People Forget Why they Sell

 | Feb 28, 2014 | 11:38 AM EST
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Here's a common trait: people have forgotten why they were selling.

Why did we hammer PPG Industries (PPG) after the quarter? Was there really anything wrong with 3M (MMM) or United Tech (UTX) or Eaton (ETN)? Isn't Emerson (EMR) going to wake from its slumber?

It may even soon be a General Electric (GE) moment, although that might be asking for too much.

This kind of behavior is not new if you look at the calendar. Most of these companies sold off because they reported during some dark days where we thought that emerging markets were done for, the federal government might shut down again and weather worries were so strong that they transcended longer-term earnings outlooks.

Let's take PPG. This fantastic coatings company has been trading in the high $180s cruising into the quarter. Why not? CEO Chuck Bunch, one of the most reliable CEOs, a Bankable 21 from "Get Rich Carefully," has delivered time and again through thick and thin.

When the company reported, the number was pretty much perfect on every metric. But it had the misfortune to report right smack in the middle of the worldwide squall. I am not kidding when I say that all of Chuck's hard work seemed to be obliterated on the altar of turmoil in Turkey, Argentina and, what were the other countries? I actually forget.

It seemed like a travesty to me and when Bunch came on "Mad Money" soon after the terrific quarter I said so. Talk about deaf ears. The stock kept falling, bottoming in the high $170s. Now, let's think about this. A worldwide specialty chemicals company reports a fantastic number, talks about having a huge cash hoard, signals that 2014 will be another year of excellent growth with the possibility of some good mergers and a large buyback thrown in and it gets hammered because of an overall decline in the S&P 500 that had nothing to do with its prospects whatsoever?

Yet that's pretty much exactly what happened. Then, as time goes on, we forget about Country X's problems, things calm down and we begin to see things for what they are depending upon and whether a company like PPG actually had good things to say. Then we get reports from Home Depot (HD) and Lowe's (LOW) talking about how strong paint is selling and the stock gallops all the way back to where it was and then some. Next thing you know it hits a 52-week high.

Eaton's no different. When the company reported, the number was widely viewed as disappointing, with the stock plummeting from the high $70s to the high $60s in pretty much a straight line. CEO Sandy Cutler came on "Mad Money" and told you not to worry, that the outlook for almost every business was improving, including construction of all kinds, and you would figure, it's an ah-hah moment, another chance to get in. Nope. Instead it sold off again with the entire market as people simply presumed that Cutler, a very rigorous business person, was simply too bullish. Since then things have calmed down and now people are taking a second look and liking what they see.

It's no different for any of the big multinationals. Where pessimism ruled the roost in the big industrials like United Technologies, MMM and Emerson, now hope springs eternal.

Of course it is possible we have already swung too optimistically. But I will say this: once again, when waves of futures selling brings down the stocks of companies that are doing well and have navigated downturns in the past, it is the time to buy not sell. Maybe if it happens again finally people will listen.

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