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tv   Fast Money Halftime Report  CNBC  April 14, 2015 12:00pm-1:01pm EDT

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attack on peri scope and mirror cat. want to own the broadcast of this event to the rest of the world. >> as they always do, i guess. first the rides at disney, now wwdc. on that note, the dow is up for 42, it it does it for us on "squawk alley." ♪ ♪ and welcome to the halftime show, let's meet the starting lineup for today. steven weiss is the managing partner of shorthills capital. joe terra nova is senior managing director. and pete nigerian is the co-founder of option monster. the game plan looks like this, right on the mark, famed value investor bill nygren on his new stocks he's adding and where the best deals are in the market. top analyst mike mayo on earnings and whether the sector is about to surge. we begin with a look at the markets and a view by one of the
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street's top strategists that it could be time to sell expensive stocks. goldman's david costen making that case in a new note getting a lot of talk on the street. it's our call of the day. steve weiss, it's an interesting note. they make the case that the market is expensive and they try to identify the stocks most likely to underperform. in an expensive market. by virtue of a number of different metrics, probably the most important they say are stocks with an enterprise value-to-sales ratio greater than ten times. basically saying the value of a company is stretched relative to what their sales are. and there are a number of well-known stocks on the list. facebook, zillo, twitter, yelp. do you think the market is expensive? >> i think it's fully valued. david who i've worked with is very bright, puts out good work, this is an example of. takes a look at it, more of a
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value guy. hover what i would say is i don't like to say this time is different. because it never is different. but never has the case been more supportive for going to equities versus credit. so invest something a relative game. where are you going to put your money? as i look at certain things like the equity-risk premium, that's pushing me into equities. ? they're not suggesting that the market can't get more expensive or go higher. it's just the fact that they say the median stock in the s&p 500 right now, is trading at 18 times forward earnings. that's in the 99th percentile of the last 40 years. >> take the biotech names, it's difficult to say they're expensive, they trade more in the growth prospects. so it can look expensive today. but tomorrow when the drug gets improved or ramps up sales. estimates could be up ten-fold. visa, i don't disagree, zillo, i
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don't disagree. >> zillo is a perfect example of what can happen when a company on a list like this disappoints like zillo did today. you can throw it up, the stock is getting hit by 3%. the open was down even more. but what about the premise, you look at twitter, facebook, work day, vertex, a lot of names we talk about all the time. linkedin. >> it gives you process, structure and a plan you can actually implement. now in terms of actually suggesting a short, the thing that i don't like about the list is that there's a lot of positive momentum behind the stocks. i live through 2000, this could continue for another three to circumstance nine months. these names which are rich right now, can continue to be rich. what i would focus on, is the four names that have underperformed year to date. you brought up zillo. okay. i would go out, i would short zillo, zillo is down 3%. zillo was down 5% before today.
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there are other names on the list, like a net suite. golar. yelp down year to date. so i would focus if you're going to take a short from this list on the names that are already are down for the year because they don't have the positive momentum obstacle. >> pete, they've also been pretty good you know mutual funds have been pretty good in picking stocks to be underweight. and traditionally, it's one of the reasons why goldman puts that in their note today. and there are names that mutual funds are under weight and again traditionally and historically they've been right in the way that they've picked a lot of stocks. exxon, apple, at&t, p&g, coca-cola, j & j, ibm, verizon. >> one of the names that stands out on the list is you look at procter & gamble, we know it's a safety stock and all the rest of that, right? trades at 20 to 25 times earnings, whether you want to look at the present or going forward. with absolutely no growth.
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then you look at some of the other names that are on the list as well. you look at underarmor, just yesterday we were talking about hey this is a stock at some point you mentioned zillo. a stumble. if under armor stumbles, if you're trading at 58 times forward earnings, i love the company. i own options in the company. but i think there are times when you do something we always call stock replacement. get out of the stock, but i still want to be in there because i think under armor goes higher, i'm going to be in the options. but i think that's part of the metric, too. is joe mentioned the timing it can go on for six months, nine months this is not like they're saying hey you sell these stocks today because they're going to be going down. >> i wonder if the subheader of the conversation is is it time to reassess the stocks you're invested in today and whether you need to make a sector rotation or go to a different area of the market than a lot of the names that have gotten you to where you are? >> i think you always have to do that. you always have to be looking at your portfolio.
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we talk about rotation all the time. the guys on the desk who manage money for a living. you've got to always look at all of your different holdings, where are you and what the performance has been like that. and whether or not the valuation process brings you to the point where you say i'm taking this off, i've got to protect it or i'm going to shift it to somewhere else. >> high-growth, high valuation stocks have outperformed year to date as economic growth faltered in the first quarter of 20156789 the trend should reverse. >> josh has done a great job of talking about growth. that's where the premium is being aid. and goldman sachs is correct that if economic recovery and robust numbers come back, then the growth names will not have the premium. but i think again, this is phenomenal research, talk about the mutual fund underweight. what's the straenl? what's the trade? well look at it from this perspective -- you have apple which is up somewhere around 13% year to date. but yet an underweight of somewhere around 66 basis points. that's as carl icahn has told,
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that leads to a chase where it's almost like a short squeeze, mutual fund manage verse to buy it two other names on the list, bristol-myers squibb, pfizer, up 10% year to date. those are names mutual funds are under weight. i want to own those, because mutual funds as the performance continues to be positive. they're going to have to come if and own them. >> it's the names on the list that are mutual funds are underweight. i would shocked if people who own mutual funds understood some of the names that the funds are underweight. you said bristol-myers squibb, there's philip morris, bank of america, mcdonald's, pfizer, yahoo, ford, caterpillar, wells, kraft, dow. >> a lot of well known names. >> the exception may be kraft. maybe one other just got by me. i think mutual funds have to own or anybody has to own. think they're making good selections, but i think more than sector rotation, stock rotation is much more important. and we've been spending a lot of time looking in europe. there's so much money going over there, it's basically the u.s.
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playbook at a lot lower multiple. i think you want to look geography, too. >> i love this note. i love the idea behind it. it's right now, our wheelhouse, we tend to be more quantitatively inkrined as opposed to trying to figure out if management is confident or if channel checks are going well at retail stores. we like to look at data as well. and the one thing that would make this no killer would be to have a technical overlay. because you don't want to get just short the stocks because they appear in the screens. some of the biggest winners in history would have been on the screens before going up 500 to 1,000% subsequently after. you want to take the list as a starting point and say which of these stocks are now breaking down below their longer-term trend. where are the buyers giving up the ghost? and where are the sellers starting to take control? that could really in my view, produce some really great trades, so you align kind of the supply/demand dynamics of the
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equity with the fundamental view of ha hey this thing is too expensive. >> let's talk one more area before we go to break. it's stocks that specifically could be ripe to short. that's where the consensus view is so far out of whack with the goldman view. and there are a number of again well-known names. maybe it's time to short coach. coh harks do we think, celgene, kohl's, names we talk about a lot. >> you talk about one analyst's view on each of the stocks. fundamental analyst. you got to know the analyst, what their track record has been. what david is doing, he's culling their universe and bringing it up there. >> we're talking about a big dispersi dispersion. the coach, the consensus on the street is 5% lower price target. the goldman view is 35% below the current consensus view. that's a big dispersion there, as is the one on celgene.
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>> i would rather buy puts, in terms of buying the insurance, it's cheap enough. >> you have to make sure it's cheap. i only interrupt because the vicks is one thing, but the puts are extremely expensive in some of these names. >> the other dimension is to just look at valuation metrics based on analyst expectations and say this is cheap other expensive. you know there's always the wild card, what have the analysts not caught on to. that the market has. and in which direction are we likely to see earnings estimates go from here? if it's significantly higher and we've seen analysts try to catch up with something like under armer for something like three years now, then valuation based on trailing 12, may not necessarily the driver on the future of stocks. that's where future leg work belongs. rather than just saying hey the names are on the list, let's get short. >> the enterprise value to sales thing they say over 10 times would be deemed expensive in their mind. when you look at facebook, that's 16, twitter is 15. a numb of names on this list are
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well above that. cheniere energy is 67. >> you're talking rules of thumb. i think that's expensive. it's a crowded holding. it's hard-pressed to go into an energy manager and see one who doesn't own cheniere. when i was a sales guy on the street and you sell research like that that's the first thing you do. i go through our universe of stocks, where we separate it. where did we either out on the top or the bottom. and then that's why i would market to clients talk about it. some analysts also do it just to get their name out there. if you're on the buy side and looking for a short or a long, you're going to go to the analyst who has the top number and the lowest number. that's a way to gret your name out there there are lots of reasons behind what those numbers say. top bank analysts mike mayo says now is the time to buy the banks. find out which ones he likes after the break and if the traders agree. plus four-star fund manager bill nygren with two new stock picks, when he was on the show
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in january, he made a stock pick that's up 16% since. and bank earnings ahead. but what if you could see more of what you wanted to know? with fidelity's new active trader pro investing platform, the information that's important to you is all in one place, so finding more insight is easier. it's your idea powered by active trader pro. another way fidelity gives you a more powerful investing experience. call our specialists today to get up and running. if legalzoom has your back.s, over the last 10 years we've helped one million business owners get started. visit legalzoom today for the legal help you need to start and run your business. legalzoom. legal help is here.
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welcome back, two major banks reporting earnings today. first up, jp morgan, the largest u.s. bank by assets, announcing a profit of $63 billion.
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let's bring in mike mayo, the bank analyst from clsa, welcome back. let's take jp morgan first, jim cramer said fabulous quarter. do you agree? >> this quarter is an inflection point for jp morgan. the last three years, their efficiency went nowhere. and this quarter, efficiency is at a turning point. this is the start of a couple-year trend of better optimizing the film. there's been a lot of pressure on jp morgan. why don't they break up? we brought up that issue. either prove it or lose it. this quarter showed that jp morgan can better optimize. >> it sounds like you agree with cramer. of your top picks, jp morgan is nowhere to be seen. it's morgan stanley and citigroup, why? >> citigroup and morgan stanley are fantastic restructuring stories, so there's even more to optimize at those two firms than
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jp morgan. but in this revenue environment, revenue growth in the banking still is still the worst in eight decades, citi has a lot of levers to pull. >> what do you have an jp morgan? >> an outperform rating wooxt he were negative on jp morgan for three years, we changed, this is the first year if a while we've been recommending it and this quarter backs that up. >> what about wells? >> wells fargo we recommend as a long-term investment for a while. it's worked over several years. this quarter wasn't as stropg as jp morgan. but you have to take a look at jp morgan and wells fargo. the dividend yields are over 2.5%. so i'll reverse what i i said on cnbc in 199. we said take your money out of bank stocks and put it in the bank. we would say take your money out of the bank and tut it in stocks. >> 16 years ago was a long time. >> thanks for bringing that up. >> since then the banks -- >> it's taken you that long?
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the banks suck, 16 years ago and now finally it's okay? >> you know the banks are down one-third since then. you take, your first segment was at a time to take profits, the rile quell should be or the question in conjunction should be, is it time to go ahead and revisit the banks and after 16 years, we think it is. >> mike, let's talk about revisiting in the capital market stories. morgan stanley was obviously your top pick, a very strong performer last year. very quietly, though, goldman sachs has been the name that is performing year to date. are you revisiting that morgan stanley is a better play than goldman sachs? >> we think they're both positioned well. but we still like morgan stanley over goldman sachs. take a look at morgan stanley's ceo letter. there's six very clear targets, those targets relate to optimizing, getting a wealth management margin higher than it's ever been in history this year. improving returns on what's been a lousy fixed income business. controlling expenses, lower funding costs, returning more capitol. we think there's a lot of
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optmization to go on at morgan stanl stanley. >> how does morgan stanley get their wealth management margins to a new record this year, given the entire industry is facing fee compression. when we're talking about the potential for a feudishry standrd. talking about robo advisory. talking about etfs, how does a wealth management business with thousands of advisers push margins even further unless they're going to get involved with really complex in-house products? is there any other way that works? >> i think is underappreciated with morgan stanley, this is a decade and a half turn-around. ever since thewhitter acquisition, they didn't get their act together. they're finally getting it in sync. unfortunately for some advisers, pay isn't going up as much as before. if you're a client of morgan stanley, you're more of a client of morgan stanley than you were in the past. at the same time morgan stanley is expanding their bank within the firm. if you're a financial adviser, you're not only delivering the stock offerings, the financial
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advisory, you're also delivers more bank products, that's good for the customer and good for their margins. >> you're still hating on bank of america? >> just if you're watching the show -- >> you have a sell on it. >> we still have a sell. if you're watching shothe show. pull up the ceo letter of bank of america and see what they have to usa tell me what their priorities are, did bank of america meet its financial targets last year. yes or no you won't be able to abs that question. i can't tell if you bavg of america met its targets last year. because i'm not sure what they were. >> that pretty much says that. bank of new york mellon? what's your deal here. there's an activist in there mercado, nick mcguire, they want the ceo out. should note, i don't know if you heard the comments this morning that david faber ran of his conversation yesterday with ed garden, of trian who said they support the ceo, who is currently there. but they're going to be watching him like a hawk. what's your read? >> i'm just back from the bank
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of new york annual meeting a couple of hours ago. i said hello to ed garden and i heard him say, and he spoke for the first time at the annual meeting, saying he supports management. but you know what else he said? he said we expect bank of new york to have best in class performance in each of their businesses. that wasn't management, that was ed garden turning up the heat on management. >> because management has laid out the financial goals, garden and trian are saying you better reach the goals you set for yourself. because we're going to be over your shoulder the whole step of the way. >> exactly. if they stumble, then look out management. but the ceo of the bank 6 new york said you're going to be see benefits in the first quarter results next week. doesn't have long to wait if you're a bank of new york shareholder or want to be one. >> are you positive the stock? >> that is our preferred custody bank. there's a custody banks base, bank of new york is the best restructuring theme. just like citi is the best restrurking theme among the money centers.
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>> thanks for coming? . >> i see what did you there, scott. >> you like that? >> that's been 16 years in the coming, that line. >> what do you think about what he said? >> i found the commentary on the wealth management restructuring -- >> mike's my boy. >> bank of america, you disagree on that? >> i don't know. yeah, alittle bit but it doesn't matter. the morgan stanley thing is interesting. i'm not sure how much more room there is for growth on the lending side. it seems like that's already ballooned to the point where i think most of their growth in wealth management is lending. is that wrong? some of the other banks were saying that, too. >> what's still under appreciated about morgan stanley, is their rich deposit base they got when they brought in the rest of the smith barney franchise. simply leveraging their deposits, liveraging them more to securities that will be incremental margins. >> we're out of time.
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didn't you make the bull case in the past for bank of america? >> yeah, i would rather own bank of america. >> no way zblflt i would rather own morgan stanley. >> the old goldman sachs. >> you own bank of america also if. >> i own citi, but i would rather own goldman than own morgan at this point. >> absolutely. >> last point. >> you own bavg of america for merrill lynch, why not own the merrill lynch proxy or even better now, morgan stanley? >> that's why i say own morgan stanley for the wealth management turn of event. i want goldman sachs to go out and purchase an asset manager and really make a strong commitment to the wealth management division. and bank of america has not figured out what to do with the crown jewel of the franchise, merrill lynch. >> they've figured it out, but merrill is not thrilled with what bank of america wants to do. >> i think -- >> morgan stanley is a great company. gorman has done a great job. goldman has done a phenomenal job, too.
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frankly, i think the prudent thing is to own both companies and the only question i have for you, real quick is at the end of reporting, at the end of reporting, what's going to be the one stock here you're happy to show -- >> this is payback. >> citigroup can buy back stock 10% below tangible book when book is clean. te tell me when else in the last 20 years you've seen that? >> that's the last point. coming up, joe makes a trade in the halftime portfolio competition, he's tripling down on one sector. and top value investor bill nygren managing $25 million. joins us with his top plays and two new picks. get your pens and paper ready. woman: it's been a journey to get where i am. and i didn't get here alone. there were people who listened along the way.
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♪ ♪ hi, everyone, i'm sue
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herera. here's your cnbc update. secretary of commerce warning that recent policy changes in beijing and cybersecurity fears are damaging the confidence of u.s. firms doing business in china. she's in the midst of a five-day visit to china. the saudi-led coalition is continuing airstrikes against rebels and their allies in yemen. targeted a sports stadium in aden, claiming the rebels are using schools and stadiums to store military equipment. yemen's al qaeda branch says its top cleric who had a $5 million bounty on his head was killed two days ago in a drone attack. north korea releasing rare photos of kim jungen and his wife watching a soccer game. it's the first time the first lady has been seen in public since december of 2014. russia also says that kim will attend celebrations in moscow marking the 70th anniversary of
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the end of world war ii. and on a lighter note, after a man's dog went missing last week in croatia, he offered a porsche to whom ever found his dog. a man and his son did find the dog, but they wouldn't accept the porsche as a reward. the man found out that the good samaritan was out of a job and helped him raise money. nice note to end on. >> sue, thank you so much. right to the oil market we go. retail investors appear to be headed for the exits. for more let's go to jackie de angelis and the future now crew. >> this is interesting data from lipper. the latest stats are showing that retail investors pulled money out of the oil market at the fastest rate since two 14. so anthony grisante, if we were to close right now. oil would be slightly higher
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pore the year. are investors making a mistake or are they looking at the supply/demand fundamentals or some of the geopolitical risk that's keeping the oil prices high? >> i think it's a little mistake if they want to roll out of the long positions they'd have to sell the cheaper month and buy the most expensive month and the other adage is the hedge funds have added 21,000 contracts, about $1.2 billion worth of oil at the same time. when the cab driver tells to you buy something, the savvy investor knows to get out. in this case the cab driver is telling to you sell oil. the savvy investor knows to ghet in. >> scott, do you think the crude rally will continue from here? >> i think it continues to grind higher. a couple of reasons why, first is the fact that as shale production comes down the area going to produce less crude and in addition refineries are back on line from seasonal maintenance. they're pumping out as much
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refined product, using as much crude as possible. if there's anything that's going to leap leave a cap on the market, is that there's a ton of crude oil in cushing we have to go through. >> for more on the crude rally and all things futures now, check out the online show, we're talking to dr. ron paul today, he's got a shocking call about what he says could be the next financial crisis. it has to do with currencies. scott? >> good stuff. thanks. sticking with energy, joe is making big moves in his portfolio for our halftime competition. where are you, joe? you are up 5.5%. in third place. what's going on? >> i am either going to be dead right or dead wrong. >> or dead in the water. >> and i'm going to be way below the bottom on this call. >> i went in on this. >> i like those odds. i want in on that. >> ha. >> this is all about energy. i think energy, i think the time is now. i think there are just so many out there that are talking about a sub$40 print for energy.
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the market doesn't appear to want to give you that. when you look inside the debt market, the high-yield energy spreads are, they are contracting. which is a positive thing. the apocalypse that everyone expected is not coming to reality. rick counts lowest levels since 2010. i think energy is about to break out. i talked about it over the last couple of weeks. if you think the result of the iranian deal, oil actually rallied on this, think we're going to $60. if there's a time to chase data in the energy sector, i think it is right now. so we're getting rid of the refiner name is valero. >> out of valero. why? because as jeff curry pointed out last year, last week, a very accurately, we're about to start swimming in product. the spread between brent and t.i. is coming in. and right now, it's better to own a name like an eog, which i'm putting back into the portfolio. >> back in love with eog?
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>> yup. >> concho. >> i call concho and the other two the three survivors and lastly, range resources, a name that i know steven follows as well. going after beta in the energy space right now. as i believe oil is about to break out and surprise a lot of people. >> so there's range up 4%, joe adding it to his portfolio what do you think? >> what's interesting is that's in direct opposition to what retail investors at least maybe some institutional investors are doing with crude it sl. we've seen the first two weeks' data in april, of the $6 billion in aum that the oil etfs have, not oil stocks, but crude-related. we saw about $400 million in outflows, it's the first two-week period for outflows since last september. we've seen all the dip buyers
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that came in reverse course and sell commodity etfs. it's a sentiment shift from what we've seen. >> all three stocks that joe mentioned moving higher. what do we think, steve? >> i think it's a gutsy call clearly. but i'm not concerned about the retail move. it's the first two-week outflow since last september. we know what happened to crude last september. i would say it's a great contraindicator and the path of least resistance on that is higher. i think you're talking about oil out six months in terms of what's going to happen rather than right now. >> i think it's actually, what the expectations are are being pulled forward. and listen to the comments last week of the conoco phillips ceo, list tonight comments of eog management talking about falling production to come here third quarter, forkt. i think it's coming quicker than that, it's happening a lot faster. think the market is going to recognize that. >> i think the integrated names, last week where did we see buying activity, conoco phillips, exxonmobil.
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the big names have seen a lot of paper. maybe yoe is onto it on the smaller end as well. >> this should be viewed as a broader market call. if you think that energy is going to catch a real serious bid. that's going to be good for the overall market. >> earning estimates in energy have been revised lower by about 60%. i think april is going to be a strong month of sticking by that. yes, i agree. >> i don't know if that's great for the market. look at the leadership in the market. the retail etf has been on fire. consumer discretionary names. >> at a time when people are questioning the valuation of the consumer discretionary space wonder if it's gone too far, too fast. if you have a rotation, are we suggesting that if energy prices, well joe is saying, that energy prices he thinks are going to go up. we think that energy prices are going do remain low forever and consumer discretionary stocks are going to continue to rip from here to the end of the day? >> i don't know that it's possible that you could have a long-lasting rally in crude
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where retail names quote-unquote like that type of action given a bullishness is from the consumer being a little bit more willing to spend and feeling better about how much money they have to spend. i don't suggest there's a one-to-one positive or negative correlation. but i can't imagine that being looked at positively. >> i think it takes a stress off the high-yield energy market. and i do think that is a positive impact on equities. >> remember you can follow the action and you can only do it in one place -- cnbc.com/pro. check it out. check out all the portfolios, see what the guys are doing. coming up. against the activists. blackrock chief larry fink once again urging ceos to stop being so nice to investors. plus, dupont's ceo ellen coleman trying to persuade shlders not to let nelson peltz join the board. and bill nygren joins us with his thoughts on activism and his two new stock picks for the second quarter.
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coming up on "power lunch," the imf cutting its outlook, but
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upgrading europe and japan. japan's nikkei up 12. is this where your money should be right now? this money manager helps to oversee almost a trillion dollars in assets, he'll give us his top three plays in the mana market. blackrock's larry fink says it's too short-termist and it hurts long-term growth. the question is, is he right? the ceo of one fortune 500 company weighs in during our show. more halftime report after this break.
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ink from chase. so you can. larry fink urges shareholders not to i'm into the sure if you've seen his letter. it's really nothing new. he -- he has written letters against activism in the past. he's sending this one to 500 ceos, telling them to keep their eye on the long-term ball, not the short-term gains that he says activists investors really want. >> i don't think he can generalize, some short-term investors do a phenomenal job of motivating companies.
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so while it's true generally you want to look at the long-term, we all believe that particularly as investors, except for pete, maybe, that's because that's two weeks, i think you wab want to take a look at longt-term and build for the future. most great investors have done that but activists have a place in the world. it's up to investors whether they want to go along with the activists or not. >> the irony of this coming from mr. fink is that mr. fink's company is one of the primary reasons why activism a, is so influential now in stock prices and b, is probably really going to be more important going forward than it's ever been before. we used to have individual stockholders in this country who invested in a stock, held the certificates and cared about what happened with the company. we don't have that any more, we have etf investors, thanks in part to i-shares and their ilk. so now your people buying a
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basket of stocks, not paying attention to compensation packages or efficiency or anything like that and as a result you have a need for somebody to come in and actually vote those shares and make something happen. because of this huge vacuum that's been created by passive investing, etf people so i agree with steve, i think they're important. think they need to be there. you don't have to like all their tactics or every single campaign. >> he takes issue, pete with the high level of dividends and buy-backs, which he said in 2014 totalled more than $914 billion. the highest level on record. saying later in the letter, it is critical however to understand that corporate leaders duty of care and loyalty is not to every investor or trader, who owns their company's shares at a moment in time. but to the company and its long-term owners. >> yeah, some of that makes sense, but i think -- >> buy-backs and dividends have fuelled a large portion of the rally we've seen over the last few years. >> no doubt about that. but i think also you have to take into account that when you're looking at what's going on presently in a lot of these
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various companies, they've needed to actually loosen up some of their strings, they're sitting on the cash and people are wondering what they're going to do with it and finally they're returning some of it to shareholders. some of the concerns he's addressing are the balance sheets going to hold up under bat situations, the fact that they've thinned themselves a little bit too much. if you listen to a lot of these various activists of late, have actually talked about how hey, look we're not enter inn there for two years, we're in there for five years, we're in there for extended periods of time as well. >> if some of the larger institutions and bigger asset managers like blackrock, et cetera, if the activists say if they would vote against certain parts of what management was asking for, we wouldn't have to do what we do. >> it's so rare, it's so rare, it's so rare that you're going to see a state street which is spider funds or an i-shares or a vanguard vote con tra, in a proxy -- it's almost unheard of.
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someone has to do it otherwise capitalism ceases to function it doesn't excuse every single nasty tactic by every single actor. the world is not black and white, it's gray. >> i a meeting with one of the to be activists in the paper as lot, what he told me is he's getting more ideas from long-term mutual shareholders, mutual fund shareholders than anybody else at this point in time. >> let's bring in top-rated value investor bill nygren of oak mark, good to talk to you. i know you've been listening to our conversation. we want to get to your stock picks. you want to weigh in object this issue, the letter by mr. fink and the conversation around the table? >> i'll tell you when i read the headline in the "new york times" about the management shouldn't be so nice to shareholders -- i found that offensive. we own the company, we hire management. they have a feiduciary duty to dot right thing with capital. when i read the letter that mr.
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fink wrote, i don't disagree with much of it. what we want management to do is whatever maximizes the valuing of the company. the reason you're seeing so much capital come back in the form of dividends and share repurchases today is because companies don't have great return opportunities. can't just build a new plant and get a 20% return on it when there's no demand out there. so to the extent people are stopping projects like that because of activists, i would say they're making a police take. we always tell companies -- do whatever maximizes per-share business value for the long-term. and if that means growing the numb rater, that's great. if it means shrinking the denominator, that's fine with us, too. >> let's talk about a couple of new stocks and thank you for weighing in on what's been an ongoing conversation as you certainly know. know you have two new picks for us today, talk to us about them. >> well in the last quarter we brought precision cast parts, a great aerospace parts company.
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it's a company we've admired for a long time. it's normally sold at a very high pe premium to the s&p 500. but the stock has falling from $300 a share to under $200 last quarter when there were concerns that the organic growth wast as strong as people had hoped for. we think this is still a great company. within a couple years, they should be earning a high teens number. eps and we think with the market at 17 times earnings, there's no reason to think that this shouldn't sell also at a high teens multiple it could get you something like a 50% return in a couple of years if that happens. >> caterpillar raises some eyebrows on the desk. maybe with me, i'm surprised you've gotten into the stock. why? >> well again, caterpillar is a great company. they're a market share lead anywhere most of their industries, they depend a lot on infrastructure spending and mining and mining was above trend for a while. a lot of investors mistakenly thought there was structural
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improvement in the company. despite the mine deeg klein, we think a trend earnings number for caterpillar is between $7 and $8 a share. the stock trades at 80. put an s&p 500 multiple on that of 17 times and you've got more than 50% return. we don't think the mining business is going to earn trend numbers next year, but at oak mark we're long-term investors, we're trying to anticipate what a company will look like five years down the road. and i think caterpillar will still be viewed as a very good company five years from now. >> we were discussing at the top of the show, a new note out from goldman sachs. today, bill, suggesting not only that the market is expensive where it is now. as they were looking at maybe the areas of the market that were smoemost susceptible to thn a number of different factors. one of the overall thoughts is that growth has certainly outpaced value year to date. and i notice in your stocks that you favor most or some of your
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most recent picks, have all underperformed. year to date. and i ask you that, are you expecting as goldman is expecting, value to come back in vogue in vogue in either this recent or next quarter or in the subsequent quarters after that? >> that's a tough question because i think it presupposes the idea that value is a certain class of stocks that are below average businesses. we don't think about it that way. we think most of them are selling at below book values and those will normalize and they are growth businesses, but i think they value stocks today. >> general electric, a pick you made on this program in january.
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a large portion of that gain is due to what they recently did with ge capital. are you a fan of the move and how much upside do you see in the stock? >> we are lulths a fare absolut the move and the reason for buying was two-cold. the finance services and the balance sheet was under levered and secondly the massive change that is happening at the company in terms of incentive composition plans and return on investment and we think that will lead to margin improvement at ge. it's such a contrary name. the nastiest shareholder letter was chatitizing us for buying ge. it is in the midst of change. all you need to assume is that it sells at a market multiple and you get a nice return and a
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diffident that is in excess of what you get on a long-term government bond. >> did they say aha, that's why you bought ge? >> never happens. >> good to talk to you. i really enjoyed the conversation. thanks so much. >> thank you. >> more coming up after the break. driver-assist systems. it recognizes pedestrians and alerts you. warns you about incoming cross-traffic. cameras and radar detect dangers you don't.
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and it can even stop by itself. so in this crash test, one thing's missing: a crash. the 2015 e-class. see your authorized dealer for exceptional offers through mercedes-benz financial services.
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>> breaking news.
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dow jones exploring strategic alternatives including the sale of the struggling north american business who cite people familiar with the matter. the stock was halted before it has been released and reopened for trading. this moves it to the fall and people familiar with that say one of the reasons they moved that meeting was so they could explore the alternative for the company with the board and the new cfo. more time and they will be talking about it after a quick break.
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nints seconds between now and the end of the program. >> huge earnings week and it's about the financials and we heard from jpmorgan.
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we have city, bank, and goldman sachs. love this name. this is another one rotated out of the stock and into the options. i think it's going through 200. >> they said j and j was the most important. >> what do you think now? >> they included themselves really well. i don't know if you can extrapola extrapolate. it will be very rocky. >> shall we? >> earnings were solid and that's going to be the problem. >> the stock is up and it's not like it's a disaster. >> it's a function of setting expectations solo going in. wouldn't you say so? >> everybody that has done. >> stock is down from 109 and it can't get out of the way and it's all about the currency. one name we didn't mention was apache. i like that name. >> i will mention the stock they owned for the portfolio and competition that i have on the show. interestingly, this is a transport. the trannies have been one of the missing ingredients to feel good about a sustainable
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advance. when you see companies like this come out and tell you the fishing is great and give you good guidance, makes you feel more confident. it's a great chart ask it's breaking out to a new all time high. >> halftime is over. power lunch and the second half of the trading day start right now. >> thank you very much. along with mandy drury, black rocks, larry fink making waves today against the tendance tow cave into activists and we have a new idea on how to tax capital gains that could save you a lot of money. >> the drought, the key decision this southern california is expected any minute now. that is ahead on power lunch. >> and oil now positive for the year. we will explore what's happening with crude. >> okay and we do begin with california's water crisis. agriculture is the golden state's top industry and

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