It's all bad until you hear from the companies. That's how you have to feel after Cummins (CMI) told an amazing long-term story today. The company has got a growth plan for world domination that involves taking share, growing new markets and being environmentally sound when it comes to the actual engines it produces.
Of course, the stock has been one of the worst-acting stocks I have ever seen during this Europe-dominated era. I am sure it will remain that way and become a source of new worries a few days from now. But that's how it is.
Unlike so many other times in my career when I genuinely believe the fundamentals matter, I know that stocks have taken on a peculiar correlation with the S&P 500 that's unheard of.
When I got into the business, I always accepted the wisdom, learned at Goldman Sachs, that 50% of a company's stock movement had to do directly with the company's fortunes, and 50% had to do with the sector, meaning cyclical or secular growth.
Now it is more like 10% company, 40% sector and 50% S&P. In that environment, who cares what Cummins actually says? It doesn't really matter. It is an exercise in nothingness. If you wanted to put it in terms that everyone can understand, it is like picking a football club and betting on it because it has excellent special teams. Anyone who did that would regard the move as pretty insane. I mean, who cares that much about special teams?
Does it mean you give up on the research and the work? Not at all. You just have to recognize that right now, the fundamentals of the company don't mean that much. But it can change. If everyone's just betting on sectors and ETFs then many have the possibility of actually underperforming. So the current style of investing could easily go out of fashion as quickly as it came in.
And, let's not forget, the analyst meeting for Cummins was actually worth gaming. Anyone close to the company knows how bullish the company's been and how fantastic its prospects really are, particularly in the developing world. (We own this one for Action Alerts PLUS and have been heralding these positives for ages.)
So, remain homework-focused. Just remember it's not paying off like it used to.
