh Brown
Right. So thank you. So with these, you're getting, if you're thinking you're going to get 10% on average, half of it already is coming from the dividend yield, which lets you sit back, not worry too much, collect that, have a little bit of capital appreciation on top, you know, and, and not worry and just collect your income. So not shooting the lights out on these. Just slow and steady wins the race.
- [36:17]
Jenny Harrington
All right, so just really quick about Honda considering a merger with Nissan, concerned about the dividend. They're very quickly not.
- [36:23]
Josh Brown
Yeah, this is super cool. So Honda, which we added to the international income strategy a couple of weeks ago, had 50% of their market cap in cash on the balance sheet. When you have that much cash, you can really do all sorts of things to drive growth. I think the Nissan merger sounds fantastic, like reduce all sorts of redundancies, just, you know, create this fantastic company. I think Nissan has slightly better technology than Honda so that's beneficial. So it just creates a dominant. I think it would be the number three auto company in the world if and when they combine.
- [36:50]
Jenny Harrington
Honda Dividend 5% Kevin when it comes to your dividend playbook, so we don't.
- [36:54]
Kevin Simpson
Have a minimum threshold for yield, but we do look for strong dividend growth. We tend to like share buybacks also, but it's not a requirement. So I picked three old school companies. Dividends, Chevron, Amgen and Procter and Gamble. There's nothing sexy here, there's no Mag 7 here. But what we do have are companies that are consistently generating earnings, free cash flow, not only paying a dividend, but over a five year period having a very strong dividend growth. It's not going to have the fun like the casino stocks do, but it will provide great wealth creation over time. Four and a half percent on Chevron Energy has been out of favor, so certainly not a great name this year that could recover over the next two years. Amgen, the biotech, health care also low multiples. We've been thinking for the past two years that maybe the market broadens out. Even if it doesn't, you're still talking about solid dividends here. Procter and Gamble is the one name that had an amazing year. So we look at that with a multiple that's a little bit higher up on the spectrum. But I wanted to give three different names within a 2, 3, 4% dividend yield.
- [37:52]
Jenny Harrington
So when it comes to Amgen and Chevron, this is just purely dividends. I mean the stocks trading lower this year, Energy under a lot of pressure going into 2025.
- [37:59]
Kevin Simpson
No, I think there's a total return potential there. I don't know that we're going to see these stocks rebound and have 20% upside. But to Jenny's point, if they give us 5, 6, 7, 8%, that's, that's all we need because you get a 4% dividend on top of it and you're sitting at 11 12% return. Now granted, over the past two years our dividend straight stocks might not have been that powerful. But slow and steady like I said earlier year.
- [38:21]
Jenny Harrington
All right, PNG by the way up about 15% year to date. Best performer out of that group. All right, straight ahead here on Halftime, the Netflix trade shares pacing for their best year in the last nine. We're going to take a look at their big win on Christmas and the setup for this stock in 2025. Don't go anywhere. And we are back on Halftime with a look at Netflix. You can see right now shares down about two and a half percent, but Christmas delivering a record breaking streaming day for the streaming giant. Our Julia Boorstin joins us now with the numbers and what's ahead for Netflix in the year ahead. Julia, good to see you.
- [39:11]
Unknown
Hey, Frank. Netflix shares may be down today, but they're still up over 83% over the past year, near an all time high. And the NFL's two Christmas Day games were the most streamed NFL games ever, proving that Netflix could support a massive streaming audience and that the NFL could reach a peak of some 65 million US streamers, according to Nielsen. Now, these NFL games mark the beginning of Netflix's growing investment in sports leagues that previously created events like the Tyson Paul fight. In January, it kicks off its partnership with the wwe, including a live program on Monday nights. It just made a deal for the next two FIFA Women's World Cups. And it has two more years of its deal with the NFL for Christmas Day games. And we saw with the second season of Squid Games launching just yesterday that Netflix is using sports to promote its original shows. Now, these live sporting events are key to draw advertisers for Netflix's growing ad business. The company saying last month that 70 million users, up from 22 million in January, are watching its ad tier and that half of new signups are for the ads plan in countries where it's available. Next year, Netflix is rolling out new ad technology, though it warned that ads would not be a primary driver of growth until 2026. But Frank, next year Netflix is going to stop sharing subscriber numbers as it works to shift investors to focus on the profitability that comes from a dual revenue stream. But I'm going to miss seeing those sub numbers, Frank.
- [40:41]
Jenny Harrington
All right, our Julia Boorstin, thank you very much for that look at Netflix. Josh, I want to come over to you looking here. You had a stop loss when it came to Netflix a couple of months ago. I just want to get your take on, I'm sorry you stopped out of Netflix back in May.
- [40:57]
Scott Wapner
Yeah, I mean, I bought in 2022 into like a 75% drawdown. I remember being in Anguilla In April, they reported earnings, and I thought the price quote I was seeing on my phone there was something wrong because I wasn't in the United States, but it was real. People sold this stock down like it was going to zero. And that's when I pounced. I probably should have kept it, but I'm not upset with how it's done since. I think the story with Netflix here is that a lot of positives are now baked into the valuation, and deservedly so. Netflix is actually growing revenue this year faster than in any other year, which is crazy when you consider how long they've been around. And it's the second best subscriber growth year outside of the pandemic 2020. So now it's 40 times earnings, which I'm not saying is too much, but does 40 go to 60 times earnings? I doubt it. In the end, it's a media slash advertising business. Disney is 20 times and now is also profitable on the streaming side. And from my perspective, like, you have to make a choice. You're probably not going to own every media stock. I think Disney looks a little bit more attractive valuation wise, but Netflix has all the momentum in the world, so I would not be a seller here had I still had a large position. I think both stocks could work. And streaming looks like a good business in 2025, which it did not for the last three years. I'm even taking a look at Warner Brothers, believe it or not. So I think you can make money in a lot of media stocks going forward, not just Netflix. You don't have to only own that one.
- [42:37]
Jenny Harrington
All right, Kevin, you're also in Netflix. I want to get your take on what we saw on Christmas. I mean, two NFL games, that's a big deal. It drives a lot of viewership, but they did also pay a lot for it, including that Beyonce concert that people really have gravitated towards the idea of that level of entertainment on Christmas Day.
- [42:51]
Kevin Simpson
Yeah, I mean, it's a juggernaut. To Josh's point, there's more value at Disney than there is at Netflix. But you can't stop this momentum. The stock will go to $1,000. There are 15% quarter over quarter revenue growth just in the third quarter alone. We get earnings on January 21st for the fourth quarter, so we don't have to wait that long. But this thing has got every. Every single Piston humming Squid games to Monday Night Raw women's soccer. I mean, it's the NFL.
- [43:17]
Scott Wapner
It's.
- [43:17]
Kevin Simpson
It's unbelievable. And when you mix and stir in the Ad revenue into that pot. 2026 should be an even better year than 2025.
- [43:24]
Jenny Harrington
All right, take a look at Netflix shares today, however. Down two and a half percent, but as Julia mentioned, up more than 80% year to date. All right, coming up here on Halftime, a look at Wall Street's favorite stocks for the new year and us out with their top picks for 2025. We're going to debate those trades. That's coming up next on Halftime. Stay with us and walk back to Halftime. All this week we're looking at Wall Street's top stock picks for 2025. MetaMade cities list. Kevin, this is one you own.
- [44:07]
Kevin Simpson
Yeah. This is a stock, Frank, that we have in both the dividend strategy and the growth strategy, which is pretty rare. But we like this company for the hardware, we like the company for the software. The fact that they bring AI to the masses through Instagram, through reels, through Facebook, the cost cutting that they did from the Metaverse has been shifted a little bit into massive spending for AI. But I absolutely think it's going to pay off. This is a stock that had an amazing 20, 2024. Excuse me, 2024. I'm expecting, expecting the same thing for.
- [44:37]
Jenny Harrington
2025, expecting dividend growth as well. Look at the dividends point 3% right now.
- [44:41]
Kevin Simpson
So when they started the dividend was a half a percent, which is what we were attracted to. They paid the dividend the past two quarters. We are expecting dividend growth. We're expecting maybe a stock split, which would be great for us. Share buybacks they've been doing for three years. They reduced the float by 10% over the past three years. A lot of things to like about this stock.
- [44:57]
Jenny Harrington
All right. Medicares however, down just about 2% right now as tech sells off overall. But the NASDAQ's down about 2% as well. All right, stay with us. Final trades, they are coming up on halftime. Don't go anywhere. And we are back on halftime with our final trades. Josh Brown, you're up first.
- [45:28]
Scott Wapner
I wanted to mention IEO1, one of the few things that didn't work this year was energy. I remain long as quick.
- [45:35]
Jenny Harrington
Kevin, you're next.
- [45:37]
Kevin Simpson
I would use pullbacks to add to Amazon. I think it'll continue to work in 2025. It's not just an story.
- [45:44]
Jenny Harrington
Jenny, have the last word.
- [45:45]
Josh Brown
Okay. Sabra sbira with a 7.1% dividend yield as 65 year olds are aging means a lot of different things for different companies. But for the skilled nursing and retirement, it's all good.
- [45:56]
Jenny Harrington
Alright, that is going to do it for halftime. The exchange starts right now. Have a great weekend.
- [46:02]
Frank Holland
You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern only on CNBC.
- [46:13]
Julia Boorstin
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@ 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 courseroom to the workplace. A different future is closer than you think with Capella University. Learn more at Capella Eduardo.