Posted at 3:13 p.m. EST on Thursday, Feb. 18, 2016
This is the moment where you cannot be disheartened. This is the hour when you have to say to yourself, OK, we've been up big for the past three days, the best consecutive days since the bottom of 2011. This is the day, where you must say, OK, now we have to roll up our sleeves and get to work on what shouldn't be down that is and what can be bought now that we've had a monster rally.
First, we are pretty far along earnings season and we have had a real good feel for how companies are doing and how we can approach what stocks are going to get appealing as the market comes in.
Why is it worth bothering if there are so many open issues? First, they aren't as open as they were. The Federal Reserve is more on our side than we thought. Last night James Bullard, the hawk to end all hawks last year, the St. Louis Federal Reserve President who was so optimistic back in the fall, openly questioned the need to discuss rate hikes because of all of the turmoil out there. Ah, a man who realizes the facts have changed and he's changed his mind, too.
That level of flexibility is a godsend.
Second, the dollar, the bane of so many companies' existence, has ceased to climb relentlessly against the basket of currencies I follow. Oh, sure it's gotten hammered again vs. the Venezuelan currency, a massive devaluation just last night where a dollar now buys you 10 Bolivars instead of six. Woe be the companies that have made big bets there that something will change for the better. It, like Brazil, keeps getting worse.
And we know that we are still flirting with danger when it comes to oil. It's been able to hold $30 on talk about a deal with the Saudis and Russians not to pump even more than they do if only Iraq and Iran keep their supply down. But both the latter have pledged in the past to pump more, not less, so who knows how there can even be a deal.
Meanwhile, Rusty Braziel, my energy expert from RBN Energy, now reports that not only is Gulf of Mexico oil on the increase this year because of wells started a few years ago that are finally coming on line, but also because the heavy oil out of the Canadian tar sands has really started flowing to the States. The costs all in to bring it to market? In many cases after transport they are selling it at a loss of a couple of dollars per barrel. You can't make it up in volume.
Warm weather has made it so natural gas can't get out of its own way.
That all adds up to producers being dreadfully short of capital, which is how you can see Devon Energy (DVN - Get Report) offering 69 million shares last night at $18.75. Four months ago it was at $47. Someone smells a bargain because initially it was only going to offer 55 million, but the company upsized the deal and it still has gone to a terrific premium.
Nevertheless, we have to be heartened that one of our key boxes of worry, the lack of mergers and acquisitions, seems to be assuaged by the second deal this week, where a Chinese company launched a bid with a $10 premium for Ingram Micro (IM) , a company that's a lot like Avnet (AVT - Get Report) , a supermarket of tech. That's right on top of a huge bid for ADT (ADT - Get Report) , the home security company, by the value-seeking Apollo (APO - Get Report) . You don't get a couple of bids for $6 billion and $7 billion, respectively, out of thin air and not think something's changed. Something's more certain.
So what has done well that you can take a hard look at given these circumstances?
First, I am still enamored of McDonald's (MCD - Get Report) here. Why not, the turn is for real and the weaker dollar is only going to help things. Sure Wendy's (WEN - Get Report) and Burger King are firing on all cylinders. But we discovered last night that competitor Jack in the Box (JACK - Get Report) is feeling the pressure and you have to wonder who else will be felled by Mickey D's aggressive marketing including all-day breakfast. I am as furious, by the way, at Jack in the Box as I am appreciative of Panera (PNRA) because the former overpromised badly and quite recently and severely under-delivered while the latter was classic UPOD, underpromising and overdelivering.
Jack truly hurts as my charitable trust, Action Alerts PLUS, bought into its blithe reassurances. But Panera's more than made up for it as you could learn if you follow along with my bulletins where I play with a real open hand filled with both Jack agony and Panera ecstasy. JACK's now gotten too cheap to dump. But let's include Panera in the mix of stocks we want to buy, too, as it comes down. The turns at McDonald's and Panera are for real. That's why it is such a delight to see them head down for an opportunity that might pay off, not for days or months but even years.
These selloffs offer goodies like Clorox (CLX - Get Report) . We just spoke to Benno Dorer, the CEO, and he reminded us that business is real good and that raw costs are coming down, especially energy. In the meantime, remember Clorox is the only large capitalization consumer packaged goods company that had the foresight to ditch Venezuela, literally give up on the darned place. What a brilliant decision.
How much do you hope Cisco (CSCO - Get Report) comes down? This company, another charitable trust holding, reported an amazingly strong quarter, made a terrific acquisition, announced a $15 billion buyback, and most important, boosted the dividend so large that it yields 3.95%. You get this stock at 4% with the 10-year Treasury at less than 2% and you are going to be a long-term winner.
Maybe a decline allows you to get into the two best-performing industrials this time around, Honeywell (HON - Get Report) and 3M (MMM - Get Report) . The latter at $156 is still way off its high of $170. But Honeywell is just pennies from its $107 peak. Why is Honeywell doing so well? One reason is that it's benefitting from what truly is a robust aircraft cycle and it's being bought in large part by those who want nothing to do with Boeing (BA - Get Report) and its alleged accounting issues. You know my dictum: "accounting irregularities equals sell" and while I know that this principle has kept me out of an occasionally terrific opportunity I have to stick with what's kept me out of trouble more times than being in.
Why focus on these two? They've been hammered by a strong dollar even as they've gotten so much right. Their earnings could get a tailwind instead of a headwind if the dollar stays on a weaker path. No, I by no means am slighting General Electric (GE - Get Report) with a 3% yield, but I know a break in oil will allow you to buy that $29 stock at $28, which would be sensational. Penny wise? No, just sticking with the hoped-for downturn thesis that has often happened after this much of a rip-snorting rally.
Finally how about Action Alerts PLUS holding WhiteWave Foods (WWAV) ? Remember that old friend. It had been brought down by a weak quarter from Hain Celestial (HAIN - Get Report) as well as worries that natural and organic had been going out of style or was too competitive. But this is the branded Horizon snacks and plant-based liquids company that reported the good quarter, not a weak one, yet is still down for the year even after a good quarter. The company spoke today at a big food conference and reaffirmed numbers given just last week while admitting it hasn't gotten China right. I think that means it's only upside, if they do, given how much better and cheaper plant-based milk would be vs. the kind that comes from cows living in a highly polluted environment.
So there you have it. Some opportunities that are going to knock now that the rally peters out. Instead of saying "darn I missed it," just recall that these three-day bursts have been followed by some multi-day declines despite some definite improvements in the backdrop. Get ready. Let the bad times roll, at least when it comes to stock prices, as we let the better times roll with the fundamentals.
Posted at 12:24 p.m. EST on Wednesday, Feb. 17, 2016
Bottoming? Breaking out? Dead-cat bounce?
This three-day rally has been extraordinary in that it finally has become all-encompassing except for the utilities, which is fine with me because their rally was a sign of both desperation and recession.
Contrast that with some other groups.
Let's start with the rails. These stocks led us down. Literally, if you look at the charts, they have been a major force of negativity, never good given the breadth of cargo they carry.
This morning, the chief financial officer of CSX (CSX - Get Report) talked about how the first quarter was going and said he expected first-quarter earnings "to decline significantly." Not only that, but the CFO said coal could decline by more than 20% in 2016. I am a huge bear on coal, but not that bearish. What a stunning decline for that most key of commodities shipped by rail.
How much is the stock down?
How about retail? Nordstrom (JWN - Get Report) reports tomorrow, and all I can say is "wow" -- wow to the fact that this stock has been clawing its way back to where it first fell after the last quarter, a truly horrendous earnings report. That signals people are expecting that the worst won't matter. Wal-Mart (WMT - Get Report) has rallied more than 10% since its last -- and disappointing -- quarter, and it is up 8% for the year. Very encouraging, and leading a retail breakout.
Here's one that's acting incredibly well since the quarter: Honeywell (HON - Get Report) . While it is up against resistance, it indeed is closing in on its high set last August, just a few points away. I can't stress how important that is because many industrials weren't rewarded no matter what they had been saying. Now it's just the opposite. General Electric (GE - Get Report) is clawing its way back to its high from when it reported; it's less than two points away. Once left for dead, Eaton (ETN - Get Report) , which had a greater-than-4% accidentally high yield, is another 8% gainer after a very good quarter. Earnings are mattering again to this group.
Then consider the travel and leisure segment. Nothing seemed to move this dog of a group as it has been surrounded by gloom and aggressive short-selling. They are paying the price today with this incredible move in Priceline (PCLN) , which reported a very strong number with excellent billings boding well for the future.
Some groups never really did quit, they just stalled out. Domino's (DPZ - Get Report) never ceases to amaze. But neither does Panera (PNRA) , which is part of the Action Alerts PLUS portfolio and has been incredible, especially since I spoke last week to the CEO, Ron Shaich, about the turnaround. You have a rare down day for McDonald's (MCD - Get Report) , but that's because it was the best of the group and the rest are playing catch-up.
Oil stocks are nowhere near any levels of import, except that if you participated in any of the secondary offerings of late -- namely Hess (HES - Get Report) , 25 million shares at $39, and Pioneer Natural (PXD - Get Report) , 12 million shares at $117 -- you are up huge from both, with Hess currently at $43 and Pioneer at $122. How important is this? Consider that any buyers most likely will snap up any common offered now, and remember all oil companies need capital.
Big data has been a big sore point since the Tableau Software (DATA) /LinkedIn (LNKD) debacle less than two weeks ago. But with the collaterally damaged stocks, namely Salesforce (CRM - Get Report) and Adobe (ADBE - Get Report) , you've made 10%. Oh, and get this: the stock of Apple (AAPL - Get Report) , which also is part of the Action Alerts PLUS portfolio, seems to have found its footing, and I am sticking with my "own it, don't trade it" dictum as it begins to trend higher.
Don't you wish you bought the so-called horrible quarters from Time Warner (TWX) and Disney (DIS - Get Report) ? I don't know what to say about the latter. I said buy it at $86 and buy more lower. It complied with the former but never got lower and now it's 10% higher.
Finally, you have to love the action in the consumer packaged goods sector. Yesterday, Hormel (HRL - Get Report) hit an all-time high and today it's Campbell Soup's (CPB - Get Report) turn after another blockbuster quarter.
Now you could say that with the exception of the latter, these are all dead-cat bounces from an oversold position. What I say is that we had been in freefall and that's no longer the case. Now we're basing with broad sector appeal. Let's just say it's something to build on, a real change of the pain of 2016.