tv Power Lunch CNBC October 19, 2015 1:00pm-3:01pm EDT
>> but i'd focus on two other names as well. i'd look at eli lilly and look at biogen. pharma and big cap biotech. we've seen a little bit of a rally recently. can that continue? >> look at valeant today? >> good stuff. we'll see you tomorrow. "power" begins now. good afternoon, everybody. welcome to "power lunch." thanks for joining us. along with mandy drury, i'm tyler mathisen. financials out of the way. now to earnings from the biggest sector of all, technology. the fourth best performer this year. we'll tell you what investors need to know. united airlines giving no details on the health of its ceo after he suffered a heart attack, but will decide today on its governance process. should companies be made to disclose the thealth of their tp executives to investors? and do you own a drone? if you do, there will be new government rules affecting.
we begin with the flood of earnings this week. morgan stanley wrapping it up for the financials, and those shares sinking on its miss of estimates due to weakness in the bond trading business. now the attention turns to tech. ibm kicking it off for us after the bell. that stock is down about 7% so far this year. dominic chu is here with what investors need to know. dom? >> it's 20% of the s&p 500, that technology sector. it by far has a lot more weight than some of these other sectors out there. if you take a look at the earnings calendar, we have over 100 s&p 500 reporting this week alone. but the real focus is going to be on three companies that represent nearly a trillion, with a "t," trillion dollars worth of market value. that's like you said, ibm on monday. microsoft and alphabet/google on thursday. ibm, $147 billion worth of market value. the stock is down 7% this year. microsoft though, $380 billion. the stock is posting some
marginal gains up about 2% year-to-date and alphabet. this has been the real stand out in the market here, $470 billion company that's posted a 30-plus percent gain just so far this year. it's done a lot of heavy lifting in the s&p 500 and other indices as well. those are a few of the names to watch. and then, of course, we asked our data partners at kensho to look at one in particular and that's google on earnings day over the last five years. 23 earnings reports since 2010. positive. it's a coin toss. 52% of the time. the average return about 1% to the upside. again, google, microsoft -- i shouldn't say google, alphabet/google, irmicrosoft, a ibm, three to watch. >> a little small cap companies we'll be following later this week. shares of val yaeeant slammed raising its full year forecast. down 7% today or $13 at $164.37.
the results some amid an investigation over drug pricing practices. meg terrell on the pharma beat for us today. >> that beat and raise for valeant not enough to overcome concerns about drug pricing and patient access. eps for the quarter coming in at $274 a share versus estimates of $270. however, as you mentioned, the stock is down more than 7% today. ceo mike pearson on the company's conference call this morning addressing a lot of concerns head on saying that the company is unlikely to pursue any more or any transactions focused on what it calls mispriced products. aka drugs that are priced too low and that they would raise on. they say they've also built in more modest price increases into their forecast based on the current environment around drug price increases. company also discussed spinning off its neurology business or
potentially selling it. that accounts for about 10% of its revenue, but analysts saying that's the business where it has raised prices on a lot of its drugs. so they're very interested in that. if you look at the companies performance just over the last three months though, down about 30% so the company talking a lot today about a potential buyback. however, that not enough to rally the shares. still down 7.5%, tyler and mandy. >> thank you very much. investors are revving up for the big ipo this week, ferrari's offering will get plenty of attention because it's an iconic brand. phil lebeau joins us from chicago with more. phil? >> and, mandy, it's because for fiat chrysler this is just one part of sergio's grand plan which is to free up or unlock the value of ferrari in order to help fund what fiat chrysler is going through over the next several years and there's plenty of value within ferrari and plenty of appetite for this ipo. the latest s-1 filing today,
17.2 million shares expected to price between $48 and $52. now, the final pricing will happen tomorrow. expect the first trade on wednesday. the valuation expected to come in just under $10 billion roughly speaking. that's a 14 times multiple for ferrari. compare that with other automakers and it's a much greater -- or much more valuable multiple. the profit margins on ferrari, 14% and those are the types of margins people look at and they say, fantastic, when you're talking about an automaker but as a luxury goods maker, it might be a little lagging some of its competitors. for sergio this is just one step in his grand plan as he continues to build fiat chrysler into a larger company in terms of global size. he will be the chairman of ferrari, but he is not the ceo. he remains ceo of fiat chrysler. take a look at shares of fiat chrysler. they've had a nice move over the last year. you remember it was just a little over a year ago they went public and at the time people were saying i wonder how much
appetite there's going to be for this company, and as you can see, there's been plenty of appetite. back to you. >> 80% in a year. that's pretty nice. phil lebeau, thank you. while ferrari gears up to go public, the number of ipos being pulled this year is at a three-year high. so why? kate kelly has been looking into that for us. kate? >> hey, tyler. it's kind of interesting. i think we're at the point in the quality cycle for ipos where it's getting a little bit less attractive in terms of some of the stories that are trying to come to market and perhaps they're also asking for too dear a price while they're at it. last week a case in point. one of the 67 deals that has been pulled or delayed this year according to figures is the grocery chain albertson's where they sought to issue new shares at a range of $23 to $26 and got torpedoed by the reduced walmart guidance. that dropped price momentum way down from where it has been. walmart was certainly part of that say investors, but so was
an overly ambitious price target for a highly leveraged company like albertson's. now they're waiting and seeing if they can do it sometime in november. first data did slightly better in part because of a more modest pricing plan perhaps. the company which at $2.5 billion was the year's largest ipo to date had a lot of shares they needed to sell, and they did so at $16. again, below their intended range but a decent value according to the investment community and one that allowed them to trade stably on that first critical day in the public markets. now, as fim noted, it's looking like ferrari may have a better strategy with a price range that's apparently appealing enough that the deal is well over subscribed with just hours to go before the investor order books close. so we may be hitting a different theme on wednesday when we're talking about how they're trading. >> at the very least it looks like there's a reset going on in the ipo market. >> i think we've had three solid years. 2012 is the last year you saw this level of delayed and
postponed ipos, but there's uncertainty about the equity markets generally and i think also you are seeing some of the great stories have already been told and investors are getting a little leery about what else is to come. square is going to be another interesting one. >> that will be very interesting, absolutely. all right, kate, thank you very much. mandy, over to you. >> despite fears, ty, about a u.s. economy losing momentum, the home builders seem pretty confident these days. diana olick is in washington with the latest read. hi, diana. >> hi, mandy. builder confidence in the single-family home market jumped to the highest level in a decade despite the fact that home construction is it well below where it was a decade ago. take a look, if you will. sentiment jumped three points in october to 64 on the national association of home builders monthly sentiment index. that's up from a downwardly revised september read. now, 50 is the line between positive and negative sentiment. and a year ago sentiment was at 54. here is what's a little odd though. look at this. sentiment is back to where it was in october of 2005, but
sing single-family construction in 2005 was at 1.7 million. the latest annualized reading for this year is just over 700,000, in other words less than half of that. as for the index components, sales expectations are strong jumping seven points to 75. current sales conditions rose 3 points to 70. kf gheconfidence in buyer traff flat, still in negative territory. builders are citing lack of labor and lots but analysts say easing credit conditions could help heading into 2016. back to you guys. >> all right, diana, thank you very much. united ear ed airlines has give details on the health of its ceo after a heart attack. should companies be forced to reveal such information to investors? weigh in, go to cnbc.com/vote. you're watching cnbc, first in business worldwide.
. welcome back to "power lunch." i'm mandy drury. weight watchers on track for its biggest day ever. it's up by 98%. incredible move after oprah winfrey with the golden touch acquired a 10% stake in the company. she will also join the board of directors. credit suisse adding mcdonald's to its u.s. focus list and saying it considers the fast food chain one of its top investment ideas. mcdonald's stock is currently up 15% so far this year, but little
changed today. and deutsche bank announcing a restructuring that will split its investment bank in two. it is removing several top executives as part of the overhaul. the stock in response is up by 2.6%. let's get a market flash now with mr. dominic chu. >> all right. so, mandy, we're also watching shares of nike up near best levels today, up 2%. it's worth about $100 billion and $30 billion worth of sales for the company overall. one analyst at evercore things the stock could double in the near future. citing accelerate and revenue growth. nike is the best performing stock in the dow this year up by 38%. they just did it and maybe some analysts think they will just keep doing it. >> thank you very much. united airlines says it will decide today on its governance process after ceo oscar munoz suffered a heart attack. phil lebeau is back with the very latest. what do they mean when they say
their governance process? what do they need to fix there? >> they need to figure out who is going to be speaking for the company and running the company on a bay-tday-to-day basis. he was hospitalized last thursday and there were a number of questions put forward to united airlines about, a, how long is he going to be out? is he going to be out incapacitated for several weeks, several months? is he going to be back on the job within a couple weeks? and united had no answers. in fact, when we called over there, what we received was we're waiting for some more information. once we have more information, we'll pass on more information to you. well, today the lead director for united airlines issued a statement essentially saying we're in the process of making a decision. the company anticipates it will today conclude the corporate governance process necessitated by the hospitalization of president and ceo oscar munoz. the company expected to release more details either later today or tomorrow. in the meantime, united families
thoughts and well wishes are with oscar. united is quick to point out that oscar munoz not being in the office every single day or right now does not mean that the airlines is not taking off and landing on schedule. in fact, the company says it's operating as it normally would. having said that, there are more than a few investors who are saying, wait a second, if your ceo is going to be out of pocket for a while, we need to know as investors, we need more collarity on the situation. that's why shares of united were under pressure last friday. although you see today they're up more than 1.5%. it will be interesting to see if they can provide that clarity, tyler, because there are a lot of people asking that question, how much should investors know when the ceo suffers a heart attack like this. >> phil, thank you very much. so should companies be forced to disclose the health of their top executives to investors in cases like this? we want to hear from you. go to cnbc.com/vote. meantime, let's bring in harvard business school professor bill
george and george mason, law professor j.w.verett. that sounds like a classic collision of the right of privacy in medical matters and the right of investors to need to know information that would inform their choices as investors. where does the tipping point seem to fall? >> well, you got to look at where the tipping point falls in two different situations. first, the first question is as a matter of law, what are they required to disclose under the federal securities laws that govern this situation? and then, second, is just a question of good corporate governance, what should they be providing? to the first point the law is a little gray. the last time investors really focused on this issue was with respect to apple's disclosure of steve job's illness and ongoing disclosures regarding his illness. what the law says is if you
disclosed something already, it has to be true and you may have a environment to update. that was an issue at apple because steve jobs was there in an ongoing capacity. and secondly, as a matter of good corporate governance, i'm wary of a federal mandate to annually disclose ceo health, but certainly if there's a material event in a ceo's personal life that inhibits their ability to run the company, they need to disclose that. it's not clear at this point whether united hasn't lived up to its requirements to disclose. it might face some significant issues if they do decide to retain mr. munoz going forward and they need to be very careful about what they do disclose because they'll obviously obviously have a requirement to update it. but i think the discussion about ceo health really is a side issue to the question of succession planning which i
think this issue highlights even more directly. >> let me turn to bill george and get your reaction to what professor verret just said, but also weigh in on the moral obligation apart from the legal obligation that a company might have, and do you think that united airlines necessarily needs to go farther than just saying the ceo is hospitalized and that's about all you need to know? >> tyler, here is the problem. often you don't know what you don't know, and when a heart attack occurs, i come from the cardiovascular field, a lot of times no one knows or the family is not saying, even the company doesn't know. so you put out an initial statement, which they did to their credit right away saying he had had a heart attack and he was hospitalized, but you don't know the severity. we all hope he can come back. we hope he will heal, so the board can't act too quickly.
the board needs to be in charge and they need to put an interim person in charge, not necessarily a successor. the other nuance here, tyler, is maybe that ceo is ill but has to be treated as jamie diamond -- dimon was, came back very strong, and you need somebody available to serve. so we need to give the board a little time. i don't think it's so bad they're coming out and making a clear statement because they will have a lot more information than they did on friday other than just the top level headlines. but i do think if he's going to be in the hospital for some time, they need to put an interim person in charge. not necessarily a successor. that can wait. >> bill, how much do we also need to take into account how important that individual, that ceo, is to the company as its value and also its future and i'm thinking of the example of steve jobs and apple, of course. well, mandy, all ceos are important to the company. munoz is off to a good start. this company went through a very
difficult ethical situation, and i didn't necessarily agree with the way in which he was terminated. i agree with his termination. i think now a little pause is in order with some form of interim person until oscar can come back full time or he may not, but i think we've seen in other cases, let's take bob mow shay benmosc. he had a serious case of cancer. he served for four years. he paid back the money they owed the government but then he eventually passed away and he left at the time. i don't think we should write off these ceos too quickly. sometimes the market today is quick to write them off. who is the new person in charge? and you need to have that succession plan clearly in place both short term and long term. but you don't necessarily trigger it right away until you
know mo. >> and that's what professor verret was saying, too. gentlemen, we have to leave it there. thank you very much, both of you, for your insights. let's lock in the vote. should companies be made to disclose the health of their top executives to investors? yes say 41%. no say 59%. >> yeah, very fine line between transparency and privacy. how safe is america's rail system. billions of dollars at risk as washington plays politics with train safety. >> railroads are threatening to begin suspending service as soon as next month if lawmakers don't extend the deadline for key safetytechnology. we have that story when "power lunch" returns. my language skills, i've read all of your lyrics. you've read all of my lyrics? i can read 800 million pages per second. that's fast. my analysis shows your major themes are that time passes.
welcome back to "power lunch." i have with me morgan brennan on fears with america's rail system which are growing. threats of service suspensions if congress does not act. what is at stake here, morgan? >> we're talking about what is potentially a looming transportation crisis. something that if congress or washington doesn't fix it, this could cost the economy $30 billion a month come january. so here is the problem. railroads have until december 31st to have positive train control, ptc, in place. that's tech that can wirelessly stop a train to prevent an accident. of the 60,000 miles of mandated
track, only a quarter will be ready in time, even though companies have had six years to implement it. railroads say the cost and estimated $13 billion for the sector and the complicated technology have hindered implementation. if congress doesn't extend the deadline, carries including csx, unipacific, and norfolk southern could begin taking trains off the track as soon as next month to avoid massive fines. amtrak and major commuter lines will start come december. the railroads are trying to put the pressure on lawmakers. they call it a transportation crisis that could affect 2 million commuter trips per day and half a million car loads of freight per week. the industry is hoping it won't come to that. the senate passed a highway bill that included an extension over the summer. according to some reports, the house is due to pick up the
highway bill this week, but there's a lot on the agenda, mandy. when the house returns late tomorrow afternoon, i mean, the clock is really ticking. >> it really is and hope is not a strategy. we have to leave it there. thank you very much. over to you, ty. >> to the bond market we go. rick santelli is tracking the action at the cme. hi, rick. >> hi, tyler. upon a quick inspection of yields we can see here highly unchanged with friday's settlements but a funny thing happened to unchanged today. national association of home builders. granted, it's a raemtime data point being october, second tier though. look at the intraday 10. boy, that's when things popped and we started to see the higher yields above 202, 203. 10s minus 2s, most of the action that was steepening that spread was only based on the long end. inherent in that is the lesson. even the dollar index holding on to the gains best but they aren't huge gains. the reality is numbers like the 29th of this month when we get
our first look at third quarter gdp, it could affect the curve and all maturities, but right now mostly 10s and 30s are looking at second tier data points and if they're a bit stronger, you see investors selling them a bit but the short end seems they nailed to the market wall. back to you. >> thu very much for that, ricky. the dollar index creeping back up towards 95. we have oil under pressure this hour as well. indeed, lots of questions about chinese -- the chinese economy, and speaking of china, its economy growing at the slowest pace since 2009 but the market seem to be taking it in stride. is the worst over for the china related etfs and do you own a drone? how new government rules could impact you. don't go away.
today at the white house to discuss cutting emissions and water usage. that's a lot of pot. french officials found over seven tons of marijuana in cars parked on a paris street. france's president said it was the largest seizure made in the country in more than two years. officials said the value of that drug, over $17 million. phoenix is cleaning up after a night of wild storms causing major destruction. the national weather service says a microburst is to blame for the damage which tore shingles from buildings and knocked down power lines. and tracy morgan is making his return to tv in a big way. just a year after suffering near fatal injuries in a car accident, the comedian hosted "snl" on saturday night and gave the show a huge ratings bump. it was great to see him back. that's the cnbc news update this hour. back to you, mandy. skr thank you very much, sue. gold slipping below its 200-day moving average with traders saying closing below
$1,175 could trigger technical selling. we're sitting at $1,172 right now. a loss of 1% or 10 bucks right now. but nonetheless, gold is up almost 5% since the last fed no rate hike decision. prices are on the back foot. silver, copper, palladium and platinum, in light of the fact the dollar is stronger, all of the metals are moving to the downside. >> let's look at where the markets stand right now, about halfway through the trading day, maybe a little bit past it. the dow at 17,185. basically flat you would have to say there. down 31. nasdaq down a little bit at 4877. that's about one-fifth of a percent lower. and the s&p 500 off a third of a percent at 2026. let's get the trading action from bob pisani. courtney reagan following the tech movers at nasdaq. bob, kick it off. >> hello, high letyler. the home builders some
leadership. the home builder sentiment index. energy is a big laggard again. these exploration and production names all again heavily to the downside. we'll get ibm after the close. you know the problems for ibm. it's a basic long-term decline in their core franchises of services and software and the growth initiatives, the clouds and data analytics like watson and the security have been slow to ramp. the big issue is where guinea rometty can ramp these up fast enough. look at ibm versus the s&p 500. ibm down 17% since the close of 2011. that's the white line. and there's the s&p 500 on top. that's up almost 60%. look at that divergence. that's all you need to know about the inability to really grow from ibm. by the way, on a side note, the
strong dollar is really hurting multinational companies. ibm gets 50% of revenues outside the united states. they came out and said revenues would be lower by 7% to 8% this quarter because of the strong dollar and earnings would be lower by 5% in 2015. that's about an 80 cent hit, tyler. important decline there and very big influence from the dollar. back to you. >> bob, thank you very much. let's go to nasdaq and check in with courtney reagan. court? >> i was going to tell you the nasdaq composite was holding on but now it's about an par. so the last ten minutes. the tech sector logging some gains after starting the session in the red. one of the names higher is micron. late friday an s.e.c. filing revealed micron ceo requested a temporary base salary reduction as the company goes through cost cuts. his base salary has been lowered by 50% to $525,000. trouble in toyland though. we have 66 days before christmas and hasbro shares are tumbling down almost 9% after third
quarter sales missed estimates and sales of those girl toy brands like mi little pony, furby, fell 28%. hasbro said its "star wars" licensed toys were off to a strong start but didn't elaborate further. and we've got shares of rival mattel down 3%. of course, we know that's a barbie maker. and if toys in the girls sector are struggling in hasbro, that could be bad for mattel. where else are the ripple effects being held? >> if you look at the china story, we knew, we had a feeling china's gdp numbers would come below 7%. the first time since the global financial crisis. you see the oil trade. the shanghai composite, you can see over the past year, still up 44%, 45%, although this is what everyone is focusing on, the second half, the right-hand side
of the screen and whether we're finding a bottom. the interesting part is there are these etfs that track them. the largest companies in china. one of them, one of the most widely held, if you can even call it that, it's about $5.5 billion in terms of asset size. this is the i-shares fotse 25. traded in hong kong. those shares down 1.5%. you would expect to see a larger decline given the dire gdp numbers. you can see here over the last year now we're talking relatively flat -- >> but that's a hong kong etf. not a shanghai. >> a lot of these are because they're not exactly accessible to a lot of these funds. some funds track those a shares but not a lot of them. two other ones that are some instruments investors may use, mchi, 1.7, $1.8 billion in asset size. not tiny but not huge and the spdr s&p china. that's about $800 million, $900
million. those are three larger etfs investors will play. we want to keep an eye on that because for many investors and traders they use these as proxies for the chinese market. there's a whole host of issues as to why people don't want to necessarily use them, but still for at least most retail investors, those are some of the etfs, the bigger ones, you will want to follow given what's happening in china. >> dom, thank you very much. mandy? >> just a moment ago we were talking about ib m, but a lot of other tech earnings are in focus like yahoo!, amazon, and microsoft. they're all reporting this week. will good numbers push the market higher? joining us is tim ang and sandy lincoln, chief market strategist. thank you very much for your time. tim, what are you expecting from tech this season? >> well, tech is going to be very much of a market that's divided, mandy. in short, techoverall is supposed to be coming in at about a 0.2% earnings rise, but
you have to differentiate between the different sectors. it's going to be difference between storage and capacity, which is going to look a little bit better. the hardware is going to look much better, but i think it's also going to be one that's very much event driven. look at the announcement this morning, microsemi making a bid for sierra pmc. you sue taw the surprise with michael dell making a bid for emc. storage is attractive, vis-a-vis some of the semis and some of the other sectors. >> you make an excellent point, that you really do have to look at the subsectors. you can't lump under one umbrella. sandy, do you like tech at this point and which subsector and how much of a focus will the strong dollar be as a headwind this season? >> well, i think mandy, the spount a good one it's a split personality in the sector for sure. i think if you look at the rotation out of some of the
lofty pe multiples we were referring to that are frequently common, you are seeing rotation to the lowly pes, the hardware driven activity. and to the degree we see decent numbers out of semis, that could mean good thing for the global economy as well, which a lot of people forget because that semi is a really important industry to the total economy as well. so if we started to see some consolidation and improvement there, that would be a good thing. so from our viewpoint, mandy, one of the key things you want to look for in here is top line revenue growth. over the last 12 months companies that have grown revenue double digit have been rewarded with double digit price gains. it's much more a stock market selection activity now than it is the general market lifting all the ships. >> very quickly, sandy, i see your top pick is not tech. it's columbia sports wear which has already done very well so far this year. up 30%. you still like it? >> we still like it, mandy. a really good story.
small stock, $4 billion in market cap. double digit earnings gains, high single digit sales numbers. great global distribution, great brand names within the products. so even though it's 21 times forward earnings, we think the financials continue to support the name, mandy. >> got it. thank you very much, tim, sandy 37 you can check out more investing tips from tim and sandy on powerlunch.cnbc.com including what to avoid right now, which as you say, ty, is just as important as what to like. new rules for anyone planning to buy and operate a drone. we will tell you what they are. and the defense sector holding up over the past year up 7%. lockheed martin kicking off earnings tomorrow. will that trend continue. we'll examine after this short break.
welcome back to "power lunch." i'm mandy drury. the fcc investigating at&t, century link, verizon and frontier over alleged anti-competitive practices. a u.s. jury in federal court ordering apple to pay more than $234 million to university of wisconsin's patent licensing arm. this is for patent infringement on microchip technology used in some iphones and ipads. and ibm in advanced talks to buy the weather channel digital assets. the company is owned by nbc universal and two private equity firms. ibm is down by 0.9%. let's get a market flash now with dom chu. >> shares of abercrombie & fitch
are hitting lowest levels so far today despite having an upgrade by analysts. they've been raised to a hold from a sell. one reason for the upgrade is encouraging signs that abercrombie's pricing survey is coming to fruition. the stock is down about 28% so far this year. so, again, watching a & f shares today. federal government announcing plans requiring anyone buying a drone to register the device with the u.s. department of transportation. eamon javers is live in washington with the details. hi, eamon. >> hi, tyler. they're moving very quickly on this. officials just within the past hour or so saying they hope to have a task force up and running and issue a full report by november the 20th, and then they hope to have final rules in place here for drone owners by the christmas selling season when they expect a whole bunch of these devices are going to be sold. the reason for all of this urgency, the secretary of transportation said, was although there are legitimate
and beneficial uses for drone technology in the economy, there have also been a number of scary incidents. take a listen. >> we've also seen unmanned aircraft interfere, not help, with our lives. most recently in california during wildfire operations. some have come too close to airplanes and airports. and even at the u.s. open tennis tournament in september, an unmanned aircraft flying in a densely populated area near laguardia airport crashed inside arthur ashe stadium during a match. >> tyler, there are a bunch of unanswered questions still remaining in all of this. they're going to have to be ironed out and ironed out quickly. this is lightning speed by federal bureaucracy terms. one of the questions will be how much information are they going to require that you turn over when you register your drone. another one will be whether or not they're going to require that the drones have some kind of transponder device on them that would alert law enforcement
and the authorities remotely about who the owner of that drone is that's operating it and maybe straying into restricted air space or some other dangerous use. >> a brave new world we live in. thank you very much. take a look at the etf tracking aerospace and defense stocks. it's up about 7% in the last year, but it is slightly lower today. lockheed martin is kicking off earnings for the sector tomorrow. the stock is down slightly today but is up 18% over the past year. jane wells is live in los angeles. give us a preview, jane. >> well, mandy, to avoid a war of attrition, the industry is doing a war of adjustment. defense companies ever restructuring. guidance tomorrow may be based on two scenarios. one where the government comes up with a budget this year and one where it doesn't. so far it hasn't. and if that continues, the pentagon is going to buy 19 fewer f-35s for the year. that will drive up the cost of each individual plane making it less attractive to foreign
buyers. the f-35 is lockheed's cash cow and while the pentagon's chief check writer told me that it, quote, no longer keeps me up at night he's been critical of the way the program has been rolled out. >> i term this acquisition malpractice is few years ago. starting production before we had a stable design was a mistake. >> all right. kendell also wants to stop future mergers between big contractor. he thinks that cuts down competition. lockheed is looking for norn military markets for products like it's k-max drone helicopter which can help fight fires. we're also waiting on whether lockheed gets a piece of a huge new air force contract that is due any minute. analysts expect profits last quarter fell 1%. many still look the stock as a
safe place in this market. now, more on frank kendall's hard-core efforts to cut costs in defense spending and what his fears are about the unintended consequences. that's right now on cnbc.com. back to you. >> all right, jane. thank you very much. yahoo! shares have been tanking this year down 33%, and news today that another top executive is leaving the company. so is yahoo! in the middle of a brain drain? plus -- >> hey guys, i'm dan val tri, co-founder of weebly. it may look like i'm getting a massage but i'm actually at work. coming up on "power lunch," i'll give you the full tour. understands the life behind it. for those who've served and the families who've supported them, we offer our best service in return. ♪ usaa. we know what it means to serve.
website hosting service weebly started ten years ago by three friends on campus at penn state has now grown to a company with 30 0 employees globally, bt one of its secrets to growth may just be their innovative office environment. we took our cameras inside the san francisco headquarters as part of this week's "office envy." >> hi, cnbc. i'm dan veltri co-founder of weebly. i'm excited to give you a quick tour of our office space in san
francisco. hey, kelly. weebly is an easy way to create a website. we empower entrepreneurs from around the world. we have an open plan environment here. allows people to collaborate well but we also give people noise canceling headphones to keep the noise out when they're trying to concentrate. we have our data analytics team, accounting, legal, and our operations team. we have our snack shelf, my personal favorite here is the peanut butter m&ms. all our conference rooms are named after something significant to the kpt. 116 beaver hill. this is the dorm room in which weebly started. speaking of my co-founders, let's see what they're up to over here. what's up? i have "power lunch" with me. this is dave on the left and chris. the library has a bunch of board games over here and a lot of books. this book though is really special hitchhiker's guide to the galaxy. if you pop it, it actually reveals a secret room. we have meetings in here, do poker, close a deal, have a shot of whiskey or something. in the kitchen we have
breakfast, lunch, and dinner. every wednesday we let an employee of the week pick their favorite cuisine. we have shuffleboard, pool, ping-pong and whatnot. this is our game room. this chair is really cool because it actually connects to the same chair we have in new york so we can actually play video games against each other. this is one of the most popular areas of weebly right here. twice a month employees can come in here, get a massage, relax, re-energize and get back to their day-to-day. "power lunch," thanks for coming through. mandy drury, we checked mandy drur drury..com is free. >> come over to cnbc and give us a little bit of that cool you have going on there. for more go to powerlunch.cnbc.com. ty? >> let's go to dominic chu for a quick market flash. >> we're watching shares of deutsche bank. the stock has take an dip. still positive on the day.
this on the heels of a financial times report saying that the bank is said to have again had a $6 billion trade error earlier this summer that was reversed the subsequent day. again, no financial risk was incurred by the firm at least according to this report, but it was more of an embarrassed, a black eye for the company. still deutsche bank shares in the midst of this sweeping reorganization of the company here. now this "ft" store comes out. it caused a slight move in the stock. we'll watch that stock this afternoon and more on "power lunch" coming up. so keep it right here. we'll be back in just two minutes. (vo) what does the world run on?
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ibm's three-year woes, yahoo!'s executive ebs doxodus, mcdonald's bold call. those coming up at the top of the hour. and i'm fully admit this, a story that serves no purpose other than to show you some truly gorgeous old ferraris but do you really need anything else? tyler? >> it's a pretty car. chief washington correspondent john harwood has sat down with some of the most powerful people in politics. you can go to cnbc.com/spe
cnbc.com/speakeasy. for more today, rand paul. >> bernanke has said he was a republican, of course, appointed by george w. bush -- and he was talking about people like you who want to audit the fed. >> he should also self-examine and look back at how he's been part of the problem and he should make the answer how is it a good thing to have price controls over the price of money? see, and this is the real contradiction that they don't quite get and they're unwilling to get. if you ask ben bernanke or any of the other so-called free market economists whether or not they're for price controls of eggs or potatoes or bacon, they say, oh, no, it causes a distorti distortion. but you ask them about money, and they say we should control the price of money. it's a fallacy in their argument. if price controls are bad for the market, they're bad for the money as well. >> you reject the charge of no
nothingism. >> let's have the debate. ben bernanke, come on. let's have a debate about what's best for the economy and mr. fixing the price of money is a good idea. he's going to have to defend the policy that led to the expansion of the home building and then led to a precipitous crash. these are all the same people, too. look at all their interviews leading up to 2007 and they'll say there's no way home prices could go down. they're all over the financial networks saying home prices have always gone up, they always go up, they'll go up 10% again next year and don't you fret, they will always go up. they've been wrong about everything and so, no, they need to answer that. and i think it should be illegal for nthem to lobby against my auditing bill. why would we let a monopoly come back to congress and lobby us against looking at their books? >> and, of course, tyler, before we debates ben bernanke, he's going to debate the other major
republican candidates on stage at cnbc's debate october 28th in boulder, colorado. >> and we'll be watching once again. it's october 28th, the same day as fed day. a huge day out there for the markets and politics as well. dominic chu has a quick market flash. >> starbucks shares are up about a percent on news it's partnering with a german-based supermarket. they currently have 159 cafes in that country. it will unlock access to more than 3,000 locations in that region. this expansion will begin next year. the stock is one of the year's best performers in the s&p up by 48%. back over to you guys. >> and that it is for first hour of "power." 21 seconds over the first hour. >> sorry, we stole 21 seconds from you, brian. >> we'll pay you back, brian. >> i owe you. >> it's 30 now, mandy and tyler. thank you very much. it is 2:00 on wall street, 11:00 a.m. on the west coast. good morning, everybody out west. the dow is down as oil losing a buck a barrel. happy monday. i'm brian sullivan. melissa lee is at the nasdaq.
the dow struggling to find its way today. you can see a little over half the stocks are down. we're down 21 points, not a big day at all but dow component ibm has been struggling to find its way for going on five years now. annual revenues abobelow where y were in 2010. ibm management has been making a lot of changes and saying how things will get better. here is all you care about. is there any reason ib m deserves your money? james kisner is the an analyst, kim forrest an investor. kim, you have done it before but do it again. make the bull case for buying ibm please. >> it does. sometimes you just have to hold your nose, look at what management want tos s to do, and onto that stock. >> why hold on? you have made the case
succinctly many times. at what point do you get frustrated? >> whether or not you're frur traited, what you want to know is are things going to get better in the future and what's your time line? my time line is pretty long, three to five years, and i think given their focus on moving clients to the cloud and their focus on watson and what it can do in the world of big data, they have a good go to market strategy and that's why i'm hanging on. >> i hear a lot of changes, i see bob dylan now in ibm tv commercials with watson. that's nice but i see declining revenues quarter after quarter, year after year and wonder when that turns. >> well, that's a great point. a little bit of it is it is a moving target. the company keeps refreshing its product offerings and that does mean getting rid of some high revenue but low margin business. so that's the other thing that you have to look at. follow the margins.
the margins have been holding up and actually since 2010 improving, so that's what we're looking at, not just the top line revenue. >> jamie, you have an underperform rating on the stock. $125 price target. while ibm is trying to right its own ship, the competitors seem to get stronger and stronger. we have a new dell/emc combination, amazon web services launching direct fire at oracle. if you thought oracle was a formidable competitor. what can you tell us abouti bm in terms of what you will be looking for this quarter to see if they are turning things around even as a competitive environment gets a little tougher? >> i guess there's a few things. so i view ibm as basically kind of short the base in i.t. and we're seeing acceleration so it's pretty bad for ib m. we're looking at the software
business. it's a huge portion of profitability. we believe that that software, it's legsy software, people are changing the way they buy it. that business is going to see more and more pressure. the other area is services. that's going to see pressure from aws and other spet fcompet. >> do you think ibm can turn things around on its own or does it need something else? >> one thing is valuation. it trades at ten times forward earnings and i look at peers like hp that trade at seven times and i just think the stock is too expensive, but overall i don't think there's really a lot they can do here. they're stuck with a lot of legacy businesses that are very tightly integrated. a lot of cross selling that occurs. i just don't really see an easy way out for them anytime soon. >> all right. james and kim, hey, good discussion there on a widely
owned stock. thank you very much to both of you. big blue reports earnings after the bell. catch that martin schr oeter. . >> another top yahoo! executive is leaving the companying jackie re sis is moving on to join square a month after the chief marketing officer announced her departure. let's bring in josh lipton with more on the story. >> melissa, a loss for yahoo!, a win for square. that is how the departure of jackie is being described. reses will be working at square capital. the companies cash advance business. in addition yahoo! also lost its svp of marketing partnerships and platforms. these are just the latest departures. back in september yahoo! lost another high provil executive, kathy savitt who left to join
stx entertainment. an analyst says the turnaround appears to be challenged. display revenue did climb 3% but search still struggling. investors clearly worried with that stock now down more than 30% this year. another reason for the departures, there's a lot of competition, he says, for talent in silicon valley and not just from those established tech giants but also startups such as square. yahoo! declined to comment for this story. guys, back to you. >> all right, josh. thank you very much. so is yahoo! in the middle of a big-time brain drain? joining us kara swisher, co-executive editor of recode. it seems like now weekly or monthly you are writing about some key yahoo! executive leaving. what the hell is going on at yahoo!? >> yeah.
that's a good way of putting it. i think what's happened is there was this whole excitement when marissa mayer was hired. she did a lot of aqua hires. the other thing she did was pay a lot of money and there's a lot of excite ment around her personal brand that maybe she could turn around yahoo!. the turnaround has been slow. we have been writing for years that this core business is really challenged and a lot of the stock rise which was attributed to her was very much due to alibaba, the asset that yahoo! has, the chinese asset that they own a big stake in and was worth a lot of money. so i think what's happening is as the alibaba shares get prepared to spin off and again alibaba is under pressure now, too, you know, you start to see the core business really still hasn't moved in the way that she had promised or that it's even possible. i'm not sure anybody could have done that without drastic
layoffs. >> kara, really except for retirement, there's only two reasons somebody leaves a job which is, number one, they get a better offer. they may like their job but they get a better offer so they bail or they feel like the company they're working for is in trouble and are looking to get out. which one do you think this might be? >> well, it's all different depending on the person. you know, there was a very important engineer who left rece recently who started this really cool startup. now, he was a chief architect of critical things at yahoo!. again, they lost two people in the information security area, one went to facebook and the other to apple. the person who went to facebook was followed by someone else who then went to apple months later. another engineer very critical engineer for the home page left to go to instagram. obviously those are better jobs. jackie reses' job is pretty exciting.
i think you don't go to other jobs when you feel something is going well at a company. it's been a couple years for this company for a turnaround and it's still not happened and it's largely due to secular issues around advertising and innovation where yahoo! hasn't been keeping up and i think it has contributed to that. >> all right. kara swisher of recode, thank you very much for joining us. take care. >> thanks a lot. another dow component aside from ibm getting a lot of attention today is mcdonald's. credit suisse calling it one of their top investment ideas despite the fact the stock is up 20% from the lows of just a few months ago. joining us is will and r.j. will, again, this is one of these stocks like an ibm, everyone is thinking they're going to turn it around, they're going to turn it around. are they going to turn it around? >> i think they're moving that direction, and this quarter is going to be a big step toward finding out if that's actually the case or not. so i think 80% of what we're focused on is what does the u.s.
look like? can we turn positive and then really more sustainably so down the road. i think what we're seeing now is even though we like this stock over the next 12 months, a lot of that is being priced in to the stock going into earnings. we're a limb more hesitant to jump in right in front of the curb rent given there's optimism being baked in. >> i look at this company and everyone has highlighted the problems. i'll look at the positives from. from 2004 to 2007, th11, this w great moneymaker. i wonder if all the money has been made. it's not failing but you move on to find money somewhere else. >> we'll see on that one, to will's point i think we're going to learn a lot from the quarterly update. if the company starts to show some momentum on the comp line, there could be more momentum to be had in this name. it could portend that they're on the right track towards sustainable top line growth. the company has talked about other structural moves they would take a look at whether it be real estate transactions,
additional refranchising. it could be another lever to get people ix sighted about this name. >> do you think they could sell off all their stores? >> not all -- >> make them all franchise owned? >> that could be interesting. i think they certainly have room to get to the 90%, 95% range franchise. and the real estate transaction, that's still a lot of moving parts to that. >> will, you're sticking with your $115 price target for now? >> we are for now. want to see what happens. interestingly, those points are all very possible. mcdonald's willingness to make any change historically has been pretty small. will the new management team make some of the changes? to be seen this week. >> guys, thank you. good debate on a hot stock as well. much more ahead on "power lunch." kind of appropriate given wre just talked burgers, including what your guest calls the best bank stock to own right now. plus an oil strategist says that crude oil is going to make a huge swing next year. you're going to want to hear his
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shares of morgan stanley taking a big hit after reporting an ugly profit miss. morgan stanley's report caps off what has been a you have to earnin -- tough earnings season for the big banks. >> in a quarter marked by steep declines at the big banks, morgan stanley proved the steepest. you have more than 40% decline in fourth quarter profits. earnings of 42 cents a share were 20 cents light. revenue missed estimates by over $1 billion. the fees morgan generates did increase last quarter and revenue generated from equity increase. it reported its worst quarterly performance since the financial crisis. morgan blaming an unusual trading environment which had an outsized negative impact on its larger businesses of credit and
securitized products. on the call, gorman brushed off suggestions the union he worked to shrink over the last five years needs further cuts. >> clearly this quarter it did not perform anywhere near where we want and expect and need it to. we're not complacent, but on the other hand we don't have a knee-jerk reaction based upon a 13-week period in a very unusual 13-week period at that. >> all three of morgan's main businesses, including the investment bank saw a decline. here retail client activity was muted once again because of the volatile markets. brian, back to you. >> thank you very much. there are certainly a lot of big bank stocks out there in the market but there are one or two which maybe stand out above the bank crowd as the best bets for your hard-earned investment dollars? let's bring in jason goldberg, managing dreshth director at ba. now that morgan stanley is over, how would you sum up this
quarter? >> i'd say a mixed bag. you look long growth continues to be in the mid single digit range. you're seeing margins bounce along the bottom and waiting to increase once the fed raises short-term rates. fee income was light. trading revenues were challenged. mortgage revenues declined as refi activity waned. it was met with stable expenses, only a modest uptick in costs and credit quality continues to be benign with a decrease in nonperforming assets and loan losses although you saw an uptick in loan loss provisions. >> i know you like citigroup, jpmorg jpmorgan, and wells fargo. wells fargo seems to be the housing play among the names. if you had to pick one to focus on, which would it be? >> we would probably go with citigroup. the shares are still trading below tangible book. if you look at results in this quarter, pretty solid. citicorp continues to grow revenues. they continue to wind down the
bad bank and citi holdings at a profitable level. credit quality was benign. some investors were concerned there. but the quarter came through just fine and they continue to execute on their plan and yet it's one of the few banks still trading below tangible book. >> you mentioned wells fargo as well. wells fargo is the only major banks to report an increase in revenue. i'm wondering if you think that the right play going forward is still to stick with these or to bet on the ones that could benefit more once the fed raises rates. maybe a jpmorgan or a goldman sachs could see the lift -- the real lift in trading for instance. >> generally speaking we think the group will benefit from higher interest rates. when that occurs, i don't know. one of the issues pressuring the banks throughout the year has been a continued push out in terms of when the fed ultimately will increase rates. we kind of recommend some of the quality plays but generally speaking we think the group will
benefit when rates ultimately rise. >> we appreciate your time and we're watching citigroup. >> thank you. up next, did you know and i did not that there was such a thing now as alcoholic root beer? seems like an oxymoron but there apparently is and it is apparently booming and we're going to have the stock that may boom because of alcoholic root beer. stick around. turns romantic, why pause to take a pill? and why stop what you're doing to find a bathroom? cialis for daily use, is the only daily tablet approved to treat erectile dysfunction so you can be ready anytime the moment is right. plus cialis treats the frustrating urinary symptoms of bph, like needing to go frequently, day or night. tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex. do not take cialis if you take nitrates for chest pain, as it may cause an unsafe drop in blood pressure. do not drink alcohol in excess.
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you might have heard about this, but cnbc, that's us, will host the next republican presidential debate. it will take place next wednesday, not this coming wednesday, but next wednesday. that is october 28th. it will be in boulder, colorado. the focus is all about money, your money, your vote, the economy, we're going to get their ideas. that's also the federal reserve decision day. that is a big day. all right. time now for "street talk" where every day we dig through analyst research to find you opportunities. first up, oracle. pacific crest securities downgrading the stock to a sector perform. they say no major downside to the stock but limited upside as well. and that while the move to the cloud is good long term, it may
create short-term volatility in the model. i do wonder if more analysts will have to cut their rating. >> just last week we got a downgrade from jmp. making it easier for enterprise customers to migrate to aws. you have to wonder what will happen to the rest of wall street and their ratings. next stock, ecolab. deutsche bank cutting this to a hold leaving the price target at $125. ecolab has had a stellar four-year run. shares were up 149%. compare that to the s&p 500. it was double the gains of the s&p 500. the analyst does think that those estimates will start coming down. >> to your point, you know, it was a $50 stock five years ago. it's at $118 and change now. it's one of the names nobody ever talks about but all its
done is make shareholders rich. stock three, sam adams because there are hopes that alcoholic root beer, yes, alcoholic root beer, trumps a slowdown in cider. apparently cider is slowing. cowan and company raises their price target on sam to $250 from $230. stock is already above $230. citing the strong emergence of hard root beer. they raised the estimates on the stock and the outlook for gross margin. do we just start putting alcohol in everything at this point? >> yeah. any flavor soda out there and stick some alcohol in it. i didn't know there was a slowdown in cider. i didn't know there was alcoholic root beer, but what i know is there's a slowdown in beer overall. people are drinking less beer and in particular light beer. this stock is down 16% year-to-date. >> isn't alcoholic root beer kind of an oxymoron. that's kind of the point, have a root beer. >> nonalcoholic root boar -- >> that's what i mean.
alcoholic root beer is alcohol and -- >> it shouldn't have it because that's the whole point. >> i get it. moving on. fourth stock here. solar city. today solar setting is getting a sell. launching coverage with a sell. solar city is really a leasing company and claims the company is engaged in subprime lending tactics and that, remember, is an allegation made by jim chanos. i have asked the ceo about this numerous times. he said the average fico credit score of its customers is above 735. the low score being 650. that is far from subprime but still the stock seeing pressure. >> all i know is this about solar city. you got very smart people on one side saying one thing. you got very smart people on another side saying something completely different. the average price target of the 17 analysts that cover the stock is $76 a share. 85% higher than the current price. i'm just saying if you buy this
stock, note that nobody seems to have a clear indication of which way it's going to go. >> right. >> all right. the last stock always the smaller name under the radar name today ism irati therapeutics. working on cancer treatments. barclay's beginning coverage with overweight and a $50 target. jonathan eckhart says many haven't been paying attention because of the specific kind of drug it produces. barclay's coming out and slapping a $50 price target on this name. >> its specific drug inhibits tumor growth. i don't know why nobody is paying attention to it. it's up 107% over the past 12 months. >> based in san diego founded in 1909 by the germans we all learned. that's it for "street talk" on a monday. up neck a bullish bet on oil. why crude is headed to $80?
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hi, everyone. i'm sue herera and here is your cnbc news update this hour. transportation officials announcing drones will need to be registered with the federal government. the move is being prompted by countless close calls between drone users and commercial aircraft. a task force is expected to make recommendations on what type of drones will need to be registered and that deadline is november 20th. cleanup crews removing the last of 100 cars buried on california highways following last week's mudslides. officials say tons of mud still needs to be removed from route 58 before traffic can begin flowing again. the hess truck is back but will it be better than ever. this year's edition of the popular toy will be available online and in a handful of toys. it's red, not green and white
this time. it has l.e.d. lights and it retails for 31 bucks. and one of apple's earliest computers going on the auction block. the starting bid for the 1976 apple 1 is just over $371,000. it includes the computer as well as the user's manual. that is very cool. that's the cnbc news update this hour. back to you, brian. >> my dad bought an apple 2 plus in 1981. cost like a couple grand, basically every dime we had. it did nothing. i wonder what that would be worth now. >> i don't know. you should find out if he still has it. >> i don't want to know because probably the fit bit on my wrist does more than that computer does. >> yeah, but memories. anyway. >> sue, thank you very much. let's go to the nymex where we find bertha coombs covering oil today. >> we're not going to close anywhere near $80 as your guest is proposing oil will go to. today between the strong dollar and the weak data coming out of
china, china's gdp with a 6.9% growth print, that just continues to cast doubt about the demand in this market. add to that the fact that we've got more supply coming on an already oversupplied market. iran securing 500,000 barrels a day in sales. back to you. >> all right, bertha coombs at the nymex. thank you. well, is oil really going to go to 80 bucks next year? let's bring in dave purcell. dave, we've got a lot of bulls on this show around oil and they make the case about how production is going to go down and maybe demand will go up. 80 seems aggressive. make that case. >> so i think you have to believe that the market is not as oversupplied as consensus believes. if you look at inventories in the second quarter of this year, the market is half a million
barrels oversupplied. july and august inventories, we're much closer to balanced. couple that with demand growth, although maybe slower than the stellar growth we're seeing today and non-opec supply is going to fall 500,000 barrels a day next year, so that puts the market clearly under supplied by the back half of 2016. now, that's not tomorrow, but those factors coupled into the equation boil out to be $80. >> you're in houston, you're probably an astros fans but you're kind of sounding like a mets fan. you have to believe. you have to believe. how much of your $80 is this is going to happen versus this is likely to happen? >> no, i think it's going to happen. we have demand is growing, 1.8 million barrels a day this year versus last year. we're slowing that demand growth to 1 million barrels a day next year. that feels very reasonable to us. u.s. supply we model falling
400,000 barrels a day year on year. that's almost a million barrels a day from april of this year to december of next year. the department of energy data is showing a steeper decline rate than what we're modeling. so when i think about the likelihood of it happening, i'm very comfortable with $80 in the second half of neck year. >> so, dave, i know you're the macro guy and you don't follow stocks per se, but there are plenty of other colleagues at your firm who do. do they take your $80 by midyear next year and put it into their model? because i would think there are plenty of stocks and plenty of analysts out there who are not modeling in $80 anytime at any point in 2016. >> i would bet their $80 doesn't hit many models for a long time. yeah, our guys do it. the challenge is the companies are going into planning sessions right now, and although companies want oil to be $80 in the back half of next year, they're certainly not planning on it. that's why rig counts have been
down 100 rigs in the last eight weeks and overall activity levels down 65% from this time a year ago, and that's ultimately what fixes the problem. it's companies can't pre-emptively bet on oil price because their balance sheets won't let them. that's perversely why this thing fixes itself. we have a variety of scenarios in the models, but ultimately i think most of the folks in our research shop would tell you they're on board with 80. >> all right. on board with $80. dave purcell. it was a real pleasure to get you on cnbc and "power lunch." thank you. we'll see you again. >> thank you. as the snazzy graphic says, it is time for "trading nation" because traders trade better together. let's bring the team together. erin gibbs and ari wald. erin, do you see health care continuing long term.
>> it's just popped back above 16 times frd eaorward earnings. that's been a good time to get in and it's traded even up to 18 times. so there's an -- on a valuation basis there's definitely upside. more importantly, this has the absolute strongest growth for not only the past two years but also one of the strongest sectors going forward. they simply don't have the deflationary pressures we're seeing in a lot of other industries and we're looking at three years of double digit growth if they hit their 12th growth for next year. overall definitely one of our favorite sectors. >> i think you said in an apolitical way health care costs continue to go up and more people are con sunlisuming it. after a spectacular five-year run, it has turned down recently. 50-day moving average below the 200-day moving average for the first time in four years. where do you see health care or the sector going? >> taking erin's bullish long-term view, taking the near term technical setup, now is the
time to start buying the health care spdr ticker. for us it's really a lot of tremendous support right here and it's very deeply oversold. this is where we'd expect it to stabilize. look at the sector as a whole. the spdr tracks the sector. consider how much it's run up over the past few years. because of that strong trend. there's a lot of support on the downside. we see a lot of support at last december's lows where we inflected from here. i think we will start to continue to build a case here and then consider how oversold it is. here is the second chart. that the number of stocks in the sector 234 an uptrend is at 30%. this is one of the most oversold levels since 2011. so still a lot of contrarian fuel here to help a bit of a relief rally. we see upside to the july level 20% away. we're positive on the group. >> ari, erin, thank you. for more "trading nation" head to tradingnation.cnbc.com, but
you know how to access websites at the point. coming up, 150 million americans expected to get a flu shot. that's got to be good news for the companies that make it. but we'll tell you specifically what stocks to watch. plus, meg terrell will show you how the flu shot is made. >> your flu shot begins with a flock of chickens in germany coming through this manufacturing facility in pennsylvania and finally ends up at your doctor's office and in your arm. next on cnbc, we tell you why every year it's a race against time.
more than 150 million americans are expected to get flu shots this flu season but the process started way back in february with scientists basically taking a guess. meg terrell joins us to explain how the flu shot is made. meg? >> that's right. it's really an educated guess. the flu vaccine changes every
year based on what strains of the virus are circulating and companies can't start that process until february when the world health organization settles on which strains should be included in the vaccine making that hypothesis of the upcoming flu season. public health agencies provide seed strains to the manufacturers. then enter the chicken egg or hundreds of thousands of them. >> egg is actually manufacturing facility, fully sterilized. just put it at the right temperature and put virus into it. >> glaxosmithkline tells us these are special eggs. the biggest risk to manufacturing is bird flu. the bird flu outbreak didn't have an impact on eggs. the eggs are checked over, power washed, and injected with virus and left to incubate for four to five days. the virus is then extracted and killed and shipped from plants in germany or canada to its
facility in pennsylvania to be outfitted into syringes. manufacturers have until early summer to finish making the vaccine, perform quality controls, and secure fda clearance or risk losing business. >> if you don't have your manufacturing and you don't have the doses, they don't commit to you, they commit to your competitor. >> the u.s. flu vaccine market totaled $1.6 billion last year with gsk capturing 12%. it's biggest competitor is sanofi with more than half the market. >> if they don't guess right on the strains, that's it. there's not enough time to make -- >> that's what happened last year when the flu vaccine didn't match up to well. i want to bring in les. is there an investable them? there are companies that make it, i imagine that's a drop in the bucket for them. >> that's less of an impact. we think and we own rite aid, for example, but pharmacies where everybody goes and gets it, hospitals when you get
really sick with the flu, those are two ways that you can do it. there are some over the counter manufacturers like johnson & johnson who sell a lot if there's a bad flu season. if there's no bad flu season, there's really no trade here. >> meg was mentioning last year when they guessed sort of the wrong strains and the flu season was terrible, did we see uptick for these companies? >> we did. almost everybody and i'd throw in even some of the biotechs like gilead who makes an antiviral. pretty much everybody did well except for the people who actually got the flu. >> right. and for the pharmacies i would imagine you go in to get a flu shot and you might pick up something in the front of store and that's really where the boost in business is. >> or once you get the flu because you didn't get the flu shot, you have to pick up a whole bunch of other things for colds and then you also pick up your bubble gum or things that make you feel better when you have the flu. >> kit kats always make me feel better. before you go, i want to talk about valeant. the stock is seeing a major decline in the session. the ceo mike pearson talked
about the environment making it such that he doesn't think drug prices will be as steep as they once were going forward. >> yeah. mike pearson addressing all these concerns on the call this morning saying given the environment, they have priced in more modest price increases for their drugs in the neck year and in years going forward. he also said they're not going it pursue these kinds of acquisitions of what they call mispriced drugs, drugs they think they can raise the price on. they're shifting their strategy away from that. >> i tweeted this out, if they're going to do that and shift their focus and focus more on sales volume as opposed to price increases and then also quadruple essentially their r & d spending for the next year. granded it's $400 million to $500 million, it's a drup in the bucket cared ompared to a big pharmaceutical company. this is a departure from why people were attracted. >> they're saying it's not as big a shift as what folks were saying. analysts were telling me, people
were really hoping for some kind of big move today. announcement of a big acquisition or something like that and they didn't get that. that's what's driving the shares down. >> you're not in valeant per se, but pearson seems to be saying there's no legislative action but they basically jaw boned their way into having us, the pharmaceuticals industry, not increase drug prices as much. it's as if the change is happening without even congress having to do anything. >> right. first of all, that shows the weakness in the business model of a lot of these companies. i'd argue it's not just jaw boning. should the administration want to do something, they could, in fact, give more money to the fda, things that don't require congressional action that could have that effect. maybe it's a good idea to get out in front of this pricing thing before you're writhing in the streets. >> thank you. appreciate it. brian, back over to you. >> thank you. well, the rich get richer. one billionaire just made a big bet and it's already paying off. we'll explain. and can you still make money
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nearly doubling today, actually they have doubled today. oprah winfrey is paying $43 million for a 10% stake in the company. remember though, the stock has had a terrible performance, down 50% in the past year. actually down 83% in the past two years, brian. i don't know what she's investing in, but she likes the products apparently. >> and it sure got a big bounce. consumer staples and consumer discretionary, the stuff you've got to buy versus the stuff you want to buy. just how strong is the consumer right now? jason pride director of investment strategy at glen immediaty says the consumer is showing signs of recovery and with cheap owe gas that's a part of your these sis, but tell us where y. dollar tree is a solid investment right now, jason. >> well, sure. first and foremost the backdrop here is one of a fairly resilient consumer. the consumer on the whole is
doing well from both an income standpoint as well as a growth in disposable income due to the decline in the -- in gas prices. a lot of people weren't thinking that was going to come through economically earlier this year, looks like the consumer is now spending majority of those dollars saved. this is a good place to be, we think it's a good place to be going forward. the place itself is relatively overpriced because a lot of investors have bid up the consumer names because of how well they have done, but there are interesting spots here. dollar tree is one of them, a great discounter with good same store sales growth as well as good square footage growth and good deployment of capital. pays a healthy dividend and it's been growing that dividend in its profits base pretty decently over the past couple years and we expect to continue to do so coming in the next coming years. >> home depot, we talked about the rebuild and refi boom last
week. is that the primary basis of your these sis around home depot or is it something more complicated? >> there is a home piece here, home sales have now hit a seven-year high, we're still getting back to the levels we saw in 2006, 2007, perhaps we won't reach those because they were a little ambitious at that point in time, but the home growth is leading people to do more to their homes. home depot in particular is a high profit margin, good use of cash flow story that centers on that theme. when people buy homes and invest in their homes they do so by going at it quite often with a home improvement stance, a do it yourself stance and going to home depot is one of the cheapest ways to do that. they continue to see that sort of flow into their store and drive in their same store sales traffic. >> how will either of these stocks be impacted by walmart, especially as it's going through
its turn around strategy. it is anticipated they will engage in a tough price competition over the next 12 months. >> sure. so, you know, a dollar tree tends not to focus and be in the same avenue of comps as walmart. quite often their overlap of visitors is not exactly perfect and, therefore, you know, they tend to not find themselves in as much competition with a walmart. home depot, look, if you are going out to make a big purchase and make a big decision on an improvement in your home, quite often you are not going to go to walmart and ask one of their employees for for advice on how to do a major project, you will go to a home depot or lowe's or one of your local competitors but a home depot will drive a good amount that have capture of spend on the home, particularly when it's a more involved project you are looking to do. >> jason, thank you very much. coming up, we've got all the angles of ferrari's big ipo
covered, including the company's exclusive $1.4 million car. we've got pictures, video. this is tv unless you are on the radio and then we will describe t back after this. real madrid have about 450 million fans. we're trying to give them all the feeling of being at the stadium. the microsoft cloud gives us the scalability to communicate exactly the content that people want to see. it will help people connect to their passion of living real madrid.
details inside that meeting on sunday between wynn and some of the macau officials and what the trade is at this point between the casinos and macau. it is expected to be one of the hottest ipos to hit the market, we are talk talking ferrari. >> this is one of those ipos where many people will want a piece of t let's remind what is going to be happening. 17.2 million shares priesd between $48 and $52. final pricing tomorrow, first trade on wednesday morning. from talking with people on wall street, oh, yeah, they want a piece of ferrari. >> it's a tremendous asset that performs throughout the market cycle. there are not many assets like this. i do not think albertsons or any of the other ipos are close to the quality of the brand or can perform throughout the cycle like a company like ferrari could. >> that's the ipo. what's the implication for sergio marcione and fiat chrysler. they are spinning off ferrari.
this is part of a number of moves that will ultimately net $5 billion to fiat chrysler, part of funding a big expansion over the next five years. most of the vehicle growth will come from jeep. look at the growth, brian. we've talked about how red hot this brand is and most of this so far has been in north america. that 179 milli.9 million will b from shares overseas. fiat chrysler up fractionally today. >> i was off on thursday. i bought a durango. it's not an endorsement, but i bought a durango. add one car. >> i will be sure to tell sergio on wednesday. >> it's got the big engine, it's very environmental. phil, thank you very much. if most ferraris were not exclusive enough, they are now launching a limited he had digs
ultra exclusive scar. robert frank joining us on a story about a car much different than the durango. >> they are called halo cars, they create a halo around ferrari, even as its other cars become more common, the latest is the louisiana ferrari, only 499 to be produced. it was surprised at $1.4 million, that's only if you were allowed to get one and not many customers did. for every guy that got a ferrari there were many more customers that wanted one and a lot of people got frustrated. there is now an emerging market for la ferrari flippers. we caught up with a car dealer in florida who is making a big get on la ferrari inflation. >> if i make a half a million dollars or lose a half a million dollars the experience is good. in the long run if i can afford to hold the car it's going to be worth a lot more money. >> he bought the car from steve
wynn. he hopes to sell it for $5 million, more than three times the original retail price. so far no takers but he is using his la ferrari to take his daughter to school. sure beats the school bus. back to you. >> not knot a bad way to roll into close. robert frank, thank you very much. thank you all for watching. watch "fast money" at 5:00. "closing bell" starts right now. hi, ever been, welcome to the "closing bell" on moon, i'm kelly evans. >> and i'm bill griffeth. china's gdp number out last night was weaker than expected but not as weak as feared. but it has sent commodity prices lower today. not just oil, but energy stocks are also taking hit. we will dig deeper into what's behind that move coming up in just a few minutes here. >> and disappointment on wall street as morgan stanley under pressure today after the