The trade war with China has become a key talking point in the 2024 election, with President Joe Biden expected to increase tariffs on Chinese electric vehicles and former President Trump suggesting a 60% tariff on goods from the country. Interactive Brokers Chief Strategist Steve Sosnick weighs in on what it could mean for investors. He also tells Yahoo Finance Executive Editor Brian Sozzi about what he's looking for from Nvidia (NVDA) earnings and why Apple is "the premiere value stock."

Click here for more Opening Bid.

This post was written by Stephanie Mikulich.

Video Transcript

Hey there, my investing, curious friends.

I'm Brian Sazi.

Yahoo Finance's executive editor.

Thank you for joining us either on youtube, Yahoo Finance, Spotify, iheart, Media, Por or Amazon Music.

Lots of places for opening bid.

Uh If you're loving opening bid, hit us with those likes and fire off your questions.

And hot takes to me on X uh at Brian Sazzy and at Yahoo Finance, we are here to help and listen.

Now let's make some money and uh well, make you a better investor.

Joining me today is interactive brokers strategist Steve Sosnick or a K the others, right?

I will yield it to you.

No, that's OK.

But I just have to, we have to be specific about Brian and Steve.

This is one of the few times where, where it gets a little dicey in terms of who's the SS here.

We're really gonna put you, we're actually gonna see who earns the SS uh last name here today because we gonna put you through the wr but before we do, we got a lot of topics.

How do you start your trading day, Steve because this is early, you know, not a lot of people get up at this time and talk about stocks, but clearly I follow you on Twitter and, and you seem like a passionate dude.

I for better or worse.

Of course I am.

And, you know, I've got my routine.

My morning routine basically is I, I read, I basically first read what comes in and I guess, you know, I, I, this is not a shameless plug.

I actually do read the Yahoo morning.

I mean, you know what you are in the, so when it, when it comes in at six AMI do read it, I've read it, I read it this morning this morning.

I read it on the subway but on the way here.

But um it happens.

II I for better or worse.

I'm also a Bloomberg terminal subscriber.

So I read a lot uh which is, which is really not all that germane to the average investor.

Um But what I'm ba basically consume what you can.

There's a lot of information out there, get it, read it.

Um You know, the deal book newsletter from the New York Times is a very good source too.

Um Basically, but if you scour the sites, if you scour you, you know your home page, um the various, the various free content that's available, uh you know, to an investor, you could come in really well prepared for the day.

Do you check, do you check any specific stocks?

Um I checked my watch list and just sort of see what's, what's on there.

Um, you know, iii, I don't, I tend to look at, um, more what's moving than, than a specific, you know, does it matter too much if, let's say Microsoft is up a quarter of a percent before the open.

Not really.

So, I really want to see if there's anything that's, that's moving in a major way because that'll point me to where the news is.

All right.

Well, uh that is done and dusted good stuff there.

Let's um, first topic for, for us is really reportedly uh President Biden looking at more towers or targeted towers on China.

Now, what we do know is they not, may not be as draconian as for President Trump, who wants what 100% tariffs on things coming in from Mexico, potential 60% tariffs on this, something on that 10% stuff on China.

It's all over the place.

What is the risk of what may be more targeted tariffs on China?

Do investors need to care about this today?

I think we do.

And because there's a couple of different reasons if they, they a T, a tariff is a tax.

And, and you know, although there, there's been some rhetoric that it's a tax on the foreigner.

No, it's really a tax on the, it's really a tax on the American because what it does is it, it's, it's making imported goods less competitive, thus, more expensive.

And So that also allows um domestic producers to either maintain or raise their prices.

So it does filter back in the case of the, the rumored uh tariffs that Biden is talking about a lot of them are on uh at electric vehicles.

Um Having just been to Mexico and seen how many by DS are driving around by DS in Mexico.

Lots of them, basically, they're, they're all over the place.

Your taxis are almost all they, they're moving a lot to Byd.

And as a result, um I'm guessing, you know, having just made deals with, with the auto workers and stuff like that, you know, this is sort of the back end of keeping the keeping promises.

It's an election year people are gonna be doing, there's gonna be a lot of rhetorical argument on the larger front.

Um You know, that I was reading just this morning and last night, the economist had a whole series about how globalization is going in reverse and this is possibly another sign of it.

And that's, you know, there were a lot of benefits of globalization.

We can, we can debate the politics here and then, you know, left and right.

But from an economic point of view, globalization put a lid on inflation to a large extent, I think we were able to skirt a lot of inflation even with zero interest rates because of the positive effects of globalization that occurred.

Um You know, let's say over the pa you know, with the 20 years leading up to the, you know, basically the 1st 20 years of this century, um you know, if that goes into reverse, that can have some negative consequences in terms of, in terms of inflation, which is what seems to be problem.

Number one.

Now, anyway, you think this is a, the start of a potential China trade war with the US.

Uh It could be, I mean, it depends, it depends where they go and how deep they are China retaliates, of course.

And so the que but you know, the question is how I mean, so you know, in terms of, in terms of, for example, let's say it's targeted specifically at electric cars, which is one of the things II I do believe China to some extent is subsidizing byd.

So have they, so are we re who's retaliating against whom, you know, at that point, you know, are we retaliating against sort of a state subsidized enterprise by, by reversing by, by putting tariffs on to reverse sort of the implicit subsidy?

Uh That's a, that's a level of political discourse that I just, I'm not even capable of getting into because I don't know the nuances.

But that's, you know, if it gets into a little bit of a tit for tat that becomes problematic.

And, and there was a story today that China is looking to raise uh call about 100 and $40 billion worth of long bonds.

And one of the reasons they said that it is preemptively, uh, as a shield against the, the, the effect of potential tariffs.

Um, you know, at, at this point, uh, they're definitely, they're definitely thinking that this is a possibility and what's the risk to stocks, the risk of stocks which are trading at highs?

Of course, of course, they're ignoring everything pretty much.

I'm sure you and I will get into that in the, in, in, in, in a couple of seconds.

But, you know, the risk of stocks is anything that throws sand in the gears of the economy or sand in the gears of the consumer is problematic.

For example, if, if this raises the cost of living, you know, it's sort of a, you know, a hidden inflationary element.

It doesn't, it, it, it makes it harder for the fed to say that prices are coming down that inflation is under control.

And, you know, this is, this is where it becomes problematic.

Um because tariffs do eventually come out of the consumer.

Well, I, I think there was a good uh bit of research recently out of the Goldman Sachs team saying any new tariffs would I think decrease GDP by 1% and, and increase prices by 1%.

I mean, that's, that's a big hit.

No kidding.

And I, and I, again, I'm not gonna, I'm not gonna pretend to, to debate what their economists have found.

I'm just not prepared to do that, but intuitively.

Yeah, that makes sense.

It's, it's, it's, it, it's, it's adding inefficiency um to an economy that desperately needs efficiency.

We can argue the politics of it whether it's better or not.

You know, that that's a debate maybe for, for different, for different people at another time.

But I don't disagree with Goldman's basic premise.

Even if I can't verify the numbers myself, then is it time for investors to pay more attention to the presidential election?

Because you know, I get President Biden reportedly coming out with what might be targeted tariffs on China.

President Trump seems very aggressive.

Both of them are targeting China which is a key trading partner of ours.

But oh yes, you still have multinational companies like a Starbucks, a Tesla inside this country doing business.

How don't their multiples take a hit?

I right now, I think they, they, I I don't know how they don't take ahead, but this is, but this is kind of the mystery of the stock market now.

Anyway, um you know, multiples, we've seen a lot of multiple expansion and this gets into one of my, one of my themes that I've been working on is is the question I've been asking is, does eps really matter?

Does support?

Yes but no.

And this is this is the interesting problem, right?

So of course, nothing matters more to an investor than, than earnings per share and the associated measures cash flow uh revenues as a former analyst, you know, one of the, the one thing trying to ignore those days, I, I don't wanna compute models anymore, Steve, I appreciate what you're saying.

But the one thing you know is you can't fake cash flow.

That's true.

I mean, some try but, but ultimately, you know, ultimately, if you're not generating cash, you got problems.

Um and so th all those numbers are always very important, but the problem we have now is when you're in a situation where between 75 and 80% of the companies routinely beat their EPS estimates, investors are increasingly looking beyond dps.

And so it raises the question of, of how, think about how many companies have reported better than expected.

Eps and then got whacked anyway because they missed, they said they were pulling back a number uh on their future earnings releases.

I mean, that was a good quarter from Netflix Meta.

I mean, we, we can go down a list of Star Starbucks, I think did this.

We, we can go down the list of companies that had better than expected.

Ep Let me start on Starbucks.

Well, we don't have time for that, but I'll, I'll leave that one alone.

But then what happens is, but so, so investors are looking past it.

So, you know, because in my mind, the question I think has become, have management's gotten better at managing their bottom lines or have they gotten better at managing their look at all the stock buybacks.

I think they've gotten really good at buying back, being very aggressive on stock buybacks, but also playing the street, I think they just have got the street figured out.

That was literally the next part of my comment was, have they gotten better at managing their bottom line or have they gotten better at managing their analysts?

And I think they have gotten better at managing their analyst perceptions.

And so as a result, I if everybody's above average, then, then it does, then, then you've rendered the, you've rendered the average somewhat meaningless.

And I think that's what we're seeing.

I interestingly, I saw a statistic and I wish I could cite the source um basically two statistics, conflicting article but conflicting articles, basically one that analysts are raising their EPS estimates this quarter.

Despite the fact that only about 15% of the companies are actually gave positive guidance, increase their guidance.

Well, something's gotta give and I think maybe it's the analyst getting tired of, of just constantly missing numbers.

But if you're raising, uh if you're raising analyst estimates at the same time that the companies are not raising their guidance, something's gotta give at some point.

There's a, you know, let's just stay on EPS guidance.

I wasn't going to go there but I will um a lot of numbers in my head and I saw a good chart from the team over at Evercore, noting earnings per share for the other, for the 493 other companies in the S and P 500 that are those earnings are supposed to accelerate this year and next year by extension of the magnificent seven in Amazon Apple, you name it, that earnings growth is expected to decelerate over the next two years.

So then what's the better play?

Well, in theory, you should be, in theory, I, I'm a believer in trying not to chase the stuff that's been winning there.

There's, there are values out there.

I'm, I guess I'm inherently a value guy.

Um And to me, one of my big tells right now is you're not gonna go too, too wrong if you buy companies that pay a solid dividend, as long as that dividend is supported by cash flow there, I keep coming back to that a lot nightmares.

But, but what happens if you, if the company is borrowing to pay its dividend or borrowing to buy back its shares.

All right.

That ultimately isn't sustainable if a company though.

And Apple being the poster child for this and I have a feeling we were gonna segue there anyway, Apple being the post, Mr Travel is this company spins off so much cash, they don't know what to do with it anymore.

And so they're returning it to shareholders.

Yes, they raised their dividend.

Yes, the dividend is kind of still only about a half a percent.

It's pretty, pretty meager, but you're starting to see companies return more money to shareholders.

And I think that's a good thing and if a company pays a dividend as volatility increases, it gets, it gives it a little ballast.

And so I think you're not gonna go too wrong if you, if you buying, if you're buying stocks that can afford to pay a decent dividend.

All right.

Hang with me there, Steve.

Uh, if you're watching opening bid on streaming platforms, we're heading for a quick break.

Everyone else stay with us.

We're still rocking our 24 minutes for opening bid.

As usual, Steve, you were making some really good points on, on, on stocks.

And, uh, before we jump to a few more topics, do you think the mag seven trade is just done?

Um, this year?

Ask me that on May 23rd.

What's May 23rd, May 22nd is when NVIDIA releases its next earnings.

So ask me that then and because speaking of companies that, that beat, uh, beat raised and still went down anyway, I did not remember that Nvidia's earnings was we, we forget about it because it seems like earnings season is, is, is ending.

I'm traveling that day.

Of course, you can go anywhere.

I'll log in.

I'm not going far.

I'm only going to Canada.

That, that, that, that's, that's ok. Um But, but you know what one of the questions we have is for example arm, the, speaking of companies that beat on the big semiconductor arm, which, which, you know, one of the classic A I plays, they, you know, they actually do a lot of the chip design.

Uh that for A I, I believe they actually do it for NVIDIA as well.

They beat, uh they beat their EPS because everybody beats their EPS.

Um They actually raised their short term guidance but modestly lowered their long term guidance in the stock.

Um, you know, originally went down 6 to 8%.

It ended up closing the day, I think between two and 3%.

But that's sort of the classic example.

Have, you know, have we out kicked the coverage and we'll know this because last quarter, NVIDIA went up about 16% after earnings quarter before that, even though they beat and raised and, you know, the, the these co this company has, can't do any more.

All these quarters have to be priced in that.

Well, so the pri the prior quarter, the stock beat on every metric and went down 2.5%.

So it does happen.

So if NVIDIA gives any signal that things are sort of not, you know, that's gonna break the cycle of beat raise, beat raise, which to be fair.

This company has been perhaps the best I've seen at this is still the most important stock in the stock market.

I believe it is.

I believe it's the poster child right now because of all the A I, because of all the A I.

And to me, the other part that I think has to be addressed is during meta's conference call, I called it Mark Zuckerberg said the quiet part out loud because he s he dared to say that, you know, for all these billions they're spending on A I, it may take years for that investment to pay off.

So what does that mean?

For an NVIDIA?

At some point, at some point, you've invested the money in, in, in your A I development, you bought the chips, you're, you've, you've, you know, you've signed up whether it's, you know, open A I or whomever is gonna do this.

Um And in my meta's case, they're doing it themselves.

Um at some point that has to pay off, it has to be a bottom line, it has to work on the bottom line.

Think back to the internet days where the, in 98 through 2000 we heard all about the promise of the internet and to be fair, it's, it was true.

And, and actually then some, so look what we're doing, we're recording something that goes on the internet and like goes to a streaming, none of this crap even existed, none of it existed, it wasn't even dreamed of.

And so let me stipulate that the internet was everything it was, it was held out to be.

And then some problem is if you bought all the internet stocks in those days, it took years for this, in, for these investments to pay off.

And by the way, the two p, two of the big leaders on the internet didn't exist in 98 2000 because it was meta who we've discussed and, and Google slash alphabet that didn't exist either.

So, you know, I still think that, that the, the, the, the A I company for the, for the century it could be, you know, could be being developed in some 14 year old kid's garage somewhere.

You, you're really giving me a lot of flashbacks today, Steve.

Now I'm thinking about not that I'm not, of course, I'm listening to you, but I remember 1999 uh using Yahoo Finance to play the Yahoo Finance stock trading game.

What are my stocks?

I'll never forget this.

I don't know why it was Global Crossing.

Remember Global, I think it was GB LX that I even remember that it was wild but I mean, everything just exploded but it went from like 3 to 300 to 3.

It was totally like that.

It was totally abnormal.

I'm not, I don't think we've seen that ridiculous overvaluation again because NVIDIA and some of the, the other ones have, it, have been putting up the numbers, you know, it's not just on hope, it's not just uh on eyeballs.

I remember one of the great quotes from that era.

I don't know who, remember who said it was, you know, we were, we were being, you know, the metric was eyeballs, which is great.

If I'm an optometrist, that's how I was paid in my early career.

We'll give, we'll give you uh uh exposure on a Twitter account or somewhere.

Yeah, and that's how you're gonna get paid.

So, so, so the, so we're, we're, we moved me on that.

But the, but the lesson I think to take away is II, I have no, I, I'm gonna s let's say that A I is as life changing as it, as it's planned to be, as it's assumed to be and I'm not going to dispute it.

You know, I will say that A I as, as a concept has been worked on for decades.

It's something I it's, you know, I studied neural networks and stuff in college.

You told me that.

Well, you know, like it was part of my, my, my, I had two majors, finance and decision sciences and decision sciences would now be called behavioral economics.

But part of it was, you know, being able to make decisions.

Um and among other things were, you know, neural networks and, and you know, the burgeoning, you know, uh science behind A I, I have to work that into the title for this, for this podcast.

Somehow.

I don't know how I'm going to do it.

Give me a second.

Good luck with that.

You're the you're the journalist.

Well, thank you for deciding to come here, but I want to leave enough time for, for Apple.

I know you've been writing this about this on, um for interactive brokers in your, on your, on your blog, Apple has not had a good year, but they came back out um when they report earnings and announced what 100 and $10 billion stock buyback, that is huge.

You still have the Warren Buffett banking backing is this stock just too cheap, cheap to ignore.

A couple of folks I was talking to, um, on the, on the buy side recently suggests that their A I uh announcement in early June may be that trigger that just sends the stock through the moon into your end.

It's possible.

He II I, since November, I've been sort of arguing that Apple is not a growth stock, but actually the premier value stock.

Um and I think that's very important distinction.

And that to me, unfortunately, because the market distinguishes rich and cheap based in some ways upon your growth versus value.

How do you define a growth stock?

One that grows revenue and earnings?

Which Apple, which Apple doesn't?

II, I sorry.

Apple, Apple's revenue, you know, Apple, this quarter recorded recorded yet again, sequential year over year revenue decline.

Everybody ignores it.

It's the strangest thing you see in the headlines.

It's looking at you when the earnings release sales and earnings down.

But in your head, you're thinking sales and earnings were up.

Our earnings earnings managed to eke out a penny better than the prior than that equate to year over year increase.

Yeah.

And so what happens is so, you know, in my mind, consider me weird old fashioned.

I prefer gross socks actually growing.

Yeah, that would be one of my, one of my criteria.

Now, Apple is a phenomenal cash.

There.

It is.

Again, cash flow generating machine.

I, I, you know, I, I have an iphone, I, I, you know, I use icloud and spend the money for that.

They collect a fee off of my mlb app that I use and all of a sudden nothing but well, you, you know, we'll work on that but you know, I use Apple Pay.

So, so they, there's all these different ways that Apple collects money from me.

And also to some extent I carry around an A I assistant when I, whenever I say, you know, hey Siri, how do I do this?

So it's, it's there but the, it's all there except the growth.

And I, so I read their announcement about buying back an insane amount of stock as basically their acknowledgment.

We're hey, we're a value stock now, you know what the amazing thing is too.

I wanna, I wanna dive into that point a little bit but people think when they see 100 and $10 billion buy back that they all that stock is bought back in a single quarter.

First of all that does not happen.

And second of all, they're under no obligation to buy back all of that stock and it may occur over a number of years.

And also it's also a lot of it is to just uh reduce the dilution that they have from issuing shares to, to employees which, you know, if the stock is relatively stagnant, they may have to up their, you know, they may have to up their, uh you know, stock compensation.

So there's a whole bunch of moving parts, but the bottom line is they, they have more cash than they know what to do with right now.

And, and they're doing, you know, and they're doing something with it that's shareholder friendly.

The, the question of whether it's rich or cheap is which metric do you use?

If, if you're measuring it as a growth stock, it's cheap.

If you're measuring it as a value stock, it's not cheap.

Uh But I will argue it, it warrants a premium valuation as a value stock because it's because it's such a, but it's such a fortress, but it sounds like apple is a nothing stock.

And let me hang, let me hang with me on this.

So it's not a gross stock because sales and earnings aren't growing.

Maybe it's not a value stock because sales and earnings are still falling.

It's just in this weird gray zone of, of matter.

Maybe it's, it's, you can look at it as the best utility out there to some extent.

And that's damning with faint praise.

But it's, but in some ways it is, I mean, I, I write them a check every, to write him a check physically but they, they, they collect money from me swag of extra storage.

They swipe an extra $2 out of my account all the time.

So that's what it's getting used for.

So you're, you know, whatever icloud, who knows?

But the problem is they collect money from me every month, just, just like my electric company, just like the cable company, just like all these companies.

And so in many ways, it's the premier utility and that's a good thing.

That's a good thing when markets are volatile because, you know, utilities, utilities are defensive play.

Although actually they've been rallying now, I think because of the, the, you know, demand for A I electricity.

Well, then what's the, then what's the better play here?

Is it Apple is a potential value stock buying back a lot of stock or is NVIDIA that's still growing a lot.

But it may all be priced in.

How does the trader think the trader thinks to be opportunistic?

I think, I think if I were investing, I think, I, I think there's actually less risk right now in Apple, although it's not gonna, although I don't think your returns are gonna be quite so high.

I think there's much more risk in NVIDIA.

It's, it's, it's a pure risk reward situation if NVIDIA can continue their remarkable run of.

Beat Ray.

Beat Ray, beat Ray.

Which again, I don't think I've ever seen one like this and tell me if you have, but I, I can't think of a company that's, that's ever done this, like at such a meteoric pace and so routinely, um, if they can keep that up great, if it turns out that we hit a sort of a lull in the cycle, uh the A I adoption cycle, whereas people have bought all this, all these chips, people have subscribed to the, you know, to Nvidia's A, I, you know, the sort of the software behind behind the, the, the semis, um you know, at some point does that does that peter out and have you a, are we pricing in so much growth?

The one thing I will say in Nvidia's favor is for a company with this kind of track record, it's actually not that expensive.

It's not, it's, it's not insanely priced.

But you know, if you look at its peg ratio, the pe over growth, it's actually not so bad.

I don't, I don't remember what it is offhand, but last I looked, I was like, oh wow, that's actually not terrible.

And of course you can find that peg ratio for NVIDIA on the Yahoo Finance platform, Steve in the 30 seconds that I have left.

I always try to leave investors a little more inspired than the day before.

Try to make them better than the, than the podcast before.

What's the best investing tip or advice anyone has ever given you um watch the cash flows.

I, I know I keep, I know, I keep saying this but from a fundamental point of view, from a trading point of view there, you know, there's a whole bunch of them, but from an, from a fundamental point point of view, I've raised it before in this podcast is you can't fake cash flow.

And that is if you're looking at a company and they don't generate cash, ultimately, you gotta have you got a problem.

Thanks for always making time for us.

Uh Steve Sosnick, uh interactive brokers chief Strategist.

Good to see you, my friend.

We'll talk to you soon.

Appreciate it.

That's it for the latest opening bid on Yahoo Finance.