U.S. Still the Cleanest Shirt

 | Jun 27, 2013 | 8:30 AM EDT  | Comments
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We're getting this growing consensus, from CEOs we talk to, that the U.S. gross domestic product is on about a 2% growth path -- and maybe, if stretched, 2.5%. Now, no one in their right might is going to say that's terrific. No one can be happy with that level of growth.

That's except when you consider that Europe, where 38% of the world's business is found, would kill for that -- not to mention the envy they have in South America for that kind of growth rate. It is certainly true that China has faster growth. However, we are in some weird moment when the deceleration from fast growth to slower growth is much more painful and disrupting than just permanent slower growth. The latter is exactly what the U.S. seems to be offering.

Within the confines of that kind of growth, you can see why there is something for everyone pretty much every day of the week. Just think about General Mills (GIS) Wednesday. Think about the life cycle of an earnings report. The day starts with a headline that says revenue estimates disappoint. The stock gets hit down to $46 in premarket trading even before we've heard from the company via conference call -- and anyone who has followed this company long enough knows that Ken Powell, the CEO, always puts on a good show.

So the stock starts its slow climb back up. Mills is the perfect microcosm for the moment, because as the news unfolded it turned out there was simply no reason to sell the stock at $46. In fact, when it got to that level, it had a dividend yield of 3.25%. That's a bargain on a day when the 10-year U.S. Treasury is actually strong and yields are going down. Then, when the stock got to $47, you realized the company had already issued a pre-earnings earning, and it was basically being its old conservative self as the headlines rolled out.

Then, at $48, you kind of had to say, "OK -- there's nothing new here. If the economy were downshifting to 1%, it would be a buy, but if it upshifts to 3%, it's a sell." That's why the stock finished where it had started off.

We have a ton of stocks that are like General Mills right now. They have come back down to levels where they aren't cheap or expensive after they'd spent some elevated time as bond-market equivalents. It is going to be hard to get them off the dime if the U.S. stays at this 2% range of economic growth.

But here is what's important about that: These stocks have reached some level at which, because of their consistency and their dividend policies, it isn't worth selling them either. I think the action in General Mills explains why the market has stabilized. With this level of growth, you simply no longer want to sell stocks that look and act like General Mills.

Certainly you are more attracted to cyclical stocks that could do better if you think the second half is going to give you 3% economic growth. That's why, when you get an upgrade today of a company like Western Digital (WDC) or Seagate (STX), two uber-low-multiple stocks, you know you have winners. You are going to be drawn to companies like Boeing (BA), too. Last night, on "Mad Money," Boeing CEO Jim McNerney traced out a 20-year-secular growth path for the company. That stock can go much higher.

But the main takeaway I can see here is stasis for the part of the market that had been falling apart. The General Mills-like companies out there -- with this Federal Reserve right now and this economic growth right now -- are just plain, well, hunky dory. They are clearly opportunities to be bought down a couple from where they are now, but they are opportunities to be sold if they climb back to where they had been before the Fed's May 22 signal that the economy's risk is now toward acceleration and not de-acceleration.

The Big G doesn't have the cyclicality the market craves, but it doesn't have the pitfalls the market fears. So there's nothing to do and, sometimes, when there is nothing to do, it's a terrific statement for the market as a whole. Because this huge cohort just isn't going to hurt us anymore -- at least from these levels.

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