tv Fast Money Halftime Report CNBC September 17, 2012 12:00pm-1:00pm EDT
i am so sick of wall street greed. andrew, also, that mom and dad will finally shut off the funding. the powe lairty of responses regarding this one today, pretty amazing. that does it for us here today with markets down some 32 points. back to headquarters and the fast money halftime report. yep. it sure is the halftime report. i'm michelle caruso-cabrera in for scott wapner. four hours till the close. dow lower by 32 points. s&p lower by three. .2%. the nasdaq lower by .25%. lower by nearly nine points. let's get to what we're following on the halftime report. dow 15,000. we got the man who's calling for it. wharton professor jeremy seigel gives us an update on his bullish call. 23 iphones per second. that's how many apple is selling. we've got the top ways to play apple's record breaking run. the derivative plays. first our top story.
stocks at four-year highs. can you believe this? you've got to go back to december 28th, 2007 to get back to these levels. let's trade it. joe, how are you trading today? >> i think today is obviously a slow volume type of day. where not very much is going into the marketplace. quite candidly you should not be making many adjustments to the portfolio. however, what i think you should be thinking about now is the end of of the quarter is approaching. how are institutional money managers who continue to underperform the market going to handle that end of quarter market up period? i think it points to a potential appreciation through the end of september. investors want to get behind that and follow what the large money flows are suggesting. >> downtown josh brown, what do you do here after this bernanke driven high? >> yeah. i think there's two things to think about. the first is you're probably going to hear a lot less about bonds versus stocks. a little bit more about which kinds of stocks versus which other kinds of stocks.
that's typically what happens when the market is positioned this way into the end of the year. as far as the chase for performance, two areas that might be interesting. the first is emerging markets. this is an area that has lagged substantially. people looking to put on alpha, looking to put on a beta, rather, and a little bit of catch-up trade might want to look there. another area might be small caps. so areas that haven't really kept up with the big names, u.s.-focus names might be the play. >> stephanie link? >> isn't it impressive we were up 2% last week. it's a light trading day. a lot of people just trying to sift through all the data points we've gotten over the last couple of week. i do still think you've got the global easing situation which is a really big tailwind for the market. i think you have decent valuations at 13 times forward estimates. i think you've got corporate balance sheets that are very strong. consumer balance sheets that are improving. we've been buying more housing. the fed basically told you just
to do that. focusing on the mds market. looking at home depot. still some of the beaten up industrials like an emerson. we are taking some profits. sun trust. it's had a nice move. also mcdonald's. basically we are more positive and we're long. >> mike murphy? >> i'm going to reiterate what the other three esteemed panelists have been saying. i think the market's going to continue to move from these levels. the key to me, though, really, is the ecb. the ecb coming out and kind of taking out any potential tail risk or diminishing the potential for tail risk i think really helps the market at these lechls. and i think we continue this rally into the end of the year. >> how far can it go? >> you know, i think it can technically speaking, it looks like the next area of resistance is just the 1475 to 1500 level on the s&p. but that was kind of a key question i had. i think with people chasing to keep up with performance, there's really no ceiling on this.
we get above 1500, i think you can continue to see upside. >> that basically por telling for the market problems ahead. all four of us just told you the market's going higher. >> actually, i don't know that i'm as big of a believer of the chase for performance. i recognize it's a distinct possibility. i talked to probably 1,000 people who run money professionally. >> you're saying people are still scared. the money managers are still skeptical of this rally so don't necessarily chase? >> i would say there's -- we've already seen a lot of chasing. let's be honest. this market is almost straight up since the end of june. but i think let's be realistic here. you still have people who have one eye on the exits. if we fade from these highs, this kind of thing, the momentum could easily work in the other way where you have people who are up substantially and they say, you know what? i might want to call it a year until fiscal cliff or election or whatever. >> before we get to the professor? >> let's talk about what we do in the environment and the case that all four of us are wrong here and going into the end of
the quarter, you see a selloff in the marketplace. i think there's two areas you look. number one, you look at the euro currency. euro currency appreciation will not continue to sustain itself if we see a weakening in equities themselves. secondarily, you've got the vix trading beneath 15 again. that's a comfort level. that's a nice level to go out, reach out and buy some protection. >> so what are the chances the dow will hit 15,000 in two years? what about 17,000? let's bring back megabulgermy livingston siegel. does he laugh? he did. he's very well read. finance professor at the wharton school. nobody else laughed, professor siege ler siegel. what chance do we get to 17,000 in two years? that would be a very nice move. >> it certainly would. going to the 15,000 level which a few months ago people were very skeptical of, we're talking again the end of 2013. we only need to go up 10% from
current levels. i'm not saying it's a slam dunk. the 17,000, when i first gave the prediction late last march, i said that that's a 50/50 proposition. which is a nice proposition. you can't really be wrong if something is 50/50. but i think that -- i think that's a goal that is very, very attainable. >> so it's gone up since 50/50? where you at? 70/30? willing to put a number on it? >> when you're 50/50 some would say you can't really be wrong on something like that. but that's what the statistics showed. that there was almost a 50% chance based on past historical valuations and periods that the market would reach that 17,000 by the end of next year.
>> our traders today all over this. >> by the way, i don't think there's too many bulls out there. we were just talking to the panelists saying -- i think most of them were bullish. when you take a look at equity positions of a lot of money managers, they're still underinvested in stocks. remember the old saying, sell in may and go away. it worked for two years. a lot of people did that. they want to come in again in october. and they find themselves way behind the eight ball given this summer rally. >> good point. >> dr. siegel, joe terranova. in the near term, i think it's important to the equation of how you would get to 17,000, if you would freshen up two comments you have for us. back in march you talked about the potential for the fed to raise rates well before 2014. then memorial day you suggested within six months you'd see euro/dollar parity. >> yeah. it did go down. and now, you know, it has bounced back. i still think the euro is going to sink. i mean, their problems are not solved. they're delayed. i think 1.30 is too strong for a
rebound. i think 1.20 is too strong. it could go as low as parity. whether it reaches that level or not. i thought as far as the economy, you know, it's remained slower than i thought. and i thought that by now the fed would be thinking in terms of raising. now, of course, it's committed to provide liquidity to us -- what, as far as the eye can see and beyond. hey, doesn't that argue much more for stocks? i mean, where you're not going to get yields out there in the market, makes the bond market even more dangerous long term. you know, commodities are already pretty high. hey, you want 2.5, 3.5, 4% yields with growth? people have been talking about it. not many have been acting on it. >> stephanie link? >> 2% gdp is what we're looking for at best here this year. when do you start to see an acceleration? is it dependent on more fed easing like joe was asking? and, also, what sectors would
you be recommending between now and the end of next year? >> i mean, i think clearly -- we've already seen the move in the housing sector. i mean, housing is one of the biggest sectors of our economy. we were in depression levels over the last two or three years. i think that housing and the improvement in housing prices that we're beginning to see is going to add a point to gdp, at least a point to gdp, over the next two years. which can give us the 3% to 4% which is the healthy growth that we need to bring down unemployment and further boost corporate earnings. so i think the housing sector, and i think what bernanke's doing, he says i see that improving. i'm going to give that extra boost. keep those rates low a bit longer. i think that's going to carry us out of the -- >> dr. siegel, it's josh brown. i'm just curious. a lot of your work revolves around valuation. i know p.e. is not the end all,
be all. but there have not been any other secular bear markets prior to this one where we've seen a bottom with a price to earnings multiple of 12 or 13. and i know you must look at the 10-year trailing and say, well, historically at 22 or 23 on a 10-year trailing basis, this has not been a great valuation to first buy in. how do you reconcile that with your bullish viewpoint? >> okay. i mean, two good points. first of all, in terms of, you know, bottoms of p.e. ratios, we've only seen ten and under when interest rates are double digit levels. i mean, that's -- that's a world where, hey, i'll take a 15%, 20% treasury. i'll sell stocks down to seven and eight times earnings. actually, my research, in fact, and others show that when interest rates are not at double digit levels we have an average p.e. ratio of 18 and 19. so it's those double digit interest rates and double digit
inflation which crush stocks in the market. also, i'm very skeptical. i know my good friend bob shower is the one that uses that 10-year p.e. but we have one hole in 2008 that was caused by three or four firms writing down hundreds of billions of dollars. it's a very backward looking metric because of this -- the accounting of this last recession. i think we have to look at forward looking. and as your panelists said, 13.5, 14 p.e. on a forward looking basis in a zero interest rate environment is very beneficial for stocks. >> professor siege lerkl, thank much for joining us. so good to have you here on the halftime report. coming up next on the halftime report, three stocks that may be ready to plunge. herb greenburg has that list. apple shattering records.
selling 23 iphones per second. using that math, more than 16,000 have been sold since halftime's been on the air just today. can anything stop america's love affair with apple? with the fidelity stock screener, you can try strategies from independent experts and see what criteria they use. such as a 5% yield on dividend-paying stocks. then you can customize the strategies
stocks hovering near four-year highs. are some names simply overbought? cnbc's herb greenberg joins us with a list of high flying stocks that could be poised to plunge. >> i'm going to give you three now. another two on "street signs" later. to make my cut each of these stocks had to outperform the s&p 500 over the past three months with a price to book value that is higher than its peers. but still have what appear to be good operating metrics. using data provided by analystic insight i looked for companies that hit screen after screen after screen and nothing fits the bill better than rack space,
the manage and cloud hosting company. number two is lulu lemon. and four number three, i checked with jeff middleswart of behind the in your opinions. an accounting research firm. his favorite? tiffany. last quarter they cut guidance. i thought it was fascinating. sales up 4.4%. inventories up 21%. lots of concern around that luxury brand. >> anybody agree? disagree with herb on any of these names? >> on tiffany we're not involved in the name. the stock has had a nice move. up 30% off the lows. >> off the lows. after all that news. >> i would say this. people are expecting raemly bad things. they were expecting them to cut the numbers. therm expecting a lot of softness. if you look at a two-year basis on a comp basis, stack basis, their regions actually were either maintained or up on a two-year basis. stock's had a nice move. i can easily see a stock pullback. this is one expectations are low. raw material costs are going to
help in their favor. they've already lowered the numbers. interesting to me. >> josh brown, did i hear you? >> you certainly did. on rackspace. herb, i think the problem with this company for you, it's very similar to amazon. i think the reason why you've probably disliked it is because they've been morphing their business model away from managed hosting into cloud hosting. now they want to morph a little further into data management. i know it drives you crazy and the valuation must as well. but the bear arguments are the same ones you've been making since january. >> the bear arguments, actually, bear arguments are the same i was making two years ago. >> right. >> the stock is much higher. this was supposed to be a commodity business. when you looked at it, you said commodity business. lots of competition. they've executed really well. their margins last quarter actually went up. what i would say here is, when it comes to this cloud part, the managed part of the business, the one thing we don't know is as amazon continues to slice pricing in that business, does it catch up with rackspace?
>> i will tell you what the bulls would say on that score. because it's probably at this point the most valid bearish argument. >> josh, you buying the stock? >> i'm long the stock for 50 points while the bears have said the same thing. i'm in it. i like it. >> by the way -- >> i don't know i would pay an all-time high for it. i'll tell you that on earnings calls, typically you get a pullback. the reason why is they've been spending a lot of money on cap x. they took over a shopping mall in san antonio, texas. they filled it with equipment. that costs a lot of money. what they've gained from that is this economies of scale thing that really almost no one can replicate. what sets this company apart and what i think staves off commoditization is customer service. >> i want to say something. i want to just say. i haven't mentioned this name in many, many months. it's only on here as a company whose stock may have gotten ahead of itself based on the screen. look, i got this one wrong. >> we still got to get to lulu. mike murphy, you want to talk about lulu? let me say this.
my spin class today nearly every guy, guy was wearing lulu lemon. which says to me they've crossed the female/male divide. mike? >> yes. michelle, i do wear lulu lemon also. i can speak to that. >> are you wearing it now? >> tmi. >> under the desk. so lulu's a name we've been long for a very long time. did very well with it. with the stock up here it looks extended. herb, if you saw the earnings call that came out was it a week or two weeks ago, it seemed to me like lulu was setting the bar way too high for themselves for the future. i'd love to see a big pullback like the stock has been prone to do. i'd like to get long. >> after last quarter i was telling people it looked like the growth -- the wheels were sort of falling off the growth part of the story. we'll see. >> i let you know what i see in yoga class tomorrow. which of these three names do you think will fall the furthest? rackspace, tiffany or lulu lemon. tell us what you think in our poll of the day at
facebook.com/fastmoney. we'll post the results during "fast money" at 5:00 p.m. eastern time. let's check on what's moving. jackie deangelis standsing by at the market flash desk. >> good afternoon. what's moving today, it's apple. you said it when you said 23 iphones per second. unbelievable demand for the iphone 5 sending this stock higher today by about 7 bucks. we hit $699.54. can we close above $700? that's the question, michelle. >> we've been waiting. joe terranova, 700? >> easily. i think the story with apple that is untold, look at what they're doing here in terms of preorders. what they're going to do this weekend. think about what they're going to do in the emerging markets. that's really one of the tailwinds that's going to pull the stock higher in 2013. i've been playing the options market. bought some 655 puts. sold 640 puts. >> why the option? a lot more bang for the buck in pricing? >> last week in terms of price action itself i didn't like the reversal from 683. obviously i was incorrect. put the 640s on. at the end of the day probably
should have just done nothing. held the stock because that's been the proven correct strategy going forward. there are plenty of tailwinds that folks are not focusing on for 2013. >> i bet i'm going to hear crickets. is anything negative on apple? >> no. >> hey, michelle, i'll throw one thing at you that's interesting. i just kind of came across this myself today. if iphone were a stand-alone company, if you spun out iphone from apple, it would be bigger than microsoft based on revenue. $74 billion just in iphone related sales last year versus the whole company msft which is about $73 billion. >> they may be better than the metric we're showing now. apple selling 23 phones a second. dunkin donuts sells 30 coffees per second. mcdonald's 75 burgers per
second. >> understand, when they report in october, it's probably going to look as bad as it looked in july. that's not why you're buying apple. you're buying apple for what you're going to hear in january and april next year. >> let's get the biggest pops and drops in midday trading. drop, cliff's natural down 6%. stephanie link? >> j prgs morgan downgraded the sector today. the stock though it's a value call, trading below ebitda. >> a drop of yet another 5% for pandora. mr. new world? >> some folks will say i've got it in for pandora. maybe it's because i don't think they have the right to have the p as their ticker symbol. give it up. apple eventually is going to commit to the space. they're going to face significant competition. >> who should have the p? >> there's a lot out there besides pandora that should have the p. >> a pop in chipotle. 3%. josh brown? >> there's nothing fundamental here. there is a huge gap, a 70-point
gap from the end of june. you see the stock fill that gap. i don't know what happens when it hits 400. obviously that's the level where it dropped very largely from. be care chl as it approaches. >> a drop of 2% for pulte group. >> pulte you can stay away from. you have two competitors announcing earnings this friday and monday. the home builders have had a huge run as we know. pulte has a ton of work to do if they're going to come along and get that p symbol. i'd wait on a pullback from the builders. for the first time this year we have no exposure to the home builders long or short. feeling a little naked here. i want to see a bit of a pullback because long term the story is phenomenal. >> put on your lulu lemon. >> exactly. >> a drop for the mcrib. say it ain't so. fans of mcdonald's rib-shaped sandwich will have to wait until christmas time to sink their teeth into this snack. doesn't that look good? according to marketing news site ad age the fast food giant is
delaying this year's mcrib launch in an effort to boost december sales. still plenty to hunger for. it's rumored the company will release a new product. fish mcbites in february. >> big fan of the mcrib. >> back to pandora, the staff sh should have a facebook poll on what the viewers believe should replace and have the p. why not? potash. >> there's a lot of them. coming up next, what goes up must come down. will the refiners be the next to fall after a massive run over the last three months? the stock the rally left behind. netflix. is the bottom finally near for this battleground stock? a little bit later. bill nygren outperforming the s&p this year. what's he buying now? find out when halftime continues.
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in office depot. are they right? >> the whole sector is actually deeply valued. at least office depot is doing something in terms of restructuring, focusing on costs, improving margins. it's going to take a really long time. they could potentially close 300 store. there's a lot they can do. you're not going to get this growthy result. i think at 3.5 times e bit bitd wouldn't chase it. >> joe? >> timely call. where were they? >> i was thinking the same thing. that's been the narrative for years now. >> 100 bucks ago. classic example of catching a falling off. i would say the price target should be below $50. the reason as you mentioned here, content costs are going to continue to rise. they have a lie expiration with a & e networks up this friday. they're trying to reup it. think about it. you've got amazon, hulu and comcast with stream picks. content costs rise but competition is there as well.
netflix is a completely broken fundamental story. >> they do have "breaking bad." all right. electric car maker tesla moteers upgraded by morgan stanley to overweight from underweight. analyst says the risk/reward for tesla is better than for other auto stocks. downtown josh brown? >> this is one of the stories you really want to love. great management. great product. everyone loves the new model s car. i really want to see it work. but for an equity investor, i think this is something where you want to just sit back and watch what happens because there's a lot of issues here. just in terms of valuation and in terms of what this company really has to do to bridge the gap to profitability. i would keep an eye on it prior to buying it. i think there'll be a better chance. >> something that could potentially move maybe the auto stocks, president obama is speaking in ohio. taking on china, promoting a new trade enforcement action against chinese subsidiaries of its auto industry. beau is in chicago. what does this mean for gm, ford and the american auto industry,
phil? >> i think this is easy -- i wouldn't say it's an easy political move, but it's a no-brainer if you're running for president right now in ohio. one out of every eight jobs in the state is connected with the auto industry, and there's no doubt the part supplying industry which has been decimated over the last ten years, it's a place where the obama administration has said, listen, we think the chinese are dumping parts into the u.s. because they're getting export subsidies. and that's killing the industry. they've lost 360,000 jobs. keep this in mind, however. it hasn't just been what's happening with china. this is an industry, michelle, that has consolidated and has on its own moved a number of its manufacturing jobs to lower cost facilities, many of them in mexico. some in eastern europe. while kchina is part of the issue, it's not the only issue that's hurt the part supplier jobs. >> phil lebeau, thank you. stephanie link? >> we're not involved in auto stocks. we're looking at auto part
stocks. they have more leverage to the eventually turn. auto sales have been strong. record levels in terms of sellers. should borgwarner pullback, i would take a look. refining stocks been some of the best performers in the last three months. is there more room to run or is the refiner trade running out of gas? citigroup joins us on the fast line. faisel, i want to understand your call. you downgraded some of the stocks yet raised the price targets. >> we're having a phenomenal third quarter. obviously capitalize those cash lows and earnings into valuations and estimates. as we look out over the long-term time horizon to 2014 on our mid-cycle estimates these stocks now look fully value. so they look cheap today, but they look fairly valued tomorrow. that's how we're looking at this particular downgrade today. with downgrading psx, valero and
marathon petroleum to neutral. the third quarter looks phenomenal. we see a number of risks over the horizon into the fourth quarter. especially into next year. which could contain margins and even cause them to narrow. >> mr. new world? you had some thoughts here? >> faisel, when you look further out to 2014 the question would become what fundamentally changes from what we're seeing now beneficial to the refiners? you've got obviously a tremendous amount of landlocked domestic production. so much so it's being moved on rails. incredibly beneficial to refiners. i kind of take the other side. in the short term you get a pullback, but longer term what's the fundamental change? >> i'm glad you mentioned that. we're seeing record sort of spreads in the mid continent of $15 to $20 a barrel. what causes that to narrow? that's what we talked about in our report. we think there's a significant slug of new pipeline capacity that will move this crude from the midwest to the gulf coast.
that's right. some of the spread you see in the midwest will move down, migrate to the gulf coast. it won't be as robust as you've seen today. we see the crude differentials narrowing like we see in the natural gas sector. when you bring more pipeline capacity online it tends to narrow differentials and benefits producers in the long run. >> any more names? >> no more names in the refining group. >> thanks so much for joining us. analyst with citigroup. what do you guys think of this call? >> michelle, that's a great call from an analyst who's been right on a sector that's worked out. you love to see these kinds of downgrades happen after a huge rally as opposed to three of these companies miss earnings, the stocks gap down, investors get killed then they downgrade. >> better than mcquarry's call on netflix today, for example. >> he gets credit for that in my book. it's a good call. these stocks have gone up a great deal. fundamentally speaking, they don't typically trade at such high premium valuations. >> mike murphy?
>> yeah. i think on the call, i'd rather be long the names than be neutral on the napmes. i agree with josh to the point you don't want to be coming out after they're down ten points and downgrade then. it seems to me it could be more of a macro call. if the market continues to move a name like valero i want to have exposure to. it's already had a nice move. but the stock can continue to move from these levels if supported by the overall market. so i like valero here. we're looking at getting long the name. we're not long currently. i think we will be getting long soon. coming up next on "the halftime report," facebook coming off its best week ever. and if you had listened to one of our traders, you'd be rolling in the money. what do you do now? keep it here to find out. stay tuned. oakmark's bill nygren is kbro outperforming the market. why we're playing michael jackson, i don't know. investing in the sector we love to hate. nygren is beginning to reveal it when we come back. tdd#: 1-800-345-2550 when i'm trading, i'm totally focused.
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welcome back to "the halftime report." it's been tough to make money in facebook shares. if you listened to mike murphy last week you could have made a 500% return overnight on mark zuckerberg's big interview. take a listen. >> i think zuckerberg, if he just comes out and does a decent job here i think the stock rallies above 20 on the news. we're long the weekly call options here. long 1950 call options for our fund. with everybody having thrown the kitchen sink at facebook, i think it can rally here. >> shares of facebook have rallied about 15% since that call. mike, what's the trade now? >> well, if that night, michelle, on "fast money" we discussed with the panel there that i was -- i thought zuckerberg did such a great job in that conference that we actually added to our position the next day. we booked profits on the weekly calls on the 1950s, rolled out to the 21s in a double position.
now we're long the stock the common. the weeklies expired on friday. facebook's something where i think the move here is to still trade the stock. we saw an opportunity with zuckerberg coming out. we thought all the negatives had been priced in. it worked out for us this time thank god. worked out well. but we're still in this for a trade. fundamentally we don't want to be in the name long term yet. for a trade we're still long facebook right now, think it can move back above 23. >> downtown josh brown, you agree with that call? >> i don't like it. it was a great trade. obvious the stock was overly hated. it wouldn't be a tough low hurdle for zuckerberg to hop over. now what? i don't think this is a great earnings story. technically the stock looks terrible. you just had a chart up. i'm not sure why anybody would play with it. let it get a little better. let fundamental momentum kick in. i'd rather pay up at a future point in time than speculate here. it could be back in the teens. >> joe terranova, you're not hitting the like button either, are you? >> quite candidly, i have no clue where facebook is going.
it's become so complicated, unpredictable. no interest. >> you don't want to say in a real highfalutin way the governance structure -- >> no. initially when the ipo came out i didn't like it at that point. i think as it's fallen it's gotten more and more complicated to understand what the fundamental story for the company is. i'll take a pass. >> i like fundamentical. that's a word. let's reinvent it. stocks sitting at a four-year high. anywhere you can go to find value? bill nygren is a top performing portfolio manager who's oakmark fund is beating the overall market. up over 20% this year. he joins us now with his best picks for the long run. bill, good to see you. >> thanks, michelle. nice to be here. >> general question first. we had jeremy siegel on earlier. we had a long discussion about whether or not the market is overvalued, undervalued, fairly valued. what do you think about the market right now? >> we think the market's undervalued somewhat. obviously we're long-term value investors at ekemark. the more the market goes up the more the valuation gap is
closing. the less undervalued it looks. but relative to other options of earning zero on cash or a percent to 2% in bonds, we think equities look very attractive relative to the other choices. >> you were buying financials. aig in particular. why? >> well, again, back to our basic philosophy, at oakmark we're trying to buy stocks that we think are going to be worth meaningfully more five years from now than they are today. almost by definition that has us buying things that are undervalued, unloved today. i don't think you can get much more unloved than the financials. a company like aig was extremely complex to look at as recently as a year ago. but today it's become a pretty simple pnc insurer. you no longer have to make estimates about how levered portfolios of junked securities are going to come out to make a business value guess for aig. stock semis lls about half of b value. most of their excess cash flow is going to share repurchase. priced about eight times our
estimate for next year's earnings. >> the bear case for the banks, i see you also own jpmorgan and wells fargo. the bear case for the banks is the net interest margin is going to continue to be compressed. actually might even te klein sequentially. how do you feel about that? is this something that overtime you believe these companies have offsets or is this going to be the one issue, the big headwind they have a hard time seeing multiple expansion as a result? >> i think clearly as long as interest rates stay as low as they are now, that's going to put pressure on nims for the whole banking industry. the other side of that is since the financial crisis four years ago, a lot of the competition that banks had have gone away. that's allowing them to earn higher margins on a lot of their products. we're not trying to argue that these are fantastic businesses. what we're saying is the best banks sell at maybe three-quarters of book value. a lot of others sell at about on't need tremendously good results out of the banks to make them go up from these levels. >> what are you buying in
financials? i mean industrials. >> well, one of our favorite names is t.e. connecttivity. you were talking earlier about the auto parts companies. a lot of t.e.'s business is going into emerging market auto demand. again, this is a stock that's kind of representative of a lot of what we like in the market today. investors are afraid of the cyclical risk. because of that it's available at about ten times earnings. without a lot of top line growth, management is taking the excess cash that they're generating and investing in add-on acquisitions to grow their top line. and also significant share repurchase. this company's got a couple percent dividend yield. its share base goes down by 2% to 5% a year. you've also got some top line growth. we think you combine those three, you get a pretty nice annual rate of return. even if the p.e. multiple doesn't change. >> all right. >> bill, i'm just curious, how -- how has your process changed given the fact that macro seems to have been so
dominant over the last few years? i know you've been a stock picker for a long time. you tend to be a little more valuation and bottoms up oriented. have you adjusted your process at all when you're looking for stocks? >> no, we haven't. our process has always been from a bottom up basis to try and make our best estimate of what a business will be worth five years from now. i think there's some flawed logic in some of the investment firms that have made macro so much more important now than it was five years ago. you hear a lot of people say macro's so important now that we're going to have to make our -- our view the dominant reason for our stock selections. then they go on to tell you that europe's a little bit weak. they don't think the u.s. growth is going to be quite as stropg as it used to be. >> they do that because everything is so correlated. everything moves together except for treasuries. if you get the macro call right, in theory, everything else goes along with it, right? >> right. but that "if", both letters should be in big capital letters. you have to get it right and you have to be anti-consensus.
or else your macro forecast isn't going to do you any good. you don't hear macro people today say, you know, my call is europe's going to get better and the united states is going to come back to historical growth levels. the consensus view seems to be the one that everybody's incorporating in their portfolio. and rarely do you get paid for putting on a consensus bet. >> very good point. bill, always good to see you. thank you so much. >> thanks for having me. next on "halftime report" kate tekelly uncovered the commodity hedge funds are gaga over. >> we're going to talk about the platinum trade and the fact that a number of hedge funds have made a mint in recent weeks since turmoil in south africa shut down major platinum mines. going long that metal. more when we come back. if you are one of the millions of men
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from the glass enclosed, i mean totally enclosed headquarters on cnbc, hidden gems where you might find opportunity now that the qe trade is firmly on. key sectors in the next hour. live from downtown, the one-year anniversary of occupy wall street. but has the movement missed its moment? and why a looming strike not even in the u.s. could be a big bump in the road for the american bar business. join us on "power lunch." that's after "fast half" which returns in two minutes' time. is. is. tonight our guest, thomas sargent. nobel laureate in economics, and one of the most cited economists in the world. professor sargent, can you tell me what cd rates will be in two years?
recall. welcome back to the "fast money" of halftime report. here's a question for you -- which commodity up 10% in the last two weeks still seeing high demand from hedge funds? if you're thinking gold, you're wrong. kate kelly has the real answer. >> thank you so much, michelle. platinum's been on an upsurge since mid-august when 45 people were killed in a labor demonstration in a south african platinum mind. the government and miners fight over wages and strikes. one of the larger mine operators anglo-american has now said operation will resume tomorrow but other mines remain idle for the moment. meantime, some hedge fund
managers have made a mint, including one i spoke to recently who got in at about $1,420. he still thinks there's room to run as the labor-government standoff continues. this market still has plenty of bears. one is kathleen kelley. in july she argued slowing auto demand in europe would hurt platinum given that carmakers need the metal for catalytic converters and that accounts pore 45 pr% of demand. kelley took her short off in august but she still says slackening chinese demand for platinum jewelry will hurt the metal once the south african labor issues abate. watch for additional insights coming this week because platinum week is starting. it is a collection of producers and traders in new york. there may be some interesting headlines coming from that. >> it's like fashion week but it is platinum week. >> it's not jewelry, it is the metal and its mining. a select group of producers,
traders, and maybe even a couple of reporters will be involved. >> i see. >> i think it is a longer term psychological trade. kate's correct, there's been this bearish cycle that's been in place for platinum over the last 24 months but it changes because it is a tight market. there's not many participants. what happens psychologically you're not going to go short this market again. you are afraid you're going to see something as you've seen with south africa, with the problems that they're having there. so the momentum does turn. pplt, which appears to be the way that the retail investor plays it, that's the etf. that is a way that you could play it op you don't want to go with platinum futures though. >> how much of this is driven by the retail trade once there is some kind of etf available. >> that's a good question. platinum and palladium right now which do have etfs, prices have ticked remarkably up in recent weeks along with volume. which tells you the retail investor sees what's going on
and gets involved. >> look at the chart. rhodium's no etf. >> it is a much more institutional trade. kelley and other longer term bears would argue, bears on platinum, that rhodium which is correlated is a more institutional trade and people are expressing a lot more caution, they're not responding as much to the short-term dislocations in south africa. >> and a more realistic price or more -- >> perhaps better price discovery there. >> realistic price or not, you could have something like you've had here in september. again that's why you don't short the market. the momentum changed. >> got it. thank you, kelly. time to hear from you. earlier on twitter we asked you to send in questions for our halftime traders. seema joins us with your tweets. >> lot of questions on how to play this rally and whether it is time to take profits. let's get to the tweets -- any reason to think oil is done in the short term? let's get to the next one, michael says i'm playing clorox,
among others. what is causing clx to go down over the past six days. we'll get you the answer to that. lastly, we have jeff who says after kraft split do you keep both stock and if not which one do you keep in your i.r.a.? oil, clorox, kraft. traders, what do you think? >> clorox actually. the stock weakens, i would be interested, say in the mid mix siz. i think it is down because commodity prices are going back up. we thought all of the consumer staples companies would see a benefit. now it is starting to reverse. qe3 doesn't help. keep and eye on clorox. it is a great story. the top of the hour on "power lunch," the story on the campaign trail that everybody's talking about. in fighting in the romney camp still. 50 days before the election. first though, here on the halftime report, final trades next. [ male announcer ] when this hotel added aflac
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