Royal Caribbean CFO, Good Buy or Goodbye: Market Domination

Market averages (^DJI, ^IXIC, ^GSPC) seek to reverse their bad luck from Wednesday and hold on to gains heading into Thursday's market close. Julie Hyman and Josh Lipton report on the top market movers and leading industry stories while helping investors through the final trading hour.

Royal Caribbean Group (RCL) CFO Naftali Holtz joins the program to comment on the cruise operator's second quarter earnings and why it continues to see "very, very strong" demand.

For this week's Good Buy or Goodbye., BullseyeBrief.com Ingenuity Fund portfolio manager Adam Johnson comes on to provide expert opinions on two stocks: Builders FirstSource (BLDR) and Charles Schwab (SCHW).

Other top trending stocks on the Yahoo Finance platform include Honeywell International (HON), RTX (RTX), and Lululemon (LULU).

This post was written by Luke Carberry Mogan.

Video transcript

Hello and welcome to market domination.

I'm Julie Hyman.

That's Josh left in live from our New York City headquarters.

We are giving you the ultimate investing playbook to help tune out the noise and make the right move for your money.

And here's headline blitz getting up to speed one hour for the closing bell rings on Wall Street.

Well, I think what the data shows us today is that the fed does not need to be in any rush.

So I think anybody who expects a rate cut at the July meeting, I think that's completely off the table and I think it even may put September in question.

Let's keep in mind though that we still have a lot of data to get through before we get to that September meeting.

But I think it gives the fed that flexibility to say, hey, you know, things are slowing but they're still ok.

So chips have had such an incredible run uh over the past year that any hiccup, uh any rumor of something is setting the stocks going, uh a lot lower.

Even those that are tied directly to A I infrastructure prepare for a bloodbath for the rest of the year, what we're missing here, despite the dog role put up by American Airlines.

The fact of the matter is we have higher labor costs coming into play right now.

And now we have a very desperate ULCC sector which used to be somewhat separate and American Delta, United Southwest, they're going to have to react to it.

We got one hour to go until the market close.

So let's take a look at the major averages.

Now, early in the day out the gate, we did have sort of this bounce back happening in today's session.

That's not so much the case anymore.

The dow is still higher, but it's come down off the highs up about 236 points, about a half a percent.

The S and P very little change the upside.

It's come almost all the way back down again and the NASDAQ has now dipped into the negative after that rebound.

That happened earlier in the session.

Now, just taking a little bit of a more around Josh and what we're seeing because we did have uh last quarter GDP numbers this morning that came in better than estimated.

But so did inflation numbers as part of that.

Now, that's backward looking.

The market doesn't react that much to it, but it's still a topic of conversation, the Russell 2000 outperforming today.

And even with that data this morning, we've got rates that are pulling back a little bit today down, uh, three basis points, 4.26% is where we started.

It, it sort of just feels like investors trying to just figure out the trade and what comes next.

I mean, you had that you had that significant sell off.

You had the first big tech names report, alphabet reported, underwhelmed Tesla reported, underwhelmed.

It brought out just bigger questions about the A I trade and theme.

You got other big tech names.

Now on deck, we spoke to Doug Clinton on, on the show and what he expects, I think he used the word choppy, right?

So you're just trying to figure out what could come next.

I think the small caps also good, good flag there.

That's a really interesting move out.

Yeah.

Well, things are choppy again today for sure.

Amongst Big tech, we did see more of a rebound effect.

Now, some of those stocks are coming down and just to point out, you know, something that I pointed out sort of earlier in the earnings season is that listen, when it's earning season, sometimes you don't get big macro moves, you get individual moves with Ford down 18% just to give one example, a lot of companies reacting to their individual numbers and there's not necessarily a big narrative uniting them in all cases.

Did you think that GDP move was kind of interesting to your point is well taken back, we're looking, but there had been sort of, I, I didn't hear anybody's base case but there were sort of those whispers about July for the Fed and whether you think that just kind of takes that off the table.

Now, I did see a lot of notes to that effect.

We'll see if it does.

All right, let's talk more about the markets today and more broadly for more on these moves.

I wanna welcome in Savita Subramanian.

She's B of a securities head of both us, equity strategy and us quantitative strategy, Savita, it's great to see you.

Great to be here.

Thanks.

So I want to talk a little bit about how you're thinking about this sort of choppiness that we're seeing in the markets, but also how it relates to what you expect longer term because I know your, your end target for the S and P is still around 5400.

We're above that now.

But does that imply you see more downside from here?

Yeah.

So, you know, I think the idea is from here through end of year.

Um We're not necessarily gonna see this smooth the sale straight higher like what we've enjoyed for the first half.

Um I think it gets harder in particular for technology companies for mega cap tech because really here we're starting to see these companies price in much loftier expectations.

Um You know, last year was a different story.

Mega cap tech, nobody was expecting anything great.

These companies cut cap X they cut costs, they, you know, downsize their workforces, they did everything like from a self help angle.

And then on top of that, we got this big A I surprise this year.

It's, you know, these are companies that are spending a lot of money Capex is back on the table for mega cap tech.

So they're cutting into their free cash flow generation.

They're not necessarily in cost cutting mode.

In fact, they're in spend and grow mode.

There's a little bit of an arms race for everybody to spend on A I just to keep up with the Joneses.

And I think that's pushing, um pushing expectations, uh driven multiples.

Uh There, these are high multiples that are now at risk of disappointing.

And we saw a little bit of that yesterday.

I think it's interesting as you pointed out that the, that the dow and the industrials are holding up better than the rest of the market.

And that's our call for the rest of the year is kind of stick with old school economically sensitive areas of the market because here's the deal, even though we've only focused on Capex in chips and, you know, kind of semis.

There are a lot of other areas where we expect to see broader scale, long lived Capex.

And I think one of the most interesting themes in the S and P 500 right now is looking at the fact that regardless of who wins the election which is the big event in November.

We are likely to see support from both sides of the aisle when it comes to uh just, you know, moving IP out of China back to the US, moving jobs to the US, moving manufacturing to the US that has already happened.

And what's interesting is that we've seen, you know, half of the economic activity that used to take place between the US and China overseas is now taking place on the ground in the US.

And that is taxing the already somewhat frail infrastructure in the US.

So, you know, one of the notes that we wrote recently was the idea that forget about A I and chips focus on old school cap X because this is an area where you really need to beef up the infrastructure in the United States in order to handle all that extra economic activity that near shoring and reshoring has driven as well as just firing up the pennies and the chips that we need to, you know, keep this A I story going.

So I think it's time to move from expensive crowded technology stocks to less expensive, less crowded industrial machinery, metals and mining oil, even fossil fuels could benefit from a good old fashioned traditional manufacturing Capex cycle.

And we haven't had one for a long time.

Sa this is such an interesting point and I love that note that you, you guys put out about this whole phenomenon and one of the charts from the note stood out to me, which had to do with construction spending on us manufacturing and just the huge surge that we've seen there.

Of course, as you point out some of this has had to do with government programs, with the Chips Act, with the IRA and sort of trying to spur some of that activity.

Um Why are you confident that, that this is sort of a, a an administration agnostic phenomenon and that it's going to continue no matter what good question.

So I think the the idea here is if you look at actual Capex spent over the last couple of years as well as Capex being planned to be spent over the next 5 to 10 years, a tiny, tiny fraction of it is fiscal stimulus, the rest of it is companies spending on either themselves, tech spending on tech, but also tech spending on, you know, building out data centers and lumber.

And it's also about, you know, fixing highways and um and these are areas where, you know, the Muni market hasn't really gotten bigger in a very long time.

It is just sort of flat lined in terms of its size.

But I think the idea is if cities want to court all of these new businesses and new jobs and economic activity, they need to make sure they have the infrastructure in place to support that.

And I think that is necessitating and maybe hastening a, a an infrastructure spending cycle.

That is so kind of as you put it, uh, agnostic of, of, you know, who wins the election government spending fiscal spending.

It's interesting because we have another chart in that same note where we show the fiscal spend is something like, you know, less than 1/10 of overall spending that's slated to happen over the next 10 years.

So even a clawback in fiscal spending wouldn't kill the story.

It would be, you know, a minor hit, but it wouldn't necessarily crush the story.

Savita switching gears.

Another theme.

Investors are, are certainly talking about small caps.

They're, they're in the green and, and outperforming again today, Savita your thoughts there.

Yeah, small caps is tricky and I, I think that, you know, the Russell 2000 looks cheap.

It looks like it could do well in a, you know, in a, in a more domestically driven economic cycle, like what I'm alluding to the problem is the Russell is not just, you know, kind of the small domestic plays and the, you know, the nascent growth stocks that are about to grow up into big cap companies, small caps have really changed to a much uh kind of a, a trickier benchmark.

So the problem is that a lot of small companies are former, old uh former large cap companies that drifted into the Russell over the last couple of years because they can't hack higher interest rates.

So our view here is ok unless we start to see the fed, really tell us short rates are at peak levels we are going to cut.

In fact, we are cutting interest rates.

I think it's almost like you need to see that first rate cut in order to buy that entire index wholesale because there are a lot of companies in the smaller cap benchmark that have floating rate risk that have refinancing risk.

Um commercial real estate is much more prevalent in the small benchmark than the large benchmark.

Regional banks are still working out a lot of their lending that they've done over the last 10 years, assuming much lower interest rates than what we're experiencing today.

So those are areas that I would worry about.

Um I think that there are big pockets of the small cap benchmark that look attractive but not the broader index overall.

And the problem again, I'll cite a statistic for you that makes me a little bit nervous.

Um, you know, um over a third of the Russell 2000 growths benchmark just doesn't make any money and that is a record high.

And I think that is the problem is that a lot of these companies are really just, you know, companies that survived in a zero interest rate and but aren't gonna hack it in a 5% or even 3% interest rate environment if that's the run rate from here, right.

Because of course, even as the fed begins to cut, the rates are still gonna be higher than they were, uh in the zero interest rate environment.

Um, but speaking, speaking about cuts vita, I am curious what, what you're thinking is in terms of timing from the fed and not just timing, but how long those rate cuts are gonna last where they're gonna end up and then the interplay between that and equity markets?

Yeah.

So, you know, I think the idea that, um, that the fed is going to be cutting demonstrably this year is still up for grabs.

Um, you know, we're, we're data watchers just like everybody else.

Uh, I, I think the, the idea here is though, we're probably close to the peak on shore race and the next move in, in terms of, you know, the fed funds target rate is likely to be a cut rather than a raise.

So that's good when that happens probably towards the end of the year.

Uh, I think our, our economists are, are forecasting that the first rate cut happens in December.

We got one this year and then a few more next year.

Terminal rate, the terminal fed funds rate is around 3.5% but that takes a couple of years to get to.

And in that backdrop, I don't worry about large caps because I think, you know, larger companies learned their lessons from the financial crisis.

Um, you know, these companies especially, you know, some of the more cyclical areas like financials, energy industrials, these companies took advantage of low interest rates and locked in low fixed rate debt obligation.

Big banks haven't been allowed to lend so they've been much higher quality over the last 10 years than maybe the regionals and smaller banks.

So even if you know, rates just kind of creep a little bit lower from here, I think we're in an environment where large caps actually look S and P 500 looks pretty well positioned on top of that.

You've got tech companies that are net cash positive.

So despite this little mega cap tech hiccup, there are a lot of advantages that tech companies have, um you know, just relative to the broader benchmark and one of them is having cash and returning that cash.

So I'm excited about the S and P 500 over then next 5 to 10 years, not necessarily from a multiple expansion perspective, but from the perspective of inflation protected income for all those retirees that have parked their money in, in, you know, in, in short duration bonds or money market accounts, those investors would be well served moving back into equity income if the fed does start rates demonstrably because these are folks that need stocks that they can live off of, they need investments that offer a real rate of return.

And that's where I think that large cap uh companies offer a really significant advantage versus bonds.

And other fixed income opportunities out there.

Sa what a pleasure to see you.

Um And so many ideas for people who are watching.

Thanks so much.

Really appreciate your time.

Thank you.

Thanks for having me open A I is getting in on the search game.

The company today, unveiling search GP T the A I powered search engine gives users answers with links to sources from the internet.

Currently search G BT is only a prototype but the company says it has plans to integrate the features into chat GP T in the future, shares a Google parent alphabet, uh plunging into session lows on that headline.

Uh So uh they're getting into the search game.

Uh They are partnering with P publishers and creators.

I thought it was interesting.

They, they emphasized that on the blog Julie, uh you can join the wait list.

I don't know if you wanna, I join.

I'm already, I already enjoy it.

Like you always step ahead of me.

Um It is early days.

I mean, they do, they, you know this is a prototype.

We have to see how it evolves.

I'm gonna be, I'm gonna wait for Howley's review here.

How smart, how effective, how useful is it?

Well, the what's interesting is in their blog post announcing this, they said getting answers on the web can take a lot of effort, often requiring multiple attempts to get relevant results.

Has any of your experience sort of baby better.

I guess.

II, I don't know.

So to your point, we'll see if they, I mean, ok, so do better then that's what it is.

The challenge sort of is to them.

And if it, you know, we'll see what Halley says.

But if it is better and then you're Sam Altman and also it will be.

How do you think about scaling it?

Yeah, scaling it making money from it.

All the rest.

All right.

we're just getting started here on market domination.

Coming up shares Royal Caribbean under pressure today, despite a strong earnings report will be joined by the cruise liner CFO on the other side.

And at 330 it's the latest edition of our series.

Goodbye or good bye will break down to stocks to help you make the right moves for your portfolio.

All that and more when market domination continues, Royal Caribbean reporting better than expected.

Second quarter results and seeing strong demand raising its outlook.

Cruise giant also reinstating its dividend.

Despite that good news, you can see the stock slipping here.

One thing that may be weighing on investors, an expected increase in annual costs joining us now to walk through all this Royal Caribbean CFO Natali Holtz, Natali.

It's always good to see you.

So you look through this report.

Uh you boosted adjusted EPS guidance for the year that beat estimates.

Um I do see some commentary that perhaps higher than expected costs could be creating some concern but Natalia let's start with your, your re give us your take on the quarter.

First of all, great to be here and thank you for having me.

We are very happy with our results today.

Our focus on performance, we beat the second quarter.

We raised outlook for the rest of the year.

We achieved our financial targets 18 months earlier, our balance sheet in a very strong position and we reinstated the dividend.

So our focus on delivering the best vacations in the world and great financial performance is really our focus as regards to your question around the uh the cost.

We did raise our our cost by 50 basis point, but that is entirely due to stock based compensation, which is non cash.

And that is really because of the share appreciation that happened in the quarter, the Wes on our on our costs, but our formula remains the same, moderately grow, the business moderately grow yields and very much strong, strong controls, cost controls to make sure that we enhance margin.

And that drives shareholder returns.

And Naftali talk to me about pricing and what you're seeing on that front and, and pricing versus sort of volume of folks traffic on the ships here.

How that's looking going into the rest of the year?

Yeah, so really demand has continued to be very, very strong.

We've been seeing it consistently quarter over quarter.

Now our second quarter beat was really driven by strong pricing and that's really because we put the right experiences in front of customers and they are really thirsting for that experience.

And really, that's right, the pricing going forward, really our occupancy levels are really back to normalized level.

So all our increased guidance and really the strength we are seeing is about the pricing and again, putting the right experiences on the ships, private destinations on board and really having the right commercial apparatus.

It is what's driving us to bring more people to our ecosystem, really uh getting into them into the vacation and staying there and and coming back to us again and again, now tally, you, you did decide uh to restart dividends.

How come of tally and why now?

Yes.

So as I said before, when two years ago, we had a financial program that really was focused on getting us back to what we call base camp and really focusing on making sure that we recover our margins and really strengthen the balance sheet.

And today we have achieved that we have achieved trifecta.

That's our financial program.

18 months earlier, our leverage now is below 3.5 times way within the target leverage that we have for the company.

And that would allow us to really expand our capital allocation.

And dividend is kind of the first step for that.

And if you think about it, historically, we always had a balanced capital allocation.

We see a lot of growth in the company.

So we want to continue to invest in a company, but also with the excess cash flow, we wanna also return it to shareholders and that's the first step today.

Um Naftali, I have to say, I mean, the numbers look pretty good.

You sound quite optimistic and yet the stock is down and I'm just curious if you're hearing anything from investors today um or from the analysts who track the stock that shows what they're concerned about.

Yeah, I think we are all trying to understand a little bit what it is, but honestly, we're just focused on performance, putting the right experience on of people and the customers making sure we're delivering that with strong financial performance is really what we believe we at first control but also will drive shareholder return.

So, you know, we are normalizing the pricing and the yields and that's because our occupancy levels are back to normal, but we're very excited about the future.

And honestly, we're just starting really, everything that I talked about is getting us to base gam.

But if we kind of look at the bigger picture, cruz is a $65 billion category in a $1.9 trillion vacation market.

We think we have a great opportunity to continue to win share with the consumer and do it for the next several years.

And so for that, we're very excited and we're going to do that with our proven formula, modestly grow our fleet modestly grow our yield and very strong cost control to enhance margin and really drive shareholder return, Naftali.

Great to see you.

Thanks so much for joining us to talk us through the quarter.

Appreciate it.

Thank you.

Well, let's get to some trending tickers.

Now besides RCL, that is let's lead off with Honeywell here, those shares are falling after the company reported second quarter earnings.

It also raised its full year sales outlook but cut its earnings guidance.

It seems to be some disappointing stuff here.

Also, the profit guidance for the third quarter was below what analysts had been anticipating here.

Um You know, sales growth has been picking up a little bit for the company.

Um Vel Kapo, who is the CEO did talk about aerospace leading growth at Honeywell.

Uh but the the other parts of the portfolio are also doing well but in investors not pleased with that forecast sounds like yes, some uh just in Chicago, look at what bows are saying today city, for example, telling clients.

So Q two results, they looked over the report, it was solid.

Um Yes, they said guidance, they can weigh on stock in the near term here and you certainly see that today we're down about 5%.

They were arguing, they expect earnings growth in stock price appreciation in the long term.

They still see that due to improving end markets.

Um they call it disciplined execution, so optimistic take there.

But obviously some investors at least today have some, some worries.

Yeah.

And remember we were talking about de Stocking and the de Stocking cycle recently, I also saw some commentary that perhaps that's an issue that there's still some destocking going on.

In other words, if I've got a bunch of stuff in my warehouse or wherever it is that I'm ordering from that, I'm storing it.

Um Maybe I'm not that eager to order new stuff.

And there again, there's been some talk that that destocking cycle as we talked about uh yesterday, Bank of America's O San Juan saying the destocking cycle may be coming to an end, but of course, it's not gonna be the same for every company.

That's it.

All right.

Moving on.

She got another way here.

RT X shares ripping higher right now after the company posted better than expected.

Q two earnings company also lifting its full year guidance.

So uh RT X maker of jet engines, Patriot missile defense systems, uh second quarter results beat expectations.

They raised the full year forecast for adjusted earnings.

Um Sounds like they did lower their forecast for free cash flow.

Um But reading through reports, they noted that this is because of the expected resolution of legacy legal matters among other reasons.

Um relatively new CEO here, Julie Chris Calio took over in May from long time, Ceo Greg Hayes, uh who is still executive chairman, company has been making some moves uh with its portfolio looking to reduce debt and, and a nice run for the stock.

Yeah, it's up 36% so far this year, including the gains that we're seeing here today with the strength of defense, which is, you know, we've been, uh, Lockheed Martin the other day also coming out, I believe in meeting estimates.

So now a little bit of a trend here among the defense companies and finally, we're also looking at waste management uh shares, they are sliding after the company missed second quarter earnings estimates here.

Uh The company also reported IDA that missed estimates here.

Um And so there's some questions here around again, perhaps it's a trend we heard from waste connections, a big Canadian waste management company also came out uh with disappointing numbers here.

Um The company had raised its 2024 guidance uh last quarter and so now coming out and missing.

Um Bloomberg Intelligence says there are questions about visibility in terms of the earnings trajectory from, yeah, that was an interesting note.

The company is sounding very confident, right?

They're talking about a strong performance in the first half confident.

They told investors they're on track to meet or exceed the midpoint of the full year financial outlet that they provided a few months back in April.

I did think that note you mentioned from from the analyst at Bloomberg was interesting because their argument was this print and miss just one quarter after raising 2024 guidance raises questions.

They said about visibility in a business that had been characterized by stability.

Um So that certainly gets the most.

Obviously, some investors are, are hitting the sell button today.

All right, coming up, it's that time, the latest edition of our series.

Goodbye or goodbye.

We're joined by a portfolio manager to take a deeper dive into two stops to help you make the right moves to your money, to the ground.

Much more market domination still to come.

So it's a big noise, the universe of stocks out there.

Welcome to, goodbye or goodbye.

Our goal to help cut through that noise to navigate the best moves for your portfolio.

We're taking a look at two stocks with exposure to interest rates.

They've been on a bit of a ride over the past year.

So what's the best way to play it now?

I'm here with Adam Johnson bullseye American Ingenuity Fund portfolio manager.

It is great to see you.

Great to see you.

So let's get to the stock that you're recommending folks buy.

It is builders first store.

So this is a provider of stuff that goes into homes here.

And indeed, you can see the kind of wild ride that the stock has been on over the past year.

So let's get to why you like it.

There is indeed a shortage of housing, there is a a housing shortage and it's a big one.

by some estimates as, as many as five or 6 million units.

Um, and that, um, is, is a number that, um, has been confirmed probably by three or four other, uh, independent operators.

Um, that number is from Freddie Mac, the five or 6 million.

And it's because, um, you know, back in 08 they were building too many houses and we're still sort of suffering from that, that muscle memory.

Um, so housing shortage, um, creates the, the argument that, um, you're gonna have prices moving up.

And if you're talking about a company that supplies to builders, um, you know, that's, that's good for them.

Uh, you need to build more houses.

That's point number one point number two, bring that up, mortgage rates are likely to come down.

So if you've got, um, inherent demand because there aren't enough houses out there and you have mortgage rates coming down so you can actually start to afford houses.

Uh, that, uh, again, it, it reinforces the argument that, um, you wanna be long building type companies, you wanna be in the housing sector, you wanna have exposure to the housing sector and then, uh, point number three, it's really simple, uh, trading at about, uh, 10 or 11 times earnings.

Um, now the earnings are down this year because, um, we're just not, um, seeing the housing demand that we've seen in the past, but I think that's starting to turn and if you listen to what management is saying they're actually guiding for uh 15 to 20% growth next year because they're already seeing forward orders for next year in anticipation of what we're talking about the housing mortgage, building more houses and rates coming down, creating demand.

Right?

And it's been an interesting picture among the builders themselves, right?

Because because mortgage rates have been high, they've had to offer incentives to get the houses, but they're still building the houses, they're still buying stuff to go from places like builders to put into the house.

Well, and as a matter of fact, if you listen to what uh management at Toll Brothers said on their recent call, um they are selling out faster than expected and they're starting to build more spec houses just to meet demand, which is fascinating because, you know, for the past couple of quarters, there hasn't been the demand, but people are already starting to come in and buy.

So we always talk about what the potential risk is.

In this case.

It's that, well, you don't have either the economy stagnates and buyers don't materialize or it just gets pushed out further, I suppose.

Yeah, that's right.

You know, there's this notion that, well, wait a minute, maybe we're going to go into recession.

I don't think we are and we saw that strong GDP report this morning 2.8% growth.

So I don't think that, um, that's an issue but it's always out there.

Um, you know, or if inflation were to re accelerate and the fed had to actually go the other way and raise rates again.

That would certainly be a negative.

But again, I don't see that as an issue.

I really don't.

Yeah, that seems like a pretty out there.

I think so.

So I'm very comfortable owning the stock and especially given the valuation 1011, 12 times earnings and you do own the stock.

Oh, yeah, I own it.

So do my clients got you.

All right.

Let's get to the stock.

You say folks should avoid that is Charles Schwab, Charles Schwab too has been all over the map.

I mean, this, I think this will drop here was the one after its latest earnings report, which was disappointing.

You say it's dead money now for people who don't know what that means, explain what that means.

So dead money means, uh you're not making any money, it's just sideways and while, if you look at that chart, it appears like it's up and down.

The fact is the uh all time highs uh were 2.5 years ago.

So in other words, for, for 2.5 years, the stock has been, in fact dead money.

You have not gotten back to the old highs.

The rest of the market is making new highs.

But uh Charles Schwab is not so dead money, you gotta, you know, you wanna put money to work.

Um And this doesn't seem to be working well.

And it's interesting because Charles Schwab got kind of caught up in the regional banking crisis.

But even if you could look back further and you look at the earnings, it's the past six quarters that we've heard before that happened, that earnings have been declining.

So truth be told in full disclosure, I was along this both for myself and for clients and it's because earnings just can't seem to get jump started.

I mean, earnings declines for six quarters in a row.

You know, they bought TD Ameritrade, I thought, oh, I'm going to buy this because they're buying T Ameritrade.

Bring in a whole new customers.

That's a creative to earnings.

No, hasn't materialized yet.

Um And so I actually sold it for these reasons.

Dead money.

Um, consecutive, uh uh earnings declines and point number three, I keep waiting for the turn but it hasn't happened.

Um, $6.1 trillion of capital is sitting on the sidelines not being put to work by Charles Schwab clients.

Um, but instead, um in government bonds, it's just parked on the side.

I keep waiting for that money to come in, right?

Um, and propel uh uh the market higher.

Um and that may happen.

But again, how long do you want to wait for that to happen at Charles Schwab?

I don't, I just think it's dead money.

You're done waiting.

I'm done waiting.

Ok.

So, you know, we talked about what could go wrong with builders first source.

Let's talk about what could go right for Schwab, maybe that six trillion on the sidelines finally says, ok, I'm not as tempted by my 5.5%.

I'm getting on my CD or whatever it is.

I'm gonna put it back into stocks and I'm gonna put it with Schwab in particular.

Yeah, exactly.

Right.

And, and I, I call this a, you know, a market rally that, um, basically rises, uh, brings all the boats with it.

Right.

Um, the rising tide lifts all boats.

Um, the theory being, yes, that money comes back in it.

Um, not only finds its way into Schwab brokerage accounts but, um, uh, people just look at swab and say, hang on.

It's been down for so long, it's gotta go up at some point and if the market is going up, Schwab would be a logical beneficiary of that.

So I think that's your risk.

But, um, you know, that's kind of nebulous and it's a bit of a reach and if they haven't been able to, um, get there yet again, that's why I sold the stock.

I just, I got, I got tired of waiting Julie.

You know, they're, they're just, there are other things to buy.

Yeah, exactly.

It's a whole big market out there as we like to say.

All right.

Thank you so much for being here.

I appreciate it.

Uh, so builders first.

Source by that one.

Avoid Charles Schwab.

Thanks for coming in.

Appreciate it and thank you so much for watching.

Goodbye or goodbye.

We'll be bringing you new episodes three times a week at 3:30 p.m. Eastern.

All right, checking in on some of our top calls of the day.

A pair of cuts has shares of Lululemon sinking, Citigroup, downgrading the apparel maker to neutral from buy slashing its target to 300 Jp Morgan meanwhile, removes the stock from its analysts focus list and cuts its price target to 338.

Yikes Julie, the stock dropping to its lowest level in about four years.

The news is, the company says it's halting sales of a product line.

Breeze through yoga wear.

I am not familiar with that Julie if I'm, if I'm being totally honest, but they are pausing sales to quote, make any adjustments necessary to deliver.

The best possible product experience is what they told Bloomberg in a statement and analysts are reacting and so are investors.

Um Then I love talking about Lulu Lemon, full disclosure.

I'm a little lemon uh product owner, right?

But I also just find it a really fascinating company here and indeed, you could be forgiven for not knowing what breath through is because apparently it just came on the market like July 9 and then they yanked it real quick.

But the commentary around why they yanked it according to Matt Boss over at JP Morgan, the commentary around it.

I love, there was a back seam in the shame of shape of a V which customers cited as unflattering and giving them a long.

But is one of the examples of what happened here.

And the, the note actually has pictures of what of what the phenomenon was.

But I'll leave you to look online and see what that's all about.

And Citigroup also downgraded the stock to um from buy to neutral.

They cited less the specific breeze through concerns and just more generally, um sort of lack of innovation that the act of apparel category overall is worsening.

And then Lulu specifically is not giving, for example, the color assortment that customers want.

So they they out and now downgraded the stock stock is now cratered about 50% this year.

Companies expect to report results in late August.

So we'll see what we get them, we will.

All right, another retail stock we are watching closely, Ulta, the beauty retailer extending decline from yesterday.

That was after Piper Sandler downgraded the stock to neutral from overweight and joining us now is the analyst behind that very call Corine Wolfmeyer.

Piper Sandler's senior research analyst Kin.

It is good to see you.

So you downgrade to neutral, you took the target to 404 Kin.

It looks like this really comes kind of down to your analysis of the the just kind of the competitive and promotional state of the business kin.

Mhm.

Exactly.

It's, it's what we've seen with, with the promos, they've really picked up, they've become a lot more broad based and we do think it's a reaction to the competitive intensity we've seen over the past several months and even years, both from brick and mortar retail peers such as Sephora, that's really ramped up its store count with its partnership with Coles, but also with online players like Amazon, that's really ramped up its prestige beauty offering and seeing a lot more brands feel comfortable selling on digital platforms like Amazon.

It really is adding a bit of pressure to Ulta and what we, what we fear now is now investor expectations may be, you know, misaligned and uh there's a lot less confidence in the margin opportunity going forward.

And so we do think there is a lot of risk, you're both from the top line and a margin perspective and now investors are confused and not sure you know, what kind of valuation does this company deliver?

Given all of the these new pressure points that are, that are coming into play?

Kin, I'm curious when you look at Ulta versus those competitors that you mentioned, whether it's Sephora or Amazon or others, why is Ulta particularly vulnerable here?

Does it have to do with price?

Does it have to do with experience?

What do you think is going on there?

I do think Amazon's a threat to everybody and a as we put out earlier this week, the, the product offering that Amazon has, it does have heavy overlap with both Ulta and Sephora.

Now for Ulta though it, it also has a mass offering which, which Amazon does offer.

Um So the there's always that overlap there, Sephora doesn't have that mass offering that Ulta has, but also at the same time, its main competitor, Sephora, it, it may be losing some share to Amazon but it's gaining share from Ulta because of this heavy store roll out.

Whereas Ulta is losing share to both.

It doesn't have that um protective share capture from anybody else.

Kin, who is the Ulta um customer.

What's the, what's the demo here?

And how does that sort of compare and contrast to the competition?

The demographic?

I it's pretty broad based.

You, you have everywhere from Gen Alpha to Baby Boomers, you have demo, you have uh people in all income groups whereas some of its competitors are a little bit more specific as to which age group or which income level they cater too.

So really Ulta is actually fairly well positioned um in, in terms of its customer base.

But what we're seeing now is customers across the board, no matter what age group, no matter what income level, they're diversifying where they're shopping and they wanna shop at all the different retailers.

They, they don't wanna stay loyal to just one.

Um Corine, I'm curious what the read through is for some of the other beauty type companies that you cover.

Right.

I mean, I guess they're sort of, um, venue or vendor agnostic, you know, I'm looking at the likes of Estee Lauder and Elf that you cover Cody, um, sort of when you look at that bigger makeup landscape, are they being affected by what's going on at the cellars to an extent?

II, I do think if it a brand doesn't have exposure to the retailers or the, the the areas that are gaining share, then they are going to lose.

Fortunately, for a lot of the companies I cover and I look at they do have broad based um exposure and they do sell in a pretty diversified manner and we're even seeing them start to shift where they're offering their products and putting more of their products in those high growth avenues like Amazon, a good example is Estee Water that even just this morning announced another brand is going on to Amazon.

That's a very new thing we're seeing.

So we're seeing the brands shift where they're selling and really going after where those high growth categories.

Distributors are kin you we mentioned.

Now if you do like that name, you got an overweight there stocks at a a nice run already.

Corin, why, why is that name still a buy in your opinion?

E is, it's at a high valuation.

It, it's reached very high unprecedented growth, the margins are strong.

So why do we still like it now, it, it really comes down to all the white space poten potential we really still see and, and that's both in the US and in international markets.

The main thing we really like here and we think is getting underappreciated investors right now is that international opportunity that's rolling out rapidly at Elf.

Um but also the way they capture their consumer is so unique and as I touched on earlier, the consumer is becoming less loyal.

And so they need that newness, they need something constantly innovating and hitting them and, and really targeting them through all all facets of, of marketing tactics.

And that's what Elf does.

They have very heavy innovation.

They have very agile marketing strategies.

They're always experimenting, they're always trying out different things.

And so the way they've been able to capture and lock in that consumer is very unique to what we've seen in the rest of beauty, interesting stuff.

Corin, thanks so much.

Appreciate it.

Thanks for having me.

Coming up.

The streaming wars are lighting up between new NBA streaming rights and a new bundle launching will break down the sector with an analyst on the other side.

Yet to cut up on the latest news, stay tuned.

More market domination still to come.

Starting with the 2025 2026 season TNT will be on the bench for NBA games.

It will be the first time since 1989 that the network will not be a part of NBA coverage.

The league rejected Warner Brothers Discovery's efforts to match Amazon's bid for a package of games.

Joining us now is Tim Nolan macquarie us Equity Research, senior media tech analyst.

He downgraded the stock to neutral on the news.

It's great to see it's him.

So this is what seems like a big blow for the company, talk to us about what it means financially and how and whether uh WBD is going to be able to make that up.

Sure.

Uh Well, we, we don't know what the real numbers are to work with yet, but I think it's um clear in our minds that the NBA was a valuable property for TNT, both for, you know, the cable network, uh linear TV business, both in terms of advertising that it generates.

Uh and in terms of um their ability to secure um carriage fees with the, with the pay TV, distributors whenever those next rounds of deals come up.

Um But actually, more importantly in our minds is the opportunity cost to the max streaming service because streaming is the present and future of TV.

Um Warner Brothers Discovery has in my opinion, an excellent lineup of deep quality, you know, Warner Brothers studio HBO Discovery, you know, all sorts of, of programming content and sports.

But without the NBA, that is their biggest piece, the most valuable piece of sports content, which will now be going away after this coming NBA season.

So without that, I think it makes it harder for Mac to generate subscribers and potentially to uh to retain subscribers.

So, um it's expensive content and, you know, maybe it would even be a loss leader to have it.

I don't know if they, how much profit they would make from it, but to me it was an essential property to retain, to keep, to go or for the next 11 years and not having it is a major blow, I'd say to advertising and the subscription fees and, and Tim, I'm just curious, I take your argument but, you know, you look at this stock, Tim and it is already, it's taken such a hit.

It's down about 30% already this year, Tim.

So I'm just curious, you know, you know, given the news and the stock slump even now you look at valuation and, and you, you obviously don't think it still looks attractive, I guess.

Well, uh, believe me, I spent a lot of time thinking and worrying about this year today as I've seen the stock going down with a buy rating on it.

And so to sort of throw in the towel here, you know, already at $8 is not easy to do.

Um, but in my opinion, um, the, uh, the stock is just less interesting here.

Now, what could make it interesting there, there has been, um, some, uh, reputable press talking about a potential breakup of the company.

Um The, the stock is arguably very cheap.

We mean in our note, it's trading at six times forward e to E but uh the peer group is more like eight times.

Some stocks are higher than that.

I'm just talking to direct peers like Disney like war, um, like Fox like Paramount.

So it, it is arguably very cheap.

And we've said that for a long time, I just think that the importance of the NBA, uh, probably cannot be understated and therefore it's, uh, it's a major blow, I'd say to not have the NBA going forward.

Um, what does this have any implications for their, um, joint venture, uh, with Fox and Disney also, or is it sort of a separate issue?

Um, yes and no, it has perhaps some bearing on that.

I mean, NBA again, would have been an important component of that service.

I think you're talking about the venue service, which is the, the sports TV, between Fox, um, en and War and TD STD S TNT.

So without the, uh, NBA on TNT, yes, that, that property looks less enticing.

Um, especially because, uh, one of the other winners of the NBA rights was actually Comcast, you know, NBC U Peacock for the first time in many, many years.

So that's content that, um, that will not be on this joint service.

Um, so, but I still think that's an interesting service.

I mean, that's a, that's a very compelling combination.

Of sports properties, uh, in my opinion, but this is, and, and ESPN will have NBA rights uh within that.

But, but this is, again, it's, it's an important piece of content that will not be on PNT will not be on a tim if, if you're a viewer and you're watching this right now and you're an NBA fan, what does all this mean for you?

What are the implications?

Does it make it more complicated?

Uh Well, I've heard anecdotally from consumers that they're uh very sad that the uh inside the NBA program with Barkley and Shaq and so on will not be back.

Um Or at least Barkley is not gonna be back.

So I've heard from consumers, that's a big, the big downside.

Um But look in terms of, in terms of, you know, how consumers are watching, you know, TV, and, and sports in general, even sports now is very much over the top, as we say, it's moving on to streaming services, you know, ESPN, we just mentioned this, this joint venture.

Um But ESPN itself is going to go directly over the top uh a year or so from now, uh without a cable subscription required.

Um You know, Max has sports paramount Plus has sports.

Peacock increasingly has sports, especially now with the NBA.

So I think as with um other TV, or film content that we've become accustomed to watching on streaming services, sports is now moving towards that where we got to figure out we have to know where that game is going to be and it's, it's not necessarily so simple so live as a consumer does not necessarily get easier.

That's true.

Tim.

Um, I, I want to go back to the breakup idea for just a moment and we can get you out of here on this.

I'm just curious how likely you think it is that is indeed going to happen.

And do you think that that would be the uh the best outcome here for, for Warner Brothers?

Yeah, I, I don't know, I don't actually have a firm opinion about this.

There certainly is um uh corporate intrigue in the media sector uh right now quite broadly and maybe this would be another move.

I don't know if it means unwinding the Warner Brothers and Discovery merger, which only closed uh two years ago, more than two years ago or, or what combination that may entail, but the company has a lot of debt.

Uh the linear services are uh as beholden to, you know, all, all the uh all the uh legacy issues as any other network group.

And so uh the thought process is, you know, could be pre up this really deep and valuable Warner Brothers studio HBO and the streaming services that people do want and create a more valuable entity there and perhaps leave the old pay TV business behind.

I don't know what the structure looks like I don't know what the numbers look like.

I don't know what the debt schedule would look like on, on which side.

Um But the argument would go that you could unlock value in that way.

God Tim.

Thank you so much for joining the show today.

I appreciate your time.

Thank you while wrapping up today's market domination.

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