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tv   Fast Money Halftime Report  CNBC  January 27, 2016 12:00pm-1:01pm EST

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to the upside. >> and boeings conference call was actually delayed because of technical issues. that will restart at 1:00 p.m. eastern time. 10:00 a.m. pacific as if they needed another issue. >> just in time for the fed statement at 2. let's get back to headquaters. scott and the half. ♪ >> all right. welcome to the halftime show. let's meet your starting line-up for today. steven weiss is here. along with joe, pete and on set for the hour is bank of america's head of u.s. equity strategy. also joining us cnbc senior markets commentator michael santoli. our game plan looks like this. decision day two hours away from the fed's statement on interest rates. we'll break down what the markets need to hear. morris code, city's top oil man on where crude goes next and whether a bottom really is in. stocks are working their way back at this hour after starting the day well into the red. take a look there.
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that's how the picture looks. in fact, the dow and the s&p are now positive. nasdaq trying to get there and that is the story. crude oil $32 and change. a gain of 2.6%. the company's bread and butter the iphone may have peaked and can no longer deliver the growth investors have come to expect. you're not one of them though. slowest growth since '07. forecasting the first revenue decline in 13 years. you're thinking about adding to the position you already have. >> we talked about apple and where it has come from. we talked about being priced in. here we are trading around 95. got all the way down to 94. so we bounced off of those levels. when you go through this report how about the fact that they did have record numbers. it is everybody including in china. those are record numbers. yes there's slowing and yes there's disappointment. it's in line in terms of the phone itself and the biggest concern is what's next and when
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does that come. obviously we all point toward the 7. i would point more toward right now services as one of those areas where i saw the growth and they have to take advantage of the user base. they do that and the problems were over. >> they were going out of their way. tim cook was on the call to highlight the services. >> for the right reasons. that's the direction they have been going to. >> but the question really is has the iphone peaked? . that's what a lot of the conversations are about today and what many of the questions on the call were last night. >> it shows it has peaked at least short-term because sales are declining. record numbers are misleading. if you're supposed to say, earn, just pick something, $1.50. last year was a dollar and that's a record. but it's disappointing and doesn't speak to the trend. >> they beat the estimates, right? >> i'm just pointing that out. >> they beat the estimates except when you look at units. all of their units are pretty much declining. take a look at ipad, declining. you take a look at macs,
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declining. so this is a company in transition and looking for the next big thing but i'm not going to say it's like them but you can go back in history and look at ibm, cisco, kodak and xerox. >> so you wouldn't buy it at $95.40 cents. >> i'm not buying it here. >> you make the argument that it's cheap for a reason. apple is cheap. it's a cheap stock. >> it has looked cheap for years. it's actually traded at below market multiple since 2012 for most of the last decade and i guess it's funny because you say, can it deliver the growth investors have come used to? based on this year's net income level, 2012 to now, 6% net income growth. buy backs made per share earnings look better than that. i don't think that's all they
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get get. it's a company not growing all that fast and is on kind of a two year product cycle so you have to get hundreds of millions of people every couple of years to make a decision to buy the product. i don't think that means it's over. i just think that's the explanation for why it's valued the way it is. >> if you are going to buy it you buy it on the expectation that the 7 is going to be a hit. that people that have waited are going to cash them in and go for the 7 and that you buy it now rather than wait for the shares to go up further leading into that. >> the first question is do you sell it here? before you ask yourself do you buy it? i don't think you sell it. if you own it you hold on to it and maintain it. expectations are low and the fx head wind is obvious. there was a lot of conversation on the call by tim cook about the macro conditions and what ails the companies. we know the comp story and how difficult it is. it's going to be more difficult for the march quarter upcoming. so you don't sell the stock. do you want to get cute? on a longer term basis? you want to buy it here at 95, i don't think you'll get hurt.
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if you want to buy something over the next 90 days you're better off buying facebook and i'll tell you once the march quarter comes around if it's muted expectations then you buy it. >> if i just look at valuations, vladimir -- >> it's the whole valuation deal on that in a moment. i want to first stalk to tony, the number one ranked analyst. he has a buy on the stock. was on the call last night and joins us once again. he's with sanford bernstein. >> good to see you scott. >> you asked cook directly about iphone saturation. essentially is and has the iphone peaked. he disagreed with you. do you agree with his answer? >> i don't think that the iphone has peaked. if we take a step back and just think about the hand set market in the world there are over 5 billion hand sets. only a little over 3 billion of those are smartphones. we believe over time essentially every hand set will become a
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smartphone. so there's lots of room for the marketplace to grow and i know the push back will be well that will be for people that will buy much less expensive phones but there's income growth in emerging countries that's very rapid. particularly in places like china and india. so first and foremost the market is not saturated. secondly, apple had the highest number of android switchers ever in the current quarter and third their average prices for the iphone are going up. to me that's not a broken business. what we have is 37% last year. so if they're down 10% last year and it's the growth rate for the last two years. they need that perspective. you had a cyclical distortion because of the novelty of the product last year but if you look at it over a two year cycle the business is healthy.
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>> even if you do think that it's peak iphone, does it have to be peak apple? >> if it's peak iphone now, it will be difficult for the company to grow over the next couple of years. because the other businesses are quite frankly too small and as was pointed out before, all of them actually declines on a year over year basis and it's really fuelled by the sales of hardware units so if hardware units are declining that's the best leading indicator for services. they're not decoupleable. so the bet for the next couple of years is the iphone. if you believe the business is healthy you should be buying the stock. if you don't, then it's unclear that the stock is particularly attractive at current valuations. >> first of all i read your report and it was phenomenal. went through every valuation me trick and free cash flow. but margins are coming down and
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the business can still be healthy and doesn't mean it can be growing. you had an average pe of 14.3 times. so at a market discount. so the question then comes to what do you pay for a company that's margins are declining on their principle products and the other products are declining in sales and still getting margins that are twice at least what the competitor is getting for the iphone and driving growth. seems to me for the first time you're hearing about macro economic issues impacting the company. for a company that sales at a market premium i want more predictable growth and i want them to power through, particularly in emerging markets like china as you point out. >> josh hasn't been here for awhile. >> i hope you don't have to be anywhere for lunch. he's halfway done. >> you know, the great ones always take a lot.
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>> i don't think you pay market multiple. >> the way that i view it is its important to give some consideration to apple's cash balance which is $27 a share net cash and it's also important to give consideration to the company's cash flow which is much better than net income. so typically when companies are valued to use some kind of discounted cash flow analysis and there's credit for the cash and credit for the superior cash flow. on that basis, apple is trading at about 6.5 times it's cash flow. that's an extraordinarily low multiple. the market is closer to 14 or 15. and that valuation implies that apple's cash flow will decline 6 to 7% in perpetuity and our analysis suggests based on that kind of dcf analysis that a flat free cash flow going forward from fiscal 16 going forward would imply $135 share price. so we actually think that the
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stock while on a pe basis doesn't look as cheap. if you look at cash flow and the balance the company has its a very inexpensive stock that's discounting declines in perpetuity and cash flow. >> thank you. we'll have you back soon. >> appreciate that. >> how do you value apple when you're considering whether to buy it or not? well the dean of valuation was on cnbc within the last hour and here's what he said about how you should think about it when you're deciding whether to buy it. >> it's not going to become a growth company. it's the stock and a dividend paying solid cash cow. and since he got to do it, it's not a classic and it's really a
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very mature one. >> it's transitioning from hyper growth to cash cow but what's interesting about it is these companies throwing off a lot of cash and look crazy cheap on a free cash flow basis hasn't related on that quality aspect. the fact that they are returning cash to shareholders. look at utilities. utilities are trading in a premium to the market because of the yield and cash return but this same quality premium hasn't moved to tech. that's in the process of happening. a lot of the high free cash flow generating tech stocks who cares if they're not growing as fast. maybe you buy them for a different reason. >> you maybe you shouldn't be comparing them to tech stocks. cramer compares it to pfizer. to altria. >> you know, first of all, i can't believe you interrupted my question with an answer but away from that -- >> literally you talked about waiting earlier. >> look.
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i think it's one or two multiples cheap. you do have to pay for the cash. you to pay for the free cash flow growth but we heard this story before. it's a consumer products company. >> the problem comes in paying for the cash. if this is a company that can be broken up and acquired you're paying for that cash. there's some rational for why you would put a multiple at $150 in net cash. you can say you can make more mistakes than smart moves with $150 billion. and if you have to tax adjust it and all the rest of it if you do. so it obviously creates valuation support but i don't think you can add it dollar to dollar. >> why don't you do what cramer thinks you should do and buy an additional revenue stream? what's wrong with that? >> that highlights why it's not like any other company that we've seen in the past. they have so much cash they could buy their way right back into being a hyper growth story as just in terms of how they use it. >> believing they're not pfizer. what's the pipeline right now for apple?
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i'm talking the other side of my case right now and what is the pipeline? i'll go back and say by using some of that cash you're talking about right now. years ago we talked about netflix. they need to get themselves involved in the streaming world. there's acquisitions that they could make today and a fraction of that cash, just the cash flow per quarter they could use. >> i tote lay agree with that. do we remember the up roar when they were about to spend $3 billion on beats. >> right. >> it was heracy. >> they need innovation. ever since we lost steve jobs and he obviously unfortunately had to leave this earth too early but we lose him, we lose the innovation. show me the products that they have come up with since. >> show me the business they could buy with comparable economics. >> the important thing about apple and you have to highlight it is the base and retention rate. people use apple products and they don't leave. >> the user base. they have to take advantage.
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>> it's a small part of the business and others are chipping away. they wanted to go tv right? but they couldn't get the content to sign up. that ship sailed so it's been an execution issue. >> there's ways they can get themselves in there and it's very simple. >> they are used to leading every industry or sector they go into. they haven't for awhile. >> they have to get out of the comfort zone and that being their biggest acquisition was 3 billion. >> i'm not them or in their business development. i come up empty. what could they buy that's compatible with their current business. >> they could buy harmin. some say tesla. >> i say tesla for elon musk. that's why you buy them. the combination. it was not necessarily just beats. they need somebody there that's going to be able to take over the helm that has innovation.
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>> if they bought tesla i'd sort it. it's so diluted. >> where do they need this banner leader of the company. maybe the reasons you buy apple is what everybody is paying for right now is visibility of earnings. and transparency and you know the idea that maybe it is a consumer products company but it's got a long pipeline and addicted users and this sort of highly visible earnings stream and revenue stream which i think people are paying a premium for these days. so that might be the reason to own it. >> the argument i would give back and again i'm going bear bull, bear bull, but the fact that the growth, i mean, the growth, their biggest driver is the iphone. where is the growth there? and that's the topic you got right out of the gate. .2% growth. not very strong. >> it's $69 where it currently sits. it's off it's worse levels but having a good day. thank you. great insight. good to hear it. up next, the countdown to the fed is on. probably no rate change today. we know that but what is the ideal statement that will make
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investors happy? the traders weigh in on that. plus as bond yields stay low, income in other place. the traders share theirs coming up and apple is the story. we know that. and we'll look ahead to their earnings as well. you're watching cnbc first in business worldwide.
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>> there's the countdown clock. the fed is going to release the latest statement on interest rates. steve is in d.c. to set the stage for the main event. hey, steve. >> hey, scott. amid witherring pressure and criticism from the markets and yet by the way a cnbc fed survey in which most of the panel lists said you know what, you should stay the course. the question today is whether the federal reserve would flinch. here's five things i'm looking for from the statement in five areas and i'll tell you what i think they could say potentially. how they characterize growth. u.s. growth, global market invasion and the rate hike outlook. it could say that u.s. growth looks temporarily weaker but still on a path for moderate growth. global growth exerts some drag on the u.s. it could note the volatility in markets. it could and this would be the big one suggested as less confidence moving toward 2%
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inflation and the rate hike outlook could suggest to the markets they would pause from now. we don't know if they'll get all five of those but it could change in a meaningful way and provide an impression to the markets that march is not likely for a rate hike and the question becomes what about june? and the fed is going to say we're data dependent here and i want to add scott it warms my heart that you guys began the show not talking about the fed but fundamental things like cash flow and earnings from a big company. maybe that's a sign of a return to normalcy and away from debating the positives and negatives of a quarter point rate hike from the federal reserve. >> don't worry. we'll be back debating. >> i know you will. i know you will. but if you focus on the fundamentals you're in better shape i think. >> what about this motion of what jeffrey put forth the other day down in florida. fed better dial down it's hawkish talk or markets are going to humiliate them by declining further.
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are they hearing that message. it would be humiliated by a further decline in the markets. the fed has said it is given it's best guess by four rate hikes and will not see for marchand will not formally see until march whether or not it dials that back. my best guess is they will if they remain on the track they have been on. if the data doesn't cooperate writing off the fourth quarter we have to see the early data on the first quarter before we abandon all hopes of rate hikes this year. >> steve in d.c. all right. where do you come down on this? >> on the fed? >> what do you think the markets are willing to accept today. >> i don't know if a 25 basis point move or 75 point move
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which is what we're forecasting this year is really as important as what we're seeing. >> 75 additional. >> yes. so three more tightenings this year. so we have a very outer consensus call on the trajectory of tightening and it's based on improving data in the u.s. >> i'm assuming that you put forth that target weeks ago, right? have the performance of the markets changed your view at all? >> well, okay. so january certainly started off with a bang and the fed typically doesn't tighten it into a volatile market. we have never seen a tightening cycle embark with the vicks above 23 or something. so obviously there is that feedback mechanism but i think what might be more important than the fed is the idea that cash is going from zero yield to a positive yield. i think that's really important because what we have noticed in the market, like take apple for example, cash matters now.
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it's no longer a drag on earnings. it's actually a positive. the ability to have cash as opposed to relying on the capital markets is a big boom in an environment where the fed is actually putting some pressure on cash yields. >> you don't think -- you have got 2200 on the s&p for 16. and put that kind of target into question. and and it materialized and we're expecting that to pick up. and it's coming a little bit better. and the other kind of risky factor that's starting to rear it's head. it's not looking particularly great right now.
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>> we didn't -- >> what's really troubling to me is that earnings versus reported earnings there's a growing gap between the two which means that companies are kind of adjusting and faking earnings growth where as the bottom line doesn't necessarily look as strong. and i think that those are two components that are making me worry a little bit about the fundamental backdrop. what's interesting though is that so far in january, earnings haven't really mattered that much. it's been a very macro market so even if you look at companies that have been beating on earnings and sales normally they outperform companies missing by 4%. over the last few weeks we have seen a return from just earnings surprises so i think we're still in this macro market. >> before we go to break, what about the motion that someone made this point earlier that cash is not going to come to the rescue this year like it has in the past in terms of buy backs even though you think that buy backs may pick up again.
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it's not going to anywhere near the level. >> as oil really found a bottom. ed morse calls the man and weighs in now. more than earnings this week. we're sitting all of the big movers. many more on today's blitz. here at the td ameritrade trader group,
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>> president obama plans to ask congress for $12 billion over a decade to help feed school children from low income families during the summer. that request will be in the 2012 budget proposal that the president sends to lawmakers on february 9th. 22 million children receive meals during the school year but not during the summer recess. democratic presidential candidate bernie sanders arriving at the white house for his private meeting with president obama. the white house saying that there is no planned agenda but it is sanders first visit to the oval office since becoming a leading presidential contender. senator john mccain blasting the pentagon for relying on russian rocket engineers to launch american military satellites in space. the practice enriches president putin an puts national security in jeopardy. officials are investigating an apparent tornado touchdown in coconut creek florida. it injured at least one person and flipped over cars and damaged the roof of a condo
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complex. wow and the strong winds picked up that southbound vehicle on the florida turnpike and dropped it right on the northbound lanes. >> as we await the fed statement how are bond investors positioning their portfolios. scott is cio at pimco which is more than $1.4 trillion in assets under management. scott nice to see you again. >> well, thank you. >> let's talk about what we think may happen and what should happen. you know the fed better dial it back or the markets are going to continue in his words to humiliate them. is that how you see it? what we're experiencing is sort of a return to normal levels of volatility and the fed ex pekted that. the goal of monetary policy is not to forever reduce volatility and forever inflate asset prices. that was part of the function going back several years ago in qe was introduced but it's no
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longer important. the fed will evaluate their policy action in light of financial market volatility. there's tightening and financial conditions that would have small impact on the u.s. economy but it's not enough to derail them from the hiking cycle. >> you still think march is on the table given what we have seen in financial markets? >> well, certainly. the real economy matters a lot more than financial markets at this point to the fed. there hasn't been any signs of significant weakness in the u.s. economy. the fed also has some confidence as do we that the drop in energy prices is definitely a positive for the u.s. economy. may take some time for all of those positive effects to reveal themselves but certainly over the medium term and that's what they're focused on its a positive. so we think they'll still have a positive assessment on the trajectory of the u.s. economy
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and labor markets. they'll acknowledge that maybe there's some financial conditions that tightened a bit and external developments have been more unsettled but they'll be monitoring those things but in our view it's not enough to derail them. >> there seems to be such an intense argument developing over the true state of the economy. some people say look we're already in a manufacturing recession. we have a profits recession. how can you and others have such a positive view about where the u.s. economy sits right now in light of all of that and what may be deteriorating other parts of our economic picture. >> well, it has to do with time horizon i think. people sometimes evaluate the fed's reaction function on too short of time frame. too short of time scale. it has to be that corporate profits as a percentage of gdp don't rise infinitely. there's going to be head winds to corporate profits but that's not the entire economy. what we expect to see is some of the profits get transferred into wages and that's still a good thing for the u.s. economy.
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it's an important rebalancing step that has to happen. we have to acknowledge that the head winds to corporate profits are definitely there. there were large tail winds for a number of years and now turn into head winds. it doesn't have to impact the u.s. economy in a major negative way. >> do you think bonds have peaked? >> probably pretty close to it. you know we definitely think we're at the lower end of the yield range. if we're right about the fed continuing on the normalization path it's likely to see 10 year yields in the u.s. in the mid 2s. >> so if you wouldn't buy treasuries what would you buy? >> there's a lot more value in the corporate market now. so we have been increasing some of our positions in that sector. >> high yield or investment grade? >> mostly investment grade. one has to be careful. a lot of the widening in high yield is focused on the commodity producers. that's a sector that has to be turbulent. even if we're right about energy prices beginning to rise as we move throughout the year that's
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a sector where there's a lot of defaults and structuring that has to take place. that's an area to be careful with. there's been a lot of widening in higher quality corporate credits and many of those will do quite well. financials are an example of that. >> scott, appreciate the conversation very much. we'll see what happens in about an hour and a half. >> thank you. >> scott mather, cio with pimco. 10 year yield above 2%. where can investors find income? we pull together a list of non-energy s&p stocks with a dividend yield above 5%. there they are on your screen. navient garmin matel and game stock. i want picks from you as well. >> ford obviously in january they gave guidance for 2016. they gave the investor back a suppleme suppleme supplemental dividend. probably do the same thing in 2016 and they talked about hair reasoning behind it.
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benefit the retail shareholder and benefit all shareholders versus doing the buy back. i like the consistency of it. they're delivering on it and they'll deliver again next year. >> what about dividend payers versus dividend growers. it's one that kevin o'leary makes often when he's here. >> i like dividend growth. i don't like high yield. in fact i think high yield stocks right now are a trap. because if you look at the highest yielding companies in the s&p they're all distressed stocks or prices are falling in anticipation of a dividend cut. this is exactly what we saw in 2008 with the financials. financials were the highest dividend yielding sectors and then they weren't for the wrong reason and that's what i worry about is that we're getting to a point where some of the highest yielding stock versus pay out ratios that are at 100%. i mean, there is nowhere to go and if we do see a downturn that's a bad story for high yield. >> both pete and guys like at&t. >> yeah. >> i think there's a combination of two different things at play here. one of the areas is the growth
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you're seeing out of mexico, the investment they're making there and on top of that the directv deal. that's going to start to show up because we know about video and all that's going to bring to at&t. it's a solid performer. is it exciting? absolutely not. somewhere between 33 and 38. i'm not looking right now but let's say it's 35. you get that percentage yield you're getting on top of that and there are some reasons to have hope that this stock can start to grow because of the two reasons. >> a prop. >> i was just finishing my question but let me put it out. >> look i like at&t because when i look for dividend payers i want stable business models. i want companies that aren't that cyclical. so at&t is very stable. it's very predictable cash flow growth. so that's why i go with at&t. >> earnings kicking into high gear. facebook reports after the bell tonight. doesn't get talked about as much as it should. that stock and the play on it ahead. plus is the worst over for crude? ed morris, citigroup's global head of commodity research joins
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us with where he thinks it's headed from here. you're watching cnbc first in business worldwide. can a business have a mind? a subconscious. a knack for predicting the future. reflexes faster than the speed of thought. can a business have a spirit? can a business have a soul? can a business be...alive?
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coming up on power lunch. counting down to the fed. no change in rates but the statement will be key. how much will policy makers change their wording since their december rate hike? we have a lot of big names weighing in including bill gross and our very own larry kudlow. apple iphone growth hitting a wall. how do you now value apple in a stock. sit a buy? we'll debate all of that on the top of the hour. scott back to you. >> we'll see you in about 15 minutes. focus on apple right now after the bell though we hear from facebook. what do we do with this stock? it's up over three years. it seems to be one of the forgotten ones in that it's not talked about as much as netflix or google as amazon. what's your deal here? >> they have so many different
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areas now scott. everybody was very critical it seemed like when he was making the acquisitions that we were critical now that apple hasn't made acquisitions. you look at instagram and all of these things some are still pipeline type stories but others are starting to become stories for this company. that on top of the fact that it seems to me that the growth continues to be very strong. obviously they have absolutely captured what they set out to do years ago which was mobile. they're killing it in mobile. i would expect these numbers to be very impressive. >> stocks at $97. why should you buy it? >> wrote buy stocks in front of quarters and this is what i like and i buy it long-term. what i look for is innovation and execution and you have to give them an a plus on both and that will continue. >> let's just say this. if earnings were not today, just simply the fundamental story where the stock is given what it's done, would you buy it? >> yes, if i were deploying new capital into the market. absolutely. >> joe, yes. >> i would buy it today because i think the digital ad marketing budgets keep going facebook's
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way. i think as it relates to oculus they'll give you strong guidance on the expense out look for 2016. that's going to clear up some uncertainty surrounding it and deliver the most important thing which is continued quarter on quarter double digit growth. >> three trades making news today. first up hess reporting a miss on earnings. >> not unexpected and over the next couple of days you'll have hear murphy and oxidental and the problem for hess is they don't have the assets to settle down. they have done that over the last decade. they're out of things to sell. they immediate to sell them. they're reliant on the price of crude oil rallying significantly. they're a pure play crude exporter now. >> biogen beats on the top and bottom line. an 8% rise in sales. that's a nice gain. >> you look at this actually loes closer to 7.5%. let's not argue about that. up almost 6% as well. you look at this company and where they're making some strength it's obviously ms but
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look at the pipeline as well alzheimer's. two in phase three. a lot going on at this company. it seems very cheap. >> boeing is one of the biggest drags on the dow today. >> it is. the reversal in terms of the fundamental story. we talk about and we have this argument focussing on technicals and fundamentals but when the fundamentals change as much as they have changed for boeing you have to address the situation and look at your holdings and pair back on them. >> coming up a round-robin. our experts will take their positions on those stocks ahead of the earnings tonight plus it's cheaper to fill your tank in houston than abu dhabi right now. can oil go much lower though? we'll ask citigroup's global head of commodities research. we're back after this.
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>> give you a look at the energy picture now. crude oil up 3.5%. 32.5. there's brent and not gas up across the board. certainly helping the overall market turn around. our next guest was one of the first to call for oil to dip into the $20 range. let's bring in ed morris. the global head of commodities research at city. ed do you think that a bottom, at least a near term bottom is in? >> actually i don't. this is a kind of bumpy period of time. it's filled with volatility.
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there's three good reasons why prices could dip down again. we have iran coming back into the market. probably next week. we don't know how strong that production growth is going to be but it's keeping on building and inventory data today shows that we're not out of the woods yet. so if we need to find more storage, it will be more expensive. that will pull prices down. and finally the world economy is not helping. and if the recent data from china continues in the same vein, that will mean the demand will play an equal role to supply and dragging prices down. >> how low do you gather we could go then? >> it is tough to call a bottom. we tested the mid-20 range a couple of weeks ago. i don't see why that's not likely to happen again over the next few months. april has a big refinery turn around season. it is the time when iran's oil production will probably be rising to whatever its near term peak level will be. so i think we have another testing period early in the next
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quarter. >> i think i read a headline somewhere yesterday talking about ecuador and opec and maybe a meeting is going to happen or not. what is your best guess? >> certainly a lot of pull-up in the price today and yesterday has been this talk about an opec meeting, russian, saudi agreement, a lot of this news has come not from saudi arabia, but other places. i think the elements of an agreement are very hard to put together, particularly as you have iran coming into the market and saudis clearly stating they don't want to use any market share. if there is an agreement, it is not likely to be anytime soon. >> dennis gartman, couple of days ago, yesterday, i can't remember, said we never see $44 oil again in his lifetime. you agree with that statement? >> no, i absolutely don't. oil production is just not sustainable in a $30 level. we'll see supply eventually coming off the market. never is kind of an odd thing for someone to say, and i actually think we'll see $45 by the end of the year.
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>> so things get worse and then better. that's actually fairly constructive outlook for oil and could translate to a better market by the end of the year. is that in keeping with your view? >> yeah, we think, you know deerks pend depends what happens with the world economy. we're beginning to see supply being pulled out of the system because of low prices. that should accelerate over the course of the year, even in the u.s. and latin america and the far east. not opec production is bound to respond, hit hard on the downside at some point. depends on whether it is this year or next, and that is the function of where demand growth is going to be. we're currently modeling it to be the end of the year as a phenomenon when we see inventory draws coming into play at the end of the year and that should be the major signal and boost for higher prices. it will be also accompanied in our judgment by significant industry consolidation. particularly in the u.s. and that too would be a signal of less capital being put into the u.s. sector for a while.
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that too will be seen as bullish. >> want to let you go. lastly, and briefly if you wouldn't mind, what i hear you saying is we'll retest the low, maybe put in a new one and maybe we do all of that as early as next week. >> that's possible. that's absolutely possible. that's absolutely right. >> okay. i appreciate it very much. >> good to be with you. >> likewise. ed morse, citi commodities research. joe? a lot going on in that call. a lot has to happen over the next week. it is a little complicated. i want to keep it simple. to me, it appears the market wants to go higher. shorts are covering in the oil futures market now. that's what press it higher. today was bearish, took out the 32.74 high on the show, up to 32.84. today there is more upside to this tradable -- >> you said near term bottom around 28.75. tradable bounce. >> bounce. >> bounce. i hear you. i don't call bottoms. i hear you. >> doesn't it smack of the super cycle reverse?
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so a couple -- ten years ago, everyone was calling for $200 oil. now everyone is calling for $20 oil. how much of this is speculative versus -- >> it is all speculative. >> so at some -- >> it is a bunch of machines driving the oil futures market and the rest of the equities market unfortunately is trading off it. >> i agree with everything you said except for the timing next week. i think we make new lows and then sometime around third quarter, fourth quarter, we start moving higher. >> got to run. we'll come back. a quick break. we'll talk about what the fed is going to say. talk about some financial stocks and look ahead to the other earnings coming up after the bell.
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as we wait on the fed, let's talk financials. if you want to know how bad things have been of late for the financials, the s&p 500 regional banks, the kre and the bank, the kbe, the index, both tracking for their second consecutive day of gains for first time since december 24th. big financial firms down double
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digits. >> real quick, you asked me about the regionals, i gave you an awful answer because i said no, i don't like them. today, the regionals are up on the back of oil. so you have cfr, cullen and frost up close to 8%. you have ibtx, independent bank, up very strongly. texas capital is up 10% today. so those energy banks, which in the last couple of weeks were selling off precipitously, they're tracking crude, moving higher. those are reege nagionals that good. >> do you want to be invested in financials this year or no? >> an interesting question. given we're expecting three hikes there are a few financial companies that will benefit pretty significantly from that move in the short end. overall, i think the sector is a high quality sector, we're forced to hold a lot of capital and then one of my favorite ideas for the near term is if volatility is something to worry about, on the exchanges, they are up the most. >> are you sure you're sticking with the three hikes? >> that's our economist haul.
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we're sticking with it. >> still time to change that view. the banks. >> banks, so, they're never -- >> throw in the towel? >> no, no. citi, b of a, goldman sachs, morgan stanley, i think that they're all compelling valuations here. it will take a while to get there. what is hanging on is that in no way are the reserves they took for energy loans the ones that are most exposed like jpmorgan, wells fargo, not reflecting what the potential liabilities are in the mpas. >> pete, do you throw in the towel on these firms? >> no. you don't. to your point, i think there are names out there you can still own, your price averaging down which is never something any of us like to do. but sometimes that's the way it is. bank of america, citi. i think the best of the group, though, is u.s. bank. that's one name that wells fargo, other energy exposure, but it has been overblown how much they have got. >> if the market gets anything other than let's wait and see from the fed today, what happens to stocks? >> if it is dovish, you'll see stocks move up. the fed loses credibility.
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so i think the perfect statement is what they have been saying. >> joe? >> transtory. we need to address that. >> almost got the show without it. >> couldn't do it. we'll see what happens in an hour's time. thank you for being here. "power lunch" begins now. thank you, scott. look at the clock. we're just about one hour away from the big fed decision. welcome to "power lunch." i'm melissa lee with tyler mathisen, michelle caruso ca bair w bairia and brian sullivan. this is an oil driven market we have here. oil, the dow flirting with the flat line. just about flat right there, down by 1.5 points. the s&p 500 up by a third of a percent. the nasdaq weighed down by apple, but weighed down just a half a percent now. >> big move in oil, up almost 4% now. more on all this later. let's start with the fed and steve liesman as we waitor


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