Monster week ahead for earnings - Plus, Tesla stock hits the skids 4/21/23

0:01Right now on Fast Buckle Up. Earnings season about to kick into high gear. More than a third of the S &P He's set to report next week in the Titans of tech about to take center stage. Plus, Mickey D's record-breaking run, the burger giant pinging new highs today, day in and day out, it seems. Is there still time to get in on the fast-food trade? And later, charting Tesla's no good, awful week. The big drop now getting a number of shareholders revved up about the job Elon Musk was doing as CEO. We'll get the latest on that just minutes away. I'm Melissa Lee. This is Fast Money. We're live from the NASDAQ Market State.

0:31On the desk tonight, Bono and Eisen, Karen Feinerman, Courtney Garcia, and Jeff Mills. We start off with the markets monster week ahead. Tech heavyweights including Alphabet and Meta platforms and Amazon set to report. Early on, this earnings season has been a mixed bag with about a fifth of S &P 500 companies reporting so far. Earnings performance is down almost 5%, yet revenue is up about 2%. The numbers capturing a bulk of the banks, which have been the epicenter of anxiety in the markets. Overall, stocks have taken the results in stride. The major averages lower for the week, but the losses were marginal.

1:05just under a percent here across the board. Volatility is around late 2021 lows. So is next week's real test with the tech front and center? Is that going to be something that derails us? Bonwin, what do you think? I'm not sure if it's going to derail us, but I think it'll kind of let us know. I mean, those top 10 names have really been the largest contributors in terms of keeping us void going forward. And it doesn't really bode well for me. You know, color me a bear. And I have been that way. But you know what? I'm persistent, if nothing else. And what I think it's what you're seeing is that those names, it's more of a perceived flight to quality than it is people wanting to invest in growth, which has traditionally been why those names have outperformed.

1:42So I really just think that the backdrop has changed a bit. And I'd be curious to see how margins perform, you know, or have performed over the last quarter and how they guide going forward. Yeah. Which ones are you focused on, Karen? Well, I'm focused on Microsoft, Alphabet, Alphabet, Meta, Amazon, a lot of different things there. I mean, we'll see what, you know, Alphabet, we'll see the advertising business, right? That's sort of their, you know, meat and potatoes. But that's sort of a good sense of what's happening in the economy. There's that. We've got Microsoft Cloud, all three of them, Microsoft, Alphabet, and Amazon.

2:16Those are going to be really important cloud numbers. We know there's chat GPT valuation in there, but I have no idea what to make of it, what the opportunity is, how to monetize it, anything like that. So I like sort of getting the data on the stuff that I understand well. And then expenses. You know, Meta's obviously been leading the way on expenses. And Amazon, I'm sorry, Alphabet has some catching up to do on that front. Yeah. I mean, what stood out to me in the past couple of weeks as CEO of Amazon, Andy Jassy, did an interview with Andrew Ross Sorkin. And in that interview, he talked about really working with customers when it comes to their cloud services, working with them, keeping them on board.

2:53And to me, I sort of read between the lines. Maybe this is deep into the lines, but I read that as price cuts. I read that as maybe margins will be under pressure. Maybe there's more competition coming from the other cloud players when it comes to keeping customers court. Yeah, I don't think you're the only one who's thinking that. I think especially when it comes to Amazon and Microsoft, cloud is really going to be under the microscope here. And it is expected to really be weakening, especially compared to the last quarters here. And these companies are especially important because there's such a large weighting in the S &P 500, And especially a lot of people who just have maybe an SPF 100 and your 401k, you don't realize how exposed you are to these companies.

3:27And so it is important to make sure you know that. But also, as they've already done so well this year, it is a high bar that they have to reach to see if that performance can continue. Yeah, Jeff, I think Bono made a really interesting point in terms of the flight to perceived safety that has been going on with these names. And we're going to peel back the curtain next week and see what the true state of business is. If things are all right, this could be off to the races. Yeah, it could be. But I agree with Bonwin in the sense that you've had investors sort of huddle in this narrow corner of the market.

3:58And I've been pretty vocal in the sense that I think growth stocks are going to do a lot better than many people think. But I do think we might be in for a bit of a pause here. I mean, even a stock that I like, Meta, for example, you've seen that multiple go up quite a bit since the beginning of the year. So you've had tech support the market, and I just wonder how good earnings need to be to keep that rolling. So I'll give you a statistic just relative to market leadership because I think it paints the picture really nicely. 71 % of S &P 500 industry groups are actually down since February 2nd.

4:32So just to give you an idea of how narrow this market has become and how important tech is and the continuation of tech to the overall index moving higher, I think that that's important. And maybe one last thing just relative to growth in technology overall. We got PMI data today, and generally it was good. So we'll take that at face value. I think good news is good news. However, if you look at the prices paid component of that PMI data, both within manufacturing and services, that rose. So we're in for another hike in May. And obviously tech has been moving on interest rates moving lower. At least that's been part of it.

5:08So any move higher relative to what the market expects in interest rates could be a near-term headwind for gross stocks as well. Yeah, it'll be really interesting to see what and how tech companies guide for the back half of the year, given the rate uncertainty. Karen, how do you handle that? I mean, if I were they, you would guide conservatively, right? I mean, so I think we'll see that unless the numbers don't allow them to, right? If they're really good, then the bar gets raised. But I'm actually a little more optimistic, despite my least favorite thing is this 20 percent run that the triple Q's have had.

5:45That's a high bar to go into. But I think that the economy is better than feared and that we'll see good earnings. I mean, that's what we heard from the banks. And that was the epicenter of all the markets anxiety in the past month or so, Courtney, and everything, not everything. For the most part, things are all right with the banks. We heard a lot of great data points from the major banks about the strength of the consumer and that things for right now are all right. I would agree with that. I think the economy continues to be on better footing than a lot of people are giving this really the credibility for.

6:16But what also I don't think has changed, right, we're still on good footing. Markets haven't economy hasn't gone down, but also we're still in this higher rate environment, though. And if anything, yes, hopefully the Fed pauses here. But that's also probably not going to change in the near term either. So this big flight to growth stocks and, you know, this rush to risky assets, I think it's still going to continue to be under pressure as rates remain higher. And I don't think either of those scenarios change. So even if we're in a good economy, we're still in a higher rate economy. And so I think that's something you need to be cognizant of.

6:44Yeah, I'm curious, Bono. And how are you positioned going into this earnings season in terms of big tech holdings? I mean, I still I mean, I'm always going to be invested, so I'm never going to pull everything out on the table. I do have more of a more of a barbell approach and I have been pursuing a bit more liquid assets because to me, that's where valuations have taken the largest chunk. Right. So when I look at risk adjusted returns vis a vis other pockets of the market, I think that's where the most alpha may be generated. I will say I still am somewhat bullish tech only because when you look at the market multiple and we're back to around that 18, 18 and a half percent.

7:18If there is going to be multiple expansion, I'm most comfortable with it coming in that pocket rather than paying overpaying for a dividend yield. For example, as we've seen before with some of the value trade, when treasuries are now giving you risk free at will, we will see what the debt ceiling, but perceived risk free assets are giving you yields that are very much compelling. So from that from that point of view, I can still see the argument for tech. I still want to be in the largest names. And the truth of the matter is I think those just may be overstretched at this particular point in time.

7:49But I still do think that's probably where I'd want to be deploying the incremental value, the incremental dollar of capital. Jeff, how about you? I mean, you can be skeptical of a tech rally and how far it's come in recent months. But, you know, you've got to be in tech to be invested in the market. I mean, that's basically what it comes down to. Yeah, honestly, Bonwin said it perfectly. And that's precisely how we've been positioning really for the past six months plus. And it's been reducing exposure to cyclicals, really. It's been taking down value. It's been taking down mid cap, taking down small cap in favor of large cap growth.

8:24So although I'm saying I'm a little bit skeptical here going into earnings, these stocks have run, you might see a pullback. In terms of thinking about how you want to be positioned between now and the end of the year, I prefer that corner of the market because I do think there is some relative safety, at least in the earnings, as we move through the back half of this year and the economy continues to slow. And you do see banks and other cyclicals continue to underperform. All right. Let's get now to Tesla's tumble. The EV maker ending the week down nearly 11 percent after a big margin miss. Now there are new concerns from investors worried that Musk is stretched too thin, not paying enough attention to the automaker.

8:59So can the stock find its pudding. Let's bring in the chart master, the one and only Carter Worth of Worth Charting here at the NASDAQ. Carter. Well, it was a bit of a tumble. And of course, it's the reciprocal or the equal and opposite action from the prior quarter, that gap up on the 26th of January, euphoria. And this is the exact opposite. All I can think of here is like, kind of what's the point of buying into Tesla when you've just had a setback like this? You know that for the past two months, people have been purchasing the stock basically between 180 and 210. And now you're sitting here at 165, which is to say, let's say it never goes lower.

9:34It's just so difficult to go higher. You've got money that's trapped that would love to come out of the bets that were made. Forget about bets from a year ago or two, but just have recently committed capital and it's immediately wrong. We've all been in a situation and usually first loss, best loss, you want to get out. I think Tesla is sort of a dull duck here. The downside risk is to that 146 gap from the January earnings. 146. I know that you are an avid watcher of the show in general, Carter. So I'm wondering what you think of Dan Nathan's price target, which is like 60-something bucks a share.

10:03No, is it? Six zero? 60-something, yeah, 65, 69. Well, let's say it this way. The path to 60 passes through 145. Right. 60, that's tomorrow's lunch. But is that like another support that's lower than 140? I mean, look, anything's possible. I think that's, here's what I've found is that when, just for over years, decades of publishing notes and clients, when you have something that's so outsized, you lose the audience. And not to say that Dan's audience is different than mine, but when I put out a note, a hedge fund manager, a pension plan, a family, they're like, come on, you think it's going to triple from here?

10:39And so I try to have price targets that typically are where the imagination can allow. But listen, the imagination, maybe it's 60. So let me ask you something. When you talk about given what's happened, is that just purely what's happened to the stock price as opposed to margins or cost cutting on cars, anything like it's just purely technicals of the stock? Well, remember, this is the sell-off, right, is the equal and opposite of what happened over the preceding two years. So you have a stock that no one believes in, and analysts' price targets are below the stock, and the stock keeps going up and up and up, and analysts keep revising their price targets.

11:11And then, of course, the stock turns down, and now analysts are lowering and lowering their prices. It's just exactly the opposite of what happened, a great unknown that's now known, right? The highest multiples, and you know this as a as a manager, are always assigned before you actually start to put up earnings. Once you put up earnings, then we can do our DCF. The biggest multiples ever are always on biotech or technology stocks that have never made a profit because it's all a dream. Once you start to actually make the cars, produce the earnings, have real margins, the things you're talking about, then you can't have dreams anymore.

11:41You've got to get real. So poetic. It is, isn't it? It's so sad, yeah. I mean, quote-worthy. Jeff, I'm curious what your take is on the quarter, because there seems to be a real narrative change with this most recent earnings. They're basically saying, you know, we're willing to fiddle around with price to boost sales. We will do anything to price. We look at pricing every week. There are very few companies out there, particularly of big ticket items, that say we're going to look at pricing every single week and decide on that week what we're going to do with it. Maybe I'm wrong, but I thought I read something today that they tweaked a couple of models a little bit higher today after the move lower.

12:20So it's kind of all over the place. So it's hard to project what the margin profile is going to look like. And I think that that is maybe part of what investors are struggling with right now in terms of the stock. But I ask myself, and obviously it's not an apples to apples comparison, but what are other car companies doing right now? Ford, GM, Toyota, they're all at the lows and they're all trading at seven times Ford and Tesla's trading at 40 times. Now, again, it shouldn't be trading at the same valuation to be clear. But I think that that's an apt comparison in terms of where the stock can go.

12:49You know, I've been looking at similar levels to the upside at 206 to the downside at 155. I think it goes below 155. All bets are off. I think if it holds there, it can maybe drift to the top end of that range. But I think there's more risk to the downside here, just given some of those dynamics you're describing relative to prices and demand and margins. Just curious, how do the other automakers look on the charts? Just as described, Ford, 52-week low, General Motors, Toyota. Now, that's not the case with Mercedes-Benz and BMW acting very well. Okay. Carter, thank you. We'll see you a little bit later on Options Action.

13:22Coming up, oversized moves in big pharma stocks today. Can your money get healthy by stocking up in these names? But first, investors loving the rally in McDonald's. Restaurant results on deck next week. Will the supersized gains continue? Stick around. We're Fast Money in two.

13:45Welcome back to Fast Money. Earnings season rolls on next week with key restaurants. McDonald's, Chipotle, Domino's and Blumen Brands all reporting Q1 results. So what can investors expect and what kind of read will it give us on the consumer? Kate Rogers joins us with the details. Hey, Kate. Hey, Melissa. Well, you said a consumer spending in the face of continued inflation will be in focus as well as pricing power and any trade down from higher cost chains to the lower priced ones. McDonald's is the big one up first next week. Stock continues to fly higher and higher into earnings as both investors and analysts really seem confident in its ability to continue to perform into a downturn.

14:19Oppenheimer recently calling it battle tested for its performance in previous recessions thanks to that lower consumer price point and benefit from trade down. Chipotle is another name that has had a lot of pricing power over the last year. We're going to see if that continues. Last quarter was a bit weaker than expected for the burrito chain, but not due to pricing. Chipotle is up 5 % this month and up 30 % this year. Domino's, another big name reporting Thursday. That has done well in prior downturns. It, though, has been struggling with a driver shortage. That's a different issue entirely. That stock is down around 6 % on the year.

14:51And then finally, Blumen Brands will give us a look into the casual space, which has been more challenging because it's a bit pricier for consumers. That stock, though, is up around 20 % this year. Melissa, back over to you. Kay, Chipotle has been a brand that has been successfully raising prices, but I believe, did it reach sort of the end of that ability? I mean, it's hit that point of elasticity? I don't know that that was necessarily the issue last quarter, Melissa. It was kind of some of the limited-time offerings that didn't perform as well as they had planned, and really the pricing power has stuck with the brand.

15:21It has a loyal consumer base. As you said, has it hit the top? I think we're going to hear that this quarter, rather, if consumers are pulling back a little bit or perhaps not as willing to spend as much as they had been in prior quarters. But I know that specifically wasn't the problem last quarter. All right, Kate, thanks. Kate Rogers, let's trade this one. I mean, if you think about the input costs, you know, food prices have continued to go higher. Energy prices have abated a little bit. Labor, wages have gone up. How does this all shake out, do you think? I would think that they have some pricing ability still.

15:53Chipotle. Chipotle does, right? I've been shocked at how strong McDonald's has been and how efficient McDonald's has been. And Starbucks as well. I would have, you know, I sold the stock quite some time ago. Mobile there has been really good. I've been afraid of China. But I still think there's price. We saw it with P &G, right? That pricing power, even though sales may not have been fantastic, the pricing power more than made up for that. Although there was an interesting Reuters analysis of Nielsen IQ data recently that found that they actually rolled back prices on a number of products, including detergent and toilet paper.

16:30Are they smaller? They're probably smaller and they rolled back. Right. But so it's but per ounce, per unit, per whatever. It might be higher. Maybe it's higher. So, yeah, that shrink flation is definitely, you know, definitely going on in that consumer staple segment. But getting back to the restaurants, I mean, McDonald's is the M in my calm. Right. So I'm pretty tethered to this name. You know, but even at 27 times, I still find it to be a pretty compelling name. Gross margins around 57 percent. Now, this run that it's had from March till now does make you feel like maybe it's a bit stretched.

17:03But I do think being that my view is that we are going into a recession. It is one of those names that I that I like Chipotle. I get it. They have been tried and true in terms of being able to raise prices. But that's not ultimately really what I want to hang my hat on. I want operational efficiency. I want gross margin. And I want a company that's been tried and true through previous downturns. So here's a question. What is more, quote unquote, defensive? And I don't mean, you know, the conventional definition of defensive, but just defensive in this market environment perceived as safety. Which is more of that category, McDonald's or Microsoft?

17:37Courtney, McDonald's should be. I mean, it's definitely like tried and true in a recession previously and are going to get that trade down effect with the McDonald's. But the way the markets are reacting is they just keep running to your Microsofts, your Apples as your point of safety. I don't know if that's accurate or not. I know I've said this before. I think there's a little bit of a trap there. It's already gone up so much. So I would still look at Microsoft. McDonald's is more of a safety play there. All right. Coming up, a healthy rally in big pharma and a big pharma stock that has caught one of our traders' attention.

18:08The names in the trade next. You're watching Fast Money Live from the NASDAQ Market Side in Times Square. Back right after this.

18:21Welcome back to Fast Money. Okay, mark your calendar, set your team, whatever it is. Tonight on The Last Call, Brian Sullivan is sitting down with the one person he has never interviewed, his AI self. Brian is interviewing fake Brian tonight at 7 p.m. Eastern time. So many questions. I'm just going to leave it at that, but it's going to be worth watching. All right. Waiting moves in three big pharma names. Eli Lilly jumping to all-time highs on new Alzheimer's insurance reimbursement news and more bullish action in the obesity drug space. In addition, the big drug company CEO will be heading to Capitol Hill in early May to testify in insulin prices.

19:01Karen, you're in, or you were in. I'm out of Lilly now. I'm out of Nova Nordisk also, but I have Mark and Bristol Myers and Abby, and I'm forgetting one other. But I like the space still, but the run in these weight loss, diabetes-related drugs has been so enormous. Understandably, this will probably be the biggest drug of all time, but I feel like getting on board here at Lilly, especially with this Alzheimer's reimbursement news might be good, but we don't know that the Alzheimer's drug itself is good. We don't know that yet. Obviously, it'll be good for them if they, it is good and they get reimbursement, But for me, the risk reward has changed.

19:41Yeah. Jeff, why are you in pharma right now? Yeah, well, I've talked about Merck for a while. That's sort of my steady Eddie. It looks like it's about to break out to a new high there at 115. But I do think that a stock like Lilly is is really interesting. I think generally these obesity drugs have massive potential. I was looking at some estimates from Lilly on Manjaro and they're talking about peak sales of 25 billion. You know, that's larger than a drug like Humira, which was obviously a massive blockbuster. and just maybe comparing a couple of them. If you look at the chart of Lilly versus, say, NVO, I mean, NVO is basically vertical right now, where Lilly also looks like it's just breaking out, similar to Merck.

20:20So I would be more comfortable being there at this point in time. But generally speaking, I agree with Karen, there's been a run, but I do think there's massive potential here long term. Yeah. Courtney? Yeah, I think people really got excited about this space last year, and then they turned on it this year just after it had such outperformance. And we were talking about this a few weeks ago after it was underperforming. You're starting to see people come back into that space. But I think that's likely going to continue this year. So, yes, it's had a good run up, but I think it still has some room.

20:46I think you definitely want to have this in part of your portfolio. Is this in your barbell, either end? Merck. Merck, Sanofi, Lilly, I think there's, like, quite a bit of divergence there. You look at the Ford earnings there. It's 17 times for Merck, 8, and 46 for Lilly. So we're talking about, like, quite divergent valuation within that subsector. I do think this will go. The drug is pretty compelling. Three to four billion in sales estimated just this year alone. You've got the celebrity endorsements. I always think that that is going to tend to attract somewhat of a retail investor. Yeah. All right.

21:16Time for the final trade. Let's go around the horn. Jeff Mills. Well, we've all said it. Merck, I think, generally flows into health care. I've been pretty weak. So I'm watching this 115 level of Merck. I think it breaks above that and goes higher. Bono and Eisen. Staying calm with McDonald's. MCD. Courtney. Exxon. I didn't talk about this today, but it is reporting next week. I think something you want to take a look at. Karen. Yes, going into earnings next week of all the big tech names. I am long alphabet, so that's my final trade. All right. That does it for us here on Fast Money. What a week it's been.