Transcripts For CNBC Power Lunch 20131120 : vimarsana.com

Transcripts For CNBC Power Lunch 20131120

Private label business. Were going to discuss whether this is good or bad for its bottom line and how will they compete in the private label wars . My partner sue on the floor of the New York Stock Exchange. Hi, ty. Thanks. The dow and s p are hovering near their record levels. Caught up on where the market stands. The Dow Jones Industrial average up about 20 points on the trading session, the s p up 2. 30. The nasdaq is strongest in terms of the percentage side to the upside at 12. One Hedge Fund Manager says now is the perfect time to short stocks. Here you have a bubble that is largely driven without fundamentals in certain areas and this crazy by fur cated market where you have cheap and expensive stocks inside the same sector. And when this easy money period ends and maybe even before as we see some of these fundamentals starting to soften you will have an opportunity to make a lot of money op the short side. Where is all the action when it comes to shorting this market . Lets go to dominic chu, hes been taking a look at that very thing. Hi. So we wanted to look at the s p 500 companies, so the biggest names in america, for where this short action is manifesting it itself. The first thing is all the s p 500s and which stocks have Short Interest a lot of borrowing to short the stock. 10 or more of shares, we have 33 companies in the s p 500. Among the notable names, check this out, because you got big names like jc penney, you talked about them, a retailer out with earnings this morning, 26 of their shares have are Short Interest, people borrowing shares to sell short. Cliffs Natural Resources 29. Among the top in the s p 500. Another interesting theme here 13 of the stocks of these top shortsds stocks are in the retail or Consumer Discretionary sector, a lot of bets against companies are being played. You got to be careful because when shorts work against grew they work against you and its painful. On average 37 return for these Consumer Discretionary names. Shorting yes, its a timing bet. It has to work out for you otherwise you can get really violent moves to the upside. Back over to you. Yeah. Tends to be very swift indeed. Thank you very much. So is shorting stocks the best strategy . Even though its risky especially after the fed chairman said yesterday the crepe trol bank will stick with its easy money policy. Joining us is peter, chief market analyst at the Lindsay Group and a cnbc contributor, hes been bearish on this market but he says its also hard to fight the fed and robert joins us chief Market Strategist at vanyan partners and bullish. Peter, im going to start with you, you admit its hard to fight the fed at this point but also ben one that says we need to see this market give back some and its very difficult to be caught in that position. Right. Its been extraordinarily difficult to fight the fed from a stock market perspective. The stock market on a total market cap basis up 4. 5 trillion but the feds print only 900 billion. Weve seen this massive expansion in Multiplier Effect from the fed balance and pe multiples. Now that Interest Rates are tapering for the fed and 275 bond yield which is above where it was when qe2 started in 2010, i think the overall risk reward environment is getting more dangerous. Robert, what about that . I know that youre almost fully invesds, you have 8 in cash, but thats pretty much fully invesds. What about the points peter made . I think peter makes some good points. The Interest Rates arent where they were when quantitative easing started for the first time around. I think Interest Rates have a potential to move up maybe to 3. 5 , but i wouldnt let that worry me. The fed is only going to be undoing this artificial Interest Rate environment and i think when you start to see that the economy can continue to weather this worry thats out there, i really wouldnt let that worry me in and throw me off. I heard comments about the fundamentals weakening. The fundamentals arent weakeni weakening. When you look at manufacturing, the ims manufacturing Shows Positive trends, the durable good orders, factory orders continue to show positive trends, Service Sector indicates growth, retail sales, strong retail sales report as opposed to what was expected. When you look at the trends in employment, initial unemployment claims which indicate youre going to see around 200,000 new jobs created each month, nonfarm payroll jobs increase of, you know, a total of almost 2 million jobs being created for the year. A trend of 186,000 jobs per month. These trends are very positive. These trends are very favorable to the stock market. Peter, thats why youre saying, maybe dont short the market, you wouldnt recommend shorting, but if you need to do something, you want to buy the bottomed out stocks. What would those be . The biggest bottomed out area is the commodity space. No one wants them, no one cares for them, whether agriculture, Precious Metals and thats the area i would be looking at. In the buy low, sell high mentality because Everything Else is so far extend and so very expensive thats the only area that i find attractive on the long side. All right. Where do you expect Interest Rates to go . We heard from robert that even with the fed being accommodative, that maybe 3, 3. 25 , does that gel with what youre looking for some. Yes. Because i see it over the next year Interest Rates getting to where nom nall gdp is which could be norm of 3. 5 . The problem i have we have an economy thats med katsds on low Interest Rates. 3. 5 tenyear yield i dont think the u. S. Economy can handle it and do damage to the u. S. Economy if we get there. You get the final word, robert. Where would you put money to work . You like discretionary and industrials. Look at the cyclicals, industrials, technology, financials, Consumer Discretionary, stay away from the consumer staple space, an area of the market that is expensive. This market is selling at around 16. 5 sometimes. With an earnings growth, a Market Selling at 14 times, 2015 earnings. About 1. 17 next year, probably going to see 128 for 2015. Theres plenty of upside potential. Okay. Gentlemen, thank you so much. Some good ideas there. We appreciate it. A programming note, Green Light Capital Founder David einhorn will be on tomorrow at 12 00 p. M. Eastern time here on cnbc and always has some interesting and sometimes controversial things to say. A provocative guy to be sure, tomorrow on halftime. Jc penney reporting a Third Quarter loss of 1. 81 a share, more than wall street had been looking for. Revenue in line with the estimates. The stock moving higher, though, after the struggling retailer said it was enkournlgd by business this month and it forecast comparable samestore sales for the holiday quarter. There you see it up nearly 7 on the day to 9. 31. But for the year, it is a very different story, of course. For the year, down almost 53 . At todays levels. So is jc penney worth your investment dollar or not . I think you would have to have a fairly strong constitution to get in there, paul swinen from morning star and Mary Ross Gilbert from imperial capital. Paul youre the bull, mary the bear. Whats your price target on this stock and why are you confident that jc penney can get there . Yeah. To be fair this youre correct, this is not a stock for someone with a weak stomach and although the company is saying everything is sort of pointing sequentially better and better, its still not in the bag for the Fourth Quarter. The Fourth Quarter is still critical. Im bullish because i think that the story, the brand is not broken. The stores look great. Theyve pulled ahead a lot of cap so they dont have to spend a lot of cap next year. This is something where the traffic builds up, theyre going to have good cash flow. The market will bid the stock up. You think it can go up another 33 from here to roughly 12 a share. Mary, you see it going exactly the other way. Why . Thats correct. So let me just preface my comments by saying that were bullish on the turnaround at jc penney. However, it doesnt warrant the current share price. Let me explain that. Were actually recommending the long dated bonds as a better place to play which trade in the 70s. On the shares we have remained steadfast under perform and we think theres really optionalty. And let me explain that. If you consider where the shares are today, youre essentially creating the company at a valuation of 9. 5 times eva in 2015 assumes it goes from negative 900 million today to a positive billion in 2015. And if you look at where macy trades it trades at six times. And macys is executing very well and they have ebda margins twice that even if jc penneys could recover. Its all about valuation. You see this i mean if youre saying the stock is going to go from 9. 25 to 1 a share, youre basically saying this is not a viable enterprise. Were basically saying that the shares do not warrant the valuation. Thats what were saying. And so wed rather play in the debt rather than the shares. Paul, get in there, paul. Yeah. I would like to jump in. I mean the problem here is that the company has been bleeding cash for over a year now, and the model is very sensitive to any positive cash flow. Now they already said inventory is going to be a 900 million turnaround in the Fourth Quarter, but hintsds they might need to build some inventory. The thing is, if they get back to even close to their normalized operating margin, they said today they think they can get back to regular gross margin, sgna way down, my model could be conservative actually. This is a company that made decent cash flow, it could be better in 2015 than anybodys expecting. All right. Well, we provocative discussion, folks. Mary you say go with the long dated bonds, paul, you say the stock represents value. Mary sees it the other way. Thats how a market is made. Thank you very much. And tomorrow were going to continue our bull bear and retail segment when we look at abercrombie fitch. Dont miss that one, sue. All right. Speaking of retail, retailers as you probably know are all falling all over themselves to open on thanksgiving, but there are a few that are bucking that trend. Nordstrom continued its tradition of saying that it will not open on turkey day and it will not decorate for the holidays until after thanksgiving. And electronic retailer pc richard also wont open its doors for this traditional holiday. Its done so in the past saying its going to stay closed and it says that they those that do open show no respect for their employees and their families. Other stores that will be closed on thanksgiving include costco, bjs, tj max, marshalls and burlington stores. All right. Back up to dominic chu for a market flash. Dom . Sue, how about jm smucker this time around in a jam, still from the this morning. Shares of the maker of folgers coffee, jiff Peanut Butter and jams are down 6 after the Company Reported weaker than expected profits, sales falling last quarter. Commodity prices did fall but didnt help their situation. A sticky one still for shares of sjm. Back over to you. Thank you very much. Amazon gives storefront retailers a big run for their money. Moving even further into private label items like kitchen gadgets, power tools and food. Can this move into that area boost the bottom line or will it backfire on them . That story is after a quick break. Its as simple as this. At bny mellon, our business is investments. Managing them, moving them, making them work. We oversee 20 of the worlds financial assets. And that gives us scale and insight no one else has. Investment management combined with investment servicing. Bringing the power of investments to peoples lives. Invested in the world. Bny mellon. Two Companies Heading in opposite directions today. Lowes moving lower after the Home Improvement retailer posted weaker than expected q3 earnings. Its full year guidance below street estimates. Last trade is down 4. 2 . Deer moving higher, reported fourthquarter profits well above wall streets forecasting and its up 2. 5 on the trading day to 8492. Ty, to you. Amazon keeps growing and growing and growing, ordered stuff from them today, john fortt, and now expanding its private label business. How will this affect its bottom line . What are they going into . Well, ive done a little digging around. Heres what we came up with. Set the stage first. Theyve got several job listings on their site related to those private label plans. It seems like its early days for the project given theyre just now hiring a private label sourcing manager. The person who would go out and do deals with manufacturers to make amazon Branded Products and looking for a senior product manager and Product Development manager, the people who would figure out which products amazon should sell, who should make them and so forth. Job listing for a food safety manager work on developing private label foods, organizing lab reviews, the nine yards. An interesting time to be diving into the private label business. According to symphony rir Group National brands are doing a better job fighting against private label getting more cost competitive. The biggest area for private label market share was grocery, refrigerated meat, snacks and Peanut Butter. A big business in the u. S. Alone. 2011 total private labels were shy of 100 billion according to Research Firm package faxes. When you have a pot of money that big for jeff bezoes he sees an opportunity for share and doesnt want to be squeezed if theyre getting into the grocery business, doesnt want to be squeezed price wise. A private label business would give him leverage against everybody else. Private label nutella, thats what im for. Private label nutella. Mr. Bezoes are you listening nutella the new Peanut Butter. Can you call it nut tell la . Cant call it that. Hell figure it out. John fortt, thank you. Thank you very much. All things jason del ray says theres plenty of Unanswered Questions about what amazon is up to. Jason, tell us what you found out so far . I mean amazon certainly can execute on so many different platforms that if they do go this way, its going to strike fear in the heart of a lot of Grocery Stores . Well, it sure will, but, you know, john mentioned theres some job listings around the food category, but there are also open questions, how aggressive will they be here . Will they go into their own brand of diapers, for example . Baby category was mentioned. Will they go into Health Products . So they havent been super aggressive in the past marketing their own private labels. A lot of people dont know, they have their own line of batteries and Electronic Accessories called amazon basics. As being shown on the they have panzone which is bedding and towels. A lot of attention on their grocery business right now as they look to expand. Reports of nationwide in the next year or two. So this is something to watch for sure right now. As i understand it and from your reporting, let me know if you agree, this basically helps margins, if indeed they are successful with this. Would that be the reason to push forward with it . It could be. I also spoke to someone this morning who knows this business well who had another good take which is, amazon might identify a certain category where the lower price points are just not quality goods that amazon feels comfortable selling on their marketplace. So they might identify an area where they can go in, do a private label, cut out middle men, and address a lower price point but be confident that the quality is something up to amazon standards. How is their grocery business been doing overall . I know its not available in all areas. But they have put, you know, fresh direct and things like that kind of on alert. So theyre taig a very clslo approach and probably smart given a past history with companies blowing up in a bad way trying to go nationwide. Theyve been in seattle a few years and recently expanded to los angeles and are growing the neighborhoods that theyre serving in los angeles right now. And there have been plenty of reports theyre looking up to 20 more markets in the next year or two. Jason, thanks a million. Appreciate it. Thank you. Jason del ray. Check out the Yahoo Finance question of the day. Would you buy amazon branded supermarket goods, 39 say sure if theyre better and cheaper, 7 say no, 55 say no, i dont buy my groceries online. Ty . Interesting. Very interesting stuff. I actually like going to the grocery store. Thats one of my little pleasures of the week. All right. Folks, up next, an update from the floor of the New York Stock Exchange where sue is, plus the bond report, mr. Santelli, and real life rock star. Coming up, power pitch. This rock climbing duo wants to scale their business to new heights but do they have what it takes to rope you in . Stay tuned to find out. Time for the power pitch. Entrepreneurs 60 seconds to make their pitch and our panelists will decide whether they have what it takes to become the next big thing. Im mandy drury. On todays power pitch a company that wants to climb its way to success literally. Can gravity founders luke and tim turn their workout

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