The Revenge of the Nerds

 | Apr 24, 2014 | 2:43 PM EDT  | Comments
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It's the revenge of the nerds! It's everywhere we look, and it doesn't matter what industry or what sector. The nerds have it.

Let's take a nerd roll call so you know exactly what you mean. I've got 10 nerds: dowdy companies, left-for-dead companies. Companies that people simply didn't care about because they were wallflowers or boring -- cheap stocks that had fallen totally out of favor. These stocks wore pocket protectors and wing tips. They had their own non-animal house. Their frat house? Not Fi Slamma Jamma but, after today, Phi Betta Kappa.

Let's start with chief nerd, Apple (AAPL). Here's a company that had become the Sherwin-Williams (SHW) of tech -- meaning it was like watching paint dry, with no offense to that perennial winner. You didn't have good growth. You were getting pants'd by Samsung. You didn't have China. You had lost your way. You were, amazingly, the un-coolest kid on the tech block.

And don't I know it. My Action Alerts PLUS charitable trust has owned Apple forever. Yesterday, before it reported, when Carl Quintanilla asked me why, I said nothing. I just shrugged my shoulders. That was the tell right there. That was the moment where you had to buy, especially when I mouthed some boiler plate -- that it's a cheap stock -- and then followed up with, "That's some reason to own it." Laughing, scornful. Mocking for having it in the trust.

Bingo. Next thing you know, we learn that Apple has real growth, the ecosystem is back and suddenly it's cool and Samsung's become the ice man. The Chinese orders are amazing. The cash is brimming and being returned with the biggest share-buyback ever. Second dividend boost in less than two years. And the darned thing sells for 12x earnings. You get an almost double-digit grower with a big dividend that sells for a fraction of what you'd get if you bought a carbonated-soft-drink or cereal company. Plus, management at one time openly scorned a stock split. Now it's giving you 7 shares of an $80 stock. You'll go buy more when it happens.

Nerd no more!

Or how about Lam Research (LRCX), the semiconductor-capital-equipment company that's appearing on Mad Money tonight? Going into the earnings reports, it sold for about 10x earnings, half the valuation of a shampoo or toothpaste company. We know Lam because a couple of years ago it bought one of our favorite companies, Novellus, and it has taken out an immense amount of costs while really taking a huge amount of market share.

Lam is also the only game in town for some product lines where it competes. If you want to make dynamic random-access memory (DRAM) chips, you need Lam's machines. Look out after Micron's (MU) quarter -- the DRAM orders were good, and I said last night that that could eventually be the kiss of death. It won't be this quarter, but it does hasten eventually. Cinderella!

Oh, speaking of nerds. People were so busy focusing on the exciting semiconductor companies such as Qualcomm (QCOM), Arm Holdings (ARMH) and Xilinx (XLNX) (the latter of which is one of my favorites that gave very negative guidance). But they forgot good old geeky Texas Instruments (TXN), an industrial analogue play that three years ago merged with another geek, National Semiconductor. We know now that this merger is a winner, and the stock's now cool as all get-out.

Was anything cooler than biotech going into this year? Was there anything more out of fashion that AstraZeneca (AZN), the slowest-growing major pharma company? Maybe Zimmer (ZMH). This is the once-great growth company that makes implants that used to be a high-growth smoke show, but which have cooled because a lot of the company's devices are elective.

Many of the drug companies have reported terrific earnings. Not AstraZeneca. It laid an egg this morning. But guess what? It didn't throw any cold water on the idea of possible merger or alliance. We had heard that Pfizer (PFE) might be interested in buying them. All this conference call did, aside from lower numbers, was to suggest that this could be a reality.

How about Zimmer? When I saw the stock was up 11 points premarket, I immediately asked myself: Who bought it? For how much? Nope, it turns out that Zimmer is buying one of its competitors, the private Biomet, for a pretty nice price. It'll become the one-stop baby-boomer joint-replacement company overnight. Oh and you see the pattern? Lam buys Novellus. Texas Instruments buy National Semi. As a consumer I love competition. As a stockholder I hate it -- and these are all winners now.

Everyone loved the high-flying restaurant chains not that long ago, right? I mean, they offered the hottest choices and were the definition of cool. But people forgot good old McDonald's (MCD). Now, after still one more not-so-hot quarter -- one of a big string -- the stock is breaking out to $100, and all this during a period when the prom queen, Chipotle (CMG), dropped $100. At a time when food prices are soaring, McDonald's has the clout and the sourcing to keep those costs under control. Gotta love that.

You want boring? How about hand tools. Saws. Drills. Dumb as a bag of hammers, uncool. I am talking about Stanley Black & Decker (SWK). This company has found as many reasons to miss quarters as there are aisles in Home Depot (HD). But not this morning. The company finally got it right with every division, including the ridiculously underperforming European business, which is now excelling. It was a remarkable performance from this ugly duckling. Total swan.

Can there be anything more out of favor than a homebuilder after yesterday, when we got one of the worst new-home sales numbers? The report told you that cycle's truly over. Then, this morning, huge homebuilder D.R. Horton (DHI) reported a number so strong that I had to read the release twice. Horton was wearing bell-bottoms and a Nehru jacket coming into the quarter. It left wearing Zegna.

Last two nerds? How about a hated steel company and a despised machinery company? My charitable trust had been sweating this Timken (TKR) ever since the company had disappointed a couple of quarters ago. It was one that rivaled GameStop (GME) in its ugliness after the company told a good story on Mad Money. We saw this morning that steel's gotten hot. Steel hasn't been hot since right before Hyman Roth's company passed U.S. Steel (X) in size, right before Castro converted Cuba.

Finally there's Caterpillar (CAT). What do we know about Caterpillar other than the fact that it seemed to double down on China right into that country's downturn? But this morning we discovered that U.S. is again driving the bus with terrific numbers in construction. Not mining, but construction. Whoopie! We matter! Plus, this company's taking out costs -- restructuring out 8,000 people in this country -- and its raw costs are coming down. Caterpillar is no longer some ugly creepy bug creeping down a tree branch. It's a butterfly!

Meanwhile, the coolies? How about Under Armour (UA)? The stock was hammered on what looked to be a terrific quarter -- outside of the company's spending. ServiceNow (NOW), a software-as-a-service company that reported huge a revenue number last night, was crushed. No earnings. Hershey (HSY), the only food company with growth, didn't have enough growth. Hershey gave you performance until this quarter. Now it just gives you pimples!

Yep, it's a revenge of the nerds. And I have to tell you, I don't think the revenge will last for just a day. The nerds are in control of the frat house, and they are installing naugahyde couches and water beds, bringing in lava lamps and rolling up the contact paper. Suddenly they have gone from embarrassing to, yes, embarrassingly rich.

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