Momentum Monsters (Part 1)

 | Feb 17, 2014 | 10:00 AM EST
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(This column is Part 1 of a three-part series that will run today.)

OK, you are bullish. You think that the stock market has now shaken off its slumber. You believe that we will have growth, but not a huge amount of growth in the world. Guess what? I have a portfolio, an all-gunner portfolio that includes the wildest traders of all time.

I've done this a couple of times before, mainly with the CANDIES, which stood for Chipotle (CMG), (AMZN), Netflix (NFLX), Deckers (DECK), Intuitive Surgical (ISRG), Express Scripts (ESRX) and (CRM) and FADS CAN, which stood for F5 Networks (FFIV), Apple (AAPL), Deckers,, Chipotle, Amazon and Netflix.

The original CANDIES names were introduced on June 3 2010. We continued to come back to them consistently, though updated them to FADS CAN in November of that year, dropping Intuitive Surgical and Express Scripts to be replaced by F5 and Amazon. All of these names, with the exception of AMZN, faltered significantly during the journey since 2010. But they are all (with the notable exception of ISRG) coming back from the dead.

The CANDIES acronym highlighted the sweet high growth of these names. When we switched to FADS CAN at the end of 2011, the idea was to drop ISRG and ESRX (both good calls as ISRG growth was in question and ESRX, while well positioned, doesn't have the same hyper growth it used to). The FADS CAN acronym implied that the names in our index were NOT fads, they had long-term lasting outsized growth that were not flashes in the pan.

Needless to say, the performance of these gunner stocks has been nothing short of mind-blowing. That's because the stock market loves growth above all.

We updated the index to FADS CAN on Nov. 2, 2010 to include F5, Apple, Deckers, Salesforce, Chipotle, Amazon, and Netflix. Since then, the index is up 95.5% vs. the S&P up 53.1%.

CANDIES had been created on June 3, 2010 (just about six months earlier) including ISRG/ESRX (we swapped those two for FFIV/AMZN).

If we backdate the current index to June 3, 2010 it is up 161.9% vs. 65.7% for the S&P.

Growth is a prized possession and there are always mutual funds that will pretty much pay anything for it and anyone who is a real bull will treasure this new list.

I'm playing no favorites. Let's do them in alphabetical order with a rationale for the inclusion of each, besides the fact that they are among the wildest traders in history. In the world of March Madness, these aren't three-pointers, they are four-pointers, mid-court swishes, Momentum Monsters.

1. Amazon. Amazon is a defiant stock, defiant in that it refuses to be contained by the traditional valuation methods. In fact, it's the anti-valuation stock, meaning that as long as sales keep growing, no one seems to care about the profits, or losses for that matter. It is an extraordinary anomaly: a stock that people love because they love the product and are huge believers that one day, maybe, it will make a lot of money. But right now revenue growth is all that matters. The amazing thing here is that I think this stock would go down if they started focusing on profitability because that would be a sign that the growth runway is, at last, at an end. People didn't like the last quarter because it had an ever-so-slight downtick in sales, including some concerns about international growth. It amazes me that some analysts don't believe that the company could put through a price increase to one of the most tremendous bargains of all time, Amazon Prime. I think it will be no different from when Costco (COST) raised its card price and almost no one balked. But let's not get too positive on fee increases because all that matters here is more and more revenue growth.

2. Chipotle. Who else had 9% same-store sales growth? Not Costco. Not Whole Foods (WFM). Not Starbucks (SBUX). Not anyone. It was a tour de force number, an eye-popping level of growth based, in large part, on the company's ability to convince people that it is indeed the anti-corrupt-food-chain entity. If you don't believe me, check out the hilarious Industrial Farm Information Bureau videos starring, Ray Wise as Buck Marshall. It's all about how Chipotle, even though the stuff tends to have a ton of calories, is definitely not a processed food company like its one-time parent McDonald's (MCD). It's one of the cheaper stocks in these 15 gunner stocks, selling at "only" 43x next year's earnings. 

3. Facebook (FB). My charitable trust Action Alerts PLUS had a huge hit in this and, for the first time in ages, I can say I wasn't greedy enough. This is a company that is laser focused on PROFITS, particularly mobile profits, and it's driving them incredibly fast. Some of this is because the advertisers love it and the viewers seem to like the ads. Some of it is because of the demographic and the 1.2-billion-people love affair. But most of it is that Facebook is your identity. It's you and they can do a lot with you, much more than just entertain. But that's sure a start. How much would an advertiser pay for individual smart advertising to 1.2 billion? A lot more than the $170 billion capitalization of Facebook captures. Yes, the opportunity is that huge.

4. Google (GOOG). Here's something to think about. Google's probably the cheapest stock on the list here, with a 22x price-to-earnings ratio. Chalk it up to the law of large numbers. Google just can't get 50% earnings or sales growth. It's too big. But this is the company that has more fingers in more pies than I have ever seen (cell phones, personal computers, search, advertising, telecommunications, wearables, cars, entertainment, you name it). Google has so many opportunities to make money that I don't even think it can take advantage of them all right now. But it will.

5. Michael Kors (KORS) has become the go-to momentum play of accessories and high end of retail that has always been filled with gunner names like Deckers and Fossil (FOSL). Michael Kors, like so many other Momentum Monsters, defies the shorts, putting on very-high double-digit same-store sales. That's how you get a 31 P/E for a handbag company. There is a scarcity of non-tech high growers and Kors can make any momentum fund look diversified. I like the company, but this move to the $90s from the $70s happened in a straight line. That's what happens when the shorts panic and go nuts (Exhibit A for this is Green Mountain (GMCR), which is no longer a Momentum Monster and is, instead, a ward of Coca-Cola (KO)).



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