The Fate of the Rally 12/27/24
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Brian and Sarah, thank you very much. Welcome to the Halftime Report. I am Frank Holland, in for the judge, Scott Wapner. Front and center this hour, the fate of the rally as stocks come under quite a bit of pressure today. We're going to debate it all with the investment committee. Joining me for the hour, we have Josh Brown, Jenny Harrington, and Kevin Simpson.

But first, get a quick check on the market as you've been talking and seeing all day long and not even talking about. The major indices, they're all down across the board. The S&P is trying to avoid its third straight week of losses. The Nasdaq's down 2%. The Russell 2000 on pace for its worst month since September of 2022. One other area we have to talk about,

bond yields right now. Take a look at the 10-year, pulling back from the levels that we've seen in recent days at about 4.64. Right now at 4.6, pretty much flat right now, but still elevated from the levels that we've seen earlier this year. And that's really where we have to begin. Josh, I'm going to start with you. We're seeing a bit of the pullback. Some of it's profit-taking, it seems like. Some of the best performers, the big winners this year, pulling back. We're talking Palantir, Applovin, and also Vistra, some of the best names, at least Palantir and Vistra, the best names in the S&P year to date.

How do you view all this as we look at some of these last days of the trading year? - Scott Martin: Look, I think, Frank, it's a good question. Is there more meaning to this than maybe we think on the surface? Or is it just simple profit-taking?

I think it's maybe a little bit of profit taking, but we talked about yesterday. The big thing that's going to happen this January is rebalances and not just in wealth management, which I discussed, but in target date funds, you're going to see it. These are oceans and oceans of capital. We're talking about trillions of dollars, people with SMAs like strategies at the

big brokerage firms, ETF model portfolios. When you have a year where the S&P does plus 30% and you've got gigantic stocks that have gone up over 100%, you have to expect that somebody owns too much. So...

Like today, what you're seeing is on low volume. I don't think it's particularly meaningful. Maybe it's some people sussing out this idea that there are going to be big rebalances this particular January, trying to front run a little bit, get ahead of it. It's perfectly natural, perfectly normal. Activity on desks are light. A lot of shops are closed. I don't really...

I don't really have anybody sitting around executing tons of orders today, for example. So I just think the important thing here for us all to keep in mind is it's one day, it's one week, it's the most meaningless week of the year usually unless something's going on. Let's not extrapolate it beyond that if we don't have to.

All right. So keep it in context. Sounds like basically what you're saying, that it is a low volume day. As you mentioned, a lot of shops closed. Jenny and Kevin, I'm going to come over to you. Jenny, let me start with you. Are you seeing any more meaning in this other than some profit taking low volume day, maybe algorithmic trading taking hold? But one thing I do have to point out, every sector right now is lower with the exception of energy, which has been one of the worst performing sectors.

kind of a reversal on one of these last trading days of the year. Right, and so I think there is a little more meaning in this. And I do want to riff off of something Josh said. So Josh said like rebalancing and there's trillions of dollars, but I want to put the numbers to that just to give you like a really concrete idea. So let's say you went into this year with a 60-40 portfolio. Let's say your stocks are up about 30%. Bonds are flat. By the way, like long-dated bonds, the Barclays Ag 10-Year Index is down 4% year-to-date. So if you started the year with a 60-40 equity fixed income portfolio,

split, right now you've got 66 percent in equities and 34 percent in bonds. So when Josh talks about rebalancing, those numbers really are huge, right? That's an enormous divide to need to think about peeling off 6 percent of equities and then bumping up another 6 percent of bonds just to get back to where you started. And I've had this weird sense this whole maybe the last quarter that a lot of

the rebalancing that usually people kick to next year, the tax loss harvesting that happens at the end of the year, things didn't happen this year. And I don't have any actual proof of this. It's just kind of like, you know, when you're in it, you feel it. Things didn't happen in the normal time frames this year. And my sense is that people

are positioning for next year, this week, and last week, and the week before. So I actually do want to read into this a little bit. I think people are trying to be preemptive because they know that that rebalance is going to happen Jan 1, December 31, right around then. They want to be ahead of that by a couple weeks. I also have seen profit. What really surprised me, right, is the huge stocks that were up so much. There hasn't been as much profit. Sorry, there has been profit taking in the last couple weeks where I thought it wasn't going to happen until after the first of the year. So I

- I think this is kind of telling of what we're gonna see as we cross the end of the calendar year. - It sounds like you're saying there's been a pull forward of the tax loss harvesting that you're expecting in January. It's been over the last couple weeks. So what does that mean about the market going forward? - Well, I think, okay, so if you think about what we've seen in some of the Mag 7, how they've just kind of cooled off.

I thought they were going to go gangbusters, like full throttle into year end and that no one was going to sell anything until after the first of the year. So we've seen some of that, but I think it's probably going to happen even more after the first of the year because there's still a ton of people out there sitting on the sidelines saying like, I want to wait and not see that tax bill until next year. So I think that's why we're getting a hint of what's to come and what's to come is going to be a real,

to Josh's point, rebalancing. And we see it. I think one of the things that surprised me, too, is small caps down so much because everyone's talking about how small caps should be up next year. I think that's tax loss harvesting. I think those are kind of coiling up, maybe ready to spring. But it just doesn't seem like things happen in their normal pattern this year. All right, Kevin, I want to come over to you. I do want to hit on the fact that every sector is lower with the exception of energy. And by the way, energy is not gangbusters up about a quarter of a percent right now. Oh, sorry, I forgot that part.

Well, I think to Jenny's point, there is a little bit of advanced tax selling. The amount of gains, Frank, that people have are so massive that the idea that they're waiting for the calendar to turn is real. It's valid. It will happen. Josh, you did a great job yesterday talking about the rebalance. I won't hit on that again. But I agree with all your points. And I think that there's just this idea that the volatility that we're going to see for the first

couple weeks of January should not necessarily dictate the year. We like to say, as goes January, as goes the year. And that may be the case for January as a whole. But I wouldn't look at the first two weeks as anything but a bumpy ride, volatility. And we're poised with a nice cash position, Frank, to go in and buy whatever dip we may see.

- Scott Martin: I do want to note, MAG7 is going to be leading the gains right now, Kevin. I want to get your take on this. MAG7 down 2.5%. You're looking at the S&P a minute ago, down 1.5%. You look at the equal weight, only down 1%. Again, it's a low-volume day. We want to keep that in perspective. But when you look at the MAG7 actually leading the market lower,

Is there anything that we can read into? I mean, Jenny was talking about it. You know, Josh was talking about it. Some people with big winners have to sell. Is that all this is? Yeah, I wouldn't read too much into it because if you think where most of the trading takes place, both with retail and institutions now, it's within those names. So we've been hoping for years that we'd get the broadening out and that we'd see breadth to this market. 2023, 2024, that really didn't happen. So I would expect that when we see high vol on any trade,

on any name on a really low valde that it would take place in those big names. So that shouldn't surprise or panic anyone. I would look past it.

Just stay on this theme for a minute. I want to get to our delivering alpha survey. We asked some of the biggest names in investing and finance their thoughts about the year ahead. One of the questions we asked them about in 2025, which one will do better, the other 493 S&P 500 stocks or the MAG 7? Of course, we all know who those are. 77% said the other 493, kind of betting on the broadening. Josh, I want to come over to you. Are you someone that sees the other 493 S&P 500 stocks as the best?

We did see a broadening earlier this year. We've seen a narrowing in recent weeks. Do you see another broadening happening in 2025? Respectfully, there is no broadening. There are the Mag 7 stocks this year, and then there's this category of almost Mag 7 stocks, and then there's everything else. I know we had like this mini rally from August to November that people got fired up about, but let's just recite the numbers.

Because when we talk about tax loss selling and rebalancing, I don't think the average viewer has any clue how insane the degree of outperformance has been. And this is coming into a year where most people would have said the Mag 7 had too good of a 23 and they're going to take 2024 off. This year, NVIDIA had its fourth best year ever since coming public, 176%. Tesla did 76%. Meta did 70%. Amazon did 50%.

alphabet which quote unquote uh is falling behind an ai did 40. apple apple did 32 microsoft did 14. if you equal weighted the mag 7 you did 73 this year i want you to think about that the s p's up less than 30. okay um you would have done 45 over the last five years equal weighting that mag 7 portfolio so

There is no broadening, it's fake. Yes, you had rallies in other stocks and thank God, but the reality is nothing has kept up with this particular subset of stocks

I know it's tempting to say the calendar's gonna turn over and everything's gonna be different. Maybe it will. Maybe you'll get this big correction in the Mag7 stocks that we've all been saying is long overdue. But like, do you want to deliberately underweight them to the extent that you're not in those names and you're betting on, I'm not sure, healthcare?

No one's really ready to do that yet. So I do think that while there could be profit taking and rebalancing and maybe undoing some window dressing in January, I'm still thinking of those names as remaining dominant in 2025. Could be wrong, but I just think that's the easier guess. Are there tiers in these stocks? Is it the MAG7 and the almost MAG7 or a tier down? I'm assuming you're talking names like a Broadcom and the almost MAG7?

Yeah, I'm thinking about stocks that have a big enough TAM that they could someday be trillion-dollar companies. Broadcom's already there. So I'm really interested in names that are the next tier down. I don't want to be overweight data centers. I think that the money has been made. It's not that I want to sell the Mag7s, but I'm not like, ooh, can I add more Microsoft here? That's not what I'm doing. So I'm looking at names...

like CrowdStrike, like Uber, these are $100 billion market caps that could three and four X if the right set of things play out and they execute. To me, Trade Desk is another name, Reddit, these are more interesting situations than like adding to meta here. So that's me personally, that's not everybody.

All right, great segue. I want to come over to Meta. Jenny, you're an investor in Meta. What's your view? Are you sticking with the MAG-7? Do you see a lot of opportunities there, or do you actually believe in the other 493? Again, our DA survey says 77% of respondents believe the other 493 will be better performers. Well, you don't have in the perma-camp of the other 493.

So the only Mag 7 that we own that we've ever owned is Meta. And we have trimmed that a couple times. It's pretty rich right now. Earnings growth still looks good. I think it's like plus 40% next year and then mid-teens the following years. It actually has a decent valuation compared to the rest of the Mag 7, so we'll continue to own that. We'd love to own others in the Mag 7,

But the free cash flow yields aren't there. The growth rates are too low for what the multiples are trading at. So that kind of holds us back. So we're always in the 493 camp. And what I've said over the years is, by the way, you can do very well

By owning the other 493, you don't need to own all 493. Well, explain that. What sectors in the other 493 do you like? If you look at energy for the next two quarters, earnings estimates are down year over year. You look at healthcare, I mean, a lot of different things are happening in healthcare we don't have to touch on, but healthcare seems to be under quite a bit of pressure. What areas in the other 493? That's the thing. So we run, and I'm going to talk

right now about our discipline growth strategy, right? Because that's the one that most parallels the S&P 500. We don't invest by sector. We're bottom-up investors, and we look for opportunity. So in that portfolio, things that have worked really well include companies like United Rentals and like XPO that have really carried significant weight this year. And I think, you know, like, if you want to be in the MAG7, great. If you have a really disciplined strategy like we do, where you say, okay, it needs to have a 5% or better free cash flow yield and really specific earnings growth targets ahead, you can still do that.

Yes, it's harder, but it might protect you if, in fact, next year isn't as great for the MAG-7, if you have another 2022, which could happen. Those valuations aren't cheap. So it's not looking by sector, Frank. It's literally screening everything that's out there and looking for

high free cash flow yield, and high earnings growth. You know, we just added TripAdvisor to that portfolio too, which is really interesting. It's down 50% from about this time last year. It's got really decent mid-teens earnings growth as a 14% free cash flow yield. Do I think a stock like that could be up 25% or 50% next year? Yes. Do I think the MAG7 is likely to be up another 50% next year after the plus 73% that Josh just mentioned? No, I just don't.

I don't think they're necessarily going to trade down, but like why can't they plateau? And then I think this gets into Josh mentioning Uber and CrowdStrike and those kind of companies. Like there could be leadership rotation and the leadership rotation doesn't need to mean that Mag7 deteriorates. It just means that it takes a breath.

Kevin, I want to get to you. You have a lot of ownership of the MAG-7. You own Meta, Microsoft, and the Devo ETF. That's a dividend-focused ETF. And then Apple, Amazon, Alphabet, Meta, Microsoft, NVIDIA, and Tesla, all of them in the QDVO ETF. What's your view, 493 or MAG-7?

Well, for Jenny and I as value and dividend investors, I have to really focus on the 493. But I will say that trading this Qdevo strategy as a covered call trader is a heck of a lot of fun because there's tremendous volatility there. And people will always pay up for innovation. I mean, that's what makes it so much fun. When you have companies that have the potential for 30, 40, 50 percent earnings growth, you're going to see them trade at higher multiples. You're going to see them have far, far greater performance. But

When you get right down to it, Frank, the way we have built true wealth, real wealth creation over time is through dividends and distributions reinvested. So if we don't participate in all the mag sevens and our flagship strategy, well, we do own Meta. We do own Microsoft. We have owned Apple. We have owned Broadcom. We do own IBM. So you get some exposure there. And I think when you look at strategies like Jenny and I manage, you pair us with a with a

hardcore growth managers so you can have that. And that's what a diversified portfolio looks like. But for me, it's always about slow and steady wins the race or at least gets you to the same place. - What about Josh's almost max seven theory? Any names that you think fit that category that you're into or you might even think about adding to one of your ETFs during a rebalance? - Yeah, well, we like all the names that Josh mentioned and we own, except for CrowdStrike, all of them in the Qdevo. So it has a lot more holdings. And again, when you think about these high vol names,

We write covered calls. Covered calls are priced on time, price, and volatility. They have massive volatility. So we can write the heck out of option premium on these names, and that second tier Mag 7 has the potential for total return. Upside, option premium, and with any type of vol, when you're going for option premium, you have to face the fact that there's a lot more risk there. Jenny mentioned 2022. It wasn't that long ago. Russell 1000 growth was down 36%.

So it takes a lot to crawl out of that hole, and it sure did. I mean, the Mag 7 did in '24 and '25, '23 and '24. Let's see what '25 has to offer. - Scott Martin: Yeah, I think we're all trying to figure out exactly what's in store for 2025. Again, I do want to point out, all three major indices are in the red right now, every sector with the exception of energy also trading lower. And with that, we want to bring in Senior Markets Correspondent Bob Pisani. He's taking a look at the possibility of a rotation in 2025. Bob, that's the conversation we're having.

Perfect time to bring you in. Yeah, and I agree with Josh's point. There's no rotation now, but there's hopes for rotation next year, largely based on a deceleration in earnings growth from big cap tech and its modest acceleration from the other 493. Let me just show you some of the earnings expectations for 2025. Why these stocks are still holding up? Because the earnings numbers are still good. The expectation. So NVIDIA is still expecting a 50 percent earnings increase.

uh... next year if you look at that broadcom about twenty five percent amazon twenty percent the point about all of these is that they are still expected to be up but not as much as this year so if in video was up one hundred twenty seven percent earnings growth this year uh... and next year is talking about fifty percent that's a deceleration still pretty good the envy of anybody out there uh... alphabet microsoft apple uh... all

doing really well in terms of the expectations. Broadcom is one of the only ones that are expecting an increase in earnings expectations. So let me just show you this simply. If you look for the fourth quarter of this year for the Magnificent Seven, earnings expectations as a group is up 24%. Next year, fourth quarter,

As a group, up 18. That's still really great, but it's decelerating earnings growth here. So now let's look at the other 493 out there. And right now for Q4, this year, up 4%. Next year, up 14%. You see, that's accelerating earnings growth. Now, it's not spectacular, but it is accelerating. So here's Josh's point. What would get anybody invested, an investor excited about the rotation story? And the, well, tech is...

Tech is still the king of earnings growth. Look at the expectations for next year just on tech of 21%. There's plenty of sectors that have very healthy profit growth, including healthcare and materials. Jenny was just talking about healthcare. These sectors have been ignored. The valuations are very reasonable here, but

But is it enough to get investors off the crack cocaine of these massive increase in earnings from the AI plays? I don't know. But this is the core argument of the value players. It should be on evaluation. But that argument has not been persuasive for nearly a decade. It's not clear if that's still going to be enough to get people

off of the fence. It should be in theory, but you know the value players are pulling their hair out. By the way, if people ask me why are earnings so strong next year, we're talking about 15% growth. This is one of the best handoffs you could ever get from one year to another. If you just look here, we've got a strong economy, 3% GDP.

We've got companies raising prices. We've got better cost controls. And here's the single most important thing. Look at that net profit margin, 12%. Not only are the profits up, but they're retaining more of the money from the revenues. That's what a net profit margin is. 12%, in case people don't know, that's just about a record. When that holds up that well, that's one of the main reasons the stock market is continuing to hold up. So you have high returns, you have high profits,

and you have high margins on top of that, my heavens, this is one of the best handoffs you could ever look for from one year to the next. All right, Bob Pisani, thank you very much. Josh, I got to come back to you. Everybody's giving you your flowers right now. Bob kind of spelling out why next year is going to be a strong year for tech and why the broadening story, he agrees with you. It's not really a narrative that he believes in. I want to go back to something we talked about yesterday. You're looking at landmines ahead for 2025. One of the things that you flagged were NVIDIA earnings.

They're a bit away. It's February 20th. But in between now and then, how do you see the market moving? And what do you think about some of the other landmines you're looking at? One that's going to come a lot sooner, tariffs, very likely on January the 20th. Well, I think it's important that I'm using the term landmine and not time bomb. When somebody says these are the time bombs, these are things that are inevitably destined to go off when enough time comes off the clock.

When you talk about landmines, you have the potential for sidestepping them. It's not a fait accompli that you're going to detonate a landmine. And obviously, you hope that you don't. One of the things I was trying to point out is that if you think about the big risks in Q1, it's that the tariff rhetoric becomes reality faster than anyone thought it could, or sentiment starts to move in advance. That's a big one.

Nvidia not blowing it out and and raising guidance for the for the full year. That's a big one You don't want to step on that one and then obviously the dollar getting out of hand the dollar The rally that it's in the midst of right now versus I don't care what currency you could look at the basket You could look at the trade weighted basket You could look at versus Canada versus the yen, whatever whatever games you want to play the dollar

The dollar could become a wrecking ball if it breaks out here. And if you actually look at a chart of the dollar versus the trade weighted basket, technically it looks like a big breakout is coming. We should not be rooting for that.

I'm not running for office, so I don't have to say stupid things like King Dollar. King Dollar is problematic for S&P 500 forward guidance. They're all gonna use that as an excuse to sandbag. They're gonna complain about currencies. We don't wanna see that in Q1. So to me, those are the big Q1 risks. Now, of course, everybody's making these lists.

And the thing that actually shakes the market might be something nobody's thinking of. Like for example, if an alien exits one of these drones in New Jersey. But I'm trying to be realistic. These are the things that I think we need to have in front of us as big potential risks.

Wow. I didn't see aliens out of drones coming out of this conversation, Josh. But I do want to lean on something. I purposely didn't mention the dollar. I'm very good at this. Yeah, I can see. I want to get your take on the dollar. You gave it to us right here. I want to come over to you two about the dollar risk. We were hitting this yesterday. Dollar's up over 4% since the election.

Josh talking about Q4 earnings in Q1, expecting to see currency being flagged as a headwind. We got to keep in mind, remember back in 2022 when Microsoft, Johnson & Johnson, Salesforce flagged the dollar as a hit on their earnings? Well, it's higher than it was back then. So I think you do have to factor that into your expectations.

for Q4 earnings, which right now we're at almost 10%. Is that something you're worried about, Jenny, that earnings missing and creating some volatility? - No, I think people tend to look through earnings when it's like Forex related. And so they see it as temporary. They see you give some one year, you take it back another year. I don't think it's permanent. It's not something that we're worrying about. - All right, Kevin, very quickly. - 23% of our revenues come from outside of the US. So we do worry about it, not to the extent that you might think. It's a little bit more muted, like Jenny says. We have to pay attention to everything.

All right. Still ahead, we've got a trade update. The bull case for a stock that Josh bought earlier this month and his strategy from here. Halftime. We are back in two minutes.

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Welcome back. You saw a lot of red across the board, but right now we're going to switch gears. A trade update on Starbucks. Josh initiated a position just a few weeks ago. Shares are down 10% in December on pace to break a five-month winning streak, but he says this could be an opportunity to add. Josh, coming over to you.

Yeah, so look, this stock was down 13% in 2022. It was down about 2% last year. And if it closed today for the year, it would be down about 2%. This stock being down three years in a row is a pretty rare thing. You don't really see that very often. And quite frankly...

it's understandable why, but it's also understandable why things should be changing very quickly. They're going to report earnings on January 28th, so you don't have to wait a long time to see if the turnaround can be trusted. They're going to,

they're gonna do nine billion in revenue, which would be down 1% year over year, about 1.1 billion in EBIT, which would be down 23% year over year. So analysts' expectations are extremely low. The stock is effectively trading at its 10-year median valuation on all the important measures, and they just hired, arguably,

the best living QSR industry CEO in Brian Nicol, who's gonna turn this thing around. So I like the risk reward here. And if it gets into the low to mid 80s, I'm gonna add an irresponsible amount of stock to my own portfolio. Because anytime Starbucks has been down, it's never been out. It's always been an opportunity. And I don't think that's changed this time.

All right, so stock's been pretty much flat since nickel took over. We're just showing it up just about 1%. Is your confidence in the brand? Is it a nickel? Is it a combination? I mean, what's given you so much confidence? Because we have seen a lot of competition. And in previous shows, I've seen you be very bullish on another name in that similar space, Dutch Brothers. You know, they just face a lot of competition from a Dunkin' Donuts, from a McDonald's. There's just a lot of competition in the coffee space. That'll never change.

That's a permanent condition. When you sell food to humans, it's competition. So it's never been a reason to not be invested in Starbucks. Never been a good reason to be out of McDonald's. Competition is what forces these companies to innovate and get better. You don't want there to be no competition.

All right. Jenny, you have your own take on Josh's pick of Starbucks. By the way, shares up almost half a percent. So when I was a kid, my dad's favorite joke was, you know, the fastest way to make two million dollars in the restaurant business. Say what? He'd say start with 10 million. I think there is too much competition and I think it's a little dicey. I think Starbucks is overpriced. The coffee is mediocre, depending on who you talk to. And I think the competition has really increased, Josh, in the last 10 years. So for me, it's a little rich. It's not where I want to play.

Is it simply just competition or is there something else? I mean, the 4Ps relatively elevated almost 30 times. Let me give you this example. Last week, I was on the phone with the management team from Wendy's. We were looking at it for the dividend portfolio. And by the way, we're not going to add it. I'm not sure how committed to the dividend they are. Hopefully, they are. We'll learn in March. OK. But I'm on with Wendy's. You know what they're looking at? They're looking at coffee because it's the highest margin, easiest way to expand. And they're talking about how well McDonald's has done with that, how Dunkin's coming back. Like,

Like, everyone wants to be in coffee because it's easy to add and it's high margin. I don't like that kind of setup. If you can go out on the street and find me one person, find me one person walking around with a straight face with a coffee cup from Wendy's saying that they used to go to Starbucks and now they do that. They don't have it yet. That's not the point. It's not the point. Find me one.

Okay, but you know what the point is? The point is that people used to get Starbucks. Joshy, Joshy, listen. The point is that they used to get Starbucks and now they have a McCafe. They used to get Starbucks and now they have a Dutch Bros. They used to get Starbucks and now they have a Le Pen Quotidian. Right? It's the same as the athleisure space. It used to be just Lulu. They said that 10 years ago with

Right. And look at what Starbucks has had a really tricky time. And the coffee bean. And it just keeps getting tougher. Tim Hortons was going to put them out of business. I'm just saying. It's always the same spiel. Okay. The names change. It's always the same story. I'm not saying they're going to be put out of business. I'm just saying the competition is real. The restaurant business is hard. There was a really great article, I think it was in the Times this morning, about TGIF.

Like, TGIF used to be the be-all, everything for fast dining, fast casual, right? Competition flooded that space. They're dying on the vine. It's a hard, the restaurant business is a hard place to be in. Apples and oranges. We do have to move on. Very quickly, Kev, just take on Starbucks. Dividend 2.6%, something, you see opportunity there with a dividend, basically 2.5? We've owned it in the past. Certainly there's a China overhang there, but

to Josh's point, when you've got great management, you've got an opportunity for a turnaround. We want to switch gears. We want to get to one of your committee moves, Kevin. You actually recently bought DoorDash. What are you seeing there when we look at DoorDash? So DoorDash is in the growth strategy, the QDevo, because obviously this is a much more risky position. We look at this for something that is a convenience that will never go away. When I first got out of the business and I was walking around here, I saw something, Frank, called couch potato video. And I was like, who's going to

to like order up a video to their apartment. Well, obviously we've become very accustomed to delivery services. So they have 67% market share. They were profitable for the first time last quarter. 40 forward P.E. still kind of high. But if you go back to think about earnings growth margins. Well, what estimates? I'm looking at our system. We see you guys are 96. That's wrong. It's 40. OK, I would

Sorry, but 23% to 30% revenue growth. We're talking about a company that's got great margins, great cash flow. This is risky. This is, you know, whether it's a 96% PE or 40, for value investors, you know, it's still high no matter how you look at it. But we think that there's opportunity here. They've got 67% market share. And again, we can write the heck out of covered calls on a stock like this. I do want to ask, I just think we're at peak food delivery, peak delivery period. I mean, this holiday season, people went back to the stores.

Yeah, I was thinking about how to say this. Are we lazy or are we just addicted to convenience? And I think it's a little bit of both. So I don't think that this is the peak. And sadly, I...

25 to 30 percent growth seems a little bit low to me. Yeah, by the way, I'm saying that I'm going to Uber Eats my dinner probably later tonight as I say all that. All right. Time now to get to the headlines with our Pippa Stevens back at CNBC HQ. Hey, Pippa. Hey, Frank. White House spokesperson John Kirby said North Korean troops are experiencing mass casualties fighting in Russia's war against Ukraine. Kirby told reporters earlier today a thousand North Korean troops have been killed or wounded in just the last week in the Kyrgyz region of Russia.

The mother of Oxford High School shooter is requesting she be released from prison pending her appeal. In a motion filed Thursday, Jennifer Crumbly's lawyer argued that she posed no danger to the public. Crumbly asked the court earlier this month to overturn her conviction of four counts of involuntary manslaughter in connection to the 2021 shooting.

And NASA's Parker Solar Probe is safe after it made the closest ever approach to the sun. The space agency said it received a signal from the probe after it was out of communication for several days following the flyby. The probe passed within 3.8 million miles from the sun's surface on Christmas Eve. That is seven times closer to the sun than any previous spacecraft. Frank, that video, my goodness, very impressive stuff.

Yeah, you know, great visuals. I got to be honest, the numbers, I don't even know what that means. It's like millions of miles away from the sun. Is that close? Is that far away, Pippa? I have no idea. I guess seven times closer than we've ever been. That's all you need to know. Basically, yeah. Our Pippa Stevens, thank you very much. All right, coming up next here on Halftime, we have your dividend playbook. The committee is ready with opportunities for the year ahead. Halftime back in just two minutes. Stay with us.

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Welcome back. The tide, it may be turning for dividend stocks. They're tracking for their first positive year in the last three. The question is, will the gains continue in 2025? The committee is here with their top picks in the new year. Jenny, I'm going to start off with you. Okay. So I've got Conagra, Honda Motor, and UPS for you. Always

All are down significantly from their highs. So it really is that contrarian play. As we look into 2025, I do not think that what worked so well in 2024 is going to work as well in 2025. I want to kind of be hiding out as we go into the new year. So you've got these stocks. They're all down a lot from their highs. You've got Conagra with a 5.1% yield. Honda Motor with a 5.7% yield. UPS with 5.2 right now. They're trading at between six times earnings and 14 times as you look out.

past 2025, they all have decent little earnings growth, 5, 6, 7%. So like nothing crazy on all of these.

Kevin made a really good point earlier when we were talking about what percent of the total return from the S&P comes from dividend yield. What do you say, it's 39% over time? Since 1926, the S&P 500 has delivered a 10.2% return on average. And of that, 39% of the return is dividends and distributions reinvested. Right. So with the, thank you. So with these, you're getting, if you're thinking you're going to get 10% on average, half of it already is coming from the dividend yield, which led to sit back,

not worry too much, collect that, have a little bit of capital appreciation on top, and not worry, and just collect your income. So not shooting the lights out on these, just slow and steady wins the race. - All right, so just really quick about Honda, considering a merger with Nissan, concerned about the dividend there? Very quickly, we want to get to Kevin's playbook. - Not at all. Yeah, this is super cool. So Honda, which we added to the international income strategy a couple weeks ago, had 50% of their market cap in cash on the balance sheet. When you have that much cash, you can really do all sorts of things to drive growth,

I think the Nissan merger sounds fantastic, like reduce all sorts of redundancies, just create this fantastic company. I think Nissan has slightly better technology than Honda, so that's beneficial. So it just creates a dominant, I think it would be the number three auto company in the world if and when they combine. - Honda dividend, 5%. Kevin, wanna come to your dividend playbook?

So we don't have a minimum threshold for yield, but we do look for strong dividend growth. We tend to like share buybacks also, but it's not a requirement. So I picked three old school companies, Chevron, Amgen, and Procter & Gamble. There's nothing sexy here. There's no Mag7 here. But what we do have are companies that are consistently generating earnings, free cash flow, not only paying a dividend, but over a five-year period having a very strong dividend growth.

It's not going to have the fun like the casino stocks do, but it will provide great wealth creation over time. Four and a half percent on Chevron. Energy has been out of favor. Certainly not a great name this year that could recover over the next two years. Amgen, the biotech health care, also low multiples. We've been thinking for the past two years that maybe the market broadens out.

Even if it doesn't, you're still talking about solid dividends here. Procter & Gamble is the one name that had an amazing year. So we look at that with the multiple that's a little bit higher up on the spectrum. But I wanted to give three different names within a 2%, 3%, 4% dividend yield. So when it comes to Amgen and Chevron, this is just purely dividends. I mean, the stock's trading lower this year. Energy under a lot of pressure going into 2025. No, I think there's a total return potential there. I don't know that we're going to see these stocks rebound and have 20% upside. But to Jenny's point, if they give us 5%, 6%, 7%, 8% dividend,

That's all we need because you get a 4% dividend on top of it and you're sitting at 11, 12% return. Now, granted,

Over the past two years, our dividend stocks might not have been that powerful, but slow and steady, like I said earlier. All right. P&G, by the way, up about 15% year-to-date. Best performer out of that group. All right. Straight ahead here on Halftime, the Netflix trade. Shares pacing for their best year in the last nine. We're going to take a look at their big win on Christmas and the setup for this stock in 2025. Don't go anywhere.

And we are back on halftime with a look at Netflix. You can see right now shares down about two and a half percent. But Christmas delivering a record-breaking streaming day for the streaming giant. Our Julia Borsten joins us now with the numbers and what's ahead for Netflix in the year ahead. Julia, good to see you. Hey.

Hey, Frank, Netflix shares may be down today, but they're still up over 83% over the past year, near an all-time high. And the NFL's two Christmas Day games were the most streamed NFL games ever, proving that Netflix could support a massive streaming audience and that the NFL could reach a peak of some 65 million U.S. streamers, according to Nielsen. Now, these NFL games mark the beginning of Netflix's growing investment in sports leagues that previously created events like the Tyson-Paul fight.

In January, it kicks off its partnership with the WWE, including a live program on Monday nights. It just made a deal for the next two FIFA Women's World Cups, and it has two more years of its deal with the NFL for Christmas Day games. And we saw with the second season of Squid Games launching just yesterday that Netflix is using sports to promote its original shows. These live sporting events are key to draw advertisers for Netflix's growing ad business.

The company saying last month that 70 million users up from 22 million in January are watching its ad tier and that half of new signups are for the ads plan in countries where it's available.

Next year, Netflix is rolling out new ad technology, though it warned that ads would not be a primary driver of growth until 2026. But Frank, next year, Netflix is going to stop sharing subscriber numbers as it works to shift investors to focus on the profitability that comes from a dual revenue stream. But I'm going to miss seeing those sub numbers, Frank.

All right. Julia Boriston, thank you very much for that look at Netflix. Josh, I want to come over to you. Looking here, you had a stop loss when it came to Netflix a couple of months ago. I just want to get your take on. I'm sorry you stopped out of Netflix back in May.

Yeah, I mean, I bought in 2022 into like a 75% drawdown. I remember being in Anguilla in April. They reported earnings and I thought the price quote I was seeing on my phone, there was something wrong because I wasn't in the United States, but it was real. People sold this stock down like it was going to zero. And that's when I pounced. I probably should have kept it.

But I'm not upset with how it's done since. I think the story with Netflix here is that a lot of positives are now baked into the valuation and deservedly so. Netflix is actually growing revenue this year faster than any other year, which is crazy when you consider how long they've been around.

and it's the second best subscriber growth year outside of the pandemic 2020. So now it's 40 times earnings, which I'm not saying is too much, but does 40 go to 60 times earnings? I doubt it. In the end, it's a media/advertising business. Disney is 20 times and now is also profitable on the streaming side. And from my perspective,

You have to make a choice. You're probably not gonna own every media stock.

I think Disney looks a little bit more attractive valuation wise, but Netflix has all the momentum in the world. So I would not be a seller here had I still had a large position. I think both stocks can work and streaming looks like a good business in 2025, which it did not for the last three years. I'm even taking a look at Warner Brothers, believe it or not. So I think you can make money in a lot of media stocks going forward, not just Netflix. You don't have to only own that one.

All right. Kevin, you're also in Netflix. I want to get your take on what we saw on Christmas. I mean, two NFL games, that's a big deal. It drives a lot of viewership, but they did also pay a lot for it, including that Beyonce concert that people really have gravitated towards the idea of that level of entertainment on Christmas Day.

Yeah, I mean, it's a juggernaut. To Josh's point, there's more value at Disney than there is at Netflix, but you can't stop this momentum. The stock will go to $1,000. They're 15% quarter-over-quarter revenue growth just in the third quarter alone. We get earnings on January 21st for the fourth quarter, so we don't have to wait that long. But this thing has got every single piston humming. Squid Games 2, Monday Night Raw, women's soccer. I mean, it's the NFL. It's unbelievable.

And when you mix and stir in the ad revenue into that pot, 2026 should be an even better year than 2025. All right, take a look at Netflix shares today. However, down 2.5%, but as Julia mentioned, up more than 80% year-to-date. All right, coming up here on Halftime, a look at Wall Street's favorite stocks for the new year and this out with their top picks for 2025. We're going to debate those trades. That's coming up next on Halftime. Stay with us. And welcome back to Halftime. All this week, we're looking at Wall Street's top stock picks for 2025. MetaMade Cities list. Kevin, this is one you own.

Yeah, this is a stock, Frank, that we have in both the dividend strategy and the growth strategy, which is pretty rare. But we like this company for the hardware. We like the company for the software. The fact that they bring AI to the masses through Instagram, through Reels, through Facebook.

The cost cutting that they did from the metaverse has been shifted a little bit into massive spending for AI, but I absolutely think it's going to pay off. This is a stock that had an amazing 2020, '24, excuse me, 2024. I'm expecting the same thing for 2025. - Are you expecting dividend growth as well? Look at the dividends, 0.3% right now. - So when they started, the dividend was a half a percent, which is what we were attracted to. They paid the dividend in the past two quarters. We are expecting dividend growth. We're expecting maybe a stock split, which would be great for us.

Share buybacks they've been doing for three years. They reduced the float by 10% over the past three years. A lot of things to like about this stock. All right. Metashares, however, down just about 2% right now as tech sells off overall. I believe the NASDAQ's down about 2% as well. All right. Stay with us. Final trades. They are coming up on halftime. Don't go anywhere. And we are back on halftime with our final trades. Josh Brown, you're up first. I wanted to mention IEO. One of the few things that didn't work this year was energy. I remain long.

Oh, that was quick. Kevin, you're next. I would use pullbacks to add to Amazon. I think it'll continue to work in 2025. It's not just an AWS story. Jenny, you have the last word. Okay, Sabra, SBRA with a 7.1% dividend yield. As 65-year-olds are aging, it means a lot of different things for different companies, but for the skilled nursing and retirement, it's all good. All right, that is going to do it for halftime. The exchange starts right now. Have a great weekend.

You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern, only on CNBC.

Thank you.

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Stripe helps many of the world's most influential companies grow their revenue and build a more profitable business. Whether it's Hertz making checkout a smooth ride for their customers, OpenAI answering unprecedented demand, or PGA chipping away at back office inefficiency, Stripe's financial infrastructure platform helps companies achieve ambitious goals. No matter what success looks like for your business, Stripe helps ensure the complexity of financial systems doesn't get in your way. Learn more at Stripe.com.