Energy Hits Year’s Highs and the Deal Disney May Be Looking to Make 9/14/23

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast Money where phones ring on set. Here's what's on tap tonight. A burst of energy, a crew doing something it hasn't done all year long. Is this just the start of a long year-end rally? And if so, how much higher can this trade go? Plus, the countdown to midnight. The CEOs of GM and Ford speaking out as a threat of UAW strikes draws closer. What they have to say about the looming work stoppages and what it could mean for the auto industry. And later, we'll go inside arms, long-awaited return to the public market today here at the Nasdaq.

0:34Disney's bump on reports ABC could be sold and a new ETF hitting the market trying to capitalize on the zero-day options boom. I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Karen Feinerman, Dan Nathan and Guy Adami. But we start off with the pop in oil prices. WTI crude topping 90 bucks a barrel for the first time since last November. Bread crude surging too, closing in on$94. Big oil stocks coming along for the ride. Marathon, Hess, ConocoPhillips, Exxon, and more, all beating the broader markets today. Crude's move also highlighted in the latest producer price print, the PPI's energy index jumping 10.5 % in August, its biggest monthly gain since at least 2010.

1:15That jump being felt by a wave of companies saying fuel cost pressures are hitting their near-term profits. Delta today, American yesterday, United, Southwest, Alaska Airlines last week. So is this a new crude reality for companies and how much higher could oil go from here? Guy, what do you say? Well, I mean, if you've been watching the show, we've thought this is going to happen for quite some time. And at a certain point becomes, you know, listen, the SPR is at levels. They had an opportunity probably to replenish it in. Here we are at 90 bucks. There's going to be a homeland security. You're going to see all different networks talking about this.

1:45Now everybody's on a gasoline thing. I'll say this. I don't think it matters at this point if crude goes higher or not. The energy stocks to me are still in play. And Valero, I think, made an all time high today. OIH at a four-year high. Marathon Petroleum, we're going to have Paul Sankey on. He talked about the stock when it had a$60 handle. That's making an all-time high. So the commodity seems to be, you know, that cat's out of the bag. I don't know if you can put it back in. But regardless of price action now, the energy stocks are still attractive at these levels. I mean, they're the worst performing sector this year.

2:15So maybe there's some of that going on. People looking for performance going into year-end. Yeah, but I'll look at a two-year outperformance of the S &P. So this wasn't just that flash in the pan. I get where we were at the end of 2010. end, so the underperformance. But I agree with Guy. I think there's a lot more of this to go. I say this all the time. For the last year and a half, the energy companies have proven that for the previous couple of years before that, they're run differently. They're run for equity shareholders. They're not run to grow at all costs. They're not run to pay back debt.

2:44And in fact, they're paying back a lot of debt. So what I mean is historically, that's all they really cared about. I look at the oil field services, OFS, but I look at Schlumberger and I look at the earnings power that I think is coming to the company now. I mean, I look at where they were in 2015, 2016, when the stock was a$95 stock. I think what you're starting to hear is, first of all, that the drillers have pricing power. There is demand. There is a lack of supply right now. Some of the dynamics are certainly OPEC-related. Some of them are structural. Some is a lack of investment in new production for the last decade.

3:17So I think this is a trade. I think it's underweight in terms of the S &P. I think if you think of the move in oil and these energy stocks with the move we've had in the dollar over the last six weeks, it's extraordinary. Every 1 percent higher move in the dollar usually means a 3 percent move lower in oil prices. And oil prices are doing what they're doing with the dollar. Yeah, I agree with everything Tim and Guy said. I think the idea of this is a different industry now. And the idea in the past had been when they make so much money, when oil is this high. Well, what do they got to do? Expand, buy everything they can.

3:48And that's just not rewarded right now. It's not happening right now. Companies feel like they won't be rewarded. And so they've just turned into gushers of money. Right. So those management teams were fired already, by the way, they're gone. I mean, those those those CEOs were overseeing, you know, pretty much the bankruptcies of the last round. So it's a different era. And so now, even though they've moved a lot, to me, they're still very attractive. They don't they're not less attractive, even though they've moved. Yeah, it's interesting, though, the relationship to the dollar. And again, so you have rising crude, rising dollar, and there's going to be some knock-on effects from that if that continues to go that way.

4:23I don't know. I'd be surprised to see crude go too much higher. I just think you talk about these supply-demand dynamics, and it really is a matter of supply, I think, that's caused this 35 % rally over the last, call it, eight, nine weeks or so. And if you look at some of the industries, Mel, you just mentioned all of those airlines that are warning because these input costs. You know, while crude was getting hit, you know, earlier in the spring into the summer, you saw the airline stocks rally 25 percent. Now they've given it all back. And I just wonder, as we've been spending a lot of time talking about consumer, we look at where gas at the pump is right now.

4:54And we're talking about savings rates. We're talking about, you know, inflation just in general ticking back up at a time where wage growth is moderating. I wonder, you know, how much some of these companies are able to pass on a lot of these inflationary inputs, how long they're able to do it. even if you do have crude, let's say it just stays around here for a couple months, that sort of thing. So to me, that might be a story for Q4 this year. We've heard it time and time again that the Saudis, they've got bills to pay. They've got projects they have to fund. And so their interest is to keep the price of oil high.

5:21So if we are where we are for a long time, Guy, have companies already adjusted to that? We've already heard from companies as well that consumers are pushing back on price increases. So the hope of passing a higher cost on at this point is probably out the window. So it's back at energy stocks. The answer to your question is no, they haven't. I don't think they've come to the realization that we're probably in this new paradigm, but we're in this environment for the foreseeable future in terms of higher energy costs. And for a while, yeah, companies have been able to pass those costs to their customers.

5:52I don't think they can do it anymore. And what does that mean? If I'm right, it means margins contract. What happens when margins contract? You should pay less for, in terms of valuation, less for a dollar's worth of earnings than the market's paying right now. So if you see margin contraction, theoretically, it should mean stocks go lower. Yeah. And as an input to other things, if energy prices are high, chemicals, minors, that's one of their biggest input costs. It is. I think the petrochemist trade also is one that's interesting. I think for the petrochemical companies and for a refined product, it's actually we're getting into a sweet spot for them.

6:26So I actually think and I would get back just to slumbers. I bring it up because I'm looking at a report by Cowan. They basically have indicated that they're going to add$5 billion in revenue and$1.5 billion in EBITDA to$22 billion, and that they think they can do the same for$24 billion. So, again, if you're talking about raising revenue by$10 million over a couple of years, this is where I think the companies are going to continue to both re-rate, and I think the balance sheets get better and better. Dollar higher and energy higher. China weaker. I mean, what about, like, no, you know, this is the other thing.

6:52Like, there's no China out there. There's no kind of, like, global resource trade. A lot of this is happening with sentiment on China and China's economy and a property bubble. You know, it's it's it's very, very low. And what if there is stimulus? Exactly. What happens to oil at that point? But I mean, to Dan's point in terms of higher dollar and higher oil, that doesn't sound like a great recipe for multinational companies. Well, it's not terrible necessarily. You see, their earnings are going to be hit with the higher dollar. Yes. But to the idea that it's because the economy is doing well.

7:23Right. And there is demand. And it's because of that. Or do you think it's just central bank differentials? I think it's maybe some of both. Right. I don't know. I feel like the economy is humming along. And so I have to go with both. All right. Our next guest is going long on energy as it climbs higher. Paul Sankey of Sankey Research joins us here on set. Paul, always great to see you. Oil must be 90 and above, right? I'm back. That's when we have you. Do we stay here? Yeah, I think so. I mean, a lot of it, so much of this depends on governments and what's driven us up has obviously been the Saudis.

7:55As you know, last year, the U.S. government was releasing a million barrels a day from the SPR. That's a huge amount of oil at the margin, a million barrels a day. And, of course, we've got the same effect now with Saudi having cut a million barrels a day. And, what, 10 days ago now, a week ago, they said they're going to maintain those cuts through the end of the year. So that million is going to be offline right through the end of the year. So it looks like a very tight balance as we had for Christmas. And obviously, you're going to be nervous about winter. We don't know what's going to happen in winter, but you better be ready for it in case it's cold.

8:25So it looks like it'll be a pretty powerful situation now at the year end. Now, having said that, Saudi had said last year they wanted$95 oil, not publicly, but that was the number that they said they needed for their growth plans. They need 85 Brent for their budget. The question is, can Biden, the Biden administration, engender relations that allow the Saudis to say, OK, we'll back off this cut now. We're at 95. Or are they maybe going to do more SPR? Or what are they going to do? We don't know. You've heard us waxing poetic in terms of valuations. These stocks, for example, I mentioned Marathon MPC, Marathon Patrol, in which you came and talked about in the fall of 21, it was a$60 stock.

9:03It's basically tripled-ish. I think valuations are still compelling. Am I right or am I wrong? Well, you hesitate to say new paradigm. You know, this time it's different. We don't like to say it. But as you've all referenced, these stocks just buy back stock. You know, so they get the excess cash flow. So if they have a great quarter, effectively, the stock's worth 5 percent more simply because, you know, these managements now have got a new paradigm. And the new paradigm is we'll just pay it back to shareholders. And so, yeah, no, I mean, it's a really positive refining environment. Although, again, it's somewhat caused by the Saudis cutting heavier sour barrels from the market combined with the distillate problem that we have globally.

9:40How, if at all, does the election cycle play out in your oil forecast? I mean, you know, higher oil, the Biden administration is going to try and knock that down either by calling up Saudi Arabia or going there and saying, you know what, can you please back off, which they may or may not do. I mean, they haven't done that. I think it's a big deal because it's not an election year here. Right. So do they they not do anything now and say, OK, let's just keep this in reserve. You know, let's keep an SPR, you know, download because we've taken out half the SPR. You know, do we really and it became public that it was just being sold to China, which didn't go over great.

10:12So, you know, at this point, it's very tough for them. Going into winter, rising prices causing rising inflation, Fed having to keep, you know, things tight, and we're not in an election here makes it really tough. Yeah, absolutely. And that's what's been so tough about this year. You know, we got Russia wrong. Didn't happen in the way we did. Now we're looking at the G7 saying we're not going to bother about the price cap anymore in Russian oil. So there's things they're doing at the margin. Iran has become the biggest supplier of oil to China. That's a problem for the Saudis. And, of course, you've got a little bit of marginal stuff coming out of Venezuela.

10:44That's why it's hard to call the oil price, because it's all government stuff. So let's call the equity prices a little bit. And you talk to institutions. That's what you've done your whole career. One, it feels like the institutional investor in the oil market is different. There are obviously dedicated resource players, but there was a lot of crossover stuff going on when the energy sector was 16 percent of the S &P back in 2008. Where do you see this going? And where do you see broader institutional interest in a resource sector where a lot of these folks were burned? And as you said and as we've said, these companies are run differently.

11:15They're buying back stock. They can pay down debt at$60 oil. They're not the same companies. Yeah, I mean, it's interesting. We had the big bar cap conference here, which is the energy kind of start to the year after Labor Day. And the feedback was it's incredible to think that Brent is above 90 and everyone's so negative. That's the oil specialists. And I think the oil specialists are reluctant to capitalize Saudi cuts, You know, because we don't, if we get weak here, Saudi's got a double problem, right? Because then they're like, now we're at 9 million barrels a day. We've got 2 million barrels a day of spare capacity.

11:43Oil price is going down. Now how do we get our revenues? And so there could be a major traffic accident in 24. And that's the way oil specialists are looking at it. I think generalists look at it and go, oil's causing inflation, short the Nasdaq, go long oil stocks. And by the way, these things pay you. They're not going to blow the money up. I think we got a preview to his pair trade. Well, let's get to the pairs trade with the caveat that the last time you gave us a pairs trade was in May. And it was sort of a mixed performance because you said long EQT, which is up 22 percent since then. Yeah.

12:11And short, a basket of Permian oil producers where if you actually combined it, it looks like it didn't really work out. So anyway, I thought you were going to ask me about my long oxy short NVIDIA trade, which is really bad. That was horrible. I think he already called you out the last time. OK, right. And by the way, it's not fair that we're making you do these pair trades. But I think he enjoys it. Yes. Smiling. He comes back. And he's crushing it. Well, you know, Sankey Research is independent, right? If I was at a broker-dealer, a lot of this stuff I couldn't talk about different stocks that are not in my sector, for example.

12:42So today we were talking, if you want oil price, just out and out, juice into a lot of the themes, partly the slumber-day theme. You buy a transocean rig, which has been on a tear, but it's just extremely levered. You know, so that would be one on the long side. And then in the paper book that I trade, we're long rig and we're short UAL. So, you know, an obvious there's a lot of obvious things that do badly with high oil prices. And that's by the way, that's a highly, highly levered trade that you've got right there. Sounds like it. Yeah. All right. Paul, thank you. Always good to see you. See, smiling.

13:12He's going to come back. He should be smiling. I mean, I mean, his short Apple long Exxon trade is one of the greatest of all time. That's that's the trade of the ages. Well, that was his first one. That was the guy that was out of his sector. We had long back. See, short Rivian. I mean, that was epic. OK, that's nice. That's true. But I knew eventually it would blow up. And it did. Of course. It's such a good sport, Paul. Thank you so much, everyone. It's a pleasure. Levered plays. Rig. I mean, they have a nine billion dollar backlog. You think you talk about levered plays. Rig is one of them.

13:41So, I mean, this stock has bounced. But you look at it where it's been. It's not that it matters historically, but this is one of those things you catch a couple of things. Right. It goes from basically eight and a half dollars to eleven dollars percentage terms. That's a big move. And, you know, I'm with him. And he mentioned China real quick. Yes, they've been buying oil. They said, what are they doing? Their economy's been slowing down. They've been stockpiling. Why are the Chinese stockpiling oil and other commodities? Ask yourself that question. I won't answer it. I'll just throw it out there to the Fast Money audience.

14:07Think about that for a second. They're stockpiling things. They always have. They always have. Well, this in a major way. I mean, the oil thing is no joke in terms of what they're doing. We stockpile, too, by the way. Forget about us. Yeah, not anymore we don't. Well, yeah. So where are you going with this? I'm not going anywhere. I'm throwing it out. You're just throwing it out there. He wants to talk more. I mean, that's what you're talking about. What is it good for? Absolutely nothing. Say it again. You know, it's interesting. This XLE, 40 % is, you know, it's Exxon and it's Chevron. And, you know, this thing, you know, it's back up here above 90 bucks.

14:41And I go back and I look at, you know, where it was, you know, at the heights before it crashed 10 years ago. It was a mid-90s or so. And then you go, I just don't know how this thing breaks out. You guys tell me, what is the thing that gets Exxon and Chevron to drag the XLE? And we talk about the XLE a lot to break out. I mean, look at that chart here and everything that we've just talked about. I don't know. It's just it's a conundrum. Well, I think. Go ahead, Karen. Well, I was going to say it could be if we find ourselves in a market where rates are higher and people are looking for low P.E.

15:13kind of stuff. This is exactly where they would go. Low P.E. kind of stuff. High dividend and not out over their skis at all. Right. And in a higher PPI environment, like what I love to see as a resource investor is a high PPI out of China. And so this is what we're getting through. And it may not be CPI and it may be, again, not part of core. But I continue to think that we have these dynamics. And part of this is because I just think there's been a lack of investment in the underlying. And I just think that it gets back to the valuations of the companies. And they are always cheap, by the way.

15:48But I think they will look attractive. Meantime, an earnings alert on Lennar. Shares are volatile after beating expectations on the top and the bottom lines. A home builder also reporting strong year-on-year increases in deliveries and new orders in Q3. Let's get the numbers with Diana Olek. Diana. Well, Melissa, higher interest rates apparently didn't hurt very much. Lennar, as you said, beat again on the top and bottom lines, even though rates went from the 6 % range on the 30-year fixed in Q2 to the 7 % range in Q3. In the release, Lennar's executive chairman, Stuart Miller, noted the jump in interest rates during the quarter, but said short housing supply absorbed by strong primary and pent-up demand continued to define a strong sales environment.

16:26And he added that homebuilders also continued to use incentives, including buy-downs, to offset rising interest rates and tighter capital, which of course limit affordability. Now, Lennar's average sales price was lower in Q3 at$448 ,000 compared with almost$500 ,000 the year before. It also raised Q4 guidance on deliveries. And we did just get the read on mortgage demand for newly built homes in August. It was up 20 percent year over year. So while the existing market is still weak due to low supply, builders are picking up the slack. Melissa. Karen's got a question. Yeah. So despite that average sales price being lower, their margins were actually better.

17:04So their costs were lower. Do they see that continuing? Yeah. I mean, they didn't say about whether that's continuing. But when you talk about that average sales price, some of that actually skews more toward who's buying what. So it's not necessarily that median of who's, you know, on either side, but probably more that lower priced homes are selling more than higher priced homes. And that's just the demand out there. You're seeing that in the existing market as well, because you have these higher interest rates, people can afford less. They're just moving toward that lower priced home. It's not necessarily that the home itself is dropping.

17:35All right, Diana, thanks. Diana Olek, you would think at some point this mortgage rates have got to catch up to this trade. And they have been over the last couple of weeks in terms of the stock. So look at Lenar, if we can pull up a chart. The prior high back in December of 2021 was$117-ish. It's not coincidental. Here we are at$117. So we broke out. We're testing that prior all-time high. This should be support. I mean, you look at the quarter. The$3.87 was even higher than the highest whisper number on the street. So it's a very good quarter. But to your point, a rate's going to start to catch up to these stocks.

18:08The last couple of weeks said yes. This is huge support right here in Lenar. I think the best days of 23 for the housing stocks are behind them. And it doesn't really matter to me. I get that the builders are seeing demand and they are going to behave differently than the housing market. If you've ground velocity in the housing market to almost zero because people can't move, won't move, won't pay a new mortgage price. I get that the home builders are making up that. And it is a little bit of an apples and oranges. But the peripheral pricing across housing markets, I think, are going lower. All we do is talk about the consumer being strapped, too.

18:38I just, you know, I think it's been a great trade off of an expectation that rates were going to be higher. So housing stocks in the face of when rates went lower early summer rallied to really all-time highs. I think you're chasing the trade now. Coming up, more after-hours action shares of Adobe on the move after reporting results and numbers from the quarter ahead, plus zeroing in on zero-day options, a brand-new ETF launching today, looking to capitalize on one of this year's biggest trading trends. What you need to know before diving in, don't go anywhere. much more Fast Money right after this.

19:16Welcome back to Fast Money. Earnings alert on Adobe. Shares are volatile after the company turned in top and bottom line beats for the Q3. The software maker CEO also touting Adobe's new era of AI enhanced products. Let's get to Kate Rooney, who's been listening in on this conference call. Kate. Hey, Melissa. So AI has been a big theme of the earnings call so far. The software maker is saying ahead of earnings that it's generative AI tool called Firefly is now widely available. Analysts do expect that to boost revenue growth this year as some of those tools are integrated into Adobe's products.

19:47The software maker saw record revenue,$4.9 billion. That was up 10 percent. And as far as the outlook says, that it's balancing macro uncertainty with some of the year-end seasonal strength. Adobe's CEO telling John Fort last hour that enterprise was strong and digital continues to be one of the key areas where IT investment continues. has also said that he expects consumer and small business resilience to continue. Document cloud revenue was a bright spot that was up 13 percent, creative revenue and digital media revenue, both up 11 percent year over year. Executive is also talking about Adobe and the confidence they've got in the merits of its 20 billion dollar acquisition of Figma as it faces a probe from European regulators.

20:26Back to you. All right, Kate, thanks. Kate Rooney, Adobe. Great company, 30 times forward numbers, 12 times revenue, stock that's going from 335 in the spring to I think it traded up to 575 or so. It's been a huge run. It's a great company. It's a great quarter. Is it too expensive in this environment? Has the stock run too much? The answer for those questions are probably yes. Well, I mean, the answer is the stock's rallied 65 percent since people have gotten excited about Firefly, right? They've announced the pricing. It's out there. It's available. They just reported 10 percent revenue growth year over year.

20:57Obviously, there's, you know, we're going to have to see how this shakes out over the next few quarters. But, you know, trading at 13 times sales for a$250 billion market cap company where we have to see, you know, essentially how this all shakes out. I just don't I'm surprised the stock's not down. I would suspect this stock is probably 500 before 600 is trading at like 550 right now. Well, I don't have a position in it. I have the IGV short, so I have the other side of position in it. Everything Dan and Guy said is, I think, you know, not just relevant to this stock, but to so many stocks in the IGV.