Out With the Old, in With the New

 | Mar 08, 2013 | 12:37 PM EST
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Exploited vs. unexploited. New names vs. old names. Overheated and overowned sectors vs. underowned sectors that haven't heated up yet.

That's where I think we are in this market. Money managers all over the country are looking at the stocks of companies hitting all-time highs and they are saying, "OK, what's still behind the averages longer term that I can make a thesis for buying?" They want to know where there still might be value. Right now they are finding little value in the consumer packaged goods sector of the market, think Clorox (CLX) or Colgate (CLP), and a ton of value in the once-growth names in hardware and software, companies like Texas Instruments (TXN) or Ciena (CIEN) and JDS Uniphase (JDSU) or even Compuware (CPWR), BMC Software (BMC) and Computer Sciences (CSC).

Now before you jump up and down for these names, because I tell you that the hot money is flowing into them, let me first tell you how the money management business works.

You know how when you got to the supermarket and you see something labeled "new" you might be more likely to try it than not, or at least that's what all of the brand people I have ever talked to tell me. It's not that much different in the money management business. There is an insatiable desire to hear new ideas and to take action on them, even if they seem old hat to you.

Take Texas Instruments. When I first got in this business Texas Instruments, along with National Semiconductor and Motorola were THE high fliers. At that point many businesses that were mechanical in nature where going digital. Don't understand? Think about all of the electronic instruments that are in your car now, vs. what used to be in it. If you ever get a look at a late-model Ford or Chevy you will be in shock at how little instrumentation there really is. Now, cars are chock full of semiconductors. That revolution is what drove the tremendous growth spurt of what was then called high technology.

Now that transformation, which was so exciting back then, is the stock market equivalent of ancient history. Texas Instruments, which ended up buying National Semiconductor, is now considered a gross domestic product play, meaning if there is growth in the economy then its orders pick up. If there is no growth it languishes.

Last night Texas Instruments gave you an intra-quarter update that showed you the company might be having a growth spurt. Orders are better. Inventories are lean. Things are getting better.

Of course, just like the stock market anticipated the  better employment numbers this morning, Texas Instruments had anticipated the turn in orders so it didn't gallop as you might think it would. No matter, Texas Instruments is getting talked about by fund managers who haven't looked at it in ages and I suspect it will be charging higher soon, breaking out of this long-constraining range, because if things are indeed getting better then the earnings estimates are probably too low. In the interim it has raised the dividend to the point where it yields 3.20%, a nice cushion if it gets hit while you are waiting.

It's the same thing with the telecommunications companies. We are seeing signs of life in JDSU, in Ciena and Cisco (CSCO), as companies that haven't spent a lot of technology of late, such as the giant telecommunications providers are at last spending again. They are making sense, too. 

In the meantime old software plays, chiefly companies that provide information technology help, like Computer Sciences or Compuware or BMC, are coming back to life as new and inexpensive speculations that have, like Texas Instruments, hope because companies are feeling more confident about spending.

It's out with the old and in with the new and the new, in this case, is overlooked, unloved technology from yesteryear. It's beginning to work, and I suspect it stays working as long as the stocks don't go so high that they are no longer considered cheap any more.

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