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tv   Power Lunch  CNBC  November 9, 2015 1:00pm-3:01pm EST

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>> cisco quickly. >> and we've heard from big cap tech, they've done extremely well. can cisco continue to run to the upside in i think they can. >> i'd be interested to see what they have to say. thank you. we'll see you tomorrow. "power lunch" begins right now. scott, gentlemen, thank you very much. welcome, everybody, to "power lunch." glad you could be with us. along with mandy drury, i'm tyler mathisen. stocks selling off this hour. the dow negative again for the year. wall street's so-called fear index is soaring. why and what's next? despite the wild rides, defense stocks continue to fly high with two major military moves involving the u.s., russia, and iran. will the sector keep marching to victory or is this already baked into the stock price? and reits have been a go-to trade in this low interest rate environment. should you get out of them if you own them as the fed begins to hike rates?
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>> tyler, we begin with the sell-off on the street. a triple digit drop for the dow with the major averages down more than 1%. this is actually we haven't seen since late september for the dow and the s&p. we've been sort of a little bit complacent recently after all the volatility of late august and september. the nasdaq is down by just over 1% along with the dow and the s&p. let's get more with bob pisani at the nyse because you have fears, bob, about retailers reporting this week as well as, of course, the rate sensitive stocks in the firing line as well, right? >> that's right. a number of different issues here. six stocks declining for every one advancing. look what's popped up again, the vix. we haven't seen this move double digits since the end of september. it's 16 and change. i don't get concerned until it's over 20, but this is a move we haven't seen in the last five or six weeks. why the drop? mandy is right, a couple reasons here. there is continuing concerns about the reverberations on higher rates that are out there. there's also cross currents.
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the global economy is still weak. overnight china reported that exports in october fell for the fourth consecutive month. and finally, we've had one heck of a run in the last six weeks. the general indices are up close to 10% in six weeks. so we're a little overbought. stocks are a little expensive at this point. take a look at interest rate sensitive stocks. they were hit on friday, again today. that's the reits. home builders there, that third one is the eem, emerging markets, and oddly utilities which was hit notably on friday is not today for some reason but interest rate clearly an issue here. mandy mentioned the department stores. this week the department stores will start reporting. they report on a one-month lag compared to everybody else, so we'll have macy's on wednesday, kohl's and nordstrom on thursday, jcpenney on friday. citigroup was negative on it recently. jpmorgan was negative on the group. noticeable declines here. 4% and 5% for that group overall. finally just note the transports can't get anything going as well.
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airlines are weak, even the railroads like csx are on the downside. fed ex also weak here. 6 to 1 decliners to advancers. back to you. >> boy, that is really the case. i'm looking at the heat map and it is really a red letter day. uptown to nasdaq. it's the biggest loser in percentage terms right now down 1.2%. small caps and chip stocks have been the weak link there today. bertha coombs is on site tracking the movers. hi, bertha. >> it's a little about the of a reversal from last week. last week it was the small caps were the outperformer, today they're the worst. and incyte, today it's getting a bounce. bear in mind on friday incyte fell 14% following negative results for a cancer treatment it was going with merck. priceline sis seeing its bigges decline since december of 2008 after a disappointing fourth quarter outlook. the strong dollar is hurting
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international bookings. it's weighing on the number of the travel stocks like trip adviser and expedia today. chip stocks is where some of the pain is. the semi-conductor index under pressure today. take a look at the china stocks. those with china exposure under big pressure. wynn resorts in particular. macao gaming stocks falling. november macao revenue expected to be down 30% after a 28% decline in october. chinese travel site seatrip one of the biggest losers, a double whammy on the travel and china front. >> thank you. a news alert in the bond market right now with 3-year notes up for auction. rick santelli is watching all that action at the cme. what grade would you give it? >> i gave this one "c" as in charlie, but this was a tough one to grade. if we just look at the notion of
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24 billion 3s, one issue market was bid around 127.5 which was the high yield, but it priced a little lower than that. 1.271 is where the yield was set. that all looks pretty good. and when you look at the indirect bidding at 40.8, there's a bigamy news. at 40.8, that's the weakest since november 2014, but flip it around. directs were 15.1 which is the best since that same period of november '14. bid to cover, weakest since october of 2009. so it was really a mixed bag. i give it a "c" and it really probably explains how difficult it is for those involved in the process to step into the arena when yields are moving higher at a time where it may just be easier to wait and jump into the secondary market. mandy, tyler, back to you. >> thank you very much, rick.
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bob pisani earlier highlighted the rate sensitive stocks. diana olick is taking a closer look at reits. >> reits had been the darlings of low interest environment. take a look at the s&p all equity reit index, up over 40% in the past two years. then coming off the gains this year as talk of the fed hiking rates ramped up and especially it ramped up last week. avalon bay, an apartment reit, a steep climb over the past two years, but a precipitous drop over the past two weeks. boston properties also seeing a nice climb over the past two years but down dramatically in the past week. three apartment reits, equity residential, udr, and inco were downgraded to sell. equity reits had given investors
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nice gains in october. infrastructure led with 12.84% total return for the month. regional malls up 9.94% with industrial and shopping centers not far behind that. year-to-date, it's all self storage, manufactured homes and again those red hot apartments, but that said analysts at kbw say it's hard to find the positives other than attractive yields and cheap valuations. for half the sector year-to-date book value e clines have outpaced dividends paid. overall economic return zero. back to you guys. >> zero. no one wants zero. thank you very much, diana, for setting it up. where is the best place to invest your money in reits. mark hallie joins us now. as diana was explaining, it is a common assumption that reits won't do so well in a rising rate environment. but it doesn't necessarily have to be the case, does it? >> no, it doesn't. when you look at reits, it's
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primarily driven by private markets. only about 10% to 15% is in the public markets and the private markets are doing quite well. when you look at supply and demand, that's what's driving the real estate underlying valuations of these reit stocks. >> when the fed does finally start raising rates, it's hopefully for the right reasons like better overall growth and rising rents and rising rents is one positive for reits, isn't it? >> absolutely. historically real estate and reits have been a good hedge against inflation. when you look at real estate and reits, it's not just a single asset sector. you have to look at duration. you have apartments and hotels which have been benefiting from the increase in activity to long-term leases like health care or infrastructure which will have the potential to decline with rises in interest rates. >> let's talk about some of your picks. one was one that diana pointed out as having had a steep fall over the past week and that was avalonbay. >> we look at avalon as a very good company, good management
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team, excellent markets and the ability to self-fund their development pipeline for good growth. when you look at multifamily, it's a graeth sector to be in. there's still millennial demand driving this group and when you look at the occupancies across the sector, you're seeing 95, 96% occupancy. fundamentals, you have excess supply and not a lot of demand. banks aren't lending for speculative new development. >> super quick the other two are general growth and camden property trust. >> sure. camden benefiting from the same macro economic driver as avalon and you're seeing markets which have been overdone, oversold in houston but still good management team, and general growth in the retail sales should do quite well. they're not in the tourist exposed market where we see hits from currencies. fundamentally class a regional malls are still doing well. you're seeing growth in tenant sales and they're moving along in excess of cpi. >> thank you very much for joining us today.
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>> thank you. >> mark hallie. tyler, over to you. >> the major averages seeing their biggest drop since late september. where do we go from here? why the bulls may go into hiding in 2016. we've got the bearish call you need to hear and at least be exposed to. you're watching cnbc, first in business worldwide. we've got the bearish call you
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my name is griselda zendejas. i love working in the salinas area because i always wanted to do something where i could help people around me.
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so being a construction supervisor for pg&e gives me the opportunity to give a little bit back to my community. i have three boys. they're what keep me going every day. our friends, families live in the area. and it is important for all of us that we keep our community safe. together, we're building a better california. welcome back to "power lunch." i'm mandy drury.
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valeant is bright spot in today's sell-off. they're holding another conference call tomorrow to give an update on the business. the stock is up by 2.4% after a steep fall year-to-date down by over 40%. shares of plum creek timber tracking for their best day since march 2009 with a gain of 17% today. the forest products company being bought by rival weyerhaeuser. plum creek shareholders still need to okay the deal though. and shares of dean foods surging. beating profit estimates and raising its full year forecast. the shares are up by 4.5%. ty? >> mandy, the end of a two-term presidency marks the beginning of new leadership for the country but it also may mark the start of a bear market. here to explain is larry mcdonald, head of u.s. strategy at societe generale. good to have you with us. this is a historical pattern. take us through what the data
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say. >> if you look back over the years, eisenhower, nixon, reagan, clinton, bush, at the end of those two terms, there's always been disruption, and sometimes it comes from political elements that are inside the administration, and a lot of times it's because of economic breakdowns, but at the end of the day we've got -- over the last 50 years during the end of a two-term presidency, we've got an average decline of 28% to 30%, so there were some substantial numbers that back up this historical element. >> nixon obviously didn't serve out the end of his second term. i guess, but what are you measuring there? are you measuring the last two years of the presidency? >> well, the disruption typically comes within the last year and a half to two years, and if you think about what happens is the voters and the investors listening to us right now, they don't -- there's so
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much uncertainty, we don't know who the next president is going to be, and the other element is if you think about what mr. trump has recently said about obama and the fed, he's basically said the fed has been too accommodative to try to help the president. this is what donald trump has said. and today a fed governor said if we're too accommodative we build up excesses in the credit markets. i've been talking about the excesses in asia but the credit market excesses could alter the path here and create a problem. >> so what do the odds say with respect to the probability of a bear market between now and the end of obama's term in 2017? >> well, our team, andrew lapthorn has been very helpful and we have a team of analysts, our model, we're up to near 30%. it's the highest level since 2007 in terms of a bear market probability, and we look at all different types of indicators.
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we've got our lehman risk indicators but the most upsetting thing is credit is breaking down globally in terms of emerging market credit, in terms of the credit quality and yields in the united states. the spread between, for example, single b bonds and investment grade or aa bonds is the highest it's been since 2007. we're seeing disruptions in the credit markets that could lead to weakening the equity markets. >> all righty. thank you very much, larry. we appreciate it. larry mcdonald from societe generale. >> when talking about of the presidential race, ben carson continues to defend his recollection of the past amid growing questions about his personal history. john harwood joins us now with all the details. john? >> mandy, ben carson is discovering that higher poll numbers in a presidential race means a higher level of scrutiny. now, he's not a politician or
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hasn't been a politician previously, so he doesn't have a record to pick over, but, instead, people are going through his inspirational life story to check up to see how well the story matches the reality. that produced this contentious friday night news conference at which ben carson was defending his claims to have received an offer of appointment to west point. >> something that happened with the words, a scholarship was offered, is a big deal, but the president of the united states, his academy record being sealed -- wait a minute -- tell me how there's equivalency there. it doesn't matter where it is. that's a silly argument. tell me how there's equivalency. >> you see ben carson trying to turn it back on the news media, raise questions about the scrutiny of president obama. he continued talking to our colleague chris jansing on "meet the press" saying that simply this level of scrutiny to long ago events is not appropriate and not precedented.
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>> you said this 20 years ago, this didn't exist, this didn't exist, i have not seen that with anyone else. if you could show me where that's happened with someone else, i will take that statement back. >> now, this just adds to the unusual nature of this particular race where donald trump and ben carson both very unconventional candidates now are commanding about half of the republican vote, but interestingly, republican insiders don't believe either man can be nominated within the republican party which is why the betting markets have established marco rubio who has less than half the support of either of those men as their favorite for the nomination, guys. we'll have to see how it unfolds over the next few weeks. >> thank you very much, john harwood reporting. check out the defense stocks so far this year. despite the market ups and downs, these stocks continue to fly high with two major military moves involving the u.s., russia, and iran, how much longer can the sector continue its winning streak? that is next on "power lunch."
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an organization serving the needs of people 50 and over for generations. remember, all medicare supplement insurance plans help cover what medicare doesn't pay. and could save you in out-of-pocket medical costs. call now to request your free decision guide. and learn more about the kinds of plans that will be here for you now - and down the road. i have a lifetime of experience. so i know how important that is. welcome back to "power lunch," everybody. i'm mandy drury. two big stories out from the defense sector today. jane wells joins us with more details. hi, jane. >> hi, mandy. well, defense stocks are down today. that may be more to do with what's happening in the dubai air show. it's a little sluggish at the start. however at the same time, we may step another toe in the proverbial syrian water because
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defense secretary ash carter says the president is willing to send more troops to fight the islamic state in syria beyond the 50 special ops forces which were announced late last month. however, carter tells abc's "this week" this would only happen if the u.s. can find enough locals willing and able to join the fight. quote, you need to have capable local forces, that's the key to sustainable victory. minetime, russia has followed through with plans to sell its s-300 surface to air missile system to iran despite concerns of some of iran's neighbors and the u.s. russian officials say the system is only defensive. speaking of missiles, what the heck was that people in southern california were asking saturday night. it scared the bejesus out of some people. it was a test of a trident missile launched off a submarine off the coast. it wasn't armed and more tests of something or other may be continuing as l.a.x. says late night commercial flights are being rerouted through thursday so they don't go over the ocean
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because the military is active in that area. by the way, that's an expense tiff test. those trident missiles cost about $70 million a piece, but i guess you have to make sure everything works. >> that's amazinamazing. thank you very much, jane wells. as the military expands its presence in europe and does tests like that, is that a bullish sign for the defense stocks or is it already too late to get in? howard row bell is a defense an lest with jeffries. good to see you. you think the defense sector has lots more room to run, why? >> i think i will use jane's comments and expand on it rather than have a toe in the water, you want to have a toe in syria and that's an optical wire guided missile built by raytheon we're using right now. >> so you think that our involvement in that part of the world, our build up of forces in
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europe, all augers strongly in favor of investments in domestic defense stocks. do you have two or three that stand out in terms of investment potential? >> yeah. i mean, i think it's really a munitions story in the near term and there's three companies that supply products, raytheon, orbital, and general dynamics, and each help troops on the ground and that's a big part of what's going on. the other thing that's going on that's very important is the u.s. has lost control of air space over syria because of the russians' air defense capability and there you need suppliers of electronic warfare and the leading supplier of that is raythe raytheon. >> are there defense stocks that are less appealing to you? conspicuously not on your list are lockheed martin and boeing. is that because you didn't think to include them or you don't like them.
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>> you said pick three and i picked three. you want to stay focused and those are some of our top picks. boeing has also been a top pick but that's a different story and it's more productivity and there's a lot of good things going on with air traffic. >> howard, let no one say you don't follow directions. i asked for three and you gave me three. thank you. >> you're welcome. >> we appreciate it, howard rubel joining us today. mandy? >> maybe follows orders better than we do. >> yes, clearly. >> stocks are giving back a big chunk of their recent gains today. the major averages are all experiencing their biggest drops since september 28th. the major averages are also in danger of breaking another positive streak. how traders are positioning themselves. that's coming up ahead. plus the president of the university of missouri resigned amid criticism of his handling of student complaints about race and discrimination. why university leaders failed and how to prevent it. that interesting story coming your way as well. don't go away from "power lunch."
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hi, everybody. i'm sue herera.
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here is your cnbc news update this hour. bond has been set at $1 million each for two louisiana marshals charged with fatally shooting a 6-year-old. both are facing murder charges in the death of jeremy mardis who was killed when the marshals fired on his father ae's car. a new orca experience will debut at seaworld in 20917. it's unclear if the same changes will be made to the orlando and san antonio locations. president obama has a facebook page and he's using his first post to talk about climate change. the president urges users to post comments and share his two-minute video on the topic. and the retailers would be ready for business on thanksgiving. target joining a list that includes toys "r" us, macy's, and staples in announcing they will open thanksgiving day and remain open through black friday.
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let the games begin. that's the cnbc news update this hour. back to you, ty. >> sue, thank you. the final grades on gold just crossing. let's go to jackie deangelis at nymex. hi, jackie. >> good afternoon, tyler. gold prices saw a little bit of a boost today after really having a bloodbath session on friday after the jobs report. it was this notion that we could see a december rate hike that really took gold prices down under $1,100. this $1,087 level is an area of support here. it could generate a little buying interest but right now traders aren't ottistic we're going to get over that $1,100 hurdle again. the rest of the metals complex today in the red trading alongside equities. a lot of those metals have industrial uses. when you see thedo dow down mor than 200 points, they tend to move down as well. markets starting off with a sell-off. let's check in with bob pisani. >> just off the lows for the day. look at the markets in the middle of the day. you can blame it on concerns about fed hike and other issues out there.
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i think we're overbought a little bit, six weeks market has been moving up. right now volume on the moderate side. i would note volatility is pretty elevated. the breadth 6 to 1 declining to advancing. everything is down a little bit more than 1%. energy, industrials, health care, financials, this is what i mean when i say a fairly broad decline. two groups have notable declines today. take a look at interest rate sen sensitive stock, reits, home builders, emerging markets, utilities oddly are not even though they got hit rather hard on friday. the other major group on the downside are department stores, as we mentioned. they're going to be reporting later this week. the last sector to really move and report. the retailers. citigroup and jpmorgan had negative comments on them and the earnings estimates have been coming down for more than a week. >> thank you very much, bob. so should investors be concerned about the sell-off after six weeks of gains? with today's drop, the dow is now negative again for the year.
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joining us david from atlantic trust and mark chief investment strategist at janney montgomery. are u.s. stocks beginning to look a little expensive and this is maybe just a bit of reevaluation going on? >> that's exactly our view. the market looked overbought by almost any measure. we're not put off necessarily by the pull back. woe wouldn't be surprised if it didn't run a little deeper before it was said and done. not that we need to test the lows set in late september, but in order to invite investors who are sidelined back into the market, we need to see a little lower prices and a little better valuations to entice investors off the sidelines for the so-called santa rally to take place. >> what about you, dave? what's your feeling on the topic? >> i'd agree with that. we saw a 12% rally from late september through last friday.
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six weeks in a row the market was up. so it's time for a little bit of pull back. even in the best of times, the market doesn't go up every day and we're not in the best of times. we have kind of mixed conditions regarding the economy and obviously i think with the fed getting poised to raise rates, it makes some sense that markets would get a little more volatile as they ponder what would be the first policy rate increase by the fed in over a decade. >> and it seems to be, dave, that the focus is shifting not -- the focus is shifting from sort of when the first hike is going to be, i think increasingly december seems to be the date that the market is sort of zooming in on. it's the pace of hikes and the terminal rate after that. what are we going to see and how will the stock market and bond market perform? >> you're right. markets are starting to look beyond the first rate increase to where are we going to be, say, a year from now? and our expectation is at the end of 2016 we will have seen three or four small rate hikes from the fed, so think of the
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fed funds rate. it now effectively is zero. somewhere between 1%, 1.25%, so that's higher but still well below the historical norms and our view is this is all happening because the u.s. economy is performing pretty well and that's a good thing, not a bad thing. so if the economy holds up in 2016, which we expect it will and we're looking at 1% or 1.25% short-term -- percent on short-term interest rates, that's not the stuff that will kill an equity bull market. >> all of that being said, mark, if you were to put some money to work into the market today, would you get better value -- will you get more potential upside in europe? >> absolutely. we continue to believe the european story is one in which we're seeing credit expansion help to facilitate obviously exceedingly low interest rates with the ecb contemplating even perhaps more stimulus as soon as their meeting in early december. in addition to that, they're benefitting from the same thing we are here in the united states, which is the tailwind from the gas tax cut.
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and so together with cheaper valuations, i think a much steeper earnings projection profile for european-based companies, that's a cocktail that's, i think, exceedingly attractive, and, therefore, we had bias portfolios to european equities. >> before i let you both go, to what degree has the emerging market thesis deteriorated with the stronger dollar? >> well, i think the pressures for the emerging markets are going to continue because of this renewed surge in the dollar. it's depressing commodity prices which is a key economic input for a lot of emerging countries. so we continue to underweight emerging markets relative to developed markets. >> dafer and mark, always good to speak with you. thank you for joining us today. you can go to powerlunch.cnbc.com to see what dave and mark are avoiding right now. that's powerlunch.cnbc.com. ty? >> all right. thank you very much, mandy. let's get a check on the bond market on the back of that weak 3-year note auction. mr. santelli tracking the
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action. hi, rick. >> hi, tyler. it's interesting, the word most commonly used to describe that auction that ended about 35 minutes ago, weird, and i totally agree. i might have been the first one to call it weird. look at a 1 day of 2 year and 10 year. the very short end that's most susceptible to what the fed may do and then the benchmark. you soo he a little volatility at 1:00 eastern. now, when you make it a 2-day, most of that disappears which shows the real story is the day-to-day staircase elevation of interest rates. on that 3-year, how far back do you have to go to see the yield in that dutch auction? all the way back to november of 2010, very similar to a 2-year note. tyler, mandy, back to you. >> all right, rick, thank you very much. let's look at the markets right now. dow, nasdaq, and s&p all sporting losses of about 1.25% to -- about 1.25% basically. what is behind these declines? we're going to ask a couple traders when "power lunch"
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welcome back to "power lunch." let's take a look at the shares of apache which are rising strongly today. the oil and gas company reportedly rejecting an unsolicited takeover offer from an anonymous bidder but that may not be the end of it. we'll ask an analyst if apache can go even higher. also shares of weight watchers are up again today. hedge fund manager steve coen disclosing a 6% stake in that company. in october oprah winfrey bought $43 million worth of stock and under 7 bucks a share. the stock is trading around $23 right now. so a nice little killing there, and shares of priceline down more than $100, $139 to be exact right now. that's a nearly 10% drop with fourth quarter earnings guidance well below what the street was looking for. a lot of disappointment being shown in that stock. let's check out what's happening at the nasdaq with
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wynn resorts among the biggest drags in the nasdaq 100. bertha coombs is following the other big movers there. hi, bertha. >> what we're seeing is the big caps are all feeling a bit of pressure dragging the nasdaq 100. apple had started the day in positive territory. it is starting to take orders on wednesday for the ipad pro just in time for the holidays but the stock has gone back into negative today. we're sort of seeing the same even with some of the momentum stocks, the f.a.n.g. stocks. amazon off 1%, netflix down 3%, and alphabet, parent company of google, also weighing on the big caps. what's interesting is we are watching the biotechs just inching into positive territory here coming off the low and some of the smaller cap names are actually some of the ones helping to buck the trend today. a number of them moving higher on news of the positive trials like isis, immunomedics, incyte
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pharmaceutical which had been off 14% on friday on a bounce back today with news a drug it's working on with lilly for rheumatoid arthritis had positive results. and yahoo! a little under pressure. our friends at recode reporting that yahoo!'s marissa mayer looking to restructure in the wake of a number of very high-profile departures among some key names now turning to the consultants over at mckinsey. you can imagine that doesn't really get much cred on the street in silicon valley, tyler. >> thanks very much. the major averages down 1%, a little more than that. the dow is off 200 points, down 1.13%. let's bring in cnbc contributor peter costa. peter, welcome. good to have you with us. is there anything unusual about this sell-off or is it just kind of what one might expect after six weeks of gains? >> no, i think it's typical. i mean, the market was overbought. i think everyone felt that way
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on friday. and i think this is a continuation of it. you know, it's not the end of the world. we're down 200 points. i think that, you know, we will probably have a little bit of a pullback that will continue for a little longer, not much. it's just typical, totally typical. >> we had a guest on earlier this hour who said that his work or his team's work at societe generale suggested a 30% chance of a bear market. that's not a majority chance but 30% is higher than it has been. do you see that in the cards? >> i don't necessarily think we're going to see a bear market. i do think there will be a corrective phase, but i don't think we're going to see a bear market. i still think that the bull market that we've had for the last six years, in the bigger, longer term, is still in place. you know, a little bit of a correction can't hurt. as a matter of fact, i think it would be very, very healthy. >> look who has come into the picture right there. he just wandered up off the street, matt cheslock, just
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wanders in. matt, good to see you again. >> good to see you, tyler. >> is this sell-off anything we need to be overly concerned about? i don't want to make more of a couple days of down prices after we've had six weeks of up. >> no, i wouldn't be concerned about this move at all. you know, in fact, if you had bought the last dip, you probably would have made a lot of money. take this for what it is. it's just a little bit of sell-off, a little bit of retracement. as peter said it's very healthy right now and, you know, there are going to be times to buy individual stocks during this, but i think right now what you're going to focus on is the retail earnings that are coming out this week. that could set the tone for the rest of the market and maybe some place to put your money going forward. >> what do you think the retail earnings are going to look like, peter, and would there be any buying or selling opportunities surrounding that? >> i'm sure there will be. i've not been a fan of the retailers for a very long time. i think the whole industry is going through a huge change. to me it's a little scary because i think some of the best names, you know, they get hit the hardest. i'm going to stay away from the
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retail sector. i still like the health care. i still like energy. i still like the financials, but retailers are just not my bag. >> you know, matt, we've been talking about interest rates going up for as long as i can remember. it seems like since i was a little boy we've been talking about the concern about interest rates. how worried should equity investors be about rising interest rates? you do see that the 10-year coyote has gone from a smidge above 2% now to almost 2.4% in a period of maybe 2 1/2, 3 weeks. >> you're going to find out what it means for equities. equities have had this established bull rally for about six years now. so, you know, modest uptick in rates really shouldn't affect, you know, equities as far as the u.s. economy goes, but, you know, it's going to increase borrowing costs and if china falters and the rest of europe is under a little pressure, it's going to affect us long term just in that nature of things. from a layman's terms, rising interest rates aren't going to be good, but it's not going to
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be the reason why we're going to see a massive sell-off. >> peter, a second ago you said you like energy. i think you said you still like energy indicating this is not a new thing. if you take a look at, you know, energy prices, oil, i mean they're just finding such a difficult time to gain any real traction, get back up to $50 and hold it above. what is it about energy that you like? >> this is a much longer term play. i think that when you have a well diversified energy company, you know, they look at things in terms of 5 and 10 years and i think that you pick the right companies in this group and they're the better managed ones, you're going to do well over time. s in not a short-term play because obviously oil is going to be stuck in this range, $45 to $50. it could be for, you know, this could go on for a year, but i do think in that time frame there will be opportunity to buy good names at a fair price. >> are you allowed to say which ones you like? >> well, i mean, i'm not an analyst but we'll do it as a
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personal preference. i still love exxon. i think that that company is, you know, as big as they are and as cumbersome as that stock has been, over the long-term this is going to be a great play. you know, and they do generate a lot, a lot of cash. so to me i think that would be my favorite. >> so peter, how did tennessee do this weekend? i don't even know. >> let's go over this again. they were fortunate to win the game against south carolina and not having steve spurrier on the sideline probably helped them, but they did win, so we'll take it as we can get it. >> go vols. that's the word from peter costa. matt, good to see you as well. mandy? >> let's take a look at the dow right now currently down by nearly 200 points. not the absolute lows of the day but certainly not looking good and also wiping out the gains for the year. yep, the dow is now negative for 2015. groundhog day, guys. much more market coverage coming up on "power lunch."
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welcome back to "power lunch," everyone.
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i'm sue herera with this news alert concerning pimco. according to dow jones, pimco has filt ed an objection in tha breech of contract lawsuit filed by bill gross. pimco calling that lawsuit, quote, legally groundless and a sad postscript to a storied career according to court documents. in the civil lawsuit, gross, as you may recall, accused his former colleagues of plotting to drive him out of the firm and in that he is seeking a jury trial and damages of no less than $200 million. basically pimco is filing the objection in the breach of contract suit and they're asking for that to be thrown out. mandy, we'll keep you posted. back to you. >> we certainly will. i feel like it's not the end of that story. thank you very much, sue. to dominic chu for a market flash. >> good afternoon. shares of frontier communications up by 4% after receiving a favorable proposed decision from a california judge over its planned acquisition of some local wire line assets of
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verizon. remember, the company has already received all other necessarily approvals including from the federal communications commission and the justice department. so, again, all part of the story here, frontier perhaps getting some more good news. the stock is down 27% so far this year. back over to you. >> thank you very much, dom. the big news this morning, the university of missouri's president resigning. was that a failure of leadership? we'll discuss that hot topic. plus, let's take a look at how some of the most widely held stocks are trading on this down day. "power lunch" returns in two minutes. i (state your name), do solemnly swear that i will support and defend the constitution of the united states
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against all enemies foreign and domestic... ♪ ♪ ♪ ♪ and the uniform code of military justice. so help me god. ♪
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coming up, we have got more on this weak start to the week. what has gotten the market so worried? we're going to dig in. plus, what the saudis are saying that is spooking the oil market. and we'll call these the decor wars. one analyst says buy this home retailer but sell this one. beth of those names coming up at the top of the hour. tyler? >> brian, thank you very much. the president of the university of missouri steps down calling it, quote, the right thing to do, and he takes full responsible for what he describes as the inaction that occurred on campus. more insight on leadership or the lack of leadership during a crisis like the one from mizzou
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from our guest bill george along with tim judge at notre dame's mendoza college of business. bill, tim, welcome. good to have you with us. bill, you have written a book on leadership. was this a failure of leadership and how would you characterize or describe it? >> well, i think it was a failure. i feel sorry for president wolfe and i'm not here to judge him, but i think it shows how tough it is to lead today and how you have to reach out to all your constituencies and be personally engaged, and i think he wasn't. after the problems in ferguson, i think he could have anticipated that there were going to be problems with african-american students on the campus, and so he let this thing get out of control, and in the end he did the right thing by resigning, but i think it's so important that you engage the students, you engage people that are concerned, you engage your faculty and it shows all these constituents coming in. you can't just engage the
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shareholders, you have to engage all your quaeticonstituencies. you need to listen really carefully and i think in his resignation statement he was clear in saying we needed to listen to each other better and that starts with the head of the organization being the one who is listening. >> mr. judge, how do you see it? >> well, i agree with bill. i think, you know, this is a situation where i think once the case had gotten to this point, there was little that president wolfe could do but resign and you have to ask yourself, okay, looking back, what could we learn from this? and i think a lot of it is this is a very public situation with the ferguson incident, and i think, you know, you look back on this and think, you know, when you see these incidents occur and they build up, the leader, president wolfe, there's a public side to this that the leader has to be very vocal, and i think dealing with this in private meetings was, you know, not the approach that many
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people expected because you have to set the tone, and you have to let the people who are sympathetic to these incidents know that this kind of behavior is not welcome. >> you know, mr. judge, i'm reminded of a case 40 years ago when i was at the university of virginia where there were similar issues over race that led to the student council and the members of the student body basically marching up to the president's home and walking right into the front door, knocking on the door, because he was judged to have been insufficiently proactive with respect to questions of race. how far, professor judge, have we come on race on campus? >> you know, i think in some ways we've come a long way, but, you know, you have to ask yourself why is it that some of these incidents keep happening around why is it that a lot of times we see our leaders fall into this same pattern of kind of closing the walls in and sometimes feeling the best way
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to deal with this is publicly counseling people and reassuring them. you know, i think you have to be more progressive and proactive. >> right. >> and these actions are absolutely outrageous, and i think, you know, all the students need to know white and black that that kind of behavior is not going to be tolerated. >> right. let me interrupt, bill, i want to come back to you. we have to take a quick news flash with dominic chu. we'll be right back. dom? >> tyler, the reason why we're bringing this to your attention is right now norfolk southern shares have been halted for volatility, have been for the last six minutes, up 5%. this on the heels of bloomberg headlines saying that canadian pacific rail is said to possibly be exploring a takeover of norfolk southern. norfolk southern shares right now halted for volatility. they're expected to reopen momentarily but they are up 5% going into this particular headline. we should note canadian pacific is still trading right now and it's currently up 5% as well. also watching, of course, the ripple effects from other rail companies like union pacific,
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kansas city southern as well. so rails very much in focus in this trade today. back over to you. >> all right, dom. let me turn back to bill george if i might. just tie it off here. i know you, bill, well enough to know that you believe that leaders lead, leaders engage, leaders get out front. is that where this president failed? >> yes, i think it was. he didn't sense the issue coming. he didn't anticipate it, and really sit down and have listening sessions. i went to georgia tech, tyler, and we were the first school in the south to peacefully integrate. we talked about it for a whole year before this happened and you have to get out and talk to the people on the football team, talk to the african-american community, talk to others and make sure there is understanding of what aktss and if there are students taking inappropriate actions it has to be dealt with very swiftly and you have to shut it off quickly because if you don't get out in front, then all the blame comes to the leader, fair or unfair. that's where it winds up. it's like the vietnam war protests in the '70s. >> so do i.
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we're old enough to remember them, both of us, bill george, thank you very much. tim judge of notre dame, thank you as well. and that, folks, does it for the first hour of "power." >> brian, we'll hand it over to you for the 2:00 p.m. show. >> thank you very much. it is now 2:00 on wall street, 11:00 a.m. at yahoo!'s headquarters in sunnyvale, california. dow and oil both losing a lot of money today. hi, everybody. i'm brian sullivan. melissa is at the nasdaq. as we noted, it is a weak start to the week. the dow is down by 200 pountint led lower by pretty much everybody. but we have got to get right now to bob pisani at the new york stock exchange because shares of norfolk southern have now reopened after a brief halt. what do we know, bob? >> well, they're up rather noticeably on good volume, up 11%. norfolk southern was $83 and change tooling along here down along with the rest of the transports. suddenly news report came out on bloomberg that canada pacific was considering a takeover of
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norfolk southern. we have not confirmed this. the companies have said nothing about this so bear that in mind. the stock was briefly halted. good volume up about 11%. canada pacific also up about 4% on that news as well. it's been overall fairly -- there you see the move. it's been overall a fair ll llyh day. we're down 200 points. this is the roughest day we've had in the last five weeks. the important thing, higher rate worries is the main issue for the markets. on top of that the global economy is still weak. china didn't have good numbers overnight as well. remember, stocks are a little on the overbought side right now. the other big story today, department stores are getting hit bad. generally negative comments from jpmorgan about earnings coming out. all the big names, jpmorgan and some of the other names will be reporting. nordstrom, dill lard's, all after the close in several days from now. the most important thing is they've generally been having warmer weather and weaker traffic overall here and less tourism spending in a case like
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macy's. that's a major issue for them. they have made that issue notable in the past here. a little excitement over the tra transports and a lot of discussion about what kind of earnings we'll see from the retailers. >> thank you very much. i guess you'd also want to look at csx and perhaps ksu, kansas city southern. csx much smaller. certainly those two names could also now be at least not in play but in focus of investors. forget the rails even though they're fun. let's pick up a few other factors at play in today's market slide and let's talk about global worries, okay? until the nsx news broke this was going to be the headline. the oecd shaving it's forecast to just under 3% from 3.3%, that's just weeks after the imf warned the world economy would
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grow at the slowest pace since the financial crisis. meantime, goldman sachs, which really coined the term bric, referring to brazil, russia, india, and china, believes clients should have some bric exposure but maybe less so. the brics now just becoming a part of the wall, but we don't need no education. also a big warning from the world's largest shipping line saying the global economy is slowing a the a faster than expected rate and the emerging markets etf, the eem down more than 2%. let's bring in paul chryst fer and tim seymour with 19 years of investment advice, also, of course, a "fast money" guy and a pretty good drummer. paul, we'll start with you first, on our wall of worry, if you will, which of those worries you perhaps the most? >> well, the brics really have had a hard time.
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brazil and russia in particular. they're in recession right now and, of course, china is slowing but china is slowing on purpose and it's slowing it's manufacturing sector. the consumer side still looks good to us. maybe they want to put the brics back in wall. >> you mentioned the "i" for india. russia, china, and the brazil especially not so much. do you see them, paul, recovering anytime soon or really india going to become its own story? >> i think india is a very interesting story going forward. it's really a diversifier among emerging markets, but china is i think the most interesting story although we have some concerns there for the medium term, two to three years out. i think there's no risk of a hard landing this year or next. simply put, the services sector is taking a lot of the slack that manufacturing is laying out
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and you have to remember the government will stimulate as it needs to. so if you think of india and china as maybe 1.5 positives and russia and brazil as 2 negatives, you really have a split game, a tie game. >> tim, i think a lot of concern for the emerging markets these days is what the impact of a rising rate environment will do. last rising rate environment we were in, the commodity cycle wasn't where it is in now. it was in an upswing which is opposite of where we are today. how will that change the outcome. some people will argue last time it was fine. this time it is different. >> it usually comes when there's global growth. does the u.s. have escape velocity here? emfx though for all the pain and all the fund outflows and, therefore, almost a manifestation of that have seen, you know, emfx is at its all-time lows. the south african rand all-time lows. even the mexican peso which i would argue is being unfairly
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lumped into a commodity export commodity is near all-time lows. you have had a major adjustment already. the fund flow activity tells you where sentiment is. goldman who pioneered this whole brand, it tells you that momentum is so low fore em, i think it becomes interesting. i may be talking by professional book but that's where i see it. >> the negative flows out of em is an indication to you to actually buy the space? >> yeah, and merrill lynch pointed out in some of the recent data that for $100 left em in september and october, only $2 has come back whereas in high yield $88 has come back. people tell you em is going to come back but a lot of people aren't following the trade. >> tim seymour and paul chryst fer, we have to leave it there. a big market flash coming up. let's go down to meg terrell with a market flash on mnk.
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>> it is sinking 22% before being halted. it just opened back up. this after a tweet from short seller citron research saying at these prices they have significantly for downside than valeant, a far worse offender of the reimbursementment more to follow. saying valeant can't live in a vacuum. it has to do with their acquisition of a company last year, about $5.6 billion. that company sold an old drug approved in 1952 for some rare diseases including infantile spasms and it raised the price significantly. it was a controversy four years ago. mallen krot has been the focus of other short sellers including david eye horn. >> we look at what krcitron is
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saying. i presume a report will be coming out. which is basically calling into question the third party distribution model. >> right. so it's a lot of the same concerns that have struck valeant. we should note that even though valeant grabbed all the headlines and has suffered the most market cap loss, mnk has been under pressure for the same pressure valeant was and they are also another hedge fund favorite in the pharma space. a lot of holders who have valeant are also exposed to m l mallinckrodt. >> mnk getting whacked down 21% right now. obviously a story just developing. we're going to follow that throughout this hour. thanks for being so patient. we've got more on yahoo!, more on the market sell-off, more on
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the potential deal for norfolk southern. speaking of walls, there's a big wall. a lot of stuff on that, a lot to do. we're back right after this.
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you're welcome. in 2014 saudi arabia produced over 11 million barrels of oil per day despite the fact that the price of oil is now down 40% in the past year. the saudis appear determined to keep pumping oil for the global market share whether it hurts
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their economy. lima kroft is joining us now. and you are somebody who is involved in political intrigue. you call this the game of thrones. >> the intrigue of saudi arabia. >> without getting into too into the weeds with all the players, what the heck is saudi arabia doing? they don't seem to care what happens to their economy. >> it looks like for now they're going to continue with the market share policy. we had officials over the weekend saying, you know what? we have runway to deal with this, we have the fx reserves, we can borrow. you're not going to pull back production. >> shouldying the oil markets in '86, but when you look at history, 1986 the price of oil collapsed in america, saudi arabia drove the price down and drove many american oil producers out of business forever. do you believe they're trying to do that again? >> what i think is interesting is the summer ever '86 they also called the russians and said you're in an expensive war in
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afghanistan, maybe you want to coordinate with us. what the saudis are also saying is we're not going to balance this market alone, and russia, the other big producer, you better do this with us. they keep saying they're not going to bear the burden of adjustment. it's going to be the other high cost producers, north america and russia, you better get in. >> you have the starks, the lansters, the bar rathons effectively in saudi arabia. we say the saudi royal family like it's a happy unit. no, it's intrigue. based on some of the moves and people who have been elevated inside the saudi power structure, where do you think they're headed? >> i think what's really interesting, what a difference a year makes, we now have a very young man basically calling many of the shots in saudi arabia. you have a deputy crown prince between the ages of 29 and 32 and he really occupies the most prominent political real estate in the country. 70 used to be young. 29 to 32 is really young. his rise has caused some
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backlash and not everyone is entire lly happy with the war i yemen and with the oil policy. >> what role if any about the bombing of the jet play, if any. talk about lansters and all that. that's it. so what does that do to this love triangle? >> i think it's going to make it harder to get russia/audi cooperation. i don't think you can have two tracks in terms of foreign policy now and oil policy. and the russians on the back of this bombing if it turns out to be a bombing are going to probably have to double down in syria, maybe put land troops into syria. now you have the russians and saud saudis squarely on opposing sides. there are reports the russians have been courting the houthis. i don't like to russia to help saudi arabia out of the bind. >> from an oil perspective i
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imagine russia more than anybody out there in the world my news venezuela needs to keep pumping oil as well. >> it's a race to the bottom. every producer who is circling the drain is like i have no choice but to max out my production. russia is at a post-soviet high in terms of production. going into this opec meeting, the question is who is really going to put their hand up and say, okay, enough. it doesn't look like we're going to get there in december but i say if something changes internally in saudi arabia, maybe we do. >> i referred to this as a game of global oil chicken. we think somebody will eventually turn the wheel and chicken out. sometimes they hit. >> times they hit. and sometimes countries you have the opec map up there, sometimes countries just blow out. there are a whole host of countries, venezuela, in iraq, libya, they really can't stay on this environment. so you have some type of epic political catastrophe in one of these oil-producing countries that need the revenue. >> do you think there's a chance
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russia could default? >> going into 2016, if we stay in this pronounced lower for longer environment, i think a lot of questions about sovereignty float around the table. >> always a pleasure to get your insight. >> thank you. another major headline hitting the wires this afternoon if there weren't enough already were that oil and gas giant apache was reportedly approached to be bought but turned it down. the alleged bidder not named but if the reports are true, it would have likely have been a major oil producer because apache's market can is $18 billion. gail nicholson managing director of klr group joining us now. gail, you increased your target to $72 for apache, 20 bucks more than the current price. how much of that was expectations of a deal versus simply the fundamentals of apache? >> there is no expectations for a deal in our target price increase. purely fundamentals from that standpoint. when you look at what apache has done, they've driven down costs, spent 12% less than the previous
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quarter but kept production flat. highlighting the efficiency gains. four the fourth quarter of '14 they have reduced loe by over 20% and driven efficiencies in the permian. we look at apache and we think there's high all assets. they have $1.3 billion of cash left on the balance sheet at year end '15. they really offer a potential buyer optionality for the future. >> what you're saying about the efficiencies, everybody has cutting costs but they're also selling a barrel of oil for half of what they were selling it for basically last year. >> absolutely. but i think what you highlight from the standpoint with apache is they plan to spend between $3.6 billion and $3.8 billion from a capital. they're going to generate almost $3.6 billion this year.
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they're roughly cash flow neutral versus a peer group outspending 30% to 40% due to the significant decrease in the commodity. they sit in a very nice position. sold over $6 billion worth of assets during the year and so they are well positioned to weather the storm, accelerate into an improving commodity price environment when we hopefully get one as we progress through the second half of '16 and really kind of put the pedal to the metal. >> gail, i get what you're say being the strong balance sheet. they're in a rarefied group with strong balance sheets but they have all materially underperformed their group over the past year or so. so at what point does shareholder pressure come into play, shoulders who are like it's got the strong balance sheet but the stocks have been underperforming? >> apache has had a management change and they've been very effective streamlining the business and reasideliligning ta of where they're spending the capital. i think you're seeing that through in '15. i can understand the
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disappointment in shareholders but we think in a better commodity price environment and on in course of action they have started in '15 you should see an appreciation. there's value wedges that haven't been unlocked. about 50,000 acres. they have the properties in canada. i think from the 1257nd point when you look at stock price, the market doesn't understand the international assets. 50% of their oil is weighted to the international market where you get a better commodity price environment versus wti and more importantly their cash flow positive assets, we anticipate the company is going to 3r0id us vfti information on the north sea. >> gail, we have to go. i was going to actually jump in and can you about egypt quickly. apache at least a couple years ago when i was with them in egypt was the biggest foreign investor in that country. that's got to be a concern. is it all positive? there's a big risk there now.
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>> you know, i think from the standpoint they have weathered that storm exceptionally well. they never had any issues in terms of their operation. they have become the largest producer again in egypt. we had $2.95 billion for a third of that working interest of their position. so i think egypt has legitimate value. it's a cash flow positive business. they repatriate money back into the u.s. apache continues to do what they do properly from an exception standpoint. >> gail, mlr partners. thanks for coming on "power lunch." appreciate it. >> thank you. >> all right. up next, the big changes that might be coming to yahoo!. plus, much more on the two big story that broke moments ago. canadian pacific reportedly considering a deal for norfolk southern. mallinckrodt tanking on a new report from short seller citron research. look at that stock down 14.5%. we're back with more right after this.
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look at that stock down 14.5%.
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welcome back on a busy monday. 23 minutes after the hour. shares of yahoo! in the red right now down 2%. according to recode's kara swisher, the company may be about to make a sweeping reorganization and is reportedly doing what many companies do
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when they don't know what to do, hire a bunch of high priced consultants. yahoo! is going to bring in mckinsey and co. let's get more about this and talk about what it might mean for you. jon, first, to you and the facts of what we know, sir. >> well, as kara has reported, we know that yahoo! is in a really difficult spot where its core business is shrinking. we've had executives, top placed executives, leave and now kara is reporting that that's because marissa mayer said, hey, i need a commitment from you guys, three to five years. some people that at least shows marissa wants to be in it for three to five years, but when you have executives leaving, people who she said quarters ago, this is the team, it's set, this is a bad sign. when you hear mckinsey coming in, that's never a good sign either. i understand there is maybe a buy rating on the stock. my question for him would be
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every time we hear somebody say -- >> he's right there, ask him. he's hooked in. >> every time people say it couldn't possibly get cheaper about a stock, you know, a lot of times the stock figures out a way to get cheaper. is that the best reason to have a buy rating here or do you have a sense there is value here, growth potential that perhaps investors are not understanding? >> well, look, john, our buy rating is really predicated on alibaba. definitely not predicated on yahoo!. the yahoo! turnaround and what she can do with the assets. i completely agree with your assessment. i think the fact she's hiring mckenzie doesn't speak well to her ability or the board's ability to turn the business around itself. this is the longest honeymoon i can think of. she's been on the job for 3 1/2 years. weaver been waiting for a tu turnaround. she sold a bunch of assets, bought dozens of assets and you
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look at the organic growth, it's none existent and the margins are flat. so we like it only because if you strip out the asian assets, even assuming really no multiple on four, you to put two to three times multiple ebitda on that core you get to a number somewhere north of $40. that's the reason behind the buy rating, not because of what she may or may not be able to do for the core. >> you're making a great fundamental case for the stock, but if you're bringing in a consultant to sort of help us figure out what we are, that's not good. >> no, it's true. it's not good. and you would think that these ceos get very well paid and the reason they get well paid is because they think at a higher level than most of us and the idea there is she was brought in to an ailing 3wr57nd, an ailing asset to think strategically about what she could do with it
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beyond just trying to spin off alibaba, beyond just trying to spin off yahoo! japan, and the fact that after 3 1/2 years she finally decided to bring mckenzie tells you there was nothing really there that she was able to do or the board was age to do to turn this thing around. so they're outsourcing that functionality to somebody else. >> at this point 3 1/2 years into steve jobs' tenure he was coming out with the titanium powerbook and itunes. it would be nice to see yahoo! come out with the equivalent. >> now mr. fort it may not come true because they will watch this, the stock will go down and they will say don't bring in mckenzie. right now it's just a report is the point. >> if yahoo! has an itunes up its sleeve, now would be a good time. >> itunes could use some help. they keep changing it. >> it's almost 15 years old. >> thank you. appreciate it. >> thanks a lot. still ahead, the decor wars. one analyst sation buy this home
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retailer but sell this one. both of those names ahead. first, the final oil trades are set to cross for the session. we're headed down to the nymex where oil is falling once again. stick around. i'm here at the td ameritrade trader offices. ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this.
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hello, everyone. i'm sue herera. here is your cnbc news update at this hour. the president of the university of missouri system has stepped down. while announcing his res sig nition tim wolfe urged students to start listening to each other. it caps week of student protests after a lack of action. there may be a better way to test for concussions. researchers from orlando say they've developed a blood test that correctly identified the presence of a concussion 94% of the time in their study which included 250 children. the federal regulators in charge of highway safety says school buses need seat belts. the national highway traffic safety administration is endorsing three-point belts for every child. it's a major change in position for the agency which until now had said that buses were safe without seat belts.
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and a daytime television institution celebrating a big milestone. "days of our lives" celebrating its 50th anniversary today. still a favorite of so many people. that's the cnbc news update this hour. back to you, brian. >> like sands through the hourglass, thank you very much sue herera. why do i know that? let's go to jackie deangelis at the nymex with the oil close. >> hi there, brian. i was thinking the same thing and wondering why i know it as well. just under $44 a barrel. we are moderately lower today. of course, we did have a rough session on friday after the jobs report. that dollar index spiking up to $99 was tough on the commodities complex. while the dollar index is in the red today, it's still relatively high. traders are worried about that. the session low $43.64 today. so getting close to that lower end of the recent trading range, that band that we've been in. wti has lost 4.5% over the last week. 11% over the course of the last
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month. the apache news could be accretive for the company but traders are talking about it as consolidation meaning that these oil prices could really be much lower for longer. back to you. >> all right, jackie, thank you very much. time now for "street talk." that is is our daily dive in the key analyst stock calls of the day. stock number one, lending tree. the ticker tree. rbc capital markets beginning coverage with an outperform. they call it one of the leading online marketplaces for consumers and lend irs. lending tree had $17 billion annual loan originations. the target is $150, about 20% upside. >> the stock has been firing on all cylinders when it comes to its quarterly report in the third quarter. a beat and raise. and for 2016 they gave guidance above consensus estimates. that caused the stock to pop at the end of last month. second stock, eog resources. talking about a patch in the takeover bid also in the emp
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space and raymond james is downgrading it to market perform from outperform. here are the reasons. the analyst was positive on recent quarterly results. got a best in class balance sheet. the stock has held up well versus the index down 25% since june. it's getting downgraded on valuation. valuation of the sector, brian. >> things are so good they're not good anymore? >> things are so good it's already reflected in the stock apparently. >> okay. downgrades an upgrades in oil is turning my head around. next up we have two stocks and one call. restoration hardware and pier one. buy restoration hardware but sell pier one. now, they start restoration hardware with a buy. they say the company is filling a void of creating a brand to fill the $200 billion a year aspirational consumer market.
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ubs says sell shares of pier one. they're 10% below the current price. >> i didn't read the calls. just punched up the stock prices. restoration is up 31% over the past 12 months and pier was down 44%. it's interesting how they're saying buy the one that's already up 31% -- >> 17 pound catalogs in, papasan chairs out. >> a sign of the times. amplify snack brands the maker of skinny pop is get an upgrade. strong third quarter results indicate the company is on track with management's plans. it's already improved its footprint there. key customers at existing accounts like target and costco have already agreed to merchandise more skinny popeye thames. that's a huge positive. the tortilla chips are on track
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for a launch in the first quarter. >> this could have been you are under the radar name. it's had a nice run. one of those companies where maybe you don't know all their brands now but there's hope you will. ruckus wireless is our under the radar name. california based wi-fi provider to stadiums, public wi-fi hotspots. goldman sox aachs adding it to conviction buy list. about 40% upside. they say the company is the biggest remaining pure play vendor in the high growth wi-fi market and they see multiple sources of optionality, end quote, that could drive the stock. >> what does optionality mean? a sale or something? i don't know. we should note that the stock over the past month since its earnings was down 11% on that day on very heavy volume. we'll see if this manages to lift this out of the rut. >> all right.
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so ruckus ending another "street talk." it is time to go to "trading nation" because traders, my friends, do trade better together. today we trade priceline.com. priceline has no doubt been one of the great money-making stories of the past decade, but today slammed on disappointing guidance. david seaburg and ari wald are your traders today. your analyst take on priceline? >> look, we've been on the sidelines in this one a little bit, but the stock was bowled up into the print, expectations were extremely high. i look at it and say 25%, i think the number is 25% of their sales come from u.s., are u.s. centric. 75% outside the u.s. it really becomes brian a bid on the dollar now. it's a currency trade. you think the dollar is going to say strong, they will have a massive headwind and it will affect earnings growth. if you look at earnings growth this year, i think it's projected to be 22%.
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back out 14% out of the gate as an fx headwind, it's a massive number. i say that's going to plague them for the near term. i think $1,300, you probably have a line in the sand there. ultimately as far as them going higher in the near term, i think they're a little hindered until we see the dollar start to come back and investors get more confident in the fact that the dollar is not going to keep skyrocketing. >> talking lines in the sand, david. ari wald, he's mentioned it $1,300 as potential support. how does the chart look on priceline? >> that number stands out to us as well. i think it's a near-term versus long-term story as well. longer term we tend to think when you get this type of weakness amid longer term strength, it does provide a buying opportunity and i think that's what we're seeing. i think what's important to note is, yes, we are correcting from these overbought conditions, but support levels are still intact after this weakness. still above the rising 200-day moving average, still above the stocks uptrend line and you've
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pulled back to these prior peaks from earlier in the year. all converge around that $1,300 mark. so near term likely needs to stabilize. i don't think it's off to the races just yet but longer term we see it as a buying opportunity. >> there you go. ari wald, thank you. david, your concern is noted as well watching the dollar. for more "trading nation," head to the website, tradingnation.cnbc.com. melissa? >> still ahead, much more on the two big stories that broke just moments ago. canadian pacific considering a deal for norfolk southern and another name in the pharma space tanking today, it's down 15% in just a few minutes. stocks are we should note deep in the red. look at the most widely held names on this monday. "power lunch" will be right back.
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of the past hour is that of norfolk southern. it's popping on reports that canadian pacific is considering a deal for nsc. joining us, mark levin, railroad analyst at bb&t capital. first off, your response to this report. do you believe it? >> do i believe it? yeah, i do. i think thatc cp is probably looking at all available options. they looked at csx not long ago, were rebuffed by their management and board. in an environment like the one we're in today, it is very challenging to grow the top line. cp has a demonstrated record of taking out costs, running the railroad about as efficiently as you can run, and norfolk southern, unfortunately, is at the other end of the spectrum where they're -- they've really struggled from an operational perspective. so i think it makes sense on a number of levels. >> you know, rails are all about where you go, mark. it's like i own these rails and
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i want to get to here. when you look at where the holes are in canadian pacific's framework, does nsc fit well, and if not who else might fit if nsc rebuffs them and they're desperate to make a deal? >> i think nsc fits nicely. when canadian pacific was looking at csx, one of the things that came out of that was the fact that csx operated in the densely populated and heavily industrialized eastern united states where some 65% of industry is concentrated. cp does not have a very big position there. norfolk southern obviously is there. csx is there. so i think it does. i think it fills a very big hole for them, but i think the biggest opportunity might be the fact that when we talk about railroads, we talk about something called operating ratio, which is, you know, expenses as a percentage of revenues. in short the inverse of an operating margin. canadian pacific is absolutely one of the two best in the
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industry from an operating ratio perspective, and norfolk southern -- >> is near the bottom. >> near the bottom. >> yeah. >> when you look at some of the things cp has been able to do in a very short period of time, their management -- >> newish. >> hunter harrison who is sort of a legend, maybe railroader of the century if you were, some of the things he's been able to accomplish at canadian pacific and you can kind of dream and think what could he do here with norfolk southern. it's been so challenged. it's really an interesting thought. >> okay. it is an interesting thought. we have to go there. we appreciate, mark, your instant insight. thank you for joining us especially on short notice. appreciate it. well, your other big developing stock story this other is mallinckrodt. meg terrell is watching it for us and watching it fall. >> that's right. down about 15% after citron research, the same short seller that was such a problem for valeant in recent days, put out a tweet saying essentially these prices mallinckrodt has more downside than valeant.
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he says it's a far worse offender of the reimbursement center and there's more to follow. we have been looking at the citron website. we're waiting to see if they put something out there. mallinckrodt last year made an acquisition of a company called quest core that sells a drug approved in 1952. according to "the new york times," they raise the price of the drug in $1,650 to $23,000 a vial. it treats infantile spasms, complications of multiple sclerosis and other things. a lot of similarities here. not specifically to valeant but another name, turing, which raised the price their old price quite a bit after acquiring it as well. right now we don't know exactly what's going to come out from the short seller citron research. we should note that the holding of mall inckrodt includes a lot
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of hedge funds. it was the focus of short seller david einhorn as well. off about 17% right now, guys. >> fascinating story. meg terrell, thanks for the update. our next guest is making a bullish bet on valeant. corey davis rates valeant is buy with a $170 price target. great to have you with us. >> thanks for having me. >> why are you standing by this stock? do you have a firm grip on what this business model is going to be in a year let's say? >> yeah. i think there's a lot of things going on here and in the pharma industry, we've been through tons of scandals. this one is disproportionate in terms of media coverage and press coverage and a catastrophic drop in the stock relative to what's actually going on. i have a really good handle on the fundamentals and for a drug company it comes back to the drugs and the drugs are still doing exceptionally well, not based on price, but on volume. >> let's do worst case scenario
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analysis. you make the case that roll-ups are blowups when they run out of things to buy. even if they never did an acquisition again, valeant could still be poised to growth. what about the inability to raise drug prices? what sort of picture does it paint for valeant's future? >> worst case scenario, consensus for 2016 eps about $16 a share. worst case that i calculate it's $4 a share and you have a stock -- >> for no more acquisitions and no more drug price increases. >> that's correct. >> $2 a share difference only. >> that's correct. >> okay. >> and you have a stock that's trading at five or six times earnings. >> and then also the point that they're now spending much more on r & d than they had in the prior full year of 2014. i think it's a quadruple from 1024 levels. they're spending $500 million. that may seem like a large amount of money but pfizer will be spending more than $7
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billion. $7 billion this year compared to valeant's $500 million. given that valeant is one who acquires their pipeline, let's say they can't acquire anymore, is a spend level of $500 million a year enough to populate that pipeline in the future for growth? >> it's enough to get them through the next several years. this is the natural evolution of valeant. they acquired enough stuff to get them to this level. they're going to get 10% on the top, 15% on the bottom line even with no more acquisitions. eventually they will have to. but $500 million, half of their business almost is xus that doesn't require any r abandon -- and & d. >> we have to leave it there. fascinating stuff. thanks for joining us. cory is a buy rating, $170 price target and we're watching
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valeant for the conference call at 8:00 a.m. tomorrow. >> big one. thank you. "power lunch" is going to be coming back right after the break. if you own stocks, most of them are down. cisco, wells, fargo, gilead and comcast are losing steam as the dow is down 216 points on a very busy monday. we're back right after this.
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two stories breaking in the past half or hour or so. look at norfolk southern there's talks between canadian pacific and norfolk southern and mallinckrodt shares down 17, 18% off the session lows, andrew luck will join us tomorrow at noon eastern time to explain the tweet that is taking down the stock today. despite the ongoing threat of a strike by uaw it's been a
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good month for general motors. is the car giant on the road to greater gains. take a look at some of the stocks that may be dragging down your portfolio today, pfizer, know var 'tis all in the red. "power lunch" back in two. ♪ today, we're seeing new technologies make healthcare more personal with patient-centric, digital innovations; from self-monitoring devices that can interpret personal data and enable targeted care, to cloud platforms that invite providers to collaborate with the patients they serve.
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we heard you got a job as a developer!!!!! its official, i work for ge!! what? wow... yeah! okay... guys, i'll be writing a new language for machines so planes, trains, even hospitals can work better. oh! sorry, i was trying to put it away... got it on the cake. so you're going to work on a train? not on a train...on "trains"! you're not gonna develop stuff anymore? no i am... do you know what ge is? we've been talking a lot about mallinckrodt and valeant stocks get walloped.
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sun edison is down 62%, they are reporting earning after the bell. we will could ever that on "fast money" at 5:00. barons over the weekend said that dm shares are undervalued by as much as 40% adding that the revival is here to stay at general motors. should you agree with that? patrick laser and jim al ber teen he's got a hold rating on gm so maybe not as convinced with that. patrick, as a fund janger you would agree. what is the most bullish thing you see about gm right now? >> got a great balance sheet, great market positions around the world, whether in china or this country. one of the things out there is the bears will say we are at peek sales, china is going to fall apart. this is one of the cheapest stocks in the world, seven and a half times earnings, the stock market is not efficient, it is
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not rational, at some point investors in the market as a whole are going to realize that gm is not the same gm that it was before the crisis, but it's being valued that way and that's the opportunity is that the valuation, the market share they have in pickups, the market share they have in china all tremendous dunts out there. >> jim, he makes good points unless, i guess, china falls apart and sales start to slow down. is that your concern? >> actually, the consider we're hold rated on gm it's a relative call, we think there are other manufacturers that have after better margin profile and better spot in their product cycle namely ford to benefit from some of the newerer products and pricing they will get on those newer products. gm products have improved dramatically but there isn't a worry. the incremental investor is worried that we are later cycle and have been overearning. the biggest risk is who is the leaner manufacturer and who has the better product cycle to
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offset some of those later cycle ma inpressures. >> patrick, the issue is should you trust gm? i think a lot of people just don't. >> yeah, and that's irrational, that's just not smart. there is not data out there to suggest we shouldn't trust gm management. they have done the right things in china. you saw yesterday or the day before china sales in october were up 15%. four, five months ago investors on the bears side were saying margins are going to fall in sunshine, prices will fall in china. they were wrong. that didn't happen. gm management has delivered. they will be close to $5 a share. wall street has been too conservative. gm never got credit. it doesn't have to be either or versus a ford. 7 1/2 times earnings, less than half the market multiple. i easily think there's 30, 40, 50% from here. >> i meant trust it as an investment given that they filed for bankruptcy six or seven years ago not trust the management.
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we have to leave it there. thank you both very much. >> thank you. >> got a big show tonight, 5:00 sun edison. >> and also what happens with nfc and the canadian pacific and this mallinckrodt story. should be a fascinating close. >> faster than usual "fast money." >> exactly. thanks for watching, everybody. >> "closing bell" starts right now. welcome to the "closing bell," i'm kelly evans at the new york stock exchange. >> i'm bill griffeth. a lot of moving parts and pieces to this day. stocks are struggling, though, right now, the dow down 200 plus points, all the major averages down roughly 1%. much of this day on -- in part on fears that the fed probably will raise interest rates next month based on that strong jobs report. so is the recent rally now ancient history as investors turn their attention to the fed? we are going to talk about that in a moment. >> we will talk about whether

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