tv Fast Money Halftime Report CNBC July 14, 2016 12:00pm-1:01pm EDT
got that warm ppi number and that's going to be followed tomorrow by cpi. then we'll see if jp morgan sets a true tone for bank performance as we get numbers. >> let's get over to headquarters. >> thanks so much. welcome to the halftime report. bill akman will will join us momentarily for an exclusive interview in just a few moments. let's quick things off with comments from larry think, the leader of the world's asset manager saying stocks should not be where they are though he did stop short of calling the market overvalued. >> we're seeing investors worldwide pausing. we have seen a large sum of
money being pulled out of equities over the last year. and yet we're at record highs. this rally in my mind is not -- i don't think we have evidence to justify these levels in the equity market at this moment. >> with us for the hour today is our panel. pete, you first. is larry right. >> i think he's right, where are we going to go. i think the thing that larry talked about is some money has left and is on the sideline but some of that money has returned. there's no doubt when you look at some of the performance whether it be the utility space, the telecom space but the good news is that rotation to some of the other areas where you do still have the right types of valuations. it's not extremely extended like the two i mentioned and i think that's where you're seeing some of the flows and it's been some
of those areas where you've seen this great spike. >> i tell you what steve, larry said don't be surprised if you see a .75 on the ten year. >> yeah. i agree with everything you said and i have no problem taking issue with anybody but he's dead on. stocks shouldn't be where they are necessarily but there's so much cash on the sidelines i was talking to another big platform guy and they lost about one-third of their cash. there's a huge penalty for getting back into the markets. in terms of bonds, i don't know about .75, i wouldn't be surprised with germany issuing bonds with a negative yield, whose buying those except for other sovereigns maybe if they can. today was an important number in terms of inflation and more so than the jp morgan earnings numbers. that's what got the officials going. metlife, very little correlation with jp morgan but that stock is
up 5%. right now everything feels good but valuations are stretched. we won't know how the market is going to move until we get through the earning season. >> we've been asking this question every day whether we were in the early stages of what could be finally that great rotation out of bonds, into stocks, out of bond like stocks into more cycleal offensive areas of the market. what larry fink says today not in so many words not so fast. >> fundamentally he has a point. if you look at earnings in the s&p 500 for the last two years they've been flat. you're predicting there's going to be growth in 2017. i would have said you need to wait and see that come through before you get to these multiples but you can't ignore the psychology of the markets right now which is getting euphoric and it's going to
continue higher regardless of what the fundamentals are seeing. the one thing that would worry me is a 1.57% call on the ten year. from a discounted cash flow basis that would give you a higher price on stocks but that would be indicating such low growth in the world that i don't see how you can get the profit growths to support the higher multiples. >> we want to get to this story for us today. bill ackman releasing a video today. the 18th in the last 18 business days warning investors about what he calls the evils of herbalife. today shows a pitchman giving a hard sale recruiting members. >> my check went up $10,000 because of 2%. make them pay you you're money.
>> those quotes can't diktd with facts that said that less than 1% distributors are earning more than minimum wage from that company. 90% of distributors drop out in their first year. joining us now is bill ackman. welcome back. >> thank you. >> 18 videos in 18 business days. what's going on. why so many? >> versefying into the movie production business. what's interesting is this year they said they were in discussions with the fdc about a potential resolution of the investigation. and really over the last year they've been saying well maybe there was some roeg distributors out there but we've reformed our practices and we're building it
better and in may the company said we're in advanced -- we have discussions in advanced stages with the ftc and there were anchors talking about a slap in on the wrist and the stock has run on the possibility of a settlement where they pay what looks like a modest fine in the context of their market cap and they go about their business. you would have to assume that during this period of negotiating a seattlement with the ftc the company would be incredibly skrup lous about making sure none of his distributors are doing anything that would harm their ability to settle with the regulators. in fact, every day thousands of distributors go on the web to host webben narz and they attempt to recruit people with false statements about the potential for business opportunities. these people that go online we featured 18 of them over the
last 18 business days and you can expect another one tomorrow and monday and tuesday and wednesday. we have thousands of hours of footage of these be distributors bilking other people out of their hard earned money. >> what about some of the criticism that i know you've heard yourself that you use selective editing let's say in these videos to tell your story. how do you respond to that? >> there's no selective editing at all. we have all the source material. we provided it to the government. the government can -- if people would watch a two hour long webinar we'd release those as well as. this is not selective. what's interesting is you can't find on the web and there are thousands of these videos on the web, there's not one of a distributor talking to his recruits about how to sell the product, about how to make a retail sale of a product. it's about how to recruit people to become distributors because
that's the only way you can make money. the point we're making with these videos is the problem with the company is they hired a former ftc commissioner to make a splash about having a compliance department. the problem isn't the department as is the incentives of the marketing plan. the only way you can make money at the company, and that's a very small fraction of the people involved here, certainly well below 1% of the distributors, is by recruiting other people heavily and getting them to invest thousands and thousands of dollars. that's the only hope you have of making money. the other problem is it's effectively impossible to sell tons of white powder in a cannister to people you don't know. it's a difficult business model and they are willing to dump product at product at cost or below cost. it's now july so it's two months
after they said they were in advanced discussions about a possible resolution with the ftc. what's really going on is the government is taking this seriously and i think the government understands what we understand if you don't change the incentives of the marketing plan and get rid of the inventory incentives and the requirement to buy thousands of dollars worth of product there's no way for the company to effectively monitor and stop the abuse. why? because incentives drive human behavior and if you don't change the incentives the behavior isn't going to change. >> there are a number of things within that. first and foremost herbalife has seen your videos and they knew you were going to be on today. they sent me the following statement. i want to read it and get your reaction to it. this is a quote, it's been three years and bill has lost hundreds
of mills of dollars. he admitted in a recent piece it was costing more than $100 million a year in carrying costs. when is it time to just say he gave it a try but like others he was just misinformed. that from a spokesperson. >> it doesn't cost us $100 million a year. the cost to carry the position if we were $1 billion short today. it's probably $20 million. that's real money. it's interesting they are trying to get us to go away and steer the focus from the facts. the facts here are the number that herbalife is a $200 million settlement number. that would be the largest consumer protection fine ever collected by the federal trade commission. so clearly they've done a lot of things wrong here and that's what they would be willing to pay in a mutual resolution. that's not what the government is willing to accept. that's what they have thrown out
as a number they're willing to pay. this is not going to be about a dollar amount that they pay to the government to resolve this. the only way this thing gets resolved is if they make material changes to their incentive structure to stop the incentives to recruit and my guess is that's what the government is pushing for. they realize they can't accept those changes or they'll go bankrupt because no is buying the product. this is going to end up with the government suing herbalife for a scheme. the stock ask nis not going to 0 a share. that's why we've been a patient investor here, i think this is the most attractive herbalife has been and that's why we've stayed short. >> it's been a painful investment. to this point there's sort of no getting around that. as you said the stock is sitting
at $60 a share. do you think -- i was thinking about this and not that i've spoken about any of your investo investors, i can't say i have a view from any of them, but do your investors want you to continue with this fight or do you think some of them say let's just move on, find something else? >> yeah, the good news here is it doesn't actually consume a lot of our resources. i joke about going into the movie production business but elizabeth and bill have some technology and thousands of hours of footage they put together a five minute clip every day and it's a fun activity for them and it makes an important point about how evasive the fraud is. i think that's a useful exercise. i think all our investors would love for this to be resolved and i think the -- we would certainly like this to be resolved soon and we're quite
close. it's herbalife that's said they're in advanced discussions about a potential resolution but they also say that if they can't, if no assurances can be given they're going to -- this thing is going to be resolved in a negotiabled settlement and i think the government will only negotiate so long. at some point the government will have to bring a lawsuit here and then the company is done. >> 18 videos in 18 days and they say ackman is trying to manipulate the ftc. >> we're putting out videos of distributors. it's not like we created -- we're not making statements on behalf of the company. the facts here speak for themselves and what's happened over the last several years is the herbalife distributors used to be more overt about
defrauding people and now they've gotten more sophisticated and they're doing these online web nainars and ma are password protected and they suck you into a money making opportunity on the web. they don't tell you it's herbalife and then they have been quietly going about making these statements and recruiting people. my suspicious is they have been encouraged to or have been pushed this underground but the reality is the fraud continues. i think by outing these top distributors of the last 18 i think three or four of them herbalife recently brought down to washington, d.c. to make their case they're a legitimate company. the people approximawe have in videos and i encourage you to watch them, it's not our words, it's the distributors words, these are the same distributors that met with senators and
congressmen from their communities talking about what a wonderful company it is and the reality is the same people are saying how anyone can make tens of thousands and millions of dollars in this scheme. >> there is an ftc i guess what they call a closed door session this afternoon. have no idea obviously if herbalife is scheduled to be discussed today or not but it's of your thinking that you think a resolution is coming soon? >> look, i don't know how long -- i'm relying really more on what herbalife has disclosed which is in a filing they've been saying now for almost six months that they're close to a potential resolution but they also say the other alternative is that the -- the company is currently in discussions. hold on. here's the latest words. >> i have it right in front of me from the filing and that was the discussions have progressed
and i'm quoting here from that filing discussions have progressed to an advanced stage recollection the range of outcomes include litigation or settlement. we announced if a settlement is reached with the ftc it would likely include i think jungtive and a monetary payment with our best estimate of that payment being $200 million. >> they say if discussions do not continue to progress it's likely that litigation would ensue an my interpretation of that that statement was made on may 5th and it's more than two months later it doesn't seem to me like a lot of progress has been made. how long does it take to negotiate -- if there was a settlement that herbalife could accept they would have accepted it already. it's clear that the government is holding the line at what they're willing to accept and herbalife is making whatever case they can but the government is going to pull the trigger on litigation and that's going to be the best outcome here. >> let me end this by what
happens if you're wrong, what happens if there is a settlement and it is in that monetary ballpark or at least somewhere close, what do you do next? >> sure. so think about it this way. the last time the ftc had a meaningful settlement i think it was the lifelock scam and that was a $100 million fine and what they do when they deal with one of these skamz they hold a press conference and they explain why the ftc sought the fine and so imagine there's a press release tomorrow from the ftc and they say they're holding a press conference and the commissioner gets up and a couple of attorney generals and they say we are now punishing herbalife with the largest fine in the history of the trade protection they're going to say here are all the
evil acts the company has done that has led us to fine the highest fine we can charge and here are the steps they are taking to make sure consumers are not defrauded again. they're going to have to announce whatever those steps are and how those steps will be enforced. it's going to be one of the most watched press conferences in the history of the ftc. >> i wouldn't doubt that. >> so my point here is the ftc is not going to -- i can't see any scenario in which that's going to be good for herbalife and they're going to be allowed to continue to go about their business. we've yet to find one video the web of a distributor talking about how to sell the product to a consumer. every distributor whether it takes place in a hotel room or a webinar is about how to recruit others so you can get your check and retire your parents and buy a home for your kids. it's not about retail sales and the company is a par mid scheme.
if recruiting is more dominant than retail sales. >> have you ever considered what may happen after this is all resolved and you remember those rumors and speculation as much as i do some years ago since this whole thing started whether herbalife would even remain a publicly traded company. have you thought about the possibility of once this is resolved with the government of herbalife being taken private what that could mean for your position. >> again, i feel very good about our investment. i think no private equity firm is going to buy this company. even if you throughout ought it legitimate business they recruit 2 million distributors a year and they lose that every year. this would be anything near the
current share price or a policemenpremium would require a big equity check and believe me if that should have happened would have happened a long time ago. >> so let me move -- >> next topic. >> let me move on to valeant because that's the topic of at least the last couple of days at minimum. our story yesterday which we first reported here was near $5 million sale by the former ceo and netted close to $100 million. you're on the board of the company. what's your response to that sale. >> it's kind of sad. the whole thing is sad and the whole thing is sad for mike. if you remember when the stock first dropped, mike is a guy that bought valeant stock and never sold it and then when the stock collapsed he had margin stock to make a $50 million
charitable donation to duke university and when the stock collapsed he got a margin call from goldman sachs and he was sold out of his position. when you buy stock at a low price and it runs up to a high price and you borrow money and that stock collapses. goldman sachs sells enough stock to pay off the loan but they don't sell enough stock to pay your taxes on that gain. my understanding based on a press release put out today is that the option exercise and -- which itself is taxable, the net proceeds after tax from that sale were used to pay the taxes on the sale the first position i think he got some net proceeds, but mike is probably not likely to be running forward with a new job soon so i think it's kind of sad he was forced to sell out at
this price. >> they say in a statement today and they have a quote says the following i continue to believe in valeant and the rest of the management team while i'm trimming my ownership position for personal reasons i plan on holding my remaining shares until the company recovers and returns to being traded on fundamentals. the analysts said as the outgoing ceo we presume he had insight into the state of the business and we consider the selling as a negative sign. why shouldn't the market view mr. pearson getting out as a negative sign. >> because i think mike was forced to sell. the government unfortunately doesn't wait for you to pay your taxes. but look, i think the company is going to have an earnings call the early part of august. joe will have been at the company for about three months. that certainly is a sufficient period of time for him to
clarify the position going forward. the stock still suffers a lot from uncertainty. obviously there's been a big overhang. mike's sold a bunch of stock and new investors there's still a lot to be clarified about the story so joe will be very prepared for that conference call. to give you a couple of items, a lot of questions we've been getting from investors, why hasn't the company sold assets, shouldn't the company be selling assets, valeant doesn't own a securities portfolio. the phone is ringing off the hook from buyers who want to buy some of the non-core assets the company is open to selling. a number of analysts said it's not going to do valeant any good to sell a few hundred million
dollars worth of assets and one thing mike was good at was identifying and acquiring good assets and they have a divers y diversified port and i think joe will provide more clarity but the company can sell billions of dollars of assets without effecting any of the core franchises of the company. that's not going to happen overnight but the company has hired bankers and books are being put together and those assets will be shown to interested buyers and my guess is around year end the company will announce fairly significant asset sales so the company will delever. joe is working to fix the dermatology business. walgreens is interested in
fixing that distribution channel but they would love to do a deal with other drug companies. joe is going to get that fixed. he's made progress. he's started to make progress on the sales force and making sure that product is doing what they should. my experience with him over the last couple of months is incredibly unflappable hard working focussed strong operator and i think he'll have a lot of good stuff to report to people about progress, plans, et cetera and then this will be a stock people can own. >> you're sticking to what you told me prior on this program that there are no plans at this point to sell core assets? >> that's right. they have a very low tax base relative to what we believe it's worth. we think it's a great franchise. it's a franchise you build on and it's the core of the
company. you could certainly envision a day where the company sold off a lot of non-core assets and the business was a more focussed business and it becomes a more dominant part of the franchise. i think it's more an asset and company you build valeant around than an asset you would want to sell. it would be an inefficient sale. >> you reference saquoa, mr. left said it's obvious it's a zero now. you're response. >> i think andrew left is a charismatic guy. he made one of the great short calls ever. i give him credit for that and then he made a long call on valeant and then he made -- now he's made a short call on
valeant. what i find interesting is he never tells you what he does with his position. he puts a trade on and says it's a short and then he covers and then he buys some calls and then he goes on tv and it's a long which he did maybe a month or two ago and then i guess yesterday it's short again. i feel like you guys are doing a very good job helping him make money. i'm not sure it's good for investors. if his reason for going slorthos that the stock was sold to pay taxes those are not good reasons. the underlying franchises here are strong and there's been business disruption as a result of recent events but i think we have a strong ceo who can fix those problems and the company generates cash every day and that cash will be used to delever the business. the multiple at which the stock trades at doesn't change.
just the deleveraging of the company you're going to make a lot of money at the current share price. it's not without risk but we think joe's doing a very good job and he'll have more to report in a few weeks to investors which i think will be help get people comfortable. i got to run. it was supposed to be ten minutes. >> let me ask you lastly because mondelez is in the news as well as. does that deal ultimately happen and how much do you think mondelez should pay if it can happen. >> i would leave that up to the board. i think they have a smart board of directors and we'll let them figure it out. >> thanks for calling it. i appreciate your time today. >> thank you very much. >> we'll be right back.
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we are back following our interview with bill ackman a few moments ago. josh your reaction on some of the stocks we talked about. >> i really don't have a strong view on herbalife. i hope we get to talk about it for another ten years though. on valeant i think the point about come ing on tv and hopingo influence the stock one way or the other is kind of weak. everyone talks their book.
whether they do it to shareholders or tv -- >> let's make it about valeant as an investment, whether you think that you would bet on the turn around of vision and strategy that bill ackman told you is taking hold. >> it could work. stranger things have happened but to me it seems like an uphill battle. you're in a market that's breaking out and you have stocks waking up after two years of doing nothing. why are we scouring the new low list if we're not super intune of what's going on with the company. i think he knows more about it than i do so it's just the kind of thing i have no interested in. >> they don't report gap earnings so you don't know what they're doing unless you're going to do a lot of work. all the cash flow is going to pay down 30 billion in debt. even if they sell $10 billion they're highly levered. we have heard rumors it is on
the block. it's the last thing you want to sell but it may be the most valuable business they have. if you look at what some of the analysts have done their businesses haven't made money. unless they've done it by raising price. those games are over. so to me -- i wouldn't call this herbalife but i'm not willing to go along for the ride now. ready rather see what's happening with asset sells and joe papa left from the highs. >> asset sales in a distressed environment which valeant is clearly is in seldom go to the seller's advantage. >> they're so levered. that's what everybody seems to be talking about right now and the other thing that comes into question is where is the discipline? when we have losing trades and you look at where this stock has
come from and along the way we can be convinced and we can be right but how long can you wait for yourself to be right. this is an extremely levered company. you're going through the ceo change. you just defined where the stock was and you have that going against you. i think if you looked at any one of us on the desk you would say when we buy a stock in the markets, we have an exit strategy whether that means on the loss or win side. >> the reason to buy it is pearson and he's the guy and it's something else. it continues to change and that's a tough thing to be in. >> jp morgan earnings lifting the banking sector today on better than expected earnings. could this be the start of a turn around for officials. back in two miptsz.
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anton and mike mayo. jp morgan today seemed to be exactly what the market, the sector, jamie diamond, bank investors wanted to see. >> they've raised the bar again. it makes it hard for everybody else to follow them. they put out numbers that were better and everybody was expecting and hoping for. they put on a ton of new growth. >> your reaction is what. >> we have to remember they've already raised the bar. jp morgan is the lebron james of banking because they're good at offense and defense and you saw offense this quarter. 5% revenue growth, loans, fees, and they're doing this under
tough conditions. if we push the lebron analogy and they have three defenders on you and they had brexit, lower rates, risk of capital markets and they still scored. revenues were above expectations and they still had the defense. best balance sheet in decades. they showed resill ansy so offense plus defense. >> how much of a sigh of relief was this report today. >> i think if you look at every bank stock in the country it's up today so i think it's taken a lot of negativity out of the group even for a margin jp has talked about margin for the rest of the year is the be flat this. >> when we see bank of america report. >> i think you're going to have those kind of marks. we saw the report today the same thing, kind of mediocre numbers
and everybody's marks are down so you have to look at trust banks having a negative down side. >> so mike, if you look at jp morgan and you know that other banks are coming down the pike over the next couple of days, what do you do today? do you take anything from jpm and say i'm going to go buy x, y, z? >> i think the big surprise here is just how strong fixed income trading came out. fixed income trading up 10% year over year, stronger across the board in a variety of areas so i think you have to think more posse positi positively about goldman sachs. i wouldn't give too much of a sigh of relief. jp morgan is best of breed when you talk about the global universal banks and there's still a chance somebody got hurt
with all these rate moves that have happened over the past couple of weeks. jp morgan looks good and goldman sachs but we're going to have to look at the other banks one by one. >> thanks for calling in. i guess my point is that with every commentary about the banks, low rate, low rate, net interest margins are terrible, that's what i mean about the sigh of relief that you're seeing the stock in sector itself really go up. regional banks because that's your wheelhouse. >> i think the bad news and the lack of fed hikes is going to make the consolidation more enef tabl. 5% of the industry is sold at the end of the year. the currencies are back, the bank stock prices for some of the buyers are back up again. >> whose getting bought out next. which ceo is about to retire. >> i love the southeast.
>> great call. >> just kidding. have you trimmed the position at all. >> i have taken a little bit off but i bought more back. i'm going to trade around this name. there have been rumors out there. i said it's a valuable position to somebody else given their market share and three top carolina markets. >> good to have you here. >> citi's tomorrow and to a large extent you can breathe a sigh of relief for the margin this quarter. i think mike may have pointed this out a lot of people are presuming that the brexit volatility is in the bank's favor. i think there's room for the banks to have a trip up in the brexit volatility and that means there could be gains further
ahead for citi group if they're nodded the one that made the mistake. >> we have to run but i go the to hear from you on the banks. >> i love this. we talk about management and how great gentlemanjamie is and thed this as well as they could have and i have to look at wells fargo right now. >> the largest tech guy of the year is trading at the new york stock exchange. should you get in line. we'll see what the traders have to say on the halftime report.
csx is up first. top of the bottom line. >> we look over the year and it was down but this is a beat and so because of that fact people have decided to jump back in. coal volumes were down. not a shock. >> you're out though. >> i am out. >> you bailed. >> i was in those calls, that's discipline brother. >> all right. young beating estimates raising the growth outlook as well. you brought the stock in the portfol
portfolio. >> look at that chart. the stock is probably going to be the mcdonald's of this year. >> pass the kfc. delta airlines they beat fuel prices. >> yes. >> and an upgrade for some of the stocks. >> i sold most of my trading position yesterday. talk about discipline and stupidity. i still have a trading position in american and my core position so i'm participating and i think they go higher. they got too beaten up. probably the cheapest stocks i look at. >> p&g. >> this is a poster child. it's a high quality name but where are you going to go from here. >> coming up, buy netflix ahead of its results next week. we're going to debate our call of the day next. i'm only in my 60's.
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welcome back to "halftime." that's a look at shares of line today, up 28%. soaring on its trading debut, making it the largest tech ipo of the year. our question is, should you get in? josh brown, you say no. why? >> well, you can. i'm not. this is another company coming public two years after it should have. they would have raised $10 billion to $20 billion if they came through in 2014. now they're worth, i don't know, $5 billion, $6 billion. but they have the same problem that twitter has. they can't grow users beyond their traditional base. >> does that make you guys negative? >> it makes me worry about it. why are we doing in the u.s.? i mean u.s. companies. >> here's the deal. buying an ipo from a quality
underwriter is a riskless trade. if it trades up, you make money. if it doesn't, they support the dl because they have such a big pipeline. risks on day one. day two, also, if they structured correctly. so why not? you've got the street helping them. >> we're all over this rally on wall street. the big warning today on tesla from consumer reports. what you need to know directly from consumer reports. and later, it's full-blown poke mania. getting a big boost from pokemon go. much more after this halftime break. cloor
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it's reliable. just like kung pao fish. thank you, ping. reliably fast internet starts at $59.95 a month. comcast business. built for business. despite increasing concerns over subscriber growth, raymond james is sticking with their outperform rating, saying the stock is becoming even more compelling into the report. it's our call of the day. pete? >> they're talking about stabilization in some regard. >> can they get over that hump? if so, i think this could be a surprising report. i understand you can understand why they're so bullish.
>> got it very worked up. >> look, the stock is down, almost 30% from its high about a year ago, right? that is all multiple contraction. there is room to come down. you can come down to a 45 multiple. >> down 20% on the quarter. it would be the perfect acquisition for them to slow down away from itunes. nothing else there. there's so much competition now. amazon, hulu and everything else. >> tim cook, if you're listening, a great place to put your cash. >> a final look at this day and a look ahead at tomorrow's big earnings when we come back. ♪
welcome back to the halftime report. there's a look at stocks today. s&p is up 11. dow is right at 18,500. i want to bring the show full circle back to those comments. we heard from larry fink, who said the market probably didn't deserve to be where it is. paraphrase, but he was talking about where stocks are, whether they deserve to be there. he says no. >> yeah, he made some weird comments.
so people are not pulling out necessarily and i think deserve has got nothing to do with it, to quote clint eastwood from "the unforgiven." we never deserve where we are. i would ignore a lot of that stuff. >> good stuff. see you tomorrow. all of you as well. "power lunch" starts now. gold down, tesla under fire, and for some reason pokemon go is still a thing. michelle is off. tyler and melissa are here. let's get to bob pisani. powering another triple digit gain for the dow. bob? >> and the important thing, brian, is this is the first real day of earnings season, and it's starting off excellent. let's take a look at what the issues are