Target Hits the Bullseye, and Dissecting the Meeting Between Presidents Biden & Xi 11/15/23

0:01Live from the Nasdaq market site in the heart of New York City's Times Square this is fast Money. Here's what's on tap tonight. Hitting the bullseye shares a target seeing their best gain in over four years after blowing past expectations for the latest quarter. Has the retailer really put all its troubles behind it? Plus, high stakes summit President Biden and Xi meeting in the Bay Area this afternoon. But what might be even more consequential tonight's summit with CEOs? What could come out of that meeting and what it might mean for doing business with China? And later, Disney catches the eye of another activist, a stock not named Lily or Novo that is benefiting from the weight loss drug boom.

0:35And two tech stocks take a tumble after their latest reports were digging into those numbers were dialed into those conference calls. I'm Melissa Lee coming to you live from Studio B at the Nasdaq on the desk tonight. Tim Seymour, Karen Feinerman, Bono and Eisen and Mike Co. We start off tonight with Target's monster move. The stock jumping almost 18 percent after the retailer delivered a massive third quarter earnings beat earnings per share 22 cents above street estimates. But the pressure on revenue is still notable. Target's Comp sales dropping again, this time by 5 percent. The company giving another warning about deal hungry shoppers and weaker discretionary spending.

1:08Even with today's pop, Target shares are getting crushed this year. The big box retailer is down almost 13 percent since January. So is it all clear for Target? Did we see an inflection point? Karen, what was it like this morning? You woke up, you're peeking out from under the cover. You're like, what's going to happen? I know. Very nervous, very nervous. And then very, very relieved. I mean, I think there's a lot of relief rally in this. The same-store sales were down. They weren't down as much as we thought. But they seemed to get their handle on a lot of things that had been troubling in the past.

1:42Inventory, that was one. So that really came down. That was nice. So their margins were better than expected. That also was nice. Shrink, which they had had as a significant problem, that was better than expected. So it really seemed to feel like, OK, we got our mojo back. We're on top of things now. The guidance they gave for the fourth quarter was wide. That's OK. You know, I never think they should have guidance anyway, but the street makes them. So I think that the idea of we don't know what multiple to give this because we don't know that they have a handle on their business. I hope that is in the rearview mirror now.

2:16And so even with this move, this is not crazy expensive at all. It was really, really nice to see. Also, you know, we'll see Walmart tomorrow. I think it bodes well for Walmart, but I was happy with that giant pot today. And it really, I mean, the multiple they got on that 22 cent beat is whatever it was,$18,$19. That's an enormous multiple on a 22 cent beat. So just I think the worst is behind it. Yeah, it was a nice move on that Walmart target spread today. But, you know, this just I think you framed it the right way because this isn't a tell on the consumer. This is a tell on target. Yeah. You're experiencing some affordable joy, which is like that's their slogan, I think.

2:58Anyway. And I agree the dynamics here around, first of all, the comps on shrink and theft were also just easier. Inventory down 14 percent year over year. The net profitability of the business is really quite interesting. I mean, they do seem like they've gotten a lot of of the elements of the bigger problems out of the way. I think you just get to a place also on sales. If you look at a forward 12 month sales price to sales, were down to kind of 0.5, which is where it was on a pre-COVID level before it went into that massive growth period. So they talked about a couple of their segments that were actually doing better.

3:32Beauty was up high single digits. We know kind of what's been going on with the rest of the discretionary profile. So that wasn't really a surprise. I just think it's about a company that's being run better. And frankly, I think sentiment just got so awful that this was the kind of report that obviously could deliver an outsized move to the upside. Discretionary inventory was down 19%, which is definitely a move in the right direction. And in terms of margins, a lot of analysts are pointing out the progress we've seen in margins, lower freight costs, lower fulfillment costs, et cetera, really helping there.

4:03Yeah. And to that margin story, the fact that they got their inventories under control, I think total margins were down about 11%. But like you said, that particular segment was down 19. That speaks to the promotional activity that's likely to happen for the next quarter and perhaps a quarter ahead. So, you know, in terms of margin and being able to defend those margins. I think the fact that they've gotten that inventory story a bit under control does bode well. As far as whether or not it's an inflection point or a turning point, as you know, Harvard whiz, the inflection point doesn't necessarily mean that it's a quadratic equation.

4:33So we might just... Has anyone ever gone quadratic on the show before? That's impressive. We might just flatten and continue to sell off. But with that said, I do still think that, to Tim's point, the spread between Target and Walmart, which I think is about 10 turns, is still compelling here. Yeah. Mike, what was your take here? Yeah, I mean, we own both Walmart and Target. And obviously, a lot of the things everybody was just talking about are positives. You know, some of the things that were pressuring Target also, they had some political pressure. Obviously, there was a little bit of boycott flack earlier this year.

5:03That was a little bit problematic. And it seems like there's a little bit of that buzz still sort of following it around. But that kind of thing is eventually going to pass, I believe. And so I think that helps sort of price that discount in. And, you know, it was very cheap two days ago. It's not quite as cheap now, but it's still cheaper than it usually is. It's cheaper than the market and it's well cheaper than Walmart, as Bono was just pointing out. So I think you can still continue to own it here. And, you know, I don't think that there's a huge risk that it's going to sort of retrace back to those levels that we saw a week ago.

5:36Can we extrapolate at all in terms of what this could mean for Macy's, which saw a monster? Karen, we were just talking about this. Macy's was up 7%, dollar source. The parts of retail that were not left for dead, but really people were sort of giving up hope because of the consumer, the pressure on the consumer. They found some life today on the back of Target earnings. They found some life, but we were talking before the show. So the PE multiple went from, I don't know, four, a little under four. And we would just say, imagine if it were like seven. I mean, you know, so much upside here. Macy's has really gotten their act together.

6:09Was that to me or to Mike? to be that? Okay. So the balance sheet has been cleaned up. I don't own it, but it is sort of interesting. God, that cheap, and it's not a disaster. That's interesting. Yeah, I think it was a case where, again, the expectations were so low here. I mean, it's just hard to, you know. I mean, I look at the story here, though, overall, is I don't think the consumer is necessarily in a better place. I don't think anything we heard. I mean, when I hear that Kohl's is, you know, when Kohl's gets a three day, 25 percent move off of some other stuff in the market, that doesn't really impress me.

6:47I think we still have some dynamics with the consumer that are really the bigger tell. I mean, the bottom line is the guide for the fourth quarter is still to be down kind of mid five percent in terms of same store sales comps. TJX, which has been a darling, reported decent numbers they beat. and yet the guide was nothing that special and a place where on valuation, this is a company that now looks kind of relative to peers, expensive. Yeah. Bonwin, your take on TJX? Honestly, I think this one, you might want to look at buying a pullback. I was surprised. I know we talked earlier. I thought their quarter was relatively strong and they didn't kitchen sink the guidance.

7:24It was just a bit conservative. You know, it was still in line, you know, probably like the bottom quartile in terms of what their guidance was, but I didn't think that they said anything or did anything that would have given me the impulse to go out and sell. So, in fact, I think if we start to roll over, that's probably one of the names, trade down complex that I might look to add. We've got Walmart coming out tomorrow morning. And so, Mike, I mean, if Walmart has guidance that's, you know, decent, isn't this a tell? When does it become a tell on the consumer? At what point? How many data points do we need?

7:53Target plus Walmart seems like a pretty good tell on the consumer. We should have that. So it's interesting you point out. So what is a tell on the consumer? I think it depends on that consumer, right? So Walmart and Target, to a certain extent, are going to be appealing to similar consumers, at least in some of their core product areas. You know, TJX and Macy's are a different kind of a story. You know, Macy's, if one was inclined to play it, I mean, it's just got so much leverage on the balance sheet, which I know Karen can speak to. You know, if you're trying to play it as a trade to the upside, I could see why you might do that.

8:23But I don't know necessarily that, you know, there you really have to worry about whether or not they get their product mix the right way. And in Walmart's case, I mean, with things like grocery, is grocery about strength of the consumer? Are the cheap products like cleaning stuff, is that really a tell on the consumer? They're going to buy those things anyway. And to the extent that you have other products like electronics and things like that, if they are going to shop for them right now in a higher rate environment, those kinds of bigger purchases, they're more likely to buy them from a place like Walmart.

8:51We happen to own Walmart and we own Target, too. So we didn't really have it on as a pairs trade. And we own TJX as well. You know, I think the consumer on the discretionary side, the big purchases, that's still going to be under a lot of pressure. Yeah. One of the things that we have to go back to the CPI, it's not great for Walmart. You know, if you think about CPI was 2.1 for food at home, it was up 5.4 for restaurants. So restaurants are doing better. I just think that the food inflation story, it was so last year. And I think there's no question that Walmart does better in that environment.

9:21There's no question Walmart beats on price. It gets people into the stores, et cetera, et cetera. But as someone that's long Walmart, not as long as I was and slowly been, I would say, trading out of the position, I think it's such a good story. It's been such a good story. But I think the bar is very high into tomorrow's numbers. Karen, I mean, if the guidance is pretty decent for the holiday quarter, why aren't we willing to say that the consumer is doing OK, Target plus Walmart. That's a pretty good idea. You're getting discretionary plus non-discretionary, the read on that. Well, I don't know.

9:53They'll say, I mean, it's like, well, look at TJX for a second, go back to that. They chose conservative guidance. This is an under-promise and over-deliver kind of management team, which is what you want. And Walmart, I don't think, is in the business of trying to hype there for sure. Actually, they don't really like giving guidance. But I think the stocks could have been so oversold that even if the consumer isn't in the best shape, they were discounting a consumer who is just stopping spending dead in the water. I think that the pendulum always swings way too far. And I think that's what happened here.

10:25All right. Our next guest came in on the start of the month with a bold call that it was time to buy all assets. That was after the Treasury announced it would slow the pace of bond auctions. Since then, stocks and bonds have been on a red hot run. Today, Andy Constant of Dam Spring is back with a new call. This time he is saying sell all assets. Andy, of course, is the CEO and CIO of Dam Spring. Andy, good to have you back. So you're in cash now. That's what your portfolio looks like. So what I've done is I have two portfolios, a beta portfolio, which is a long term, passive, long assets portfolio.

11:02I raised about 30 percent cash. So now I'm only about 70 percent invested. And for my alpha portfolio, which is a market timing multi-month horizon portfolio, I went short assets fairly aggressively. What's the next move, do you think? What gets you off the sidelines, so to speak? Yeah, so I think what you have to recognize is that this Treasury surprise that we talked about on Halloween or the day after, you know, really created a big move in assets. S &P up 8%, NASDAQ up 10%, 10-year and 30-year bond yields fell 50 basis points, the TLT went up 7%. Those are huge moves. And what I would say is that I make an estimation of what this reduction in supply had, and it's really overshot in a significant way.

11:57So we've had limited data in the last few weeks. There's been Fed speak. There's been the presser from Powell. And there's been some data that has been consistent with what we've known for a long time, that the economy is slowing. Inflation is falling towards target. And that's really the only thing that's changed since the QRA on 11-1. And so, to me, the market has just significantly overshot, which means that, once again, the impact of higher long-term rates, which the Fed has been championing to make their job easier, is no longer there. And so that makes me worry that the Fed is going to have to, once again, stay at current rates or even hike over the next couple of meetings.

13:01And however, and I think this is important, though the supply was less than expected, it's still huge. We have$350 billion of bonds to be absorbed in the first quarter. And we saw the auction on Thursday of the 30-year, which was the worst auction in a long, long time. And I don't know for sure whether this supply is going to get absorbed well, even though it's less than expected. So I'm fairly bearish on bonds. I would expect long-term bond yields to rise. And that'll take the bid out of equities. Andy, it's Karen. Thanks for being on. Excellent call both ways. So I know I've read your stuff and I know you think we're just back to the beginning of where we started maybe in it was a late July, early August of we are going to see another QRA number that is very high and we'll be back to this same thing again.

13:56Is that what you're would that be the sort of catalyst if we do get that number in a big sell off then for you to maybe reverse course or no? Yeah. So, I mean, I think that's a long way off. The next QRA is on January 31st, and we have a lot of economic data. We have year-end. We have the beginnings of earnings season, and we have two Fed meetings. And so there's a lot of things that could cause markets to go up or down. I think they'll go down because of this supply overhang. And then come January, we're likely to see a significantly greater supply, and that should push us back down, yields back up to five, five and a quarter, five and a half.

14:38And equities will struggle to stay above 4 ,000 in that environment. And so, yes, the answer would be if we do see such a move in markets, that's when I'd get back into assets and out of cash and cover shorts. Andy, but can I, if I hear you right, the market, which in the last few days has certainly done to Fed funds also a lot, right? So you've put maybe, you know, four hikes into next year. You know, kind of reiterate, your view is no way Fed is near this. And we know Fed funds doesn't have to be in line with dot plots, et cetera. But is the market overreacted there? Yeah, I mean, I think that's true.

15:18You know, two years did sell off a lot today, but certainly since and we're back to where they were 15 days ago. But after the CPI number, Four cuts got priced in. And I guess the big point I'm trying to make is that if long-term assets, including bonds and stocks, are easy, financial conditions are easy, the Fed has no choice but to keep the front end as tight as they can, which will be either a long pause where you get no cuts at all, or even hikes if the economics numbers start warming up as the financial conditions start, you know, start moving through the market and through the economy, given how easy they've become all of a sudden.

16:06Andy, thank you. Always great to get your take and to hear about your calls. Andy Constant of Damp Spring. So we're in this vicious cycle. You know, markets take off because they're excited about the Fed being on the sidelines. Financial conditions start to ease. And then we're back at the point where the Fed has to possibly hike rates, Bonaway. I mean, this is just sort of like it sounds like we're just going to be bouncing around here. Yeah, I mean, first of all, I think his call to get long was absolutely spot on. I talked to a lot of smart money people who were just, you know, they limited the fact they had gone to cash so much.

16:39With that said, I just don't see the hikes in the inflation data now. And I'm not sure that market conditions are necessarily going to move the Fed to do that. With that said, if you start to see a tick back up in retail spending and inflation and things of that nature, I can certainly see how that's a probabilistic outcome. But I think what you're seeing is a bit more volatility, Tim's part, that you had seen for rate cuts price in the next year. I think that is extremely premature. And it flies in the face of what the Fed is saying, higher for longer. There's nothing in the data and the economic data.

17:13It's to be clear, disinflation is very different than an economy that's hitting a wall. I do think that the consumer is running out of gas. I do think that the joblessness will move up to 5 percent. But the economy we have right now is still quite strong. There's little in this for the Fed. It's a great environment for equities. I mean, that's an environment. That's an environment where today you kind of started to sort through and have the normalcy of if equities are up a little bit, bonds should be down a little bit. That's kind of what goes. What we've seen is, and this is the conversation, equities and stocks have been moving in the same direction.

17:44The trend for bond yields, I think, has been higher, arguably, at the short end of the curve. I realize COVID and even the Fed getting very scared at the end of December 2018 was a reversal. But rates have been going higher since 2013. I think rates are not going a lot lower. I think rates are going to continue to start to move higher. And this is after decades of a bull market in bonds. So just one other thing, you know, we were talking about the market is not a monolith, right? Right. So you have these really high flyer names, high multiple names. I think we could very well see those start to, you know, come back to earth a little bit.

18:21And then you have we talked about the IWM yesterday, the Russell 2000 of names that have just been, you know, shellacked and that those could do well in the same environment where the other ones don't. Right. After the break, some earnings alerts coming your way. Big moves out of Cisco and Palo Alto networks in the after-hour session. We'll bring you the numbers from the quarters next. Plus, don't look now, but Disney shares are at six-month highs. The investor that is sending shares higher today and what parts of the business are in focus right now. Don't go anywhere fast when he's back in two.

18:59We've got a news alert on the Senate vote on the government spending bill. Emily Wilkins has got the details. Emily. Well, Melissa, we're going to be just seeing in a little bit the Senate is going to be voting on that stopgap measure that is going to avert a shutdown this Friday and take the federal funding through. Part of that is going to be that dual track. So part of it's going to be funded until January 19th. Part of it's going to be funded until February 2nd. The Senate was able to work it out. I mean, this is widely a bipartisan bill. It doesn't have a lot of conservative priorities, just kind of funds the government as it is.

19:34And it gives lawmakers more time to work through actually funding the government. So after this, it's really going to be going to Joe Biden's desk. He's going to sign it and we're going to see that shutdown averted. But it's going to then kick the can down the road and we get to have some potential major headaches next year in January. Yeah, that road's not too long. I mean, the can doesn't have much to travel. Emily, thank you. Emily Wilkins with the holidays. You know, it's like Halloween and Thanksgiving comes so quickly. And then it's going to be shutdown time again. We're going to be here talking about this yet again, but not to be pessimistic about the process.

20:08Let's get to two earnings alerts for you. Check out shares of Palo Alto Networks and Cisco Systems after reporting results. Cisco being in the top and bottom lines, but shares getting crushed on its cuts to full year revenue and profit outlooks. Let's get right to Christina Parts Nevelis for more on this quarter. Christina. Thank you. Well, I was on the call. Supply chain constraints. They said that plagued Cisco for quarters has now shifted downstream to, quote, the implementation stage. In other words, customers are just taking time to onboard, which is driving Cisco's weak guidance. An analyst actually challenged that statement, wondering if this is really just a bigger problem of demand, not inventory.

20:42CEO Chuck Robbins denied that reasoning. But Q2, like you mentioned, and full-year outlook were very light. The midpoint of full-year revenue range was over, or I should say over$3 billion less than the street estimate. CEO Chuck Robbins said they saw weakness, quote, mostly from larger enterprise service providers and cloud customers, but that they believe this phase is, quote, temporary and see a return to order growth in the second half of this year. On AI, artificial intelligence management said they already took$500 million in infrastructure to support AI networks and have a line of sight of a billion dollars of orders, end quote, that our teams feel pretty good they're going to get.

21:21Cisco reiterating its$20 billion acquisition of cybersecurity from Splunk, which is still expected to close in Q3 of 2024. Shares, though, still reacting to that negative guidance and concerns about product growth. Mel? Is there a time period associated with that$1 billion in orders for AI? I double-checked, went through the transcription again, and all he just said was, we see a$1 billion pipeline. Our teams are confident we're going to get it. That was it. Okay. Christina, thank you. Christina Parts Nevelis. Tim, you are a shareholder. I have a position in Cisco. And as I pointed out to a man who knows a lot about options and the lady next to me who does this sometimes and not in any way trying to implicate camera with my selling upside calls is nowhere near as good as buying puts, even though they kind of are the same.

22:10And in the case of Cisco, what I liked about the company going into these numbers is is that their business was not only strong in their core, but they were they were certainly they've been making this move into software and cyber. And these are high margin businesses. They've been doing a great job. the valuation at around 14 times not expensive. But what I also heard the company say is that their networking business is really slowing down. And that's in contrast to what we heard from Juniper and what we heard from Arista. So, I mean, to me, relative to peers, that's why this reaction, I think, is what it is.

22:41They also said they have one to two quarters of ship products already that have yet to be implemented. That sounds like a company that's not going to see a lot of demand anytime soon. So I believe this is an overreaction. There was nothing rosy about this outlook, though, and it's getting destroyed. Yeah. My co. Yeah. I mean, this is a tough one because, you know, as Tim was just pointing out, this wasn't a terribly expensive company going into it or so it would seem. You know, also interesting. He was just talking about the options market. The options market wasn't expecting a whole lot. This is a stock that typically moves about five, five and a half percent off of earnings.

23:16the options market was implying a move of less than that. So, you know, I think these are the situations where you really need to be aware. You know, if you start seeing some of this complacency, whether it's priced into options or the stock, I mean, what's interesting is that it seems to me that even mildly disappointing news, and maybe this case, this is somewhat more than mildly disappointing as the price action would reflect. You have to watch that downside because stocks seem to be getting punished pretty badly when you see this kind of guidance outlook. I mean, somebody with a bearish view of the world might point to this and say this is the slowdown in enterprise spending that we are all waiting for.

23:53And we usually in the past, we have heard it from Cisco Systems. Yeah. I mean, upon a time when it was the bellwether. This was the company. You know, we listened to John Chambers with bated breath. We sat on the edge of our seat to every word he said. That was 15 years ago. Yeah. But I look, it's not a great tell on enterprise. I don't think it's really the dark cloud, though, that it would have been. Palo Alto, meantime, also beating street estimates for the current quarter, but seeing shares tank on weak guidance on billings. Pippa Stevens got more on that. Pippa. Hey, Melissa, well, it really was that disappointing billings guidance that is sending the stock tumbling.