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The Momentum Trade Stalls 2/20/25
00:44:01
Scott Wapner and the Investment Committee debate the Palantir plunge and what this means for the other momentum names. Plus, the desk debate the latest Calls of the Day on multiple names they own. And later, the committee detail their latest portfolio moves. Investment Committee Disclosures
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- [00:01]
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. Carl, thanks so much. Welcome to the Halftime report. I'm Scott Wagner here. New York Stock Exchange front and center this hour. The Palantir plunge and what other high flying stocks might be in danger of a deep drop as well. Momentum doing a big unwind today. We will discuss and debate with the investment committee. Joining me for the hour, Joe Terranova, Carrie Firestone, Bill Baruch, Josh Brown is with us as well. We are down sharply at the moment as those guys were just talking about. You see the Dow down one and a half percent, the S and p off about 1. Nasdaq's under some serious pressure today. We're going to get to Wal Mart and all of the issues of the day and there are many. I want to start with Palantir, though, because it is one of the most closely followed stocks in the market. There's a big retail presence. The stock has been up a lot, Joe. It's the worst two day performance since 2022. You got carp changing the share sales plan. You've got the proposed cuts in defense and all of it is coming together today to just hit that stock really hard over the last 24 hours. What do we do now?
- [01:18]
Joe Terranova
I think what you do from here is look, the next several days you have to sit, you have to kind of wait, be patient and understand that the stock can fall further but probably can fall into the 84 to $85 level. That's where it broke out. You have a technical price gap from the February 3rd earnings, in fact, at 84.85. If you have not bought Palantir, that's the spot that potentially you want to buy it. If it doesn't hold that level and it sneaks through there, you've got a bigger problem. That's probably a call to action more than anything else. But a lot of people are riding really strong gains in this stock. And I think you have to be a little bit patient here and see if this is something that plays out over the next several days.
- [01:59]
Scott Wapner
You know, I'm thinking about the stock. Kramer this morning said the thing is talking about Palantir, Josh, the thing is so expensive you can't have anything go wrong. So we're looking and we've talked a lot about momentum names that have gone pretty much straight up. And I'm wondering if there are other stocks that we need to Pay attention to, I'm thinking the likes of CrowdStrike, for example, which is up 25% year to date. The forward PE is 110. The Cyber ETF is having its worst week since November. These are all momentum names that we have highlighted of late. How are you thinking about Palantir and what it might mean for other names that have been really going almost straight up and now maybe on their way down?
- [02:47]
Josh Brown
Right. So Palantir is a highly specific situation but it's emblematic of the state of the markets and I think it's really interesting for people, whether they own the stock or not, to just watch what's unfolding here. This is one fundamentally, this is one of the best positioned companies in the world for this confluence of increased geopolitical tensions, increased budgets, not just the United States, but everywhere as it relates to national security and the AI trend which clearly they are ahead of the curve technologically and, and they've really become synonymous with what, what people think is going to be the next generation of warfare. So if they've got all of those things in their favor, but it's a 528 times trailing P E. It's 150 times forward P E. What did you think you were buying? Was a $258 billion market cap at its peak. And I get it. I love watching Alex Karp be interviewed on Squawk Box. I love hearing about the innovation and etc. Etc. But this is a live by the gun, die by the gun type of stock just purely based on the valuation. So when a 520 times earnings name starts selling off, it's not like the value guys are waiting and saying okay, here is where we pounce. So it's kind of in a no man's land. It's either momentum or its value and right now it's in the middle. It's neither is the momentum is gone and the value people aren't coming in at these levels. So it's tough. But if you're a long term investor and you understand why it has the valuation it has, you grit your teeth and live through it. And if you're a trader, you're already out, you already got stopped out. If you, if you're using any kind of risk management, you don't own it. So that's kind of the situation here. And yes Scott, to your point, there are many names in this situation, really exciting companies, great growth rates, valuation out of control and when they stumble, there are no buyers for a couple of days.
- [04:57]
Scott Wapner
It's it's, it's difficult, Bill Crowd, As I said, 110 times forward stocks up 25% year to date. There's Carvana 96 times up 359% over 12 months. There's Applovin, which is at 73 times. Forward earnings up 672% over 12 months. Palo Alto, Robinhood, even names like Broadcom, which are trading above a market multiple. Nice. Premium stocks up 83%. You want to touch on what's happening with names like Crowd, things that have recovered so dramatically, which became a marvel in and of itself, the ability of a stock like that to recover from the depths of where it fell on the issue mid year 24. And here we are with a stock that's just surged again.
- [05:44]
Bill Baruch
Yeah, what we're seeing is really indicative of the environment. High expectations become higher, high multiples become higher. And you get a day like this is a little bit of a washout. We want to be able to pick your spots on, on days like this. Crowdstrike, they report earnings in two weeks. It's not our favorite on the valuation front, but I mean, I really do think that what you're looking at, expectation wise, the narrative is in place in the the need for cyber is extraordinary. Revenues are expected to decline or be flat. Earnings are expected year over year to decline. In CrowdStrike, I think the bar is a little lower when it comes to CrowdStrike's earnings. Doesn't. Does that mean a beat is going to take it up 10 or 20%? Probably not, but that means it could grow into its multiple upon beating. And I think it consolidate really here. And we have a lot of high hopes, but this, this overall is where you want to have your spots picked. I'm sitting back with alerts on Palantir if it breaks 90. Alerts and Palantir if it breaks 80. You want to be able to kind of maneuver and be flexible in this type of environment.
- [06:40]
Scott Wapner
So you'd buy it if it drops to those levels.
- [06:42]
Bill Baruch
I'm looking at 75 to 80 if we get there. That's a big move. I mean, 90 felt like a big move yesterday. I mean, so you just got to be able to pick your spots and.
- [06:49]
Scott Wapner
Be ready for it. You want to touch on Carvana, which we talked about yesterday, didn't we?
- [06:55]
Carrie Firestone
Carmax, we talked about.
- [06:56]
Scott Wapner
Oh, we talked about Carmax. That's right. But I mean, Carvana, just a stock like that almost 100 times, forward up a ton and, you know, escalator up, elevator down, that's what people are learning about these momentum names, why we highlighted them almost every day for a week saying, look at the momentum behind these stocks. Why are these momentum names going up? Well, we all had the reasons why, but all it takes is one stumble to have you reassess where they should be.
- [07:26]
Carrie Firestone
So it's interesting. There are two factors that seem very important in this market and one is the valuation on names that have been stretched and you have a stock up 400% like Carvana, and they are susceptible. Any misstep at all and the stock is going to crash because sellers just run to the door. The other aspect we talked about is whether we identify correctly the winners and the losers because there are so many policies and so many directives that are being thrown around right now and we don't know as investors who wins and who loses in sectors and in, in companies. As an example, Wal Mart, which is the other big name that's driving the market lower, the Dow particularly had a stumble. The guidance doesn't look good for this year. It's similar to what happened I rethink with McDonald's where those firms that are catering to demographics that are lower, lower middle class are seeing a hit because perhaps their customers are concerned about being in a location where there's an ice, an ICE raid there. The workers may be concerned about that. It is affecting their business. They haven't talked about that yet because I think that's a difficult subject. You look at Shake Shack, did not see any decline, actually better numbers than expected. That's a higher demographic. We might see this split between the lower demographic and higher demographic retailers, service companies and providers of goods and services based on concern about ice.
- [08:56]
Scott Wapner
All right, we'll, we'll get to those stocks in a bit. Applovin, do you want to touch on that?
- [09:02]
Joe Terranova
Yeah, look, first of all, I think before we call the end of the momentum trade, which is the leading factor so far year to date, momentum's up 10%, quality is up 4%. Let's kind of place it into context. We're seeing some of these names have some mean reversion relative to quality. It's not so much that these names have an extreme valuation. Look across the board at the momentum names, the momentum funds, the popular names that they own, JP Morgan's down significantly today. Royal Caribbean's down 9%, Walmart's down 6%, Axon's down 10%. Interactive brokers are down 5%. So it's really these group of stocks that have been identified as technically strong. They've been rewarded for that over the last year. Over the last six months the momentum factor is up 15%. The quality factor is up six months, 6%. So I really think what's going on here more than anything else is a little bit of a mean reversion, a little bit of an internal rotation within the market where some of the capital that's allocated towards momentum is now pivoting towards quality. Health care, energy, Apple, Microsoft, they're higher today. So I don't see anything wrong with that. I think it's somewhat justified in the case of Applovin. I'm actually a little bit more concerned about Applovin than I am Palantir because Palantir is falling back on bad news. Applovin reached its peak on really good news. It had a blowout quarter on earnings on February 12th. The next day it put in the high and that's a classic example of exhaustion. And it reverses from there and it's giving back obviously a lot of very substantial triple digit gains over the last year.
- [10:40]
Scott Wapner
You know Josh, it's so Applovin is obviously one of these stocks that we've talked about. Goldman and JPM and Amex and Oracle and Costco and Garmin and Samsara are all in the mtm, the momentum etf. You take a look at all of them today and you're not going to be happy with, with what you're seeing. I mean you have Samsara, I think so it's caught up in that as well. The unwind of momentum feels like it's underway.
- [11:09]
Josh Brown
Yeah, but Joe's right. You don't take a bad day and extrapolate that out to say, okay, this strategy doesn't work anymore, period. It just may not work for a little while. But if you have risk management in place and for some people risk management is just position size like I can. So I'm in Samsara, I don't own, I don't own so much that if it gets cut in half from here, my life has to change. And I've ridden it from I don't know, 30, it goes to 60. So it pulls back to 52. Like it's okay. It's part of, part of the deal that you make when you're going to be in these types of stocks. That's one form of risk management is position size. Another form is well, where's your stop? So you guys hear me talk about the best stocks in the market. I was stopped out of Home Depot 12 points ago. I like Home Depot. It's not fundamental. This is an area where if it breaks down, it is technically no longer in an uptrend. I'm gone. I don't know how much lower it goes. I don't have to worry about it. That's another form of risk management. To just be in momentum names like Carvana and Applovin and think they're going to go up 20 points a week with no downside whatsoever along the way is to be like super naive about the game that you're trying to play. If you look at the momentum ETF right now, mtm, and I know Joe doesn't want me talking a lot about.
- [12:31]
Joe Terranova
It all day because it's not doing well.
- [12:33]
Josh Brown
Okay, it's down two and a half percent today. Look at its top 10 holdings. Eight of them are down on the day. The top three holdings, these are amazing companies. Avaga, Broadcom, Walmart, JP Morgan, all down big. It knocks down the style. So then people sell the etf, which knocks down the style even further, and it's like bowling. You hit one pin which knocks another pin. So if you're investing through this, understand the mechanics at play and don't let that panic you out of good investments. And if you're a trader, you shouldn't have full exposure to these names right now because they've been falling.
- [13:15]
Scott Wapner
The other thing to consider, and I think it's probably a good time to take stock of where we are exactly a month since the inauguration. We came into this, the collective investor out there as the We, I think came into this year pretty bullish. Pretty bullish on what a new Trump administration was going to mean for a variety of reasons that are obvious to everybody. Tax cuts, better climate for business, more deals, animal spirits, deregulation, etc. Major averages have done not much. They're up about 1% in a month since the inauguration. Why? Well, tax cuts, they're not imminent. Tariffs have muddied the outlook certainly for business. Inflation sticky. The path is somewhat uncertain in part because of tariffs. You've got the tough Biden administration M and a rule staying in place for now. You have big spending and job cuts from government that could be a hit to growth. And on the notion of the Fed, I mean, the Fed speak of late, including today from Goolsbee and Bostic was pretty hawkish. Then there's the St. Louis Fed president who's been speaking within the last 30 minutes or so and Steve Liesman joins us now to talk about that because they're on hold and like nailed into hold at minimum for the foreseeable future.
- [14:41]
Steve Liesman
Scott, this is a perfect segue, what you just introduced there, because this trend we've been talking about, this idea that the Fed is more willing to talk about the uncertainty from these policy changes and now also to muse about negative scenarios, negative economic scenarios from the policy changes continues. And it continues with Alberto Musalim speaking to the New York Economic Club at this hour. He says, all right, his baseline is inflation declines. That allows the Fed to cut rates toward neutral says the economy, monetary policy are in a good place. But his speech also talks about what he calls a plausible scenario where inflation does not decline to target. He sees the risks, they're higher. He says there's concern higher tariffs, immigration policies could increase prices and reduce demand two different ways. The Fed could respond to that. It could look through these tariffs if inflation, if the impact is brief. But here's the money quote here. It could also be appropriate for the Fed to become more restrictive if inflation is sustained and expectations become unanchored. He says the stakes are higher now. In other words, it's a difference between now and 2018, which we've talked about, because inflation is not at target and the inflation risk ultimately is greater now than the risk that the labor market could weaken. So Scott, we talked about this yesterday after the minutes. The Fed has become not shy about talking about uncertainty. And now in three speeches we've heard today from three different Fed officials, they're also not shy about musing about potential negative scenarios for the economy, both from the uncertainty and from the policies, elevated risks.
- [16:12]
Scott Wapner
That that's the bottom line and they see it as such and that could very well impact their policy path going forward. Steve, thank you for the headline because it plays right into the conversation that we have been having. That's Steve Liesman, our senior economics reporter. The defense cuts, right? I mean investors and CEOs are recalibrating has sort of been the word of the last six months, whether it relates to the Fed or anything else, the way that they view what might happen in the in the months ahead. The defense cuts that are proposed were absolutely responsible for Palantir's rollover. Booz Allen, new 52 week low. You own the stock. Why are you still in the stock?
- [16:53]
Carrie Firestone
Well, we trim the stock back. It had a really strong run and we did. It would have been wise to sell more than than we did at the time and it's suffering because of it. I would say that things do not always play out as we've seen the way it appears at first. And there's been an overreaction. We think the stock is attractive at this price. And we've started to hear from European countries how they're going to increase their spending on defence. That could turn into orders for Booz Allen and for other defense contractors. So it may be that there's business that comes from other areas and not just the US Government. But clearly this is not a good look. When you have all sorts of discussions about how we're cutting here and cutting there.
- [17:35]
Scott Wapner
I'm just also thinking about, you know, so much for the idea of a overwhelmingly business friendly administration and environment. Look at the cruise lines. Perfect example. You own Royal Caribbean.
- [17:48]
Joe Terranova
Yes.
- [17:48]
Scott Wapner
Why are they all down and down sharply today? Because the Commerce Secretary Howard Lutnick called out foreign cruise lines for not paying taxes. Now their words not action at this point. But stocks don't wait for action. They react on words. And here's all these stocks going down for sure.
- [18:05]
Joe Terranova
And you now have Royal Caribbean testing the 100 day moving average. That's critical. If you're long the name and it breaks below there and you have a risk management strategy, you need to engage and do something about it. But I think overall what has been the stabilizing factor against all the uncertainty that you have cited here over the, that we have had over the last month and will continue to have. It has been earnings. Earnings has been the stabilizing force. What's interesting about the earnings. The guidance is not good. The guidance is, is reflecting an environment where rates stay elevated. We're not sure what the effect is of tariffs. And just look at Wal Mart. And we talked about Wal Mart yesterday. We said that's going to be the problem when you hear this earnings report. So the earnings, the earnings estimates are coming down. So it's a very peculiar earnings reporting season because on the surface, Q4, everything looks good. You've got the double digit revenue growth. You have the double digit earnings growth and it's expanding into other sectors. But it's the guidance here that really matters. And if you think about that, really the ultimate question is going to be are the earnings estimates too low? Can corporations exceed them? Or are the earnings estimates warranted in continuing to move lower because of the uncertainty?
- [19:21]
Scott Wapner
What do you, what are you thinking about as it relates specifically to Wal Mart today which is having its worst day since November of 2023.
- [19:29]
Joe Terranova
I would not be surprised to see Walmart, Costco, a lot of the big box retailers kind of move in a little bit of a sideways pattern here.
- [19:38]
Scott Wapner
They're going down over the next day, Target, Costco, Dollar Tree, Dollar General.
- [19:43]
Joe Terranova
Can we pull up a one year on Walmart for one second? The stock is up 65%. We're down today 6%. We're not even at the 50 day moving average yet. So I think we've got to be careful ending, ending, calling the end to all lot of these bullish trends. It doesn't mean I agree with you. It doesn't mean you quickly restart the bullish momentum in these names. I think more than anything else consolidation patterns are going to become more popular and frequent in a lot of these names that have done well over the last six months. And for the big box retailers like a Costco, like Walmart, I think that's what you're looking at me.
- [20:19]
Scott Wapner
It's not all bad. Obviously you look at Shaq, Josh, earnings were good. Revenues up 15% year on year. This stock's done quite well which is why you've highlighted and we've talked about it because it's one of the stocks you've owned the longest and love the most.
- [20:33]
Josh Brown
Yeah, this stock should be like 1:5160 and if the market didn't look like this it would have, it would be having a much bigger day than it's having right now. Look at, look at where that pre open Gap was, was headed. Looks like 128ish. So it's not a great day in the market for these types of growth stories. People aren't out there looking for the next one. They're licking their wounds from the last one. So it's fine though because I bought the stock 10 years ago on the day it came public and I want to, I want to talk about these results because they really do stand apart from a lot of other companies in the space shock is beating its own path to a significantly larger market cap. They beat on the top line,328 versus 327. It beat on the bottom line,26 versus 24 cents. Year over year growth was 15% system wide sales which includes the of the licensed stores that are overseas up 13% to $500 million run rate for the quarter. This is only a $5 billion market cap but they're now talking about getting to 1500 stores. The day it came public 10 years ago this January they had 31 stores and they were saying they thought the top end of the target would be 450. Today they have 335 company owned stores and then the additional licensed stores and Rob lynch is talking 1500 US corporate owned stores at the current run rate of $4 million per store, that would be $6 billion in US only revenue. They're at about a 22% profit margin restaurant level. So that would be like 1.3 billion in profit. Put a 15 multiple on that. That's a $20 billion market cap. It's 5 billion. Today it's a 4 bagger if you can hang on to it the way that I plan to. That's why I think the stock is significantly undervalued still. And the guy running this company knows what he's doing in terms of scale. Remember he came from Papa John's which was 5,000 stores and this is 300 something stores saying it's early. Think people are rightly reacting positively to the news. I don't think they're positive enough, you.
- [22:48]
Scott Wapner
Know, to, to kind of bring the conversation of how we started full circle 23 minutes in to the program with a lot of the uncertainty around policymaking and stocks that are reacting in the way that they are. Whether it's the cruise lines or defense stocks or momentum names. There's been a lot of talk lately. And Josh, you highlighted this too last week about Europe and other places outside the US being the place to be. JP Morgan today wondering whether the unwind of the what they call the US Exceptionalism theme has gone too far. Where there's just too many people trying to get on the side of the boat that says Europe, China better investments now than the U.S. they bottomed. There's much greater upside with perhaps much less risk at this point. Elsewhere, JP Morgan says there's some aspects of the unwind of that theme that look extended, such as the longs by momentum based investors in the Hang Seng and Also the Euro Stoxx 50. Do you believe that we've gone a little too far towards that regard broadly.
- [23:55]
Bill Baruch
Over the last couple of years? Maybe it's going a bit far, but I'm not saying right now is the time to call the top in this relationship. I do think that US stocks will finish probably better against European stocks on the year. There are some names that are on our radar. There's some really great companies that I think have some tremendous upside from a narrative standpoint like a Siemens as well as a souls are that are on our radar right now. We don't feel the need to sort of chase into the narrative. You know, I think we take a step back. There's look at the currencies here. Even even after some of the Fed talking today, you're seeing the dollar make New session lows. If the dollar continues to kind of come off and we saw peak dollar that is going to be a tailwind to foreign stocks, to European stocks as, as the year evolves.
- [24:36]
Scott Wapner
I mean obviously the, the, the, the number one US Exceptionalism trade I think you can make an argument has been large cap tech by the mega caps because AI and fact of the matter is we got the best AI companies in the world. I don't think anybody would dispute that. Maybe Alibaba would say, well, you know, what about us that's popping on earnings by the way, a 52 week high today. Do you want to, you want to touch on that? It's been in the Tepper wheelhouse as we highlighted a week ago Monday as the 13 Fs started to come out.
- [25:07]
Joe Terranova
Yeah, the momentum is now accelerating in this name and I think the next stop for it is 150. I mentioned that when I bought it that it had the potential to do that after earnings. I think that's very clear. I think Bill brings up a good point point on the dollar. You have to watch the dollar because it feels as though the dollar is actually higher because you had that big move from the September, September Fed meeting into January. The dollar is actually lower on the year. That plays into international having a little bit of a comeback. And I think the most important thing when you think about going ex US is think about positioning because at best positioning outside the US for non US assets could be defined as being underweight coming into this year. So there's a lot of rebuilding that actually could unfold just to get them back to market weight.
- [25:54]
Scott Wapner
All right. We covered a lot. We got to bounce for a couple of minutes. Take a break, Josh. Thank you. Josh has to run but we appreciate you joining us for the A block today. We will see you obviously soon. Stephanie Link is going to join us after the break because she has some new moves today and she trimmed a momentum name, the big one too. We will discuss that next. All right, we are back. You see The Dow's down 570 financial stocks dragging that down. JPM, Goldman, you know about the Walmart news today. Stephanie Link joins us now to talk about some moves. So Steph, it's good to have you. I want to start with the stock that you actually trimmed because it really goes to the heart of our conversation that we led the show with the unwind of some momentum trades. I talked about cyber and you trimmed crowdstrike. Tell me why.
- [27:03]
Stephanie Link
Yeah, because Scott, I was buying it in the summer and in the Summer, it had fallen about 41% from its highs as they had that glitch, the global glitch, if you will. And I thought it was an opportunity. I had never owned CrowdStrike before because I could never really get my hands around the valuation. But down 41% from its highs, I thought it was an opportunity for best in class. Company still is best in class, by the way, but it's up 97% from August 2nd. And I got lucky. I timed it really well. I was adding it throughout August. And so I just think it's prudent to take money off the table. It's not to say I'm negative on the name at all. In fact, I like the long term story. You know, I'm very much involved in cyber and I use that money to put it into a laggard, which is Palo Alto, because that stock was only up 8% in the past year when everyone else is up 40, 50, 60%. And so I thought that was an opportunity. So still a very large position for me. I still expect a very good quarter when they report 30 to 40% earnings and total revenue and subscriptions. I just think that it was prudent to take some money off given the run.
- [28:18]
Scott Wapner
Do you feel like it's prudent to do that for investors who are watching you now in a lot of the other names that we discuss at the top of our program, ones that were in the momentum basket that had a huge run up. I mean, it's really not coincidental or, you know, to me in any way that you're doing this today as we're watching a rollover of one of these great trades.
- [28:43]
Stephanie Link
Well, I actually did it earlier in the week before we start major rollover. But I would have no problem with people taking some profits in any of those names because they're up so much. And when the momentum turns. Look, momentum is great on the, on the way up, Scott, but when the momentum turns, it's on the way down. The valuation sport is very, very hard to use as a tool. So you either have to hold your nose and deal with the volatility or you take some profits along the way, look for opportunities. Look, by the way, if CrowdStrike were to fall 20% from here, I probably would add it back. Right. But I just see value elsewhere in the market and I wanted to take some gains. I think that's the prudent thing to do in my strategy, the way I invest.
- [29:30]
Scott Wapner
Let's talk about taking that money and putting it elsewhere because you bought more UnitedHealth and you bought more Diamondback. Tell me more.
- [29:38]
Stephanie Link
Yeah, I mean every day UnitedHealth goes down, it acts horribly. I bet the chart looks terrible. But I would just say I'm going to continue to make this a very large position throughout this year. This is the number one managed care company in the world and their long term earnings growth rate is anywhere from 13 to 16%. But if you can get their medical loss ratio, if you could get that to come down to 20, 22 levels, then you look at something like 25 to 40% potential earnings growth. So it's all about the margins. And I think we've seen peak utilization and therefore I think you will see margins kind of recover for, for the company. And the stock is trading at 12 times EBITDA versus 17 times its long term average.
- [30:25]
Scott Wapner
Yeah. And you don't have an issue. I mean one of the things obviously is just the sentiment around the name has been so bad.
- [30:32]
Stephanie Link
Yeah.
- [30:33]
Scott Wapner
Fundamentals haven't really mattered and I'm just wondering why you think they will. The stock hasn't done.
- [30:41]
Stephanie Link
I don't think. No, I think fundamentals have been not great Scott. That's why the stock hasn't done that. Well, yes, sentiment is bad. Yes. You've got Washington policy risk. I think that's overdone and I think at this valuation it's priced in a lot of bad news and a lot of the bad fundamentals. And I'm making the bet that this company being the number one player in the industry will recover in fundamentals, mainly the margin side. I have no problem with their product growth. Optimus there is, is their gem to 25% of total revenues. It has an operating profit growth of 12%. That's the driver of the growth in my mind. And if you can get the margin side fixed then I think you see upside from here.
- [31:25]
Scott Wapner
Yeah. I just wonder if there is at some degree a buyer strike in that name for, for all the reasons that we've discussed since the CEO of UnitedHealthcare was, was murdered. Diamondback quickly.
- [31:43]
Stephanie Link
Yeah. So they made another acquisition this week of Double Eagle and it's going to be free cash flow positive by 5 to 6% this year. Next year. This is the sixth acquisition acquisition that this company has done since 2020. And every deal that they have done, it's accretive to free cash flow. And they have the highest oil and gas production in the industry. And it's just the largest pure play on the Permian, which is the fastest growing piece within the US that you want to be exposed to trades at 10 times EBITDA, 10 times earnings. So I think, I think it, this is a really good move for them and I like what they're doing overall.
- [32:22]
Scott Wapner
All right. All right. Good stuff, Steph. Thank you. We'll see you back on the desk, that's Stephanie Link. Contessa Brewer has the headlines for us now. Hi, contestant.
- [32:28]
Contessa Brewer
Hi there, Scott. Senator Mitch McConnell has just announced today on his 83rd birthday he will not seek reelection next year. That decision ends a four decade career where he became the longest serving Senate leader in history. Not long after McConnell's official announcement, Representative Andy Barr released a statement saying he's considering a run for McConnell's seat. The PGA Tour and officials for the Saudi Public investment fund are expected to meet with President Trump at the White House today to continue negotiations for an agreement between the tour and live golf. Sources tell the Washington Post any agreement would need to be vetted by the Department of Justice. Now, both sides are hoping Trump's involvement could help with overcoming regulatory hurdles. And Netflix co CEO Ted Sarandos announced today the strongest streaming company will invest $1 billion to produce TV series and films in Mexico over the next four years. The company already has 400 employees there. And $2 million of this investment is earmarked for Churubusco Studios in Mexico City, which first began operating in the 1940s. Scott, that's the news.
- [33:35]
Scott Wapner
All right, Contest. Appreciate that. Contested brewer. Coming up, calls of the day. One firm sticking with its bull case for the worst performer in the S and P today. Carrie owns it, which is why we discuss it next. All right, welcome back. Take a look at shares of epam. EPAM says, excuse me, EPAM Systems. It's the worst stock in the S and P today. Carrie, you own it. This was on a weak guide, correct?
- [34:12]
Carrie Firestone
Correct. They had a decent quarter that guided lower than expected organic growth, which was supposed to have been, I would say, high single digits. It's in the 3 to 5% range. And we see this as a software consultant that helps with integration of AI. It's had a tough couple of years. They moved from Ukraine to other locations, mostly in the US Business is starting to be better. We see the signs of acceleration in bookings and we like what we're hearing. It's just not happening fast enough. So this is a strong reaction. We believe that there is opportunity and we would be buyers of it at this price.
- [34:49]
Scott Wapner
Okay. Wells would be buyers of Autodesk about a week ahead of their earnings. Joe, they're pretty excited about this name.
- [34:57]
Joe Terranova
Stock is not really in a very good place. I would call the momentum having a very strong yellow light. I think the US construction industry here is the challenge and you're going to see a slowdown in terms of the revenue that is generated for Autodesk from the US construction industry. You're going to have to hear from them a degree of confidence that that in fact is not what they believe will happen as we move forward.
- [35:23]
Scott Wapner
What about Axon Overweight? Morgan Stanley today? They reported report next week as well. They're bullish on their durability of their growth rate.
- [35:30]
Joe Terranova
Classic look. There's a classic momentum name in the, in the financial sector, public safety, technology.
- [35:37]
Scott Wapner
Look at that.
- [35:38]
Joe Terranova
Yeah, traded to an all time high just two days ago. It's down nearly 22% in the last several days. So you have to wait for earnings on this.
- [35:47]
Scott Wapner
But this falls into the basket of what we were talking about.
- [35:49]
Joe Terranova
I mentioned this at the top of the show. It's, you know, it's 10, 10% down. It doesn't have the extreme valuation that some of the other names have had. It grows its revenue at 30%. So you're paying a premium for that growth. You want to make sure that what you hear from the next week confirms that the revenue growth remains consistent above 30%. They are certainly in the sweet spot in terms of delivering products to an industry that has very strong demand. When you think about technology related, related to public safety for law enforcement, it's critically important. So they've delivered on the earnings, which has been a strong reflection of what price has ultimately done. You're just going to need further confirmation next week because the stock is down 22% off its all time intraday high from two days ago.
- [36:35]
Scott Wapner
Another stock that reports next week's workday neutral is the call at Monas Crespi today. They're looking for growth to decelerate.
- [36:43]
Bill Baruch
Yeah, we added this name at autumn last year just ahead of the S and P inclusion. The company, the management is really honing in on cost controls. They let go of some of the work, some of their workforce. But we do see this being a potential winner in AI as the year evolves. So when we put this on, we had high hopes, but it's also not a high flyer name. So I think if they can, can kind of beat a low bar of expectations here, it's going to be on a good path. I think for the rest of here.
- [37:09]
Scott Wapner
We want to give you something quick on Zoom because they report next Monday.
- [37:12]
Joe Terranova
I still think Zoom has the potential to really be one of the winning technology stocks in 2025. The valuation, the valuation is more reasonable. They've diversified the business model. And here again, by the way, we're talking about all these stocks that are reporting next week. I think they report on Monday.
- [37:28]
Scott Wapner
We have more that we're going to do later in our setup. But next after this quick break, Santoli is on the other side with his midday word.
- [37:55]
Steve Liesman
All right.
- [37:55]
Scott Wapner
Welcome back. Senior markets commentator Mike Santoli here at Post nine. We led with the rollover and momentum. That's the story.
- [38:02]
Mike Santoli
It's definitely the story today. And one of the big questions is, and we've talked about this whole dynamic for a while, I keep focusing on this really active avenue of froth and adrenaline in a subsector of this market. And so some of those names are definitely having an unwind this week. I mean Robinhood, it's kind of like all that squared because its business itself is reliant on some of that. But yeah, the applovins, the palantir, all that stuff. The question is the rest of the market didn't get nutty along the way up, so can it act as insulation on the way down? Obviously some slippage in the sort of magical rotational powers of this market to keep elevated at the all time highs. The way I compare how the market's been recently is it's like a team that keeps winning the close games, right. And everyone says, you know, great teams win the close ones. You know what great teams do, they play fewer close games. They are dominant and they kind of have much broader strength and offense wins.
- [38:57]
Scott Wapner
Not just we saw, we saw that in the super bowl. The Chiefs won like 12 one score games and then got destroyed.
- [39:04]
Mike Santoli
And I'm not suggesting we're in for the kind of washout that they met in New Orleans, but I think of it more as like a basketball or baseball team. Long season, those things are going to catch up with you because it's reliant too much on circumstance and luck. If you're always playing the tight ones.
- [39:17]
Scott Wapner
We look ahead obviously, you know, to Nvidia next week. That's a big. Nvidia is up today in a sea of red.
- [39:23]
Mike Santoli
It is, it is actually kind of fighting it out and continuing there. And also just the non chip names are a real bright spot. Right. You see Texas Instruments after analog devices numbers. So you know, this market is finding its way to rotate into things. Banks weakness today is, is pronounced and I think you have to keep an eye on that and make sure it's not a trend change.
- [39:43]
Scott Wapner
All right. I'll see you on closing bell and we'll take our viewers to the final hour. The setup is next. Let's do the setup now for you. Booking holdings reports after the bell to today. Carry you on that stock.
- [40:12]
Carrie Firestone
Yeah, we think they're going to have a good quarter earning about $36 a share. And the guidance for 12 and a half percent growth or more for next year. We expect that to continue over the next several years. People are still traveling. They're still wanting to go places and experiences are key relative to good spending.
- [40:29]
Scott Wapner
What do you think about this group? Don't you have Expedia?
- [40:31]
Joe Terranova
I do. Expedia looks really well on the charts. Good quarter and has been delivered, delivering an excellent quarter.
- [40:37]
Scott Wapner
What about Live Nation? That's going to report tomorrow? It did hit a record high today.
- [40:42]
Joe Terranova
It's interesting because you saw the revenue decline in the last quarter and that's because in the second half of the year Live Nation didn't really have the big stadium type shows. What are what's the premium being paid for in this stock? And it's the outlook in 2025. And there's a lot of big shows coming and the expectation is that revenue growth is going to rebound significantly back into double digits.
- [41:03]
Scott Wapner
Is that already in the stock? I mean, it's up 17% year to date. Presumably the market knows something. That's.
- [41:09]
Josh Brown
That.
- [41:09]
Joe Terranova
That's a great question. Yeah, I think that is largely in the stock. We're going to have to hear something a little bit more. And I think what's important about the earnings report is report is don't give us a further disappointment. We want to we don't want to see the revenue decline in this quarter exceed what we saw in the last quarter. That would be problematic.
- [41:29]
Scott Wapner
All right. We will take a break. We'll come back. We'll do finals next.
- [41:53]
Josh Brown
Foreign.
- [41:59]
Scott Wapner
Welcome back. We'll do finals in just a minute, but we do want to hit on Garmin and Quanta with you, Joe. Two other momentum names that are getting.
- [42:07]
Joe Terranova
Hit pretty hard today, both casualties of momentum funds that are doing some selling here. Both of these names have reported strong earnings. I don't think it's idiosyncratic. It's more of an overall reflection of momentum itself is a factor.
- [42:20]
Scott Wapner
Yeah, earnings pretty good. This is going to be the third straight negative month for Quanta if this continues. So we'll have to track that. What's your final trade while we're at it?
- [42:30]
Joe Terranova
ExxonMobil, little bit of quality okay is.
- [42:33]
Scott Wapner
The momentum gone by the way in quanta third straight negative month Dun dun.
- [42:37]
Carrie Firestone
Dun Carrie thermo Fisher Instruments devices for healthcare Greatcro are we believe leave in.
- [42:45]
Scott Wapner
It you need some help rebalancing this thing?
- [42:47]
Josh Brown
Sure.
- [42:47]
Joe Terranova
You could talk after the show. Let's do it.
- [42:50]
Bill Baruch
Bill LNG Cheniere natural gas is starting to wake up and Cheniere topped out when Trump made the the back off those those exports. This thing fell off 20%. This thing is bottoming out. I really like it here. It's up to date with natural gas off.
- [43:04]
Scott Wapner
Okay, we'll track the final hour of today's trade on closing bell. I'll see at 3 o'clock the exchanges now. You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern only on CNBC.
- [43:23]
J
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