Transcripts For CNBC Fast Money Halftime Report 20160817 : c

Im been in apple but i added above where they were able to get in because i added when it started to drop, it got to 97 or Something Like that and it got down even further and that is where it seemed like it started to bounce when we heard the buffet group was getting into this thing. So i tend to be with them. I look at this company and for all of the reasons that everybody talked about forever, when you talk about valuation or the cash position and also you have the new products that are coming out over the next couple of months into the second half of the year, i dont know that they are going to be the best products cycle that theyve ever had but they always seem to do well under the new psych cycle but i think this will be different. And this run has led people to believe that maybe apple is finally back after sort of spinning wheels for a bit. Sure. But lets contextualize. As a stock. But lets put it into context. It made back the ground it lost since apple and right back at the level which it couldnt break through and it is on a down trend. Im long the name. And i chuckle, every year, is apple over and the innovation dead. Without a doubt, they are not innovating at the same cadence under jobs but that is part of the charm of owning it now and clearly this is not Warren Buffett making a decision on apple, this is combs and wexler, but the irony is that it is a classic buffet stock. Look at the type of investments hes loved to make over the years. It is a company with a wide moat. There are other Companies Making devices but very few boast the same tiein, hardware and the software and the ecosystem and high quality and returning capital to shareholders and great management and all of the things that buffet has looked for in a stock and it looks like the pups running a portion of portfolio are taking a page out of his playbook. It is underestimated as a Growth Company, steve . This was the ultimate stamp approval, this berkshire initial buy and double down, this is unequivocally the value stock that everybody said it is. It is not underestimated as a Growth Company because it hasnt been growing. It is a down quarter. So it is the antithesis of a down quart. Im trying to get to that. And it lagged the market and if you are worried about the market, this is a great place to put money. Because there is nothing cataclysmic that will happen with apple. If the market trades down, apple will hold up better than the market because of cash flow and the valuation and et cetera. Now this stock typically trades up into a new product cycle and sells off when the products come out. So it is a sell in the news and i think that is what were seeing now, the competition and the lagging factor and put money in there because the market is at a high and the stock is not and advance a new product. That is what is happening right now. In terms of growth stock, we dont know. But we do know they have been lagging. Im not chuckling at this because i think it is a serious issue. Because the margins are so far above what the competition it, it has to you mentioned steve jobs or one of you did. Tim cooks fiveYear Anniversary of being ceo of this company next week. Stocks up 102 since he took the helm. And again everybody is so critical because they say the innovation is not there. Well some people right here. Well and i disagree. Because i think there are aspects of what they are doing in terms of growth, steve, i know you said there is no growth, but i think people are not focused. Tell me what cook has innovated or what has he brought he created something a little bit that steven jobs had started. But now hes, i think, made this grow even faster which is the services aspect and the amount of money spent by folks is continuing to go up faster and faster, those that are already there. That was in the pipeline. Right. And it is in the pipeline. But i think he could use that and put that even further out there because of what hes put the emphasis on, which, hey, look, they dont have the next magical anything. But theyve got products that people love and that is feeding into the services, which is a huge and it is the one growth aspect we could see. Im not critical of tim cook. I think he is a great steward of the company. There is only one steve job. So you are sort of running nobody argues with that. That is why were paying 11 times earnings net of cash instead of 20 which is standard. Because we are aware there is no steve jobs at the company right now. But on borrowed time in terms of the margins for the phones. That is my point. Lets bring in tony sagginocky of bernstein and he is live from new york city. I know you have been listening to this conversation. Welcome. And you raise the question in a new note that says apple, smooth sailing for now, with a question mark. Is it . Absolutely, it is smooth sailing. But the for now is important. But i think the questions about apples ability to grow are still on the table and quite frankly the stock price is reflecting that even with the recent move. So at an enterprise value to Free Cash Flow of less than nine times investors are saying that cash flow will decline at 1 to 3 forever. We think that is too pessimistic. And we do think that over the next year we will see that iphone will grow again and iphone is the company. It is 70plus percent of the profits and i think investors are getting more comfortable with that and that is why you have had the stock go up. There is this question that has dogged this company and it will continue to dog it and it has been voiced already on the desk in the conversation were having today and that is the innovation question. Im sure you read the story in the Washington Post over the weekend in which cook was interviewed where they are ta talking about what is in the next worldchanging thing and the category for apple to which he said, and i quote, im not saying we are going to do anything else, im saying this is still a unbelievable product category to be in, he is talking about the iphone. And not just for this quarter, he said, year for year. So i would not want anybody to think this oh, this better days are ahead thing, which you yourself have raised. Right. So, look, i think there is a little more tail wind in the iphone and we are predicting that the iphone will grow an average of 7 over the next two years in terms of units. And so we do think that there is more growth left in the iphone. But i think when you are looking three to five years out, it is difficult to construct a scenario by which you have sustained iphone revenue growth. The market will become more saturated, the product will be largely replacement product and over time replacement cycles will elongate and prices will much more likely fall than go up. So if it is all replacements and replacement cycles are elongating and prices will go down, it is very difficult to construct a longterm scenario by which revenues for the iphone will go up. And that is really where the innovation question will come in play. When that happens, three or four years from now, will apple have enough in the tank in terms of new offerings, whether they be products or services, to manage that transition whereby the company can continue to grow. And i think longer tomorrow, that longer term, that is the question. Questions that have been asked for the last number of years about apple. Jon najarian . Quick question about the elongation as you say of the replacement cycle. I dont think im unique in that my phone doesnt last two years. I have to replace screens and replace all kinds of things to keep the thing running just to be there for when the seven comes out this fall. So i would push back against you on that. I think the more hightech these devices become, certainly it puts a lot of onus on people to get a nice case to protect it, but i would push back as far as i think these things break at a pretty rapid pace because it is a portable computer. So i dont know that they will last a lot longer than the two year cycle that we talked about. What makes you think that people will not replace something that is all of a sudden you see people Walking Around with the cracked screens and it doesnt matter what the device is. That is one of the things that pushed people to stay on the same pace of replacement. No, a fair question, jon. I think our perspective is twofold. One is that Apple Install base is increasingly international and emerging markets focused and people are simply more price sensitive there and they are not on two nif year contracts so they have to buy the phone outright and so at the margin, as that installed base becomes more emerging markets like, they are more likely and we actually know the data today, apple has conceded replacement cycles are higher internationally. I think the second thing is that incrementally over time, Product Differentiation will become more limited. So the iphone 13 will probably not be that much different from the iphone 12 or 11, whereas i think the 6 was materially different from the iphone 3 and 4. Tony stay with me. I want to bring in it kevin oleary, and our resident chair. Thanks for joining us again today. Great to be here. Great time to get back on the apple train here, kevin . No, i dont worry about missing the train on apple. This thing will trade between 93 and 109 forever unless the issues are resolved. And you know, i like at this and ask myself, the only thing that matters to me to get excited about the service again is are Service Going to get past 10 revenue. The large margin Service Businesses have alluded apple because they are offering music and photography and television. While they are useful, they are certainly not stateoftheart. There are better players. I use spotify, not apple music, but who cares. At the end of the day, quarter by quarter if you could show me the services growing and frankly if i have to bet on an iphone margin to stay where it is today over the next 36 months, im going to bet against that. I think iphones are toasters. I think it is a total kmomid. Tony made a good point, innovation will get less and less in each incremental view so the only thing that gets me excited about piling into the stock now is not that i will miss a big move any time soon, that in the next two quarters im going to see incremental increases in services 2 and 3 a quarter and then all of a sudden you are proving to me the platform, which is really the trojan horse, lets call the iphone the trojan horse, once you have it you start buying services. That interests me. Tony, when am i going to see that . I think youll see some gradual increase but what we found is that Services Growth rate is pretty correlated to installed base of apple devices. So if you buy an iphone, youre probably on apple music. And if you upgrade to a new one, you are still on apple music and still paying the same amount. If you use apple pay, you might use a little more, but you are using apple pay. If you have an iphone and have apps on it and buy a new iphone, you are probably not going to buy many more apps and we found that Services Revenue has grown pretty lock step with installed base and because of the recent growth search in iphone prior to this year, the install base is still growing nicely and services are growing nicely. The challenge for apple is, longer term, that install base will slow as iphone units mature. And services will slow along with it. Unless you can make the bet that apple can Bring New Services to market that are really compelling. And historically, that is a tough bet, as you said, apple music has been mixed. Apple pay was innovative but really small. But it is very difficult to point to a lot of truly Innovative New services that apple has brought to market over the last few years. And that is the challenge. Certainly if they could create a profile of a more servicesoriented company, i think the multiple could double because you see subscription or Services Based models that are 2x. But it will have to come from new Services Offerings which is a tough bet, or, as we talked about in the past, can apple try and make its Business Model more Services Oriented by charging for the phone by the month. And i would like your response to this question once tony answers. The five Year Anniversary of tim cook is next week. How would you score it . I guess i have to go first. So, i would say that look, the stock price has gone up 100 so it is hard to it is hard to fog the ceo, are we confident about spending on r d to ensure the future, i think there are more question marks there. So i have to give them more of a b. Rather than an a. Interesting answer. Kevin . I check the box for anybody that could double the value of a company so i give him that. But his own legacy and if he is listening to us now, is going to be defined in the next five years. Because if us just a fiduciary running a toaster company and trying to main main margin, that is not the legacy i think he wants to leave. He needs to bring it out. What is next big thing. The next kevin, you will love this. What if the next big thing is the enterprise. That is ace tiny business at apple. It is like 25 billion. But they are partnering with ibm and talking to microsoft and partnering with s. A. P. And enterprise could be tremendous. The ipad pro might be one tiny incremental step in the next ten years for apple and if tim cook can convert this company to being not just luxury consumer, but serious, serious enterprise, the upside is we cant even imagine what it could but you are not paying for that now. Do you want to pay for that now . No. You are bringing a toaster multiple company. If any company could do that and tony, correct me if im wrong, theyve been trying to get into that forever. And every time they try to innovate and as tony pointed out, whether it is with radio or any services, they fail. They havent been able to extend it to a Broader Market than what the iphone is and that is what they have to do to succeed. So services has not been a resounding success. Apple tv, theyve been trying to get into that for years and years and they are first, and apple pay, they were first and guess what, they blew it. And this starts with a question to you from josh . Do you love it, that is the question . No. Im an investor in a Company Called opirann which used the enterprise and it is hard to convince an i. T. Chief to go on apple and it doesnt happen and Insurance Companies and you could bring your own device but if you want to run enterprise, it is not happening on mac. So im not on board that you are going to take this fashion company, because that is what apple is, great brand and fashion and Consumer Electronics and in 36, 24 months or 12 months, tell me the guy running the back office at Goldman Sachs is going to standardize on the operating system out of mack. Aint going to happen, my friend. And tony, ill give you the last word. This conversation of tim if tim cook were listening, it is exactly what he would have said in this Washington Post stories. There have been haters and naysayers the whole way, whether it is 05 or 07 and they said we peaked in 2010 or 2011. The phone was a joke. And i dont subscribe because it is the traditional way of thinking. You cant get large because you are large. He has heard it all before. Right. Look, i think there is a lot of opportunities Going Forward for apple. I think the three biggest opportunities are the wearables category where i think the watch over time will evolve to be a Health Monitoring device, where every consumer will need or want one because it could save your life. I think the second one is potentially a car, which is likely 2021. It is a 1. 5 trillion Market Opportunity and i think the third is continuing to do something on the on the television or content side which again given apples installed base, they have as good of a shot as anyone as making a compelling or contributing or assembling or a compelling over the top offering. Tony, love the insight as always. Thanks for taking the time. Thanks for having me. The Senior Analyst at bernstein. Number one ranked. Kevin you will stick around. We look forward to that. One thing real quickly. Im not negative on apple. I just dont worship at the temple of apple. I think they have a lot to prove. They havent done a great job proving the naysayers wrong in terms of innovation so it should trade as a normal Consumer Product trade, period, with a lot of cash. All right. Good stuff. Still a lot more there is a lot amore ahead on the Halftime Report. Kevin oleary is just getting warmed up. As we wait for the fed minutes, kevin is answering your questions on the markets. Send them through twitter at Halftime Report. And missing the target. The stock taking the beating. Does target have problems or is it simply most of retail. More half time with scott wapner coming up. Welcome back to Halftime Report. Counting down to the fed minutes. 1 hour and 38 minutes away. Kevin oleary is still with us. Do you think the fed is too complacent with the fed next month. We are all trying to secondguess the fed and the debate that goes around every day in my shop is the financials, the one place where we havent seen extreme p. E. Expansion and it hasnt worked. If you buy the financials now, and this is a significant move, this is the fifth time you got sucked in by rumors of fed hikes. So every time you go into the sector and the fed doesnt move you git clocked 8 to 10 and it is happening again. So im extremely skeptical. I dont see the Regulatory Environment Getting Better for the financials. I dont see the Something Like<\/a> that and it got down even further and that is where it seemed like it started to bounce when we heard the buffet group was getting into this thing. So i tend to be with them. I look at this company and for all of the reasons that everybody talked about forever, when you talk about valuation or the cash position and also you have the new products that are coming out over the next couple of months into the second half of the year, i dont know that they are going to be the best products cycle that theyve ever had but they always seem to do well under the new psych cycle but i think this will be different. And this run has led people to believe that maybe apple is finally back after sort of spinning wheels for a bit. Sure. But lets contextualize. As a stock. But lets put it into context. It made back the ground it lost since apple and right back at the level which it couldnt break through and it is on a down trend. Im long the name. And i chuckle, every year, is apple over and the innovation dead. Without a doubt, they are not innovating at the same cadence under jobs but that is part of the charm of owning it now and clearly this is not Warren Buffett<\/a> making a decision on apple, this is combs and wexler, but the irony is that it is a classic buffet stock. Look at the type of investments hes loved to make over the years. It is a company with a wide moat. There are other Companies Making<\/a> devices but very few boast the same tiein, hardware and the software and the ecosystem and high quality and returning capital to shareholders and great management and all of the things that buffet has looked for in a stock and it looks like the pups running a portion of portfolio are taking a page out of his playbook. It is underestimated as a Growth Company<\/a>, steve . This was the ultimate stamp approval, this berkshire initial buy and double down, this is unequivocally the value stock that everybody said it is. It is not underestimated as a Growth Company<\/a> because it hasnt been growing. It is a down quarter. So it is the antithesis of a down quart. Im trying to get to that. And it lagged the market and if you are worried about the market, this is a great place to put money. Because there is nothing cataclysmic that will happen with apple. If the market trades down, apple will hold up better than the market because of cash flow and the valuation and et cetera. Now this stock typically trades up into a new product cycle and sells off when the products come out. So it is a sell in the news and i think that is what were seeing now, the competition and the lagging factor and put money in there because the market is at a high and the stock is not and advance a new product. That is what is happening right now. In terms of growth stock, we dont know. But we do know they have been lagging. Im not chuckling at this because i think it is a serious issue. Because the margins are so far above what the competition it, it has to you mentioned steve jobs or one of you did. Tim cooks fiveYear Anniversary<\/a> of being ceo of this company next week. Stocks up 102 since he took the helm. And again everybody is so critical because they say the innovation is not there. Well some people right here. Well and i disagree. Because i think there are aspects of what they are doing in terms of growth, steve, i know you said there is no growth, but i think people are not focused. Tell me what cook has innovated or what has he brought he created something a little bit that steven jobs had started. But now hes, i think, made this grow even faster which is the services aspect and the amount of money spent by folks is continuing to go up faster and faster, those that are already there. That was in the pipeline. Right. And it is in the pipeline. But i think he could use that and put that even further out there because of what hes put the emphasis on, which, hey, look, they dont have the next magical anything. But theyve got products that people love and that is feeding into the services, which is a huge and it is the one growth aspect we could see. Im not critical of tim cook. I think he is a great steward of the company. There is only one steve job. So you are sort of running nobody argues with that. That is why were paying 11 times earnings net of cash instead of 20 which is standard. Because we are aware there is no steve jobs at the company right now. But on borrowed time in terms of the margins for the phones. That is my point. Lets bring in tony sagginocky of bernstein and he is live from new york city. I know you have been listening to this conversation. Welcome. And you raise the question in a new note that says apple, smooth sailing for now, with a question mark. Is it . Absolutely, it is smooth sailing. But the for now is important. But i think the questions about apples ability to grow are still on the table and quite frankly the stock price is reflecting that even with the recent move. So at an enterprise value to Free Cash Flow<\/a> of less than nine times investors are saying that cash flow will decline at 1 to 3 forever. We think that is too pessimistic. And we do think that over the next year we will see that iphone will grow again and iphone is the company. It is 70plus percent of the profits and i think investors are getting more comfortable with that and that is why you have had the stock go up. There is this question that has dogged this company and it will continue to dog it and it has been voiced already on the desk in the conversation were having today and that is the innovation question. Im sure you read the story in the Washington Post<\/a> over the weekend in which cook was interviewed where they are ta talking about what is in the next worldchanging thing and the category for apple to which he said, and i quote, im not saying we are going to do anything else, im saying this is still a unbelievable product category to be in, he is talking about the iphone. And not just for this quarter, he said, year for year. So i would not want anybody to think this oh, this better days are ahead thing, which you yourself have raised. Right. So, look, i think there is a little more tail wind in the iphone and we are predicting that the iphone will grow an average of 7 over the next two years in terms of units. And so we do think that there is more growth left in the iphone. But i think when you are looking three to five years out, it is difficult to construct a scenario by which you have sustained iphone revenue growth. The market will become more saturated, the product will be largely replacement product and over time replacement cycles will elongate and prices will much more likely fall than go up. So if it is all replacements and replacement cycles are elongating and prices will go down, it is very difficult to construct a longterm scenario by which revenues for the iphone will go up. And that is really where the innovation question will come in play. When that happens, three or four years from now, will apple have enough in the tank in terms of new offerings, whether they be products or services, to manage that transition whereby the company can continue to grow. And i think longer tomorrow, that longer term, that is the question. Questions that have been asked for the last number of years about apple. Jon najarian . Quick question about the elongation as you say of the replacement cycle. I dont think im unique in that my phone doesnt last two years. I have to replace screens and replace all kinds of things to keep the thing running just to be there for when the seven comes out this fall. So i would push back against you on that. I think the more hightech these devices become, certainly it puts a lot of onus on people to get a nice case to protect it, but i would push back as far as i think these things break at a pretty rapid pace because it is a portable computer. So i dont know that they will last a lot longer than the two year cycle that we talked about. What makes you think that people will not replace something that is all of a sudden you see people Walking Around<\/a> with the cracked screens and it doesnt matter what the device is. That is one of the things that pushed people to stay on the same pace of replacement. No, a fair question, jon. I think our perspective is twofold. One is that Apple Install<\/a> base is increasingly international and emerging markets focused and people are simply more price sensitive there and they are not on two nif year contracts so they have to buy the phone outright and so at the margin, as that installed base becomes more emerging markets like, they are more likely and we actually know the data today, apple has conceded replacement cycles are higher internationally. I think the second thing is that incrementally over time, Product Differentiation<\/a> will become more limited. So the iphone 13 will probably not be that much different from the iphone 12 or 11, whereas i think the 6 was materially different from the iphone 3 and 4. Tony stay with me. I want to bring in it kevin oleary, and our resident chair. Thanks for joining us again today. Great to be here. Great time to get back on the apple train here, kevin . No, i dont worry about missing the train on apple. This thing will trade between 93 and 109 forever unless the issues are resolved. And you know, i like at this and ask myself, the only thing that matters to me to get excited about the service again is are Service Going<\/a> to get past 10 revenue. The large margin Service Businesses<\/a> have alluded apple because they are offering music and photography and television. While they are useful, they are certainly not stateoftheart. There are better players. I use spotify, not apple music, but who cares. At the end of the day, quarter by quarter if you could show me the services growing and frankly if i have to bet on an iphone margin to stay where it is today over the next 36 months, im going to bet against that. I think iphones are toasters. I think it is a total kmomid. Tony made a good point, innovation will get less and less in each incremental view so the only thing that gets me excited about piling into the stock now is not that i will miss a big move any time soon, that in the next two quarters im going to see incremental increases in services 2 and 3 a quarter and then all of a sudden you are proving to me the platform, which is really the trojan horse, lets call the iphone the trojan horse, once you have it you start buying services. That interests me. Tony, when am i going to see that . I think youll see some gradual increase but what we found is that Services Growth<\/a> rate is pretty correlated to installed base of apple devices. So if you buy an iphone, youre probably on apple music. And if you upgrade to a new one, you are still on apple music and still paying the same amount. If you use apple pay, you might use a little more, but you are using apple pay. If you have an iphone and have apps on it and buy a new iphone, you are probably not going to buy many more apps and we found that Services Revenue<\/a> has grown pretty lock step with installed base and because of the recent growth search in iphone prior to this year, the install base is still growing nicely and services are growing nicely. The challenge for apple is, longer term, that install base will slow as iphone units mature. And services will slow along with it. Unless you can make the bet that apple can Bring New Services<\/a> to market that are really compelling. And historically, that is a tough bet, as you said, apple music has been mixed. Apple pay was innovative but really small. But it is very difficult to point to a lot of truly Innovative New<\/a> services that apple has brought to market over the last few years. And that is the challenge. Certainly if they could create a profile of a more servicesoriented company, i think the multiple could double because you see subscription or Services Based<\/a> models that are 2x. But it will have to come from new Services Offerings<\/a> which is a tough bet, or, as we talked about in the past, can apple try and make its Business Model<\/a> more Services Oriented<\/a> by charging for the phone by the month. And i would like your response to this question once tony answers. The five Year Anniversary<\/a> of tim cook is next week. How would you score it . I guess i have to go first. So, i would say that look, the stock price has gone up 100 so it is hard to it is hard to fog the ceo, are we confident about spending on r d to ensure the future, i think there are more question marks there. So i have to give them more of a b. Rather than an a. Interesting answer. Kevin . I check the box for anybody that could double the value of a company so i give him that. But his own legacy and if he is listening to us now, is going to be defined in the next five years. Because if us just a fiduciary running a toaster company and trying to main main margin, that is not the legacy i think he wants to leave. He needs to bring it out. What is next big thing. The next kevin, you will love this. What if the next big thing is the enterprise. That is ace tiny business at apple. It is like 25 billion. But they are partnering with ibm and talking to microsoft and partnering with s. A. P. And enterprise could be tremendous. The ipad pro might be one tiny incremental step in the next ten years for apple and if tim cook can convert this company to being not just luxury consumer, but serious, serious enterprise, the upside is we cant even imagine what it could but you are not paying for that now. Do you want to pay for that now . No. You are bringing a toaster multiple company. If any company could do that and tony, correct me if im wrong, theyve been trying to get into that forever. And every time they try to innovate and as tony pointed out, whether it is with radio or any services, they fail. They havent been able to extend it to a Broader Market<\/a> than what the iphone is and that is what they have to do to succeed. So services has not been a resounding success. Apple tv, theyve been trying to get into that for years and years and they are first, and apple pay, they were first and guess what, they blew it. And this starts with a question to you from josh . Do you love it, that is the question . No. Im an investor in a Company Called<\/a> opirann which used the enterprise and it is hard to convince an i. T. Chief to go on apple and it doesnt happen and Insurance Companies<\/a> and you could bring your own device but if you want to run enterprise, it is not happening on mac. So im not on board that you are going to take this fashion company, because that is what apple is, great brand and fashion and Consumer Electronics<\/a> and in 36, 24 months or 12 months, tell me the guy running the back office at Goldman Sachs<\/a> is going to standardize on the operating system out of mack. Aint going to happen, my friend. And tony, ill give you the last word. This conversation of tim if tim cook were listening, it is exactly what he would have said in this Washington Post<\/a> stories. There have been haters and naysayers the whole way, whether it is 05 or 07 and they said we peaked in 2010 or 2011. The phone was a joke. And i dont subscribe because it is the traditional way of thinking. You cant get large because you are large. He has heard it all before. Right. Look, i think there is a lot of opportunities Going Forward<\/a> for apple. I think the three biggest opportunities are the wearables category where i think the watch over time will evolve to be a Health Monitoring<\/a> device, where every consumer will need or want one because it could save your life. I think the second one is potentially a car, which is likely 2021. It is a 1. 5 trillion Market Opportunity<\/a> and i think the third is continuing to do something on the on the television or content side which again given apples installed base, they have as good of a shot as anyone as making a compelling or contributing or assembling or a compelling over the top offering. Tony, love the insight as always. Thanks for taking the time. Thanks for having me. The Senior Analyst<\/a> at bernstein. Number one ranked. Kevin you will stick around. We look forward to that. One thing real quickly. Im not negative on apple. I just dont worship at the temple of apple. I think they have a lot to prove. They havent done a great job proving the naysayers wrong in terms of innovation so it should trade as a normal Consumer Product<\/a> trade, period, with a lot of cash. All right. Good stuff. Still a lot more there is a lot amore ahead on the Halftime Report<\/a>. Kevin oleary is just getting warmed up. As we wait for the fed minutes, kevin is answering your questions on the markets. Send them through twitter at Halftime Report<\/a>. And missing the target. The stock taking the beating. Does target have problems or is it simply most of retail. More half time with scott wapner coming up. Welcome back to Halftime Report<\/a>. Counting down to the fed minutes. 1 hour and 38 minutes away. Kevin oleary is still with us. Do you think the fed is too complacent with the fed next month. We are all trying to secondguess the fed and the debate that goes around every day in my shop is the financials, the one place where we havent seen extreme p. E. Expansion and it hasnt worked. If you buy the financials now, and this is a significant move, this is the fifth time you got sucked in by rumors of fed hikes. So every time you go into the sector and the fed doesnt move you git clocked 8 to 10 and it is happening again. So im extremely skeptical. I dont see the Regulatory Environment<\/a> Getting Better<\/a> for the financials. I dont see the Interest Rate<\/a> environment even if if goes up 25 basis points, much better in terms of the earnings. So that is the one area that has the volatility that gets everybody excited. This used to be 18 of the s p and everybody shrunk down and i dont think it will happen and that is where i think the fed is really messing around. They are giving guys hope where there isnt any. And what about the notion and were already sort of maybe seeing it, of the telecom and the utilities, looking like it is time to perhaps get out and get into more cyclical areas of the market. I dont know whether it is financials or wherever, tech which has been performing obviously very well. Well, the reverse is true for those. Utilities and teleco, some were debating in september and december, so 50 bips and if that doesnt happen, the sectors reform again. And people like the security of dividends out the utilities but run away like crazy the second there is a rumor of a fed hike. Weve seen this movie together three times now in the last year. It is remarkable. And i think at some point you have to say, okay, they really will increase it but i dont see it happening until after the election. So at the soonest, des and that is when financial rollover will happen again and that is what i think will happen. Kevin we have some questions for you from twitter. Weve asked people to tweet us with the ask kevin questions. One is from a oleary fan. Pick a winner in the next 12 months and it is playing on what weve talked about. Any financial stock or apple . Wow two dogs. Got a pick. I have to go apple. With the hope that tony was right and we get a 1. 5 to 2 increase in services and everybody get excited and the stock breaks 110 and ill go with that because i dont see anything good coming for the financials any time soon. Do you guys want to take any issue awith that. Could i ask him a question quick about Morgan Stanley<\/a> cu. And would that name be interesting to you, Something Like<\/a> more an stanley as we saw it move to the upside versus an apple. Are they seeing something you and i and others are not seeing in terms of Morgan Stanley<\/a> having a significant upside from here . I would say that is the best managed, or at least they and the goldman are the best managed and if you are going for the best bet, go for the best Balance Sheet<\/a> and the best managed but if that doesnt show up, morgan is going south. That is what i think. There is no other reason what could the poor guys do when every regulator hates them and both president ial candidates beat them up every single day and they cant make any money on spreads. I just dont see it as an exciting sector. But it is the best of the worst. It is the best the best house on a nasty street in all of then analogy, but i dont think you will get rich owning it. I thought jon would fall out of his chair when he said Morgan Stanley<\/a> and hes going to take the i love jamie dimon off and throw it at you. I love jamie. He has done he has built what you have called, judge, because of what one of our guests you are the one that makes that case. I do. But mike mayo said the lebron james of finance and banking and he truly is and look at what hes done. And he has had the guts to buy the stock at 52 this year and put his money where his mouth is and something you are familiar with, kevin, because he believed in the upside of the company from there, it is what, 12 liar than that higher than that right now. It is a heck of run. I dont think it is moving in september. I dont think they move until december and it is a one and done yet again. You dont have to pick a black. You could pick black stone which has over 6 yield for total return. And you could pick kkr which has a big yield and if the market cooperates, you have an exit for their ipo and stuff. So you are not limited to banks and financials. But i would personal will go with i bought b of a because i think the market will get excited and regulators arent and is it september . He said a year. To maybe it happens i think by december. We have to split. Kevin will stick around. Big movers to go through and well help you make the right trade in a couple of minutes. [crickets chirping] [owl hoots] announcer if you dont fix them, sparks from dragging tow chains can cause a wildfire. And that could be scary. Bye, smokey only you can prevent wildfires. Were here at 12 30 on the east coast. Here is a look at where the markets stand right now. Stocks continue to give some back. 18,490 and a lot of 61. 5 for the dow and s p 2171 and a loss of onethird of one and nasdaq is down by one half of a percent to 5203. Sue herera has the latest headlines for us. Here is what is happening at this hour. A judge in brazil it looking to seize the passports of ryan lochte and james fiegen after they claimed they were robbed during the olympic games. He and three teammates said they were robbed at gunpoint while in a taxi on sunday morning. Meanwhile his dad said that his son is already back in the united states. The u. S. Coast guard helped rescue more than 5 pun passengers from a 500 passengers from a burning ship off the caribbean fantasy, a combination cruise and ferry heading to the island. The fire began in the engine room. No injuries were reported. The red cross arriving in louisiana calling it the worst Natural Disaster<\/a> in the u. S. Since Superstorm Sandy<\/a> and they estimate the relief effort could cost 30 million. And 11 people have been killed and 40,000 homes destroyed in the flooding. And firefighters in San Bernardino<\/a> county still cannot contain that huge wildfire. It has already burned 30,000 acres, 82,000 people are being forced from their homes. Governor brown has declared a state of emergency. And they have hot, dry weather out there, too. That is the news update this hour. Back to you. Sue, thanks. New at noon today, activist Hedge Fund Mark<\/a> ado putting pressure i cant read today putting pressure on Buffalo Wild Wings<\/a> did i read that right . Great. I love that place. To shake up the executive ranks. Mit mcguire saying, quote, the company must improve its experience and sophistication in areas of Restaurant Operations<\/a> and Franchise System<\/a> development and Corporate Finance<\/a> and capital markets. The stock is up more than 2 . Mark ado took a 5 stake in the stock last month. Josh . I cant believe it. Help me. Hold on. Break it do you know. You cant believe i called on you. I was told you were the one that had thoughts. Who knows better than josh on this. I wont lie. Ill take some wings to the dome. What he is saying is code for sally smith needs to go. The ceo has been there for 20 years. They are basically saying that a lot of management decisions are being made with a gut feeling instead of data and analytics. Is that appropriate at wild wings . I suppose. I feel like every restaurant chain ultimately faces this this question at some point, like this will happen with chipolte at some point, too. They will say why are you companyowned stores and you need franchisees and the margins are better and better use of capital. Maybe that is true in this case. Im not an expert on the Unit Economics<\/a> at b. Wild. But this is something that always happens and it is not always a slam dunk to refranchise all of the stores. Smoo sometimes it works, sometimes it doesnt. And the one thing that i think is interesting here, is you might have a situation where management is too comfortable, to entrenched. A 20year tenure, especially with people around for the founding of the company, that can always lead to a situation where, hey, man, we have this great thing going, just leave us alone and obviously shareholders arent always content that with. And quick informal survey, because i know you are a fan. A big fan. And a fan of sallys. Mild or medium or hot. Hot as they. Habanero. And peppers. Scotch bonnet. Have you ever had one of those. How do you like your tofu and quin quinoa . I have no idea. I dont eat chicken or red meat. You eat fish and vegetables. And look at you. That is why thank you. Im ripped. Im joking. But at what cost . You could make fans on twitter with that. He was talking about his crush on cam newton. Lets do the trader blitz. And valley upgraded on Morgan Stanley<\/a> and it is continuing to have some move today. They had a 33 target already but this is Financial Engineering<\/a> story if you buy into it. That is all i got out of the report. To me they still have issues with the financial and pricing is still an issue. They havent raised money on anything but prices so the game is over. And this is suspect and the croceo is not doing that great and the stock cut in half at the time he left. And they have a good reputation but im not a buyer yet. And gopro, your long and gopro calls. And knock on wood that has worked out this week, judge. The issue here is that they start selling that multi camera rig for Virtual Reality<\/a> today, the 17th. The other big issue is the 5 and the drone being available in time for christmas because, remember, that is what really started the slide in this stock, when they didnt have the previous versions of the camera available for holiday shopping. Were trying to do this quickly. People are betting on this one and im still in it. Believable. Pope popeyes josh. I think we skip that. And go to cisco. Lets not do that. It is too much. It is chicken overload. Okay. Cisco, pete . Chuck robbins and these guys talk about cutbacks and up to 20 and that is a huge and it absolutely is, but the focus when they have the earnings is about the Services Software<\/a> side of thing and security. That is the transition. Keep an eye on that. This train is way off the rails. More weak numbers from the Hedge Fund Industry<\/a> today. Kevin oleary is back after the break to face wise. And the Halftime Report<\/a> is back after this. Om long island , from rochester to the hudson valley, from albany to utica, Creative Business<\/a> incentives, infrastructure investment, university partnerships, and the lowest taxes in decades are creating a stronger economy and the right environment in new york state for business to thrive. Let us help grow your companys tomorrow today at business. Ny. Gov welcome back to the Halftime Report<\/a>. Hedge funds feeling the pain after the plans to cut 15 of the work force for jones and now brevin, coming after new data from fhr who tracks funds shows it is up 3 from the end of july and compare that with the s p and dow jones up 6. 5 respectively and kevin oleary o usa is up 12 . What are your thoughts here. The challenge for the hedge market is one that i think people over the last since 2007 and 2008 started to focus on beyond just performance and fees. Two and 20 is worth it if you are getting tremendous importance and beating the indices. In 07 and 09 large funds did gating so you couldnt take your capital out if you are an investor and that happened to me and thousands of other people and now what you find is all of the funds or many of them traded a significant discount to nav. So if the Net Asset Value<\/a> is a dollar you find the thing trading if you want to be in the second airedy market at 85 cents and i dont like that but if i want to rebalance in a big fund, i have to there is no liquidity. I have to give six months notice or take it out over multiple quarters i think we have problem with kevin oleary. Well try to get him back. Steve wins the debate. Take the hedge funds every day. There are so many different issues. First of all, it is apples and oranges, because the s p is 1 fully invested in the market and hedge funds, the s p is not the proper benchmark because hedge funds may only be 50 as opposed to the s p and hedge funds is a definition that includes everything. So there is some strategies that are bonds, there are some strategies that are stocks, there are some strategies that are currencies. So to use the word hedge funds to cover everything is just plain wrong. Is the russell a better indicator . No. There is none. Because i may only have 50 exposed so 50 of my exposure, they would be short the market and that is to protect the downside. In this unusual time with the central bank money, the market is going straight up. So i agree, hedge funds have been significant underperformers as an asset class. But also have long only mutual funds have seen just as much of a decline. Actually more of a decline in assets under management going to passive funds and more than 80 of all long only managers have underperformed versus the s p and they have no excuse because they are 100 invested for hedge funds that are 50 invested on average. So to me it seems like a bubble because it is unnatural to do that, and you have to ignore the fees even though i think they are egregious in a lot of cases. But in terms of the other stuff kevin is talking about, those are all situational. Gates are find and that means you could take your money out at certain points but that is good because it protects the remaining investors. Way too much issues and hedge funds and too many average hedge funds by consultants who follow the herd and keep building up others so passive investing has been the place to be because it is rewarding the topline s p but not fundamental investing and driven by machines and driven by quantiti quantities, which has outperformed the s p and those are hedge funds also. So have to you be careful with this level of the market and in these unnatural investing circumstances. Kevin, ill give you the last word. The way he summed it up, i think you were back in time to hear that and what is your final take before we let you run today. Of course those are fair comments. The bottom line is lets forget about indices, absolute return of capital, over the last seven years in many cases, hedge funds were not hedged. The idea that your counter cycle or short when the market is going long only, they were basically leavered. So i think in some cases and hell have to give me this, the king had no close. At the end of the day these things got slaughtered. Some of the managers made big betsond billions and down 20 and 30 and the light of transparency and performance is shining on them and it doesnt like what it sees. That is the problem with this sector right now. Really bad performance in many cases. And some did quite well. One of our funds was up 51 last year. Tell me an active manager or any type of passive investor that was up that. That person that fund is annualized 30 since 1999. So there are winners and losers in every asset class and type of investor, you just have to be careful and decide who does the work for you and who picks them. So you cant you cant malign a particular asset class. A i agree. Hedge funds not for the average investors and most henl funds should not be in the business and agree and that goes for long also. More than 80 have underperformed. Historically under 60 performed less than the s p. Kevin, i appreciate the time. Take care, my friends. Kevin ore leery joining us there. And well be back. And much more on target and lowes and urban outfitters. Well talk about it more coming up. Rs defeating malaria. Improving energy efficiency. Developing more clean burning natural gas. My job . My job at exxonmobil . Turning algae into biofuels. Reducing Energy Poverty<\/a> in the developing world. Making cars go further with less. Fueling the global economy. And you thought we just made the gas. Energy lives here. Announcer are your children in the right car seat for their age and size . It may be too late to check when youre on the road. [blaring car horn and skidding] fortunately, youre on the couch. Real is touching a ray. Amazing is moving like one. Real is making new friends. Amazing is getting this close. Real is an animal rescue. Amazing is over twentyseven thousand of them. Theres only one place where real and amazing live. Book a seaworld vacation package and eat free. Andrea sikon. Medical doctor from cleveland clinic, watson, lets review the Electronic Medical<\/a> record of the next patient. No problem. Its a pretty huge file. Done. Sorry for the wait. That was quick. As part of our research, i also compared lab results with notes about prior treatments, then cross referenced it with thousands of medical journals. And i get the benefit of much more data, and a lot more time to plan the best treatments. I stay focused 24 7 and never sleep. You sound like a lot of medical students i know. We are back on the Halftime Report<\/a>. And take a look at shares of urban outfitters, up nearly 17 and good for a 52week high and a strong quarter, ever core upgraded it to a buy and weve made it our call of the day. Josh . I guess they are selling a lot of Vinyl Records<\/a> because that is really the only thing that i see people going in and out of the store with. Look, this is a really great niche retailer. They have their ups and downs like every other company that is living and dying based on fashion trends when they nail it and you are an investor in the shares, you get paid and when they miss a trend, you get killed. This is not my type of thing. I very rarely get involved in these type of stocks. So pete, yesterday you were singing the praises of target. I was. And you said Brian Cornett<\/a> is the greatest. Love him, and the samestore sales fell for the first time in two years and warned of further weakness and groceries were weaker. That is the primary thing. Counts for a fifth of the business. 20 is groceries and that is something theyve struggled with and had a difficult time with it. They still have the online side of it which that is slowing too, down to 16 . Still doubledigit growth. And you tell me what you do today. I bought some today. I bought target at 70. 5 and i sold some calls and bought some calls further out so i actually believe in the storyline. I think the pain today is too much. Josh yesterday, very great call by josh, he said, look, i think you wait until this thing gets in the upper 60s. I didnt want to wait that long because i felt like what if i miss this opportunity. The stock is down 6 or whatever it is. I think it is a great opportunity and i do think that cornell is doing an outstanding job there. They deal with what everybody has to deal with. I wasnt suggesting that he was not but i was saying what you said, i thought you were being a minneapolis. I am a homer and i do know how great the execution is there but there are certain areas where we need to get better and every analyst i heard today has said grossiries is where they are slipping. Electronics and Everything Else<\/a> goes up and down, the accessories, but the groceries a big decline in apple sales. And that is part of electronics. And we are in front of the next cycle and people are pulling back right now. I think amazon is hurting them. I wont be convinced otherwise. It hits everybody. Amazon hits everybody and it is a matter of where is your focus. So they are getting growth on the online side of things but missing in on grocery where they are getting beat by others. You are watching childrens place today. It is under the radar. Its a stock that we never really talk about. This is an active situation. They are on the board there. The ceo is kind of comfortable, wasnt doing the best job in the world since they came on, margins have improved and they are going to continue to improve. The Company Raised<\/a> guidance and the best news is they are going into china in the Fourth Quarter<\/a> and they are no longer a onechild policy and they could have more than one child an that is explosive growth potentially and they are Online Presence<\/a> is growing very, very nicely. Okay. Got some unusual activity in the mosquito trade. That trade does exist. And guess who found it . The najarians. And well talk about it next. Sewer because a company made a mistake. Real money. We are short both tesla and solarcity. Real debates. People think its globalization thats hurt businesses, its not, technology has hurt businesses. I dont want to go back to ang Steve Liesman<\/a> marketplace. The most profitable hour of the day. All i get to do is tweet about the show. This is like the greatest moment of my life. Weekdays at noon eastern. Welcome back to Halftime Report<\/a>. Im Jackie Deangelis<\/a> with the futures now traders talking a little bit of oil today, gentlemen. Slightly lower today after we heard from the department of energy that weekly production rose by the largest increase weve seen since may of 2015. Bob, last week you told me you thought over 46 there was a resistance there. Thats exactly what happened. Where do we go from here . Well, i think now you move a little bit sideways before the next move down. The unfortunate thing for people who want to be long oil right now is youre relying on opec and opec only. We saw a draw and a draw this week, and the refineries going into turnaround, going into the end of the summer driving season are going to be much less likely to refill those stockpiles in gasoline which are at record highs anyway. Brian, how are you looking at the oil trade right now . What are the key levels to watch at this point . Looking at oil over the last year basically trading down to 39 a couple weeks ago was a key level to bounce off. We got through 42. Now were through 46 like you mentioned. I disagree with bob. I think were headed to new 52week highs here in crude oil. The 46 level was very key for me. I see us trading above 51 at this point. The more we hear talks about saudi will cut production, i doubt that will happen, but will trigger to the next level, jackie. Okay. For more head to futurenow. We have a double dose of unusual activity today. Jon and pete looking to profit from big options moves. Doc, youre up first. Xon, of course weve had meg talking a lot about this one on the show. Any time zika is in the news, it is moving up. People are actively speculating in the september 33 calls. I was already long the name because of what megs been talking about. So i was already in. I added to it today with stock and those september 33 calls. So im looking forward to make another big move to the upside, whether it is because of some approval or some community thats using more of their drugs, well see. Well, its jumping for sure. Pete, gld. Yeah, looking at gld. Way back in december we taulked about the gdx going out to june. Gld today, and theyre going out to november, judge, theyre buying the 132 calls. And theyre buying them very aggressively. 27,000 of these were bought. Its actually part of a spread. Theyre buying one, selling the other, going up 8 and selling the 140 calls against these. But its the 132 calls to keep an eye on. 27,000 of those were bought today. All right. Youre in . Im in and ill probably be in for about a month. Got ya. Make your way back here. Well do final trades with just three hours to go. Halftime report back after this. Im here at the Td Ameritrade<\/a> trader offices. Steve, other than making me move stuff, what are you working on . Let me show you. Okay. Our thinkorswim Trading Platform<\/a> aggregates all the options data you need in one place and lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim. Td ameritrade. Okay, so you launched your banks app. Now what . How will you keep up with the new demands of todays Digital Economy<\/a> . The fact is some believe they wont need a Traditional Bank<\/a> down the road, so at cognizant, were helping banking and Financial Services<\/a> Companies Think<\/a> digital, be untraditional, and reimagine what the bank of the future can be. Our clients can now leverage customer intelligence to predict their financial needs and provide more contextualized products and services. Were creating new platforms across channels so customers can effortlessly invest, borrow, lend, transactwhereverwhenever they choose. And were digitizing the way banks run, driving efficiencies and delivering new value for their customers in return. Digital works for banking and Financial Services<\/a>. Lets talk about how digital works for your business. When you cook with incredible thingredients. Ato. You make incredible meals. Fresh ingredients, stepbystep recipies, delivered to your door for less than 9 a meal. Get 30 off your first delivery blueapron. Com cook. Ein streetlegal form. G lexus performance get great offers at the lexus golden opportunity sales event. Get up to 5,000 customer cash on select 2016 models. Ends september 5th. See your lexus dealer. Welcome back to Halftime Report<\/a>. Shares of medivation moving higher. Reuters is reporting that merck is one of at least five pharmaceutical companies that submitted indications of interest in buying the u. S. Cancer company medivation. Earlier this month according to people familiar with this matter other companies that expressed interest include sanofi, pfizer, and gilead sciences. Shares of medivation up more than 2 . Scott. Seema, thanks so much. Thats not much of a move. I mean, for news like that, is it . Maybe im missing something. I was involved. I sold mine 64 and change or so. The prior bid was 58 plus, you know, rights that would take it to 61 if everything clicked after the merger. So i figured, you know, premium almost 10 above actually 5 above it was enough, so i got out. But, look, theres a lot of interest. Theres a bidding war here. Question of how high they go and how big is cash. My guess is with merck its cash. So maybe go up to 68 or so, i dont know. No idea. But, look, id say theres a little bit of downside and interest is real. Okay. They were shopping it. Give me something on lowes. Depot is in line, lowes was kind of disappointing. Josh. Just not as good. I mean, thats been the story for a while. But that wont stay that way forever. These two companies have their ups and downs. I could think of periods of time where lowes was eating their lunch. The talk on these two names is that home depot does better with contractors. Speaking of eating lunch thats what were going to be doing right now because power lunch starts right now. No chicken, no meat. Power lunch starts right now. Im michelle carusocabrera. And on the menu today the latest trump shakeup. Whats it about . Is this all about letting trump be trump . We debate. Off target, todays big retail misses say about the consumer. And the british are coming. Were going to tell you why theres a hidden brexit benefit right here in america. Power lunch starts right now. And im brian sullivan. Just three hours left in your trading session. One hour until the Federal Reserve<\/a> minutes of its last meeting are revealed. Heres what is happening in the market right","publisher":{"@type":"Organization","name":"archive.org","logo":{"@type":"ImageObject","width":"800","height":"600","url":"\/\/ia800500.us.archive.org\/12\/items\/CNBC_20160817_160000_Fast_Money_Halftime_Report\/CNBC_20160817_160000_Fast_Money_Halftime_Report.thumbs\/CNBC_20160817_160000_Fast_Money_Halftime_Report_000001.jpg"}},"autauthor":{"@type":"Organization"},"author":{"sameAs":"archive.org","name":"archive.org"}}],"coverageEndTime":"20240625T12:35:10+00:00"}