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tv   Power Lunch  CNBC  July 24, 2019 2:00pm-3:00pm EDT

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thanks for joining me. and again the earnings numbers, the estimate is a 40% loss for revenue, $6.1 billion. we'll see how they go after the bell tim, thanks. tim higgins from the "wall street journal". and thanks everybody, for tuning into "the exchange" today. >> thank you, kelly. i'm melissa lee. welcome to "power lunch. new at 2:00, a battle on three fronts the war in big tech, facebook paying up to $5 billion for its privacy violations while the doj opens an anti-trust review is big tech just too big then a market tug of war earnings take center stage as caterpillar and boeing sink. but is the fed the only thing that really matters? we'll debate that. plus, a battle for the soul of tesla. one bear, one bull they face off ahead of results after the bell "power lunch" starts right now ♪ ♪ what is it good for ♪ absolutely nothing >> what a song from my youth
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edwin star, "war, what is it good for." welcome to "power lunch," i'm tyler mathisen and i date myself proudly, ladies and gentlemen the dow at its low, now down 123 or about a half percent. but why? well, it's basically boeing and caterpillar. s&p 500, it is higher by about a fifth of a percent and nasdaq higher about a half percent. those are sitting at record levels the nasdaq, i should say, despite the hurdles facing big tech as the doj takes aim at the industry more broadly launching a broad review of big tech companies over fresh anti-competitive concerns. elon moy with more >> the justice department plans to look at three areas of concern. are the big tech companies stifling innovation or harming consumers? the doj said there are widespread concerns about practices related to search,
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social media and some retail the doj does not name specific companies, but google, facebook, am amazon and apple could get caught up in this. without the discipline of meaningful, market-based competition, digital platforms may act in ways that are not responsive to consumer demands the doj is not the only agency in washington responsible for regulating big tech. the ftc is conducting its own scrutiny of the internet giants, both over antitrust issues and over consumer privacy. just this morning, the ftc announced a record $5 billion settlement with facebook over alleged privacy violations that agreement requires ceo mark zuckerberg to certify facebook's privacy programs directly with the ftc each quarter and creates a new, independent privacy committee on the board of directors. the ftc argued that the new structure significantly diminishes zuckerberg's power, but this decision split the ftc's board of commissioners
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along party lines 3-2. so guys, that shows how much debate there is about big tech in washington, even inside of the regulators back over to you. >> thank you very much, ylan for more on facebook and the headwinds facing big tech, let's bring in mike isaac, "new york times" technology reporter and kevin arcwit who is at kasowitz, be benson torres thank you for being with us. kevin, let's start with you. let's talk specifically about this possible antitrust investigation by the doj how unusual is it that what is being investigated here is not a case of consumers being injured by pricing issues? >> well -- >> rather by something else? >> it's very unusual, but that's the challenge of applying antitrust to high-tech in the first place. because a lot of times the products are free. >> yes. >> and these companies are not monthsnary institutions so they have to achieve revenue through other means which is maybe through some of these practices or advertising
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so antitrust does have to reach out to places it typically doesn't go equally unusual is the fact that the doj is doing this investigation at the same time as was mentioned that the federal trade commission is doing. >> unusual to have both going at these companies over the same things >> ask then you have the house subcommittee on antitrust that has a third. three federal investigations it's pretty daunting for any company. >> if you were the leader of the investigation at the department of justice, under what sort of theory and grounds would you be going after these companies, most importantly >> okay. for antitrust to apply in the case of mondaylization, we don't apply just because it's big. so you have to look for conduct that is not what made them big, but what artificially keeps out those who would want to compete from being able to do it and i think for the companies, the challenge is to find -- is to identify their conduct and have it be part and parcel of the innovation because the agencies don't want to kill the goose that laid the
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golden egg they want to allow that to continue so to the extent the companies can tie the two together as related, i think they're at less risk. >> we're going to ask you to stick around, along with mike isaac for more on ftc's decision on facebook, we bring in rebecca kelly slaughter, one of the two dissenters, staying in a statement, in order to support it, i would have to be confident its combined terms would effectively deter facebook from engaging in future law violations and send the message that order violations are not worth the risk i do not believe that is the case rebecca, welcome to the show >> thank you so much for having me >> you actually believe that the ftc should have gone the litigation route why didn't it? >> well, i think i let the majority speak for themselves. what they argued is they think this deal was the best they could get. >> and you also make the point in your statement that the ftc is unique in that it doesn't have an independent litigating
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body you would refer this to the doj. it is now in a way in the hands of the doj the doj has opened its own broad investigation. are you hopeful that the doj takes action, are you hopeful that perhaps the ftc will go on and take further action on facebook and maybe some other big tech names >> well, i think that's actually a separate issue what the doj announced yesterday sounded more like an anti-trust review with respect to our particular privacy case, the doj joined the announcement today, saying they would file it. and while i objected to the settlement and i objected to the release of liability that it had in it with respect to privacy violations, it didn't release the company from any antitrust or competition investigation so to the extent that those exist, either the doj or at the ftc, those could continue uninhibited. >> so what happened -- what happened in terms of the ftc's
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decision, the 3-2 decision, it doesn't preclude the ftc from taking further action. so in other words, even though you may view this as a slap on the wrist for facebook, it may still face further investigations by the ftc specifically >> it doesn't preclude the agency from taking investigation -- from taking further action on antitrust issues or on consumer protection issues outside the scope of the order that we were trying to enforce. but it does immunize the company and its executives from any further enforcement with respect to any allegations of violations of its previous order, where it promised not to make misrepresentations about user privacy. >> any standard $5 billion is a lot of money it may not be a ton of money with respect to facebook's revenue stream what would you have liked to have seen by way of remedy for the conduct that is being sanctioned today what would you have preferred?
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>> so what i said in my statement is that i feel strongly that a remedy would need to give us confidence that facebook is not going to engage in the kind of behavior that led it to be under order in the first place or that led it to violate the order in the second place. and for me, that included at least two key provisions the first for some limitation, some substantive limitation on how facebook collects, shares and uses data. and the second is public transparency and public accountability and while the order does require a lot of internal reporting to facebook, and reporting to the ftc, all of those things would be nonpublic and i would prefer to see public accountability, if not in the order itself that i thought litigation would be a really effective way to ensure that public transparency and public accountability >> on capitol hill, rebecca, this seems like a bipartisan issue. you have senators and congress people on both sides who want to see facebook held accountable in some way, and yet this was a
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decision at the ftc right along party lines, 3-2 you're one of the two, obviously, democratic commissioners who dissented. what can you tell us about thinking within the ftc and how this sort of political divide within the agency could shape further pursuit of facebook? >> so candidly, i know it was a party line vote. i don't think of this as a partisan issue or a political issue. i think each of us looked at the facts and the case and the law and arrived at our own independent conclusions about what the agency should best use -- should best do. i'm someone who advocates all of the time for the ftc to have more resources and more authority. and i think we do need a federal privacy law and nothing today changes that but i also think that today we should use the authority and the resources we have to their fullest extent, and i would have preferred to see us take facebook to court. >> rebecca, thank you so much for joining us we appreciate it rebecca kelly slaughter.
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>> thank you so much for having me. >> of the ftc. let's go back to mike isaac as well as kevin. kevin, i'll go to you since you're a former attorney what's your take on what you just said? >> i agree, these things are not along party lines but people think a certain way ideologically. it's not really a surprise i think with any of these remedies, whether it's this or antitrust remedy, that because these companies got large because of innovation and consumer choice, is that one has to be careful that the cure is not worse than the illness before action is taken, it would seem to me in any of these cases that the agency should consider very carefully, what is it they're trying to achieve? if these monopolies were achieved naturally, splitting up or telling them not to act a certain way is inefficient, going to cause chaos in the short term so you better be sure there is net harm before you get to the remedy phase >> and mike, i'm just wondering, one of the things she said jumped out to me where she said, you know, i wanted public accountability, not just
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internal accountability at facebook the media has actually been successful in changing the behavior of a lot of these companies, incrementally over the last many years. even if the ftc didn't go as far as might have wanted, could we still see facebook wanting to respond with something more like that, like a periodic report on its actions? >> i think commissioner slaughter made some really good points about accountability. i think part of why folks are saying facebook is getting a kind of slap on the wrist here is two things. one, a lot of these processes are going to be internal, and really, we don't -- they don't typically share more information outside of the company than they need to or are forced to by law or by s.e.c. disclosures but i think the other really important point here is that they essentially negotiated a blanket indemnity cause for any violations that happened before june of 2019 that shields not only mark zuckerberg and sheryl sandberg, but any other directors and executives at the
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company. and that's a really big deal it kind of says, we don't really even necessarily know what's going to come out after this or if they're going to be further violations that even we didn't foresee now but it kind of doesn't matter, because we paid our $5 billion, and we're safe in the long run >> if you're an investor, kevin, you know, you take a look at the stock, and it's amazing, because when the news broke in the after hours session, facebook shares were down by as much as 1.8% or so and now they're virtually flat, look like they're going to turn positive so it's simply headline risk at the same time, when you think about what facebook might be handicapped in doing, going forward, while it's under doj and ftc scrutiny, it might be, you know, preventing the company from fully monetizing what's app or fully monetizing instagram or so on. and that could then impact the revenue growth rates for this company. how do you think investors should pick apart how this could affect facebook's growth >> yes, well, i think it is not so much the final remedy that's
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imposed. as you say because in many of these cases, there won't be a remedy imposed. but it's that cloud that hangs over the company during the course of an investigation and i've represented companies in these sorts of situations and it's daunting. and there won't be any major decision made by the company, whether it's to do an acquisition, create partnerships with customers, suppliers, without this being the elephant in the room. and by -- it's just inherently the case it will cause them to pull back a little bit when they know everything that they are saying and writing is going to be reviewed by a government antitrust agency. >> mike, same question to you. >> yeah, i mean, look. i think there's a reason why the stock jumped immediately after the news leaked a few weeks ago that that cloud of uncertainty that kevin was talking about is essentially lifted and i think, you know, again, tyler, as you said, $5 billion is a lot of money by any stretch. but it's also one-tenth of facebook's annual revenue last
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year, and each quarter they report earnings in about two hours. each quarter seems to be subsequently a new record for them so i think investors are essentially -- and, look, the bottom line is, it really didn't rein in any data collection practices that they have so i read this as a lot of -- essentially a speeding ticket to are them to continue doing a lot of the things that made them so lucrative of an investment in the first place. >> that's right. and they do report after the bell today guys, thanks very much really appreciate it mike isaac. >> thanks for having me. >> thanks to you both. tesla shares trading higher. is now the time to buy or bail we have a full bear debate. plus should the disappointing results today from caterpillar and boeing worry investors or is the decision next week the only thing that notters right w? that's coming up after "power lunch" comes right back. with xfinity mobile you can bring in your own phone,
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welcome back to "power lunch. some of the earnings euphoria wearing off. the s&p 500 and nasdaq both in the green right now. bob pisani is on the floor of the new york stock exchange. has a drilldown on the current numbers. hey, bob. >> the loss adjusted $5.82 per share, melissa that is the second quarter it was the worst quarterly loss of for boeing. it was so big, it even moved earnings estimates for the s&p 500 -- look at these numbers yesterday we were reporting estimates for the second quarter s&p 500 earnings expected to be up 1.1% overall.
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today it's down almost 0.1%. this 0.2% decline is due to boeing, a big problem overall. you can also partly blame caterpillar, which came in nearly 10 percent below expectations on its u.s. oil and gas business, as well as weakness in china. but there is no weakness in china for texas instruments. they get about 40% of their sales from china, reporting better than expected numbers, and said we don't see anything unusual this quarter now, we'll see, melissa, if xilinx says the same thing after the bell today they get 30% of their sales from china, as well so you can see here, melissa, very complicated cross-currents. and, of course, industrials is a different space than semiconductors we'll see what they have to say. back to you. >> all right, bob. thank you. bob pisani. so today's it's earnings dragging down the doi. but is the market only concerned with the decision from the fed let's settle this tug of war joining us are michael farr president and ceo of farr miller
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washington and zach from the global wealth and investment management at bank of america. matthew, these are either the best of times or worst of times to be a fixed income guy because you -- on the one hand, have people owning, you know, treasuries for the upside. i mean -- in fact, i recently read, it was a bammel survey that the most crowded trade of anything in the world right now, but they have been a great return, but yet these prices are wacky, to say the least. so how should investors tread in your space >> it could be worse it could be a european fixed income analyst that would be more difficult. >> exactly. >> trying to explain how negative yields would be a good buy for people so you're right. yields are certainly lower than they have been historically. but in a global context, actually, the u.s. looks pretty darn good. around 2% on a u.s. ten-year versus negative almost 40 bips on a european bond things look fine we're pretty much relatively neutral across assets. not really strongly overweight or underweight on anything right now. >> what do you think about next week's meeting
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so the wide expectation is a quarter-point cut. what happens if they don't do it for some strange reason like the better data. what happens if they go 58, what's the setup like? >> we think there is a very large chance they're going for a 25-point base cut next week. william and clarita said two-thirds and the new york fed came out quickly to quash that that gave a pretty good sense they don't want 50 if they wanted 50, they would have let the market think that they have been very close to micromanaging markets for some time now making sure people are not surprised. >> yeah. >> so we think it's going to be 25. >> so you're not worried about it being -- you just say we're priced for 25, going to get 25. >> that's our belief however, if it was 50, we think that would be good right? we think the market would take that well. if they didn't cut, that would be not good. but in the longer-term picture, as long as the fed sticks to their script, which is they want the economic expansion to
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continue, inflation is not there, we're relatively less worried about is it 25, is it 50. >> okay. >> so michael, you say that the market, to your standpoint, is mildly overvalued. but that there are individual stocks that are anything but overvalued i would like you to name some of those value plays that you see right now, and you cannot name johnson & johnson. >> you know, you always go there, tyler. >> yeah, i do. because you always go there. >> well, it's always -- it's been a pretty safe place to be for a long time. health care -- >> but not lately. >> no, it hasn't you know, health care, as a group, is up, you know, maybe like 6% or just shy of 6% year-to-date and a market up 20%. so one of the things that you want to do as an investor, certainly as a contrarian, is not chase the stuff that's become most expensive, but perhaps find the stuff that has really good fundamentals, has good, solid balance sheets and probably has performed that's health care within health care, i like a dog and kind of a winner
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i like cvs, which is certainly a dog in the health care space 7.8 times earnings single-digit p/e ratio, 3.5% dividend i think they're going to get their act together the pharmacy benefit manager is going to work. abbott labs is another one, three promising devices, one is a diagnostic device that's very, very hot they have another diabetes tester, monitor, that's called libra. and then they've got a heart micro valve clip thing they're doing. but they're not in the space, right, that's being so harshly criticized by the government and by capitol hill. it's kind of -- it's probably fully priced, 24 times earnings. 1.5% or so dividend. but it's growing but i think that basically, you know, if you're going to have another fed cut, you're going to see price to earnings multiples go higher. this market gets more expensive. you don't fight the fed. and we've got a tailwind now which makes me nervous
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i don't think the fed should be cutting. >> michael farr, i love what you're saying. there is fundamental reasons to own these stocks it's not all about that rate cut or not or two or whatever. >> you've got to know that you've owned something if everything starts going wrong and that you have got a seat for your client when the music stops. >> absolutely. guys, thank you. good to see you both michael farr and matthew dezok. >> drones and sundays. how u.p.s. is revamping its delivery options nike's waffle shoe, waffle trainer, they used to call it, fetches big bucks. and a record high. a bullish sign for the markets or is the run coming to an end as you see that semiconductor stock. that's next. since my dvt blood clot i was thinking... could there be another around the corner? or could it turn out differently? i wanted to help protect myself. my doctor recommended eliquis. eliquis is proven to treat and help prevent another dvt or pe blood clot...
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...or trips to mars. $4.95. delivery drones or the latest phones. $4.95. no matter what you trade, at fidelity it's just $4.95 per online u.s. equity trade. welcome back to "power lunch. i'm mike santoli at the new york stock exchange chip stocks hitting all-time highs today. the semiconductor index up 14% in the last month alone. is this a bullish set up or will macro headwinds swat the high-flyers? matt and gina sanchez are part
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willing your "trading nation" team today with the semis leading and making new highs, typically a good sign for the broader markets and maybe the economy, but this group is now running pretty hot, isn't it >> exactly i'm quite conflicted on this one, because the fundamental backdrop isn't very good there is no question, the fact that the smh has been able to make a new higher high is bullish. the one thing, though, as you mentioned, it's running hot. it's overbought. you look at the rsi chart, it's more overbought than in april just before it began a 17% correction and more overbought than it was on several occasions in the last 18 months just before the group rolled over and, you know, when we have made it a higher high, it's only a slight higher high so it looks like it's poised to take a little bit of a breather. however, as conflicted as i am on the group, if after that breather or even immediately, the group makes a more substantial higher high, it's definitely bullish for the group. and as we learned last year, it was a key leading indicator for
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a down turn in the fourth quarter. and it was a powerful leader in the rally in the first four months of the year so whichever way this thing eventually breaks is going to be very, very important for the broad market, as well. >> yeah, pretty high stakes. and, of course, with this fast-moving group, a breather could be pretty sudden and dramatic gina, i mean, clearly the market, at least running the stock to new highs, is trying to bet that the cycle has turned for the better, and, in fact, there will be an acceleration. so how do the numbers stack up in terms of trying to prove that >> well, i think that the pop you're seeing really is just because valuations have been so depressed since the u.s./china clash started taking hold. valuations very depressed. so you get a texas instruments or a teradyne outperforming expectations and, bam, the stock breaks out and the whole industry breaks out. but here's the -- here are the fundamental headwinds. so while you could continue to see continued upward movement as valuations kind of get back to maybe a more normal place, the
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outlook for the fundamentals is just -- is not that great. because you have a few things. one, you've got a cut in production from china. that should be good. but you have massive oversupply. and that massive oversupply is meeting, weakening demand. and that's really what's going to probably drive lower revenues in a second half of the year this industry thought it was going to get a second half bounce i don't think we're going to see that and so i think if you see anything, it will be valuation-driven, but it's going to be capped by the fundamentals >> as we are almost a month into the second half. all right, matt and gina, thanks very much. see how it breaks. for more "trading nation," head to our website or follow us on twitter at trading nation. melissa, over to you. >> mike sal tony, thank you. ahead on "power lunch," boeing reporting its biggest quarterly loss in the company's history because of the 737 problems is this the time to buy or bail? plus, are you ready to rumble tesla set to report after the bell we have two analysts lacing up their gloves for a classic bull/bear debate. and today's mystery chart.
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this stock is soaring 80% this year all this when "power lunch" returns. and now, the latest from tradingnation.cnbc.com and a word from our sponsor. >> some people say buy and hold investing is dead. but there is nothing wrong with that strategy, as long as you don't buy and forget about it. it's important to make sure that your portfolio doesn't become overly concentrated in one stock or sector due to market appreciation so don't forget to rebalance your portfolio every 6 to 12 months to maintain your target allocation i'm randy frederick, and schwab is the better place for traders. (gentle music)
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♪ i'm courtney reagan, here's your cnbc news update. special counsel robert mueller testifying before the house judiciary committee this morning, dismissing president trump's claim of total exoneration. here's the exchange between mueller and committee chairman, jerry nadler >> director mueller, the president has repeatedly claimed that your report found there was no obstruction and that it completely and totally exonerated him but that is not what your report said, is it. >> correct, it is not what the report said.
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>> police in chicago are investigating a bold smash and grab on the magnificent mile early this morning thieves smashed a window of the neiman marcus department store taking not only shoes, clothes and handbags, but three mannequins in them no arrests have been made. jacksonville jaguars defensive back jaylen ramsey made a flashy entrance to start training camp. he arrived in an armored truck the jaguars picked up the fifth year option on his rookie contract, but refused to commit to anextension that's one way to get attention. that's the cnbc news update at this hour. back over to you, tyler. >> i would think that those thieves walking down michigan avenue carrying mannequins would be an easy one to pick up. >> maybe they should put tracking devices on mannequins. >> if they got on the subway in chicago, might draw attention to them courtney, thanks. let's take a look at the market, shall we, right now. if all you looked at is the dow, you would have a very different impression of the day.
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because it is now down 102 points, was down almost double that earlier today that's boeing, that's caterpillar. but the s&p 500 up a quarter percent, the nasdaq up about a half percent and check out this power move. s.n.a.p. is soaring after its earnings report. we talked about it yesterday up a whopping 15%, having its best day since february and hitting a fresh 52-week high easy as snap, kelly. >> right, tyler, thanks. the oil market closing for the day. it's been volatile let's go to rahel solomon. >> after being flat for most of the session, oil prices dropping sharply by more than a dollar to a session low of $55.64 a barrel you can see it's trading slightly higher right now. this is after the u.s. defense secretary made comments about deter attention iran ramping up geopolitical concerns in the region turning quickly to natural gas, also a drop today. trading at $2.22 per unit, and that's the lows of the day melissa, over to you. >> rahel, thank you.
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rahel solomon. boeing reporting its largest quarterly loss of. phil lebeau joins us with details. >> the big fear has long been a sense of 737 max production, and that's what they heard from the boeing ceo today he said they could halt production, it's one option they are looking at that's if they do not see the recertification happening as expected in the september time frame and the plane returning to service by the end of the year here's the exact comment from dennis muilenberg that immediately sent shares lower. >> in some cases, depending on time line, a temporary shutdown of the production line could be more efficient than a sustained lower production rate. >> as a reminder, they are currently building 42 737 maxes every month. the goal is to get up to 57 by the end of next year, and, again, that's if everything proceeds as planned through the
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end of this year for some of the suppliers like spirit aero systems, they're still building fuselages for the max at a rate of 52 per month. they would feel an impact if they halted production at boeing also, when you take a look at shares of boeing, keep in mind that this is -- this is the cash cow, guys. so if they suspend production, that would have a huge impact, not only in the third quarter, but also on the fourth quarter earnings, as well. and remember, they have not given guidance for all of 2019 yet. >> all right, phil, thank you. phil lebeau joining us from chicago. so can boeing get its wings back our next guest says yes. he's got a buy rating and a $450 price target on the stock. that is more than 20% up side. jim corridor from cfra joins us now. great to have you with us. phil made the point if there is any halt in production that estimates could fluctuate. they also pointed out on the conference call the management team, that is, that if they don't get back in the air by, you know, fourth quarter or so,
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that that could also push out estimates. how confident do you feel sitting in your chair right now that boeing will hit what you have for 21 eps estimate in your $450 price target? >> yeah. obviously, the bold case scenario, they get recertified in september or october. the plane starts flying in the fourth quarter all these planes that are parked all over the boeing facilities start to move out and we start to book revenues on those. that's the bold-case scenario. obviously, dennis muilenberg gave us an option that they haul production and throws all that stuff out the window they don't think that's going to happen we think boeing has been working closely with the faa and certification is probably going to happen along their time line sometime in the early in the fourth quarter and so we are sticking with our buy on the stock. >> at what point should investors get concerned about the domino impact, focusing on the attention on the 737 max and getting back up in the air, and granted that is the cash cow for boeing, which basically fund all
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the other programs but for instance, the development of the mid market plane, does that get pushed out at this point in time and pushed out even more if they don't hit that fourth quarter back in the air time frame >> yeah, i think we become more concerned if we start to hear some grumblings from the faa that boeing is not ready that they're not happy with the way things are going and maybe will not recertify and that does put a more likely scenario the company does have to halt production boeing has its mental capital now on the 737 they have no bandwidth to talk about the new market plane right now. so, yeah, things are going to be pushed out if we don't get things moving pretty soon. >> what is -- let me ask you sort of a compound question. what is the reputational damage that boeing has suffered, and is this or is this not in some ways by some measures the most expensive product recall in the history of american business they have already marked $5 billion to compensate airlines
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they have -- their revenues down $9 billion from where they were a year ago and their stock prices down 20%. that sounds very, very costly. so what's the financial damage here is it the biggest ever, and what's the reputational damage >> well, let's keep in mind, if the plane does start flying again, these are all orders that have been booked, not booked into revenues, because they haven't been able to deliver planes those are delayed, not cancelled. that's a 2020 story. if we do get the plane flying again, a lot of the revenues come back into the picture there is very little lost revenues, very little cancelled orders on boeing's book right now. of course, as to the first part of your question, boeing's reputation, that's what's at stake right now. it's to be determined. if they are able to relaunch this plane, and it's as they say the safest plane to fly once they bring it back into service, then their reputation can be preserved. they are battling for their very existence to r, for their very reputation right now. >> jim, appreciate it.
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jim corridor, cfra. turning to tesla, shares down 22% so far this year. should you buy the dip a bull and the bear duke it out ahead of the earnings which are after the bell today when we come back from this very quick break.
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welcome back, everybody. tesla shares trading slightly higher right now as the automaker gets ready to report its second quarter results so let's climb into the ring, because even wall street can't agree on where this stock is heading now. major disagreements, in fact in one corner, a raging bull and in the other corner, a tesla bear to duke it out. joe osha is an analyst with jmp securities he's our bull. brian johnson is senior analyst with barclays, just raised his earnings estimate, but still maintains his underweight on tesla and a $150 price target.
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i can't imagine a stock -- i can't remember a stock where the price targets are so disparate as here. brian, you say 347 -- excuse me. joe, you say 347 brian, you say 150 joe, you go first. make your case and then brian, bear it up >> absolutely. thank you. the base argument that we're making here is that tesla makes better evs than anybody else, and that's been demonstrated a number of times. if you look at what's happened with the competition so far this year they basically failed, including the audi if this continues, this company can ship more than half a million cars next year, and if they do, the stock should be worth what i say it is and just for the record, i'm suggesting that the stock should be valued on 15 times next ye year's ebitda. it's all about the fact that literally no one can catch this
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company in terms of the quality of the product. >> volume, quality, first-mover advantage. brian, why is it going to 140, 150? >> yeah, i think what tesla is doing, product attributes aside is cutting price and model mix to move the metal. and investors should say, let's say it makes 1 million cars. why should it be worth more market cap than a ford or close to the market cap of gm and ford which make 4 and 7 million so my models haven't been getting to 7 million in the 2020s. i think if you look at the profit margins, and there will be more competition coming in, yes, they need to push down to get the volumes into a lower price point, i just don't see the iphone-like earnings power to justify a higher valuation. >> is it fair, brian, to compare tesla to an established legacy player like a ford or general motors when it comes to valuation? if you take a look at, you know, tesla sort of in a startup mode
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in some respects in terms of grabbing market share and in keeping its dominance in this emerging ev field? >> yeah, well, let's look at the gross margins and strip out the regulatory credits there are about 15% regulatory credits. you take out r & d and you're closer to the 7 to 10% that the legacy autos actually post as their gross margin so that's a number that, yes, the earnings are reflected by sg & a, although they have held that flat, held cap ex down, are they being a growth company. so if you look at it at core gross earnings power, really at the -- you know, how does that significa significantly get better, especially what we've seen with the 3 coming out, it's cannibalizing the s in particular no reason to think the y won't do something similar. >> that's fair, joe. we have seen the numbers for the s, as well as the x, come down and that's the projections on wall street, that the number of
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ss and xs will drop fairly precipitously. is that a sign of cannibalization or just an evolution of the tesla model >> an evolution of the tesla model. if i may, i would like to return to one of the comments about how this company should be compared to existing auto companies i take the point about the margin if this company can't become more profitable, that's fair but tesla literally grows at ten times the rate of the established auto businesses. and so to simply say it should trade in the same multiple flies in the face of basic financial analysis so i do think that you have to take that growth into account. but, fair enough if it turns out that this company is not capable of making money, i'm wrong i will say that we were pretty close to right about what the cash was going to do in q1, and i think this company is going to generate half a million dollars, leaving the deal aside, half a billion dollars, excuse me, in cash in the second quarter and if it does that, i think the onus is on the bears to explain how this business model is not
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sustainable. >> joe, brian, we have to leave it there thank you for your ion sights today, we appreciate it. and we'll shall watching the earnings when they come out. thank you. >> thanks. after the break, we will reveal today's mystery chart and talk to the ceo behind this hot biotech stock that is up nrleay 100% this year "power lunch" is back in two
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welcome back to "power lunch. it's time to reveal today's mystery chart. the chart you're looking at up 81% is sage therapeutics shares are lower today by more than 3% on new data on a drug that left wall street wanting a little more. meg tirrell has the details almost $9 billion. the company detailed some of the earlier pipeline programs this morning, and for bipolar depression in particular seemed to have wall street shrugging. sage is one of the focused on diseases of the brain where analysts see big market opportunity, putting the company on the perennial list of targets m & a.
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joining us is sage's ceo jeff, thanks for being here. >> thanks for having me. a-lithers are positively reacting we have to take the long view, and i think what you saw today, it's been an exciting day for us if you look at the data they presented, they're really very strong data. they've been dedicated advancing programs, and admittedly, sometimes the daughters is complicated, but right today we're now in the position not only to have a marketed product, but also three new assets in the clinic so we're well positioned for success. >> so we were talking about your bipolar data, but you were also talking about starting a bigger trial in treatment-resistant dizzy pression how did the data you presented today influence what you think will go forward next
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>> the data you're talking about refers to our oral antidepressant that drug has already had a positive pivotal program in postpartum and it continues to generate solid data. we unveiled data in three indication in bipolar, the drug performed as it always have with a rapid onset and main nan effect even when the drug was stopped up to 42 dates, and treatment-resistant depression, that's about 4 million new diagnoses every year what we saw there, which was rewarding for us, the drill 3r678d very similarly to how it performed in the general population we thought as we looked at the opportunity for depression we also have data and anxiety, but as we're sequencing our portfol
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portfolio, we feel the greatest area of unmet medical need as well as frankly the biggest -- so we've made the decision to pursue that our next ase. >> do you start thinking, wow, this could be applied for this as well? i'm wonder, in your mind, do you think the possibilities of treating varitrea ing various depressive disorders? >> the potentially for sage 217 is quite large one of the opportunities the company is facing, because we have so much assets in the clinic, we are forced to take a deliberative decision making, so our priorities for 217 i frankly to make it the most successful in depression that we can, but have other molecules, so we really don't want to put all our
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eggs in one basket when we have four to play with. >> the next big moment is data from a pivotal trial in major depressive disorder expected in the first quarter of 2020. you've talked about that drug like an antibiotic treating acutely, and potentially pricing that way, too. as you're looking at the political pressure on drug pricing right now, what is your expectation as to how that influences how you price something like that? >> every company paying attention to make roe factors, and we're all concern about the ecosystem, but with respect to 217, we believe if it continues to perform the way it has that it could be a game changer we feel like we should be able to price it for the value it provides,s the first of its class ever.
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>> thank you so much nike's wflafe shoe fetching a very hefty price tag that's next. let's do it. [ sniffing ] come on. this summer, add a new member to the family. hurry into the mercedes-benz summer event today for exceptional offers. lease the glc 300 suv for just $419 a month at the mercedes-benz summer event. going on now. - [student] my degree from snhu has helped me tremendously. (lively music) the flexible class schedules allow me to run my catering business and be a mom and parent.
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breakthrough at snhu.edu. that's what happens in golf nothiand in life.ily. i'm very fortunate i can lean on people, and that for me is what teamwork is all about. you can't do everything yourself. you need someone to guide you and help you make those tough decisions, that's morgan stanley. they're industry leaders, but the most important thing is they want to do it the right way. i'm really excited to be part of the morgan stanley team.
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i'm justin rose. we are morgan stanley. a pair of 1972 nike running shoes were sold for $47 a,000 at a sotheby's auction becoming the most expensive ever sold i used to know them as the waffle trainer made by the
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founder bill bauerman, using a waffle iron to create the sole's pattern. he and phil knight were the collaborators. >> inflation adjusted, is that really -- >> that's a pretty good price. real the book "shoe dog" by phil knight it's one of the great ones "closing bell" right now. >> i'm well friday frost at the caterpillar up post. the dow stands alone the s&p and nasdaq could close at record highs. lots to discuss with 59 minutes left to trade. >> let's look at what is driving the action, higher for s&p and nasdaq, weak earnings for industrials like caterpillar and boeing strength in semiconductor stocks, though boosting technology and investors are awaiting facebook earnings a

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