It's a Titanium-Plated Market for Now

You do realize that if you removed tech and health care from your screens, it'd be abundantly clear that we are still in a booming economy and bull stock market. The most likely reason for that action is that, indeed, away from tech and health care, most stocks are trading at very low multiples on forward earnings and, just as importantly, there's lots of visibility into the earnings power of those companies over the next couple of quarters at least.

A classic case in point is that RTI (RTI - commentary - Cramer's Take) company we talked with and about last night on Larry Kudlow's show. I mean, that formerly li'l ol' commodity play on titanium now has visibility into the next eight years' worth of demand after signing a long-term supply agreement with Airbus this week. The same can certainly not be said of most semiconductor companies, many of which saw inventories climb in the supply chain during the first quarter. Certainly that inventory situation could turn out to be a positive one if demand continues to be strong for the finished goods of MP3 players, cell phones and other gadgets.

But if you can choose to pay 35x forward earnings for Broadcom (BRCM - commentary - Cramer's Take) as inventories (and therefore risk) build or 9x forward earnings for, say, commodity stock Phelps Dodge (PD - commentary - Cramer's Take) as the company scrambles to sell as much product as it can for the next quarter or two at least -- well, while I'd certainly rather own Broadcom for the next two years than Phelps Dodge. That doesn't mean the market's going to see it that way anytime soon, especially when the near-term outlooks are so foggy for Broadcom and clear for Phelps Dodge.

On a broader note, those inventories in the supply chain throughout tech are a large part of my current cautiousness. I'm going to keep a large balance of cash on the sheets for the foreseeable future as the inventory situation plays itself out a little bit.

Earnings season is ending. Another earnings season will be here in just a couple of handfuls of weeks. It never ends, even when you're trying to catch your breath. I hope you had a good day and I'll see you tomorrow.

At the time of publication, the firm in which Willard is a partner was net long Broadcom, although positions can change at any time and without notice.

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Cody Willard is the manager of a hedge fund, author of The Telecom Connection, a newsletter published by TheStreet.com and a contributor to the Financial Times and VON Magazine. He is also a regular guest on CNBC's Kudlow & Company and an adjunct professor at Seton Hall.

He earned a bachelor's degree in economics at the University of New Mexico. Willard appreciates your feedback -- click here to send him an email.