The Highlights from Netflix’s Conference Call, and How to Trade Tesla Ahead of Earnings 1/23/24

20:55Welcome back to Fast Money. New Hampshire voters casting their ballots in the presidential primary today with less than three hours until the final polls close. Nikki Haley, the last Republican candidate standing against former President Donald Trump, who's widely expected to clinch a victory in the state. And though it's just the kickoff for primary season, our next guest says a Trump victory tonight would effectively solidify the GOP race. For more, what is at stake? Let's bring in Dan Clifton, head of policy research at Strategas, a Baird company. Dan, great to have you with us. So you think he wins?

21:26You think the GOP nominee is in? Have the markets factored that in? Yeah. So first, if Donald Trump wins tonight, it's very likely that the Republican primary will be over. I mean, we may go on for a couple more days, but eventually the donors will run out for Nikki Haley and Trump will win. That means That's 279 days of Trump versus Biden, probably the longest presidential election in our lifetimes. And the markets have already been starting to price this in. What we try and do is look at the most election levered stocks. And you can see a very strong correlation between some of these stocks and the odds of Biden winning or the odds of Trump winning.

22:02And I'll just give you one example. The Tesla stock relative to the S &P 500 looks almost identical to Biden's odds of winning. And that makes sense because this election is a referendum on electric vehicles. And if Trump wins, he's probably going to cut those EV subsidies. On the other side, you see it with the Republicans, in particular around immigration stocks, because Trump could use executive powers to do immigration right out of the beginning. And you're seeing as Trump's polling numbers improve, you see these immigration stocks begin to outperform the S &P 500. So we're at the very, very beginning stages of this pricing in.

22:38And what's interesting is the market's giving a 50-50 odds to both candidates winning. So a lot of wood to chop between here and probably a lot of roadblocks and a lot of speed bumps before we get to the actual election result. What are the immigration stocks, Dan? Yeah, sure. So you can look at the private prisons like GEO and CoreCivic. Axon is another one. Motorola, which provides the equipment for many of the border security factors. So those are four names that I would look at on the immigration side. And then on the Democratic side, their immigration is still a big policy for them. So more people coming in.

23:12So something like automatic data processing because you have more people working or more wire transfers through Western Union. So both sides have different ways to play immigration. But Trump's would be very, very aggressive in closing that border down. And he can do it without an act of Congress right away. That's where we think there will be a big impact in those stocks. Hey, Dan, it's Tim. Speaking of places where we probably will have Congress involved, but fiscal friendly. And leave aside traditional definitions of who's fiscal friendly and who's not, because I think there's a lot of guilt everywhere over the last 15 to 20 years in our country.

23:46We on the show spend so much time talking about how ratings agencies and dynamics around, frankly, corporate governance for the U.S. government are changing and maybe one of the biggest factors in equity. So you're looking to fiscal friendly or not and how you view it right now. Who's there? Who's where? You know, it's interesting. These candidates are going to get up there and tell you all the things that they want to do, but they're not really going to have a choice because of two reasons based in your question. The first is all of the Trump tax cuts on individuals expire. The Obamacare subsidies expire.

24:15Both of them expire at the end of 2025. And whoever's president is going to have to deal with that enormous$2 trillion,$3 trillion fiscal cliff. The second factor, Tim, to your point, is that this is the first time that net interest costs have exceeded 14 percent of tax revenues. and usually say in 40 years. So once you hit that level, the market begins to impose austerity on financial markets. Treasury secretary is doing a very good job of getting around that by financing the deficit with T-bills. But we all know that that's not a sustainable strategy, particularly as reverse repos go to zero.

24:46So you're going to be dealing with bond vigilantes next year. Maybe it's a currency market vigilante while you're trying to resolve those expiring tax cuts. And I think that's going to be the big challenge for whoever is the next president. And I would remind everybody, we do have to raise the debt ceiling sometime in mid 2025. So by choice, they all say they want to do all these great things on energy and health care and education. But the market is going to put a big focus on fiscal right in front of them, and they're going to be forced to deal with that. Just quickly, Dan, you mentioned the EV subsidies.

25:16Does the IRA or much of what's in the IRA, does that get thrown out? Because there's a lot of money tied up in infrastructure and the belief that the IRA is going to inject money there. Single biggest question that we're getting from investors. We think it's going to be hard for the Republicans to take away a lot of the solar and biofuel provisions. Maybe there's something on EVs. But ultimately, the market will price in as Trump as being unfriendly to the IRA. And if Biden's odds go up, you'll see a lot of those IRA stocks begin to improve and vice versa. So I think the IRA is going to be a big part of that.

25:50That's the cap goods stocks. That's the wind and solar stocks. That's the EV stocks, the charging stocks. There's all different ways to think about the IRA. And they're going to be very much aligned with where the Biden presidency is and how they're going to trade in 2024. All right, Dan, thanks. Good to get your take, Dan Clifton. Thank you. What do you think? I mean, it's a long, it's a long ways away, but still. Let's play it out a little. So if Trump would win the second term, what does it mean? It's interesting. You can make an argument that could be extraordinarily inflationary. You know, a lot of protectionist policies, things made here.

26:24Inflation goes up. What does that mean for the Federal Reserve? I think it's very energy friendly. And then one has to wonder, in terms of tariffs, do you have a reacceleration or renewal, whatever the word is, tariffs against the Chinese. What does that mean for the tech trade? So, look, 280 days or so away, yes. But people are starting to think about those things. Are you getting questions? Every day, yeah. And every four years. I have the same conversation with all of our clients. But I think what's kind of interesting, and our guest actually pointed out in his notes how typically once the runner-up is chosen, right, so when we know who in the Republican Party is going to be the candidate, there tends to be a sell-off as we're trying to figure out what their policies are.

27:00This is one of the first times we know what their policies are. I mean, we've had both of these candidates in office. So I think there's actually a lot less uncertainty this year than there is typically. And generally speaking, election years actually tend to be a good thing for the market. So I don't think it's something to be worried about. Yes, if there's certain stocks that you think are going to do well or not do well. Yes, maybe there's some volatility. But I don't think it's any reason to be uninvested or invested specifically because of this. I think it's just going to be a big headline.

27:23I think you make a great point. It's like we do have a kind of guidepost for how each of these guys would operate for the next four years. The one thing I would say is what we don't know is the geopolitical stuff. And there are just a number of hot spots right now. When you think about China, you think about the Middle East, you think about Russia and Ukraine. Those are all things, to Guy's point, it seems like all actually all points lead to higher inflation going forward in a lot of those sorts of situations. So to me, I think that we're going to have a lot of uncertainty. The economic uncertainty is not going to be there.

27:54When Trump took over in 2017, he was handed a stock market at all time highs, an economy that was humming along pretty well. And that's what the stock market is saying right now, that the economy is OK. hey, we can come on here and talk about, well, you know, this is going to pick up, and unemployment's going to be here, and inflation's going to be here, and that geopolitical hotspot. Things are going okay. The S &P is at all-time highs. It's near 4 ,900. Coming up, a boost for Beijing. Chinese authorities considering a rescue package to help stabilize its market meltdown. But will it be enough to restore investor confidence?

28:25More on the China trade next. And we're still listening in to Netflix's conference call. Media analyst Rich Greenfield will join us to detail everything he's heard so far. Don't go anywhere. Much more Fast Money in two. Missed a moment of fast? Catch us anytime on the go. Follow the Fast Money podcast. We're back right after this.

28:49Welcome back to Fast Money. The S &P posting another record close. While the Dow pulled back from those levels, dropping nearly 100 points, the Nasdaq climbing about half a percent. Some earnings movers from this morning shares of 3M dropping 11 percent, its worst day since 2019. The company posting a beat on earnings but issuing disappointing full-year profit and sales guidance, saying the macro environment remains muted. And shares of Verizon jumping nearly 7 percent after its results, the company beating on the top and the bottom lines, posting strong wireless subscriber ads. Meantime, Boeing falling into the close as the CEO of Alaska Airlines told NBC's Tom Costello the company found many loose bolts on the 737 MAX 9 planes in their fleet.

29:29Boeing CEO David Calhoun also slated to meet with senators on Capitol Hill tomorrow. The Boeing story just seems to get a little bit worse, a little bit worse. I mean, first we had United's Scott Kirby complaining about Boeing's management. Now we have Alaska Airlines. How are you feeling? Well, I think the airlines themselves that are so reliant on Boeing have to do something in terms of start pointing the fingers. And I think many loose bolts doesn't do a lot, especially in the public's perception of the company right now. The FAA also has to get out there and has to back that public backlash.

30:04So as someone that owns Boeing, I don't love these headlines, but I still get back to the fact that at some point, this is a company that I still think is going to. Again, we look at the size of the max fleet to the overall fleet. We look at their defense business, not making light about any of these headlines. I still think free cash flow comes back en masse by 25. Triple M, Boeing is its own story. Triple M is sort of a different story. They're their own worst enemy. But this is now six years since this stock made its all-time high. And this has been six years of upper left, lower right cascading today.

30:37And if there were ever a need for an activist, it's probably in a triple M because you talk about great businesses and moats. They seemingly have it, but they can't get their act together. I don't know if this makes a statement about the broader economy, about industrials, but it certainly speaks volumes about Triple M and their problems. By the way, we're just getting this headline from Boeing. Boeing to hold a quality stand-down at a production facility in Renton, Washington on Thursday. So that's the latest from Boeing here. A stand-down, a quality stand-down at a production facility. We'll keep you updated as we get more details here.

31:08Chinese stocks moving on soaring today as the country weighs huge stimulus measures. the FXI, K-Web, and MCHI ETFs all seeing big gains in reports that Beijing could mobilize nearly$300 billion to invest in its own markets. Most of those funds would come from offshore accounts of Chinese state-owned companies, according to Bloomberg. Alibaba, Baidu, JD, Tencent all jumping 5 % or more on these reports. Historically, these sorts of efforts don't really work for the long run, Tim. They don't. And when I think about state-owned enterprises that have money in offshore accounts to put into some stabilization fund, I think of the companies that are in the FXI, not the ones that are in the K-Web, meaning, you know, Cidic Bank and some of the big insurance companies and, you know, Ping An and some of these companies.

31:54And I don't know whether this is good news. As an investor, I think about, OK, if you're urging your own companies to invest in the stock market, the companies that they're going to be investing should be off limits in terms of state oppression. Because, you know, when I go back to Alibaba, this is a company that has probably 30 percent or 40 percent of its market cap in cash. The valuation is ridiculous when you consider the growth level, even in a Chinese economy that's going zero. But you can't put a qualification, you can't put a multiple on the fear of top down oppression. And that's the stuff that we can't really do.

32:28So, again, this should be good news for that dynamic, depending on who we find out that stabilization fund is investing in. Then I think you can follow in. And look, I think China, for medium to long-term investors here, this is a fantastic place to be getting involved. Yeah. Court? Yeah, and I do agree with that. I think really what you want to look at here is there's clearly a lot of political risk still when it comes to China. And it's traded up and down on the optimism that there is going to be some sort of stimulus and then nothing happens, et cetera. So I think there might be some in the short term here.

32:54I do like it in the medium to long term. But that's where when you look at something like emerging markets, there's a lot of other opportunities. China used to be kind of the only big player in the space. Now, you also want to look at opportunities like India, for example, I think is probably going to be like the next big China when you're looking at emerging markets. And that's where you look at some of the indexes like the EEM. China is only a small portion of that, and that's where I think you want to own everything. So I do like it. But, yeah, short term, definitely still some caution. Yeah, and if you were playing a game called Would You Rather, but we're not.

33:22But we're not. Would you rather them spend$300 billion? She didn't even smile. No, she did a lot of side-eye, though. I'll tell you that much. Big eye roll. The camera's caught that. Big eye roll. $300 billion towards the property sector in China or the stock market. Think about how much their consumers are more exposed to property and what's going on there. To me, I'd probably rather the market. Money into the property market. Yeah, the property market. Yeah. I'm just saying. But I'm not playing that game. Why would you? Yeah, because it's not time. Coming up, the latest on Netflix is earning shares jumping as the company hosts its earliest conference call in years.

33:57We're talking to a top analyst who is on that call. what he is hearing from company execs straight ahead. Speaking of earnings, Tesla revving up to report tomorrow after the bell. One of our traders has a way to plug into the name with an option strategy. The details when Fast Money returns.

34:17Another check on Netflix shares of the streaming services soaring 8%. Rich Greenfield of Lightshed Partners just got off the conference call. Rich, what stood out to you? Was it weird to have a conference call so early? I mean, it's just a watershed moment for Netflix, really. I mean, getting into the live scripted entertainment. You know, I feel like this is sort of the house of cards, you know, industry wise. If you think about the change, that was really the beginning of their launch into programming, you know, their own original programming. This seems like getting into the live space. I mean, they've dabbled in live, Melissa, but this is a, you know, a very big 10 year, five billion dollar deal with WWE.

35:00This is transformative in doing it on the exact same day that they announced the largest quarterly net ads since the pandemic quarter. And only the set that literally the second largest net ad quarter in the history of the company, given how big and how old Netflix is stunning that they can grow subs that quickly. Do you how do you think their sports strategy or their live strategy will unfold? Do you think we'll see them going after, you know, rights to live sports or or will they just pursue the sports adjacent sort of not necessarily depending on it being live all the time, but things that can be rewatched over and over again?

35:40Look, I think they were very careful to use the phrase that just recited sports adjacent. Right. You know, live entertainment is not sports. Right. I mean, WWE is scripted programming every episode. It's been on NBC and other NBCU family of networks where SmackDown is going to reside after the transition from Raw. But it's scripted. Netflix loves scripted programming. This is just live scripted. Now, I wouldn't be naive enough to believe that there isn't a future in sports. They've been testing with things like tennis and golf, their own sort of created events. do I think long, long term, meaning over the next 10 plus years, could I see Netflix getting into the sports arena in a bigger way?

36:22Sure. But I think they were very careful. This is not about sports. This is about getting into or expanding from scripted into live scripted. And that's as far as they're going. Do I think we'll be talking about in five to 10 years moving into sports, like true live sports? I'm sure. But that is not what's happening. And I wouldn't be I would be surprised to see them move too quickly into sports. I think for a walk, run, they're on that process and on that, you know, kind of continuation of growing into it. Hey, Rich, it's Tim. You teed up in your notes the impact of generative AI and whether it's on the content creation process.

36:58Frankly, for a company that continues to grow their free cash flow model, think about this also, maybe phrase it in your analyst chair and what this means in terms of both income statement and how you view this company in a cycle where I think there are going to be a lot of upgrades coming, obviously, off these numbers, but because of some of the dynamics around how they can be more profitable than ever. Well, look, the obvious area that seems to jump out at me is animation. They just had one of their, I think their most successful animated movie in history called Leo. They talked on the call, answering one of our questions about there being a Leo sequels being kicked around now.

37:33Now, I have to believe when you think about the storyboarding and, you know, you know how long it takes, Tim, to make animated movies. It's three to four years. It's a brutal process. If you can speed up that content creation process for animation and really do it more quickly, I think that's a place where generative AI could have a meaningfully positive cost impact and speed efficiency impact on the business. And so I think that's notable. how it reduces in the broader business. I mean, I don't expect storytellers to go away anytime soon. But I am curious. They didn't really talk to generative AI, but I think it'll be interesting how generative AI impacts them beyond animation.

38:15I think that's the obvious starting point. Rich, I got two questions for you. One, Netflix mentioned a gaming strategy a couple years ago. Where do they stand on that? And two, what makes you think Tim would have any idea how long it takes to make an animated film? Tim is working on his animated I am cartooning right here I mean I'm laying out storyboards Thank you Rich I appreciate you I'm giving Tim credit for his overall creative capabilities but in answer to your question on gaming look Brandon Ross my partner lives and breathes video games he still continues to believe that they're probably going to need to make an acquisition at some point maybe not like an EA acquisition How about a Spotify?

38:59Well, that's that's well beyond gaming. I mean, look, Ted Sarandos, co-CEO of Netflix, sits on the Spotify board. I'd be surprised. It's so different. And music, think about what Daniel X doing. He's trying to own all of audio. I think very similar to Netflix is trying to own all of video. And yes, all of video. Ultimately, Melissa, is your question of sports. I don't think they're there yet. I think they have to grow and get bigger. And the advertising business has to be much bigger to justify sports. That is the piece that is growing rapidly. And there's a major event happening in the next few days that your viewers should be paying attention to.

39:35T-Mobile, everyone who's on the T-Mobile Netflix on us is going to convert to the ad plan. So there's going to be a huge surge in advertising subscribers. Netflix talked about they may not be able to fill that demand immediately, inventory, because it's going to take time. But that's going to be a very big tailwind for the Netflix ad business as you move through Q1. Rich, thank you. Here's Greenfield Light Shed Partners. Tesla in the earnings hot seat tomorrow. The options market is expecting a major move in the stock. How should you play it? More Fast Money in two.

40:08Welcome back to Fast Money. Shares of D.R. Horton plunging more than 9 % after the home builder missed earnings expectations this morning. Bigger incentives and price cuts also put pressure on margins. The stock's seeing its worst day since June 2020. And weighing on the entire home building space, Toll Brothers, KB Home, Pulte, Lennar, all seeing their worst days since at least October. Meantime, another marquee name on deck to report tomorrow. Tesla delivers results after the bell. The stock is already down more than 16 % this year, and the options market is expecting an electric move in this name when earnings hit.

40:39If you've been long, Dan has a way to protect any profits you've made so far. Dan, what are you looking at? Right, really tough setup here. Stock's down 21 % just in the last kind of month or so. It's down 16 % of the year, clearly out of that mag 7 here. And sentiment just couldn't be worse heading into the print. And again, this company's had a really difficult run from a fundamental standpoint over the last three quarters. The day after earnings, the stock has sold off 9%. So when you think about that, heading into the print, we have a NASDAQ at all-time high, an S &P at all-time high. We have all the MAG 6 making highs.

41:12You know, this has gone the opposite way. So if you think about this, it's a hard press on the short side here, right? So they don't have to say much to get this stock going higher. But I don't think they're going to have that much good to say. So if you're long the stock and you're thinking about how do I stay long this but protect myself, I just want to look at the charts really quickly here. The one year you see this uptrend, you see that 205 level. I don't think you want to be long below that if it were to break below that. Look at it on a longer term basis here. And you say to yourself, and Guy's been highlighting this pennant formation that's been in place, really difficult spot.

41:43It's below that longer term uptrend to me. So you want protection if you're long into this print. I would look to collar your stock. So today, the stock about 209 versus 100 shares long the stock. You could look at February expiration and sell one of the 230 calls that expires there at about$4.40 in February. You could use the proceeds and look down in February expiration by one of the 192 half puts for$4.40. It costs you nothing. You have gains of the stock up until 230 in February expiration, so about$21. You have losses down to 192.5 between now and February expiration. But between that, you stay long the stock, and you can profit or you can cap your losses.

42:27What are you looking for out of this quarter? Well, I mean, to me, it's about margins. I mean, where are they in terms of, you know, they said that we're not going to get down to Legacy Auto. Maker's margin levels of about 16%. I think we dropped at 17.5. But anything with a 17-hand or below, I think the stock trades down to that 175 level. Up next, final trades.

42:55final trade time tim i think with a lot of concern around the macro we've heard from oil services companies this week and slumber j is best of breed i think the margins get better so does the dip now known as slb courtney uh the xhb we didn't get to talk too much about housing it's definitely down today i would buy on that weakness i think the longer term supply and demand continues to look attractive here, especially if rates are coming down. Dan? Yeah, I'm starting to look at Tim's Nike in and around. I know you're really geeked up about the Olympics this summer. Geeked up Nike, Chabelle. Synchronized swimming.

43:23Favorite event. Pixar making a B &S. Geeked up about that too. That money is up next.

44:14Transcription by CastingWords Thank you.