NEW YORK (Real Money) -- Now, knee-deep in November, we are getting the outlines about how this year is going to end and what stocks are going to be bought on any deep going into the homestretch. You can see it just by paging through the charts, as I like to do on Sundays. The collection of "what's working" is so powerful -- some would say so extended if they were bears -- that they are imprinted deep in the money manager psyche.
What stands out?
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First, and the strongest by far? Health care and health care-related companies away from the major pharmaceutical companies. The outperformance of everything in this group is so strong that it's almost freakish.
It's almost dangerous not to be overweight in these stocks going into the end of the year. Of course, this group's strength is a bit of a conundrum. Those money managers who think that our economy is very strong would never choose to be big in these stocks. But if a money manager takes a global perspective and considers European weakness, Chinese slowdown and now a new Japanese recession, then the dialogue changes and these stocks are ideal counters to worldwide weakness.
Now considering the heights with which this Allergan (AGN) situation has arrived with the potential Actavis (ACT) bid, you can say that anything that looks or acts even remotely like Allergan, with its ophthalmological franchise and Botox businesses, is going to go higher. That stock, which has more than doubled from a year ago, shows that even after a big run the company remained undervalued to another company and I think that's the undercurrent of the whole group.
Put simply, every CEO in this industry wants to buy the other companies in his industry and be a consolidator, and the consolidator will almost immediately be rewarded with a higher stock price. When you consider that Valeant (VRX) and Actavis have been terrific performers as long as they have remained acquisitive, it explains a lot about what's going on in the group. How many groups have solid earnings and ample takeover prospects, where both the acquirer and the target go up? This is about it.