Gems Hiding in the Shadows

 | Jun 09, 2014 | 6:50 AM EDT  | Comments
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The bears are so complacent. They are so smug. They seize on the cratering of certain stocks, like FireEye (FEYE) and Athena (ATHN) or Salesforce.com (CRM) and ServiceNow (NOW) and decide that this market's gotten treacherous. Or they look at every tick of the homebuilders and decide that housing is rolling over.

They examine the huge number of retailers we have trading, everything from Whole Foods (WFM) to Bed Bath & Beyond (BBBY) -- way too many if you ask me -- and they make negative judgments about the consumer and what Amazon (AMZN) is doing. They worry about inflation and slowing sales at Panera (PNRA) or cutthroat competition among coffee purveyors and dollar stores.

These are all trees, however. The forests, the ones where people don't go, are just chock full of winners. Sure, many of them are isolated. Does anyone care about the breakout in Snap-on (SNA)? Does it matter if Robert Half (RHI) has turned up? Leggett & Platt (LEG), a mattress company?

But taken as part of a larger thesis, you see stock after stock from so many sectors go up that you have to question how people can stay as bearish as they seem to be.

What am I talking about when I say being bearish? I see, hear and read answers to questions about "what keeps you up at night," to managers who come on air. You know what I never hear as an answer? "Trying to keep up with these averages," or, "not having enough transports to beat the S&P 500," or "will my investors take their money away because I have been so cautious?"

Honestly, tell me if you have ever heard any manager come on and say "look, you have to ignore the problems in ____ (fill in the blank with Ukraine, or Japan, or even China) and focus on finding stocks like Delta (DAL) and American (AAL)." Do you ever hear anyone say "I can't believe I missed the move in these insurers, even after the Protective Life acquisition?"

Now, why is this all so galling to me? Because I talk to managers all the time and it is an open secret that the real fear is being hopelessly behind the averages with many of the free shorts, the software-as-a-disservice-to-you-portfolio shorts and the biotech shorts now seeming to stabilize. I still don't like the stocks of companies that don't sell on price-to-earnings and instead sell on some relative like-to-like rarified level. And I can see that you can make a good case to short them when they rally.

But these longs? Are they that hard to spot? Anything rail, anything truck, anything plane, anything ship, these are huge areas of the economy and the stocks are amazingly strong. Do people talk about them? Nah, they want nothing but a couple of tech stocks including some obvious disasters.

The insurers, specialty, reinsurance, property casualty, health insurance, life insurance, mortgage insurance -- I can't find one of these that isn't at or near its 52-week high.

Pipelines, power companies and real estate investment trusts are still roaring, well after interest rates have this down-leg. At first you could explain it as something involving bond market equivalency. Now I think you have to add that the business itself is just getting better. That's what Entergy (ETR), the huge Southern power company, just told me. So did American Electric Power Company (AEP), which is South and Midwest. People are using more power.

It makes sense. We have a huge wave of building going on all over the country to meet the demand of the chemical companies, aerospace companies and auto companies. When you see Ford (F) starting to go through these levels you know that you are going to see Alcoa (AA) do better, Harman (HAR) do better, Johnson Controls (JCI) do better, Honeywell (HON) do better and so many other companies that are involved with autos. Same with aerospace. You can see all of the stocks in that cohort really starting to break out here.

But there are some other, big surprises. For example, the stocks of companies in the networking business are really getting pumped after the one-two punch of Cisco (CSCO) and Ciena (CIEN). The plain vanilla semiconductor and disc players and handset parts makers are all on an upswing.

How about travel and leisure? All the hotel stocks are doing so well. Every one of them.  You don't get stocks doing that well unless people are out and about spending.

For a long time we had an elite group of natural gas stocks going higher, mostly Cabot (COG), Range (RRC) and EQT (EQT). Now it is all of them, every one of them! Whether it be not-so-hot operators like Encana (ECA) or Chesapeake (CHK), or companies that were always well run but owned too much natural gas, namely Devon (DVN) and Ultra (UPL). The drillers have a mind of their own. I am thinking the deep waters are worth a chance if only because all of the others are so strong that I can't believe more deep-water drilling won't be coming.

And anything Eagle Ford or Permian, like EOG (EOG) or Pioneer (PXD) or Cimarex (XEC), or Concho (CXO) and Carrizo (CRZO), they are almost too hot to talk about.

But it goes through all sorts of industries. Any food stock that can be acquired or broken up is soaring: Campbell's (CPB), Kraft (KRFT), Kellogg (K), McCormick (MKC).

Doesn't matter which chemical company you pick, Celanese (CE), Huntsman (HUN), Dow (DOW), DuPont (DD), PPG (PPG). I think if my manager didn't' own one of these I would ask him what the heck he was doing.

Oh, and the money center banks, which have been pathetic for years, still get the lion's share of ink. However, when you look which stocks are really roaring higher, it's all of those safely out of the governments crosshairs, all of these regionals, led by the pristine Wells Fargo (WFC).

The surge in medica- related stocks is breathtaking. Medtronic (MDT), Edwards Lifesciences (EW), Hospira (HSP), Perkin Elmer (PKI), Becton Dickinson (BDX), they are mouthwatering. Just try to catch anything HMO, that group seems to know no bounds.

I could go on and on but the most important thing to know is that there is a silent majority of stocks doing the work here, at all times being masked by the battlegrounds of Tesla (TSLA) and Netflix (NFLX) or Apple (AAPL) and Google (GOOG). There are stocks that demand so much mindshare, like Facebook (FB) or Yahoo! (YHOO) when we should be talking about the astonishing moves in West Lake Chemical (WLK) or Travelers (TRV). We fret about Target's (TGT) woes or what's the matter with Wal-Mart (WMT). We tremble at the teen retailers. We wonder when J.C. Penney (JCP) will come back.

We should be talking about the ascendance of Williams-Sonoma (WSM), Tiffany (TIF), Dillard's (DDS) and Nordstrom (JWN). They have it right. I know it is perfectly legitimate to focus on some large, lagging, big-capitalization names that always seem to be subject to big debates.

But the stocks I am talking about just seem to have no resistance at all, as if there are no sellers to speak of, and an endless supply of willing buyers to pay up.

Yep, they are a silent majority. Maybe it should be some of our jobs to shine the light on the winners, and not just the ones with amateur fans and professionals gunning for them. Step out of the spotlight. It's blinding you to the main opportunities.

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