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Halftime Report
The Rally's Road Ahead 7/24/26
00:44:08
Dominic Chu and the Investment Committee discuss the big week ahead with four more mega-caps reporting earnings. The experts detail their latest portfolio moves and debate the trades in cyber, software, and energy. Michael Santoli joins with his Midday Word. Investment Committee Disclosures
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- [00:00]
Edward Jones Financial Advisor
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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.
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Dominic Chewing
All right, thank you, Carl. Thank you, Leslie. Welcome to the Halftime Report. I'm Dominic Chewing for Scott Wapner on this Friday. Front and center this hour, bracing for a big week ahead for earnings with a third of the s and P504 mega cap names reporting their results. We're trading the setup for stocks in the days and weeks ahead with the investment committee. They are today for the hour, Jim Leventhal, Kevin Simpson, Stephanie Link and Bryn Talkington. Let's now check on the markets. We are seeing at least a little bit of positivity. Overall fractional gains for the dow up about 352 points. The S and P is up about a half of 1% as well to just about 44 points to the upside 7452, the last trade there. And the tech heavier NASDAQ composite up just about 110 of 1% or may call at about 36 points to a level of 25,001 70. So that's the state of play right now. We look to close out the week on a slightly positive note. Let's go to the committee and first of all to Jim Labenthal directly to my left.
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Jim Leventhal
Hi Dom.
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Dominic Chewing
We talked yesterday about the market dynamic and then you kind of juxtapose it to today. It sure seems as though there isn't a feeling that there is a deeper decline ahead. There seems to be some stabilization is it something that people can feel comfortable about or is it too early in earnings season to be able to make that determination?
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Jim Leventhal
Well, I think we have to remember where we are in the calendar. Kind of mid getting into late summer and as much as I think seasonality is inane, should not exist. There's one seasonal pattern that just comes up year after year and it's this late summer swoon. August into September again should not happen. This should be something that's arbitraged away but I want everybody to be aware of it. And more importantly and to your question, Dom, I think we all have to invest through that. We have to look at what's going on with profits, what's going on with the economy, what's going on with the labor market, what's going on with capital expenditures, which I understand some people are nervous about. I think it's good for the economy and putting that all together, I see a pretty good end to the year here from where we are now. So just invest through whatever summer volatility happens regarding CapEx, because I do think that is at least one if not the biggest topic du jour certainly with Tesla and Alphabet yesterday, good results from Intel. I think this capex is healthy. I know there is a growing contingent of people who think that all of these hyperscalers are locked in a prisoner's dilemma. Nobody dares to be the first one to pull back on the capex. That's what the bears case is and that at some point that's going to crack. I take the other side of that simply saying that these capital expenditures are profitable, they generate a return on investment. This is not the late 1990s and the fiber optic networks that were dark. This is a profitable venture and will be for the next few years.
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Dominic Chewing
Kevin, what do you think?
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Kevin Simpson
I like how Jim focused on earnings because I think that's the foundation of the bull market that we've been built on for the right reasons. If you look at the headlines and you think about the oscillation of all the narratives, it's pretty crazy because a few weeks ago we were worried about high inflation, then we had CPI pie that kind of went by the wayside. Some people may have been worried about the strength of the consumer in the face of said inflation. And then the banks reported and they told us about the health of the consumer. And then a few months ago we were right about geopolitics, higher energy prices, tariffs, things that maybe were Middle east focused. And then here we are again coming full circle. So if we can keep the Eyes laser focused on earnings and the actual data. I think that is the right way to approach not just next week's huge earnings season but to Jim's point the rest of the summer.
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Dominic Chewing
Now Stephanie, the earnings story we're going to get and explore in more depth in just a moment here. But there is a macro state of play right now that's also an influence maybe on at least smallish in terms of the overall factor fundamentally versus some of these mega cap tech stock stories. One, we have tariffs that are back in focus yet again. They're going right back into play right now. We have elevated bond yields, right? I mean we're Talking about a 4.7% for the 10 year thereabouts we are seeing higher oil prices and by the way, WTI trading above 90 this week. That's a big deal for the consumer in that trade overall. So how much do we have to reconcile the macro story with what's happening with some of these earnings reports and which is going to weigh out in terms of the overall influence?
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Stephanie Link
Well sure Don, we're on crude watch again because of the tensions increasing with Iran and inflation volatility is actually at Covid highs. I think that's extremely stream Crude has rallied, you're right, it's up 34% from the lows but it's still down 18% from the highs and it can change at any given time. So we have to watch it. But that's the reason why bond yields are going higher. We thought we were at peak inflation a month ago and then all of a sudden you have oil rising pretty substantially. So the bond market doesn't like that. I get worried at the 10 year at 5% because that's when you normally see switchers. I do not worry about the consumer at all. Listen to what the banks had to say about the consumer. The big six and many other banks said the consumer is quite healthy and credit quality improved and in fact so did Capital One and by the way so did American American Express. So I think you want to use the any kind of volatility to be buying the financials to be buying consumer discretionary because those sectors, even though they've done nicely as of late, they're still lagging. So here are the positives though. Weekly jobless claims the best since 1969, that's the year I was born. The food chain, we're going to talk about Alphabet and the Capex numbers but the food chain, the companies then sectors that benefit from all this capex that's going higher. It's very healthy. And you're seeing it in the industrials, you're seeing in the power Companies, utilities and REITs and real estate and utilities rather the earnings picture as the both gentlemen talked about, earnings growth is running up 69% now. Only 15% of the companies have reported. But it's very broad based. I know the big bulk is coming from tech and comm services. They're having enormous quarters. But materials are up 95%, financials up 30% and health care and real estate and utilities up 15%. So very broad base. I like that. And if we do get the summer swoon that Jimmy was just talking about, I think you want to be buying the good earnings across the spectrum.
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Dominic Chewing
All right. Buying dips seems to be the consensus among many of the folks that we're talking to. And, and by the way, Brin, I want to bring it up too because bank of America's Michael Hartnett had some interesting commentary about this as well. We talked about the interest rate story and the crude oil story with regard to interest rates being a headwind for the markets overall. Michael Hartnett at B of A says he does not yet see see the level of interest rates as a threat to the anything but bonds bull market in risk assets. This is a story that maybe says that we are in this mode of being able to buy dips despite the fact that interest rates remain elevated. But from a historical perspective, Brin, are not all that elevated compared to other bull markets in the past.
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Bryn Talkington
They're not. But if you go back to the 90s, I mean we had a 5, 6% interest rate but the difference is the rates 5 and 10 years before that were in the double digits. And so the perspective for the US economy is we had zero rates from forever for well over a decade and a half and then we jumped up to 5 and now inflation is here. And so I don't think you can really just go back into history and say they were high back then. It's because the base level was so low. I think that inflation is here. We're not going back to 2%. It doesn't feel like anytime soon. That being said, I think that that 5% on the 10 year, I think, you know, we're 35 basis points away from that. I still think rates are well anchored. I do think that the, that the war that we have in Iran is in oil prices are pushing up those inflationary numbers. And hopefully this is not a forever war because especially as we're getting closer to midterms, there does need to be some type of rev, you know, resolution. And so I think the market has been well anchored right now. To me, the issue is like investors have been much safer in the index levels. The Nasdaq equal weight rsp, really the huge volatility under the market, especially the Nasdaq, is to me the real story is where you have, you know, Tesla, which we'll talk about, which has just fallen off a cliff. Meanwhile, Apple is up 3% today. So I still think investors, you know, obviously Kevin and I are talking our book, if we start talking about covered calls, high volatility, covered calls, the indexes, to me, you want to have exposure there because this individual name, especially in the hyperscalers, to me, the jury's still out how this all plays out.
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Dominic Chewing
What do we think, Jim?
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Jim Leventhal
Well, look, I think it's wise, as wise of us to talk about the 10 year. We have to at 470, you know, a few weeks ago is at 430. I think, though Brian just did put it into perspective that if you look over the last three years, this is still kind of in the middle to upper of the range where it's been roughly 4 to 5% on the 10 year. So we're not in nosebleed territory. Above 5% is where I get worried. But I think there's also a point that we're all kind of touching on here and it plays directly to the 10 year, which is economic strength. I don't know if our folks in the control room, who are awesome, have access to the Citigroup economic surprise Index, but it's nicely positive. So yes, the ten year is reflecting that there are some inflationary pressures, but it's also reflecting that the economy is strong. And I just don't want to lose sight of that fact as we wisely pay attention to the 10 year. But let's put it into that perspective.
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Dominic Chewing
Now. Stephanie, I want to go back to you because you mentioned about the earnings strength and the momentum that we are seeing. We know that the interest rate story is one that is signaling perhaps there is a little bit of robustness under the underneath the surface there could be some inflationary threats. The jobs market is still trying to stabilize and find its footing. But these are all setups going into what will be the busiest week of earnings season this, this quarter. And I want to know whether or not the setup in your mind for the markets, more broadly speaking, are ones that we think are good for some of the big, most influential reports are going to come out over the course of the next two weeks.
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Stephanie Link
Oh, I mean I think Metta and Amazon are the big ones and Microsoft of course too. And I think the biggest question mark out there is how much are they going to increase capex? Because they are. And so we just need to get ready for that. In for metas, they're guiding 125 to 145 billion in capex spend for this year. That's absolutely going higher and there's rumors that they're going to grow 2027 like over 200 billion for next year. Amazon, they're already at 200 billion. They're going higher as well. But here's the thing. The, the, the capex is, are going higher and we don't like to see negative free cash flow, but the fundamentals are really quite good. I mean that is going to post a 26% ad growth number now. It's down from 33% the prior quarter. But that's because they have a 6 percentage point tougher comp. But their improvements are helping their business in terms of targeting, in terms of ranking, in terms of creative tools. And so the momentum is there in the business and it's only going to get better as they spend more. I don't want them to spend more more, but they're going to Amazon. On the other hand, you're going to see an acceleration in terms of us because well, Alphabet gave us that hint, right. But us is they grew 28% last quarter, but they doubled their capacity. And this doesn't even include the Anthropics $100 billion expansion. So their, their backlog is running at about $350 billion in west alone. And it's just money that is just crazy positive in terms of the business momentum, retail. I think they also have upside too, especially on the mar. The fundamentals are going to be good. The CapEx is, are going to be higher. Where do you want to go? You want to go to the food chain like I talk about all the time? You want to go to the industrial companies, the picks and shovels, the power companies, utility companies, the grid companies, because those companies are posting really good numbers so far and expect the visibility is only getting better as backlogs continue to go up in those sectors.
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Dominic Chewing
All right, Met is one I want to kind of home in on a little bit here as well because Stephanie does own Metta. And Kevin, I want to go to you for this one. You also own Meta shares as well. We've got some interesting analyst commentary coming out ahead of kind of what could be a massive catalyst for this. And this is the team over at Deutsche bank who today have trimmed their target price for those shares at metal platforms to 800 bucks. It was 810, so a small trimming. But they reiterate their buy rating over there. We expect Meta, they say, to deliver another strong quarter with advertising revenues likely approaching the high end of guidance as improved improving return on ad spend continues to attract incremental budget share. So that's an interesting story. We think that Alphabet second quarter 26 results, especially the steady curve growth in search, accelerating YouTube revenues, are a positive read through and will carry through for Meta platforms as well. Do you feel positive about Metta as we approach that big earnings catalyst?
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Kevin Simpson
I feel positive on everything that was included in that note, Tom. I feel positive about everything that Stephanie said with respect to matter. But my concern is the spend because this market now is not just giving away a freebie when it comes to the capex. So we learned with Google, we learned with Alphabet that what you spend matters, but what you're going to generate from that spend matters even more. Now I think that the ad number is going to blow it off the chart and really that's the key to the business model. But if the street doesn't like the spend, then the stock's going to get slammed. So I'm of the mindset that it's going to be a good report, that it's going to be a positive reaction, but I'd be a little bit nervous just on the reaction of Alphabet and if met, it does sell off as a result of that, I'll be in and buy. I'll be a buyer.
- [15:29]
Dominic Chewing
Well, you have, while we have you because we want to alert the audience here to a trade as well. Because of the Alphabet weakness that we saw in the context of the capex spending numbers, you have actually gone ahead and made a transaction with Alphabet. Let's talk a little bit about why.
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Kevin Simpson
So this is pretty exciting, Don. This is the first time that we've owned Alphabet in our flagship dividend portfolio. And what I was trying to say before about the hyperscalers next week, dispersion is creating opportunity and this was a big sell off and I think the street overreacted to this sell off in particular because of some of the numbers under the hood. The revenues were up 24% set year over year, but specifically Google Cloud surged 82%. Now people are worried about the guide, they're worried about the capex, but if you look at everything that they're doing, search, Google Cloud, Gemini, YouTube, all of the things, not to mention Waymo, I think that there's an incredible opportunity here as an investor. Now why did we buy this for the first time? In April of 2024, Alphabet announced a dividend for the first time in its history. Now we didn't just jump in and buy it at that point, but over the past six months they've had a 22% increase on that dividend. So we look for dividend growers. I think it's a maturation of the company similarly to why we had purchased in Video for the first time lately. These are not stocks that are new, but they're very new to the type of the portfolio that we manage. So we have a small position in Alphabet. I think yesterday was a great buying opportunity and to my point earlier, if matter pulls back, I think you'll have an opportunity there as well.
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Dominic Chewing
All right, Bryn, what do you think? Because I know that you are in, in some of these mega cap type names but the story overall is one, it does resonate now with certain other models and certain other factor type investors that they didn't resonate in before. So how does that make you feel about that mega cap trade?
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Bryn Talkington
Right, so I own Google, I own Apple, I own Tesla and Nvidia. But Google, I think it's really important. I own Google. I also look at the charts though. Google just broke the 200 day. That is not good. It needs to get right back above there. And I think to me as an investor, I still feel Google of the hyperscalers is without a doubt the most vertically integrated from TPU's all the way up to YouTube to execute and to ultimately win. Because I do think there's going to be winners and losers. And I question Metta, by the way, just because their market cap is the smallest and I'm not sure outside of monetizing advertising, which they will do, they're crushing it. What they're doing with all of the other capex, I don't, I don't know that. But with Google, I think investors do need to understand I went back since 2015, 2015, they've had positive free cash flow. They've now just gone negative. And so for, you know, well over a decade investors have been pricing these companies as we talked about, capital light, high margins. And now they're not only issuing equity, which I hate that they're also doing debt and then they're also going down negative free cash flow. So they're pushing all of their chips in, in terms of how people have valued these companies. And so I do think we all as investors need to look at the market. The technicals are getting worse on most of these companies from a technical perspective. And yes, maybe the fundamentals are still very strong. But to me, that negative free cash flow, the equity issuance, the bond issuance, I do think there's a limit from a stock perspective that the market will allow. So I'm still in it. I love Google, but I'm not feeling great about the trajectory of the stock over the next two quarters.
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Dominic Chewing
All right, while we have you, I'd like to just follow up really quickly as well because a slew of you guys, three of you guys actually own shares of Apple. We had mentioned it before. We talked about this idea, this notion that Apple had kind of seen this maybe phantom stealth type rally in the spite of all of the weakness that we are seeing generally in mega cap technology. I also want to point out that we do have an analyst action today to kind of provide a little bit of that catalyst. And these are analysts over at Baird. They reiterate their buy equivalent outperform rating. They raise their target price modestly to 330 bucks. It was 310 before. In one of the reasons why they talk about the expectation of solid quarterly results driven by strong iPhone growth and steady services trends. Memory pricing remains a daunting headwind though. Price increases should ease the pressure. Valuation looks rich to past trends, suggesting much may be priced in. But we expect the strong free cash flow, upcoming product cycle and early positive comments on Siri AI to support the stock. What do you think about that, Brandon? Is it, is there a reason for you to feel comfortable about Apple relative to the rest of that mega cap tech trade?
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Bryn Talkington
I feel comfortable with Apple because you know what, you're going to get to my point about Google. It's like Google was this company with this type of balance sheet for well over a decade, well over a decade and now it's doing something different to grow in the future. I get it, but with Apple, you know, you know what you're going to get. I think we should retire like the super cycle. Word about Apple, I think they have way too many phones out there for us to have a super cycle, but their revenues are growing. The iPhone 17 to me was a home run. I think that the next phones, well, once again the 17 has AI in it. The 18 going on will have AI. More and more people will want to have the cool services, the ecosystem and I feel really confident. I do not want a device from open I, I do not want a device from Anthropic or even, or even Tesla. I'm very comfortable with my Apple phone and I think from a consumer perspective they're just going to sit back and just win this because we all are going to continue to use their devices. So I think that's just, I don't think it's stealthily going higher. I think it's like in our face pretty much going higher every day. And I think it will, especially going into next week as we're going to hear Amazon and Metta are just going to spend just like Google in the.
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Dominic Chewing
On the other end of the spectrum, folks, besides that Mag 7 trade on the Apple side is Tesla. There was an earnings catalyst for that. I know, Bryn, that you, you are one. I'm going to go to Kevin for this one here. The Tesla reaction has been interesting, on track for its worst week, by the way, since March of 2020. Going to the pandemic era at this point here it is not as big of an influence anymore as, as it once was. But the Tesla story, is it indicative at all of some of the risk appetite or expectations around just what these companies need to deliver to power that next leg higher if there is one there to be had in the coming months?
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Kevin Simpson
I think it does and I think it's very healthy. You know, for years this company was able to move higher on any hope, any promise, you know, any crazy idea into the future. And now you're more of a demanding Wall street and more of a demanding investor who's saying, you know, show me, let's see a show me story with earnings. And this stock is something that is really years into the future. It's not a today story. But when you have the type of earnings report that it did, I think it justifies this type of stock reaction. And I'm a little surprised that the retail trader hasn't come in and bought up some of the debt that you were talking about earlier, Dom. But I think that this is a story not for again one or two quarters, it's one or two years. It's robotics, it's energy, it's not the car company. But we've said that so many times on the desk. But if it is that, if it is a robotic story and an energy story, you're making this an investment for the longer term. You're not hoping to trade this in the short term.
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Dominic Chewing
If that's the case, let's talk a little bit about whether or not that short term to medium term story plays out for the chip stocks. And I want to do this because this is one of those opportunities that could be a very profitable one if you bought the dip. I don't pretend to know where this chip trade is going, but it's fallen by enough where people are getting some attention from it. Stephanie, the chip trade, is it one where you feel as though this is one that's fundamentally okay for you to start nibbling out right now? And do you have to be a stock picker like yourself to do it? Or can we just feel comfortable saying maybe the smh, the sox, some other etf, maybe even DRAM can be enough for us to kind of get that exposure? Or do we have to be picky about picking bottoms in these stocks?
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Stephanie Link
I mean, I always want to be picky. I always want to find a good company on stage sale. And so in the last couple of weeks, I've actually bought Nvidia. I bought Nvidia for the first time. You know, I've been, I've been an owner of Broadcom for many, many years and it's been an absolute home run. Never owned in video. The stock has lagged the group by 53% year to date, is trading at 18 times forward estimates. It's the number one GPU company in the world. And yeah, they're going to lose some share but it's going to be dominant for years to come. They've got a new product cycle, great free cash flow. So I started adding to that. I bought a little piece of Micron. How can you not own something in memory when you're hearing from someone like IBM, say their customers are deferring their purchase plans because they're buying memory and they're buying servers and storage. That's the area where you want to buy. But by the way, I do think IBM is a buy. We can talk about that later. But I do think you want to be particular. I recently sold Gold Marvell because I made over 100% in like a month and a half, which is crazy to me. So I think you want to pick your spot stom, but I think that there are spots to be had.
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Dominic Chewing
Okay, let's go kind of rapid fire ask. We got a few a couple minutes left here to kind of go through the earnings set up for next week. We know the names that are going to come up in this process. Jim, I'll start with you. Which of those big earnings reports coming up next week is the best set up in your mind?
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Jim Leventhal
To me, Amazon comes to mind. I think on a historical valuation basis it's very, very cheap. I Think we'll see great growth from Amazon Web Services. And I'm sorry, I forget if it was Bryn or Stephanie. I think it was. Brian was talking about Alphabet and all the multiple shots on goal. Obviously the same thing applies to Amazon. Maybe they don't have their own large language model, but they have chips, they have Amazon Web Services business, they have the retail business, they have the logistics. So that's where. That's where my chips are.
- [25:32]
Dominic Chewing
And Bren, to you. What's your favorite setup of those big earnings reports coming up next week?
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Bryn Talkington
I mean, Apple to me, no brainer. We know what we're going to get. No surprises. Microsoft, got to be a bunch of landmines in there. Metta. Amazon as well. So, I mean, I think you want a straight, straightforward setup. Apple's. Apple's the one to pick.
- [25:50]
Dominic Chewing
All right. And what about you, Kevin?
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Kevin Simpson
I think the most important one is Microsoft. To Brin's point. There are so many situations, so many problems underneath the hood that we have to worry about. We saw what happened with IBM. We know where the problem lies with software. Microsoft has to come out and prove something with the guidance that this stock shouldn't be left for dead. So I think it's the most important one.
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Dominic Chewing
All right, last word to you, Stephanie.
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Stephanie Link
I think you want to own the derivative plays of the Capex going higher. And that's the picks and shovels companies.
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Dominic Chewing
All right, so there's the earnings set up for next week on Mega Cap Tech. Thank you guys very much for the committee for that coming up here. Kevin's actually making a move in cyberspace. He'll go through the trade coming up next. Halftime is back in two minutes. Keep it right here.
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Dominic Chewing
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Dominic Chewing
Welcome back to the halftime report. We got another committee move to hit on. And Kevin, it's you again. And this time it's with regard to cyberspace and cybersecurity and Palo Alto.
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Kevin Simpson
Yeah, Don, this is in our growth portfolio. We started adding to this back in March after the SAS get in or SAS apocalypse. Whatever happened, I was really of the opinion that the market was getting it completely wrong with cybersecurity. With more and more open AI, anthropic, all the things that were happening, I felt like we needed more cybersecurity, not less. And certainly we were rewarded handsomely for that. The way these have traded it now, most recently with Open Air and the way that it's invading Hugaboo or whatever, the website being so much, I think that the stock sold off a little bit and gives us an opportunity to get back in. Because again, the thesis doesn't change. These cyber companies, whether it's Crowdsource, Crowdstrike, excuse me, or Palo Alto, they need to integrate the AI to be able to defend against it. And I'm very passionate about it. I know that these stocks have moved really high, really fast, but I think you need to have them in your portfolio.
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Dominic Chewing
And Stephanie, I mean this was that the hugging bear headlines were straight out of an AI kind of sci fi novel, right? About some, some computer model jumping out of its quarantine test environment and then hacking another company. You don't do that on your own. Now. I can do it on its own. So I mean, with regard to you, it's crowdstrike and it's Palo Alto. Is cyber something that gets propelled because of these headlines this week?
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Stephanie Link
Oh, 100%. Anything that's tied to AI is going to need more cybersecurity. Cybersecurity, as I've said it many times, is going to be much bigger than AI because of these problems, is not secure. And we're coding, we're doing 50% more coding using AI and that's even more unsecure. So I think that these stocks are definitely, you have to have them in your portfolio for sure. But I do think that they have rerated and they are up a lot. So I think to Kevin's point, like use the pullbacks to be adding to the best in Breed. And CrowdStrike and Palo Alto are the top two. I will say that this company has. Palo Alto has 10% market share of a $300 billion mark, total addressable market that's growing in a huge way. As I just mentioned, their free cash flow growth is growing 27%. Their net new next generation security annualized recurring revenue, that, that's the, that's the thing that the stock trades on grew 60% last quarter with acquisitions and 28% organically. So you're getting the growth, you're getting the execution. So you pick your spots and you buy on the dips.
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Dominic Chewing
Brin, you have been in the global cybersecurity ETF ticker bug bug for quite some time now. It's on pace, by the way, for its worst week going back to April. But to Stephanie's point, it's on pace for its first down week out of the last five. There's been some near term, medium term love for cyber. Do you feel comfortable with that near term momentum continuing?
- [30:55]
Bryn Talkington
Yeah, well, I've owned this for multiple years. I agree with everything Steph said. This is a secular trend. This probably is bigger than AI because as we saw with hugging face and open air, that is just crazy. And so I think these are secular winners and I'm doing it via Bug. I'm not going to get shaken out of an individual name. So Bug owns Octave, Fortnet, Palo, you know, CrowdStrike, etc. So I won't get the highs of the best ones, but I also won't get the lows. And I feel really confident that I can stay in this long term just because I have a basket of these names. But yes, I think people should buy these on dips because it is clearly going to be a secular winner.
- [31:34]
Dominic Chewing
All right, and one more point to make that's outside of cyber but is in SOL software overall. Oracle, one of those big names that we're talking about in the news today because Oracle has Now signed a 10 year software contract with the Pentagon worth up to around $7 billion. The Pentagon announced this deal on Thursday, the contract with Oracle. This is a big deal for a company that's been taken well off of its highs. Does the Oracle trade feel like one to you? That can be a turnaround trade for the back half of this year?
- [32:04]
Jim Leventhal
Yeah, very much so. Okay, so I'm very much a believer. Dom, let's go through the two big risks for Oracle. One is the backlog 636 odd billion, roughly half of that is open air. Okay, maybe OpenAI only comes through for half of that. If that's the case and that backlog goes down to say 500 billion, that's more than the next three years worth of projected revenue. For Oracle. And you know, who knows how open air is going to come in. But my point is the market is discounting something very drastic in terms of those contract obligations going forward. The other issue is, of course, the debt level, the negative free cash flow. Well, you get a deal like this from the Pentagon and what I'll tell you is the Pentagon and the government is not worried that Oracle is somehow not going to have the financial wherewithal to see it through the 10 year contract. And frankly, neither do I. Now, if you're a portfolio manager, and I am, you have to have space for some something like this that's more volatile, potentially a lot higher return. You have to have the stable stocks like the JP Morgan's and the apples, but you have to have room for something fun that could do a really good job like Oracle, I think will.
- [33:08]
Dominic Chewing
All right, there's the cyber trade and Oracle all wrapped up into that block. Thank you very much for that. Up next, we got Mike Santoli joining us with his midday word. Keep it right here. We're back after this break.
- [33:22]
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Bryn Talkington
Soft and strong.
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Stephanie Link
Angel Soft, Soft and strong.
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Simple.
- [34:49]
Seema Modi
We're back on the Halftime Report. I'm Seema Modi with a CNBC news update. A US Judge has struck down a Biden era rule that requires special licenses to prescribe the abortion drug mifricitone. Reuters reports the ruling could affect access to the medication which is used in most U.S. abortions. Further legal challenges are likely. U.S. measles cases have hit a 35 year high. The 2026 total is passing all of last year with five months still to go. The CDC says major outbreaks in South Carolina, Utah and Arizona are driving the increase as vaccination rates fall. Lastly, Ford is recalling more than 565,000 Broncos and Bronco Raptors because of an engine fire risk. The recall covers model years 2021 through 2026. Ford says a wiring harness can short circuit, but no crashes or injuries have been reported. Reported. Dealers will make the fix for free. Dom, I'll send it back to you.
- [35:42]
Dominic Chewing
All right, thank you very much, Simon Modi for the news update there. Let's get to senior markets commentator and overtime co anchor Mike Santoli, who joins us with the midday word. We had had alluded in the first part of the show to the interest rate kind of story being part of this market narrative. And of course, we have a big catalyst next week in the Fed rate decision. How exactly does the market action right now given earnings week coming up, the Fed decision play out in terms of how the machinations have gone this week?
- [36:09]
Mike Santoli
I always go back to the kind of core principles of don't fight the Fed, don't fight the tape. So don't fight. The Fed is not yet telling you to get cautious and think that the bull market is in jeopardy because we don't really think that there's going to be a hike next week. And even if there is, it kind of is going to be characterized, I think as taking back hike, part of the three easing moves that we had last year. The tape, I think it has definitely gotten taken on some wear and tear. You've kind of lost a 50 day moving average. The rotations have been a little bit choppier and not as smooth. So I do think that what's going on next week is the market is being forced to hedge a couple of scenarios. And that's why you see that 30% on paper chance that there's a hike simply because you have a fundamentally less transparent policymaking apparatus at a time when the data have been moving against the Fed.
- [37:01]
Dominic Chewing
They've just got to figure out, Jim, whether that 30% odd and probability is cheap or expensive as it hedge. You want to do something great. Exactly.
- [37:08]
Jim Leventhal
Well, so you know, Mike, since you're here, I'd love to ask you this. You know, I think the market keeps pricing in whatever is one and a quarter hikes, one and a half hikes over the next 12 months. And to me I think that's way too cute because if you look, and I'm sure you have the last 40 years there's been exactly one instance of one.
- [37:23]
Mike Santoli
Just one. Yeah, you almost never get it.
- [37:25]
Jim Leventhal
And so I don't think I'm asking you, the market doesn't seem priced for a rate hike campaign.
- [37:30]
Mike Santoli
I think what that says Is the market is fundamentally confused or not sure how it plays from here, but if you get one hike, the market's going to start pricing more than one. That's the way it usually goes because that's what history tells you.
- [37:42]
Dominic Chewing
All right, Max and Charlotte, we'll see you later on on closing bell overtime. We appreciate that. Coming up next, we got more committee moves. Kevin's got another trade in this week's top performing sector. We're back after this. Dow's up 313 points just off session highs. Welcome back to to the Halftime Report. Energy is the top performing sector this month. Maybe no surprise with benchmark US crude hovering just below 90 bucks a barrel. And Kevin, you sold some covered calls on one particular oil major. Take us through the trade.
- [38:26]
Kevin Simpson
Yeah, Don, we did this on Chevron yesterday with the energy pop. Bryn did a great job teeing up the idea behind covered call, writing into volatility. And when you ever, whenever we see something like that unique to this space or a ticker, we're able to harvest some of that volatility. So real quick, what we did is we sold a 205 August expiration standard. We brought in a $75 and it doesn't sound like much say, well, $75, what does that equate to? But if we did that every month for a full year, it annualizes out to about 11% in premium plus we get a 7% upside to capture. Still, should the stock keep moving, I doubt we'll see that two or five strikes. I think we'll be able to collect that premium. But I like any time we've got opportunities to write calls to take advantage of it.
- [39:10]
Dominic Chewing
Okay, so that's an interesting strategy there with regard to a very hot sector so far right now, Stephanie, I'd also like to turn to you. We know that SLB is one of those big movers on the heels of its quarterly report right now, big name in oilfield services. Take us through whether or not that bodes well for the future or whether or not you should be taking profits in that name.
- [39:32]
Stephanie Link
While the Stock is up 35% year to date, it's had a nice recovery from the bottom. But I still think that there's more to go here, especially because it trades at 12 times EBITDA. This is the number one company in the industry and they just beat across every metric revenues, earnings, EBITDA margins, etc. Offshore is driving the results. But their Champion X acquisition added almost $1 billion as well to the top of the top line. The data center business, they're now saying is going to be over $2 billion revenue run rate by the end of 2027. So I think that piece of it, their digital strategy is underappreciated and that has of course, much higher margins. And then of course, free cash flow was way better than expected as well. So a really good quarter. I was nervous about the stock because the Middle east obviously concerns there. And also Halliburton did not have a good quarter. So it makes SLB look all that much better.
- [40:25]
Dominic Chewing
How much do you have to be a stock picker when it comes to energy, Bren, for you?
- [40:30]
Bryn Talkington
I mean, I own individual names on any energy transfer viper like the mineral rights. I think that you want to have this yield. I think the yield component is very important. I don't think it was on people's dance cards that energy was going to have this great year. It did not do well in 2020, 24 and 2025. But if you had that yield component, you could just still collect that income. And I think everyone now knows energy is incredibly important. And so I like buying the RSPG XLE have that diversification. But ultimately also like the mineral rights because you get that really nice 6, 7, 8% yield as you do also on the toll companies like the pipeline, names like Energy transfer.
- [41:12]
Dominic Chewing
All right, well, coming up on the show here, we're going to debate more, more of the day's biggest movers and some that are outside of the world of tech. Keep it right here. Halftime is back in two
- [41:23]
Toby Rice
as America celebrates its 250th anniversary. CNBC spotlights the companies that rose with the nation and continue to shape its future.
- [41:33]
Toby Rice (continued)
I think what's made America stand out and be successful is its drive to evolve. It starts with identifying problems and then having the freedom and the opportunity to innovate to solve those problems and make the world a better place. My name is Toby Rice. I'm the President and CEO of EQT. EQT was founded back in the late 1800s, drilling natural gas and building the pipelines to power Pittsburgh and Appalachia as a whole. When we talk about the history of energy, it started with human labor. Then we introduced coal, and that allowed some more industrial capacity. It wasn't until the discovery of oil that really unleashed the next large wave of innovation in this country. People like to talk about the evolution of cars, but cars were made available because we had plentiful energy to power them. We've made our energy so affordable and so reliable that people have started to take Energy for granted. Energy powers everything. Energy underpins industry. And our success on energy translates to our success in industry. I believe that America has a bright future. And I think people are waking up to realize just how incredibly important energy is to the success of American business.
- [42:52]
Dominic Chewing
All right, welcome back. Let's hit some committee. Stocks on the move today. American Express the worst performer in the Dow today after a revenue miss. Kevin, you own it.
- [43:00]
Kevin Simpson
Yeah, and I think this is saying everything that I'm talking about with respect to guidance and expectations. Their numbers were very, very good, but the price had rallied into the quarter. And looking at it, I mean, essentially the revenues were in line. A slightness. EPS was, was up. Their top end consumer was amazing. The aspiring Gen Z, Gen X platinum card was up. But when you talk about a guide and a little revenue miss, you're going to be punished. And I think that's what the precursor is. Dom, for the rest of earnings season.
- [43:29]
Dominic Chewing
All right, let's stick with the financials here. Bank of America is hiking its dividend by 14% to an annualized rate of just about a buck 28 step. You own it. Yeah.
- [43:39]
Stephanie Link
I mean the profit growth in the quarter is up 27%, the ROTC up 17%. And the fundamentals are very, very strong. This isn't really that surprising, Dom, because they were the only one that didn't announce a dividend hike when the stress test came out. But I'll take it. And in addition to the dividend increase, they've got $22 billion left on their authorization to buy back stock out of the 40 billion that they announced.
- [44:04]
Dominic Chewing
All right, let's turn now to the earnings set up for next week. Very busy week for stocks that are not mega cap tech. Jim, two of these names are health care related reporting next week in AstraZeneca and AbbVie. What do you think?
- [44:17]
Jim Leventhal
What I think is health care, Dom, to use your term earlier, has had a stealth rally over the last few months. And pharmaceuticals in particular. I like both of these names. Abbvie is just a warhorse. Year in and year out it produces, it's had a little bit of a lackluster return over the last 12 months on competitive concerns about Skyrizi and Rinvoak. But those are fading. This is an absolute ad right now at 15 times earnings, 3% dividend yield. AstraZeneca. Even more interesting because they had a heart drug fail its late stage trials two weeks ago. Stock went down. That gives the entry point. This is also 15 times earnings, 2% dividend yield. The space is a good space to be in. I like both these names.
- [44:56]
Dominic Chewing
All right. From financials to health care to real estate. CBRE Group also reporting next week. Brin, you own this one as Well?
- [45:03]
Bryn Talkington
I do. Two quarter earnings quarters ago, the stock dropped from about 170 to about 135 because somehow the market thought AI is going to take over all of the transactions that they do, which makes no sense. They are taking advantage of AI. This company consistently reports 25% year over year earnings growth. The market's expecting 24%. So really solid. They are in the epicenter of these data center transactions. And so I think it's a good setup. The stock started to recover. So I think it looks good going into earnings next week.
- [45:35]
Dominic Chewing
All right, non tech earnings set up there. Thanks very much for those. Stay with us here. Final trades are coming up on the Halftime Report. We'll be back after this break.
- [45:47]
Toby Rice
Are you following the Halftime Report podcast? What are you waiting for? Look for us in your favorite podcasting app. Follow the Halftime Podcast now.
- [46:00]
Dominic Chewing
Welcome back. We're back with our final trades. Brain, we're going to start with you.
- [46:04]
Bryn Talkington
GPI Q. It's one of my favorite covered call ETFs, besides Kevin's. It sells calls on the Nasdaq typically only 20 to 40% covered. Good way to play tech.
- [46:13]
Dominic Chewing
The NASDAQ with income. All right. How about you, Steph?
- [46:17]
Stephanie Link
IBM down 30% from its high 17 and a half times earnings. The reaction to their negative pre announcement is way overdone relative to where the numbers settled out. I like it here.
- [46:27]
Dominic Chewing
Buying the dip in big blue, Kevin.
- [46:29]
Kevin Simpson
Google search remains one of the greatest businesses ever created and AI is making it more valuable.
- [46:34]
Dominic Chewing
And let's finish off with Jim.
- [46:36]
Jim Leventhal
Yeah, sometimes we can hit the easy button and I think that's Amazon. I know earnings are coming up, but at this valuation, I think it's a buy right here.
- [46:44]
Dominic Chewing
All right. Markets are positive fractionally. So that does it for us here on the Halftime Report. The exchange with Brian Sullivan starts right now. Have a great weekend.
- [46:53]
Scott Wapner
You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern only on CNBC.
- [47:04]
CNBC Disclaimer Narrator
All opinions expressed by the Halftime Report participants are solely their opinions and do not reflect the opinions of CNBC or its 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 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 halftime reportdisclaimer what made
- [47:39]
Stephanie Link
you confident that you could do something that hadn't been done before?
- [47:42]
Bryn Talkington
I have no fear of failure.
- [47:44]
CNBC Disclaimer Narrator
Trailblazing women, Changing men One of my
- [47:47]
Bryn Talkington
favorite pieces of advice? Think about what your boss's boss needs.
- [47:52]
Stephanie Link
Leadership can look in many, many different forms. It really does come down to just trusting yourself. Life is short, and you just gotta think big to accomplish big things.
- [48:01]
CNBC Disclaimer Narrator
Julia Boorstin hosts CNBC Changemakers and Power Players. New episodes every Tuesday. Wherever you get your podcasts.