The Turning Point for Defensives?

 | Dec 27, 2013 | 12:41 PM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

clx

,

kmb

,

pg

,

bmy

,

mrk

,

gsk

,

lly

,

clf

,

aa

,

joy

,

btu

,

vale

,

txt

Is 3.25% on the 10-year the magic number? Is that the number that makes it clear that all of the defensives which yield roughly 3% and change -- Clorox (CLX), Kimberley-Clark (KMB), Procter (PG), Bristol-Myers (BMY) and Merck (MRK) -- lose their luster? Is that were Glaxo (GSK) and Lilly (LLY) get threatened?

So far the untold story about these stocks is how they have held up through repeated analyst downgrades and the relentless decline in bonds. I think the fact that it is a creeping decline has helped these stocks. Plus, they have helped themselves because if you look at the share count you will see that they have taken a lot of money that might have otherwise gone to R&D and bought back stock instead. There is a shortage of quality defensives. Many have been taken over and others have consolidated their sectors to the point where even an underweighted portfolio manager can make a difference in terms of sopping up stock from some of these.

Nevertheless, when you see stocks of companies that have repeatedly disappointed -- Cliffs Natural (CLF), Joy (JOY), Alcoa (AA), Peabody (BTU) and Vale (VALE) -- rally, that means the money has to come from somewhere.

Now, let me just say that these stocks are by no means dangerous. They always seem to pull rabbits out of hats with restructurings and dividend boosts and increased buybacks.

But I think they will be a source of funds for the minerals and the miners and the deepest of cyclicals.

That's the trade I think will occur right into earnings season, as hope always springs eternal for the heavy metals and their like into the beginning of almost every year.

Random Musings: Just like every other acquirer, Textron (TXT) goes nuts on another consolidation. It is the quickest way to make money, as I write in "Get Rich Carefully," which is finally out on the last day of December.

Columnist Conversations

Kass:
Bobby Growth is slowing. Peak autos/peak housing/peak hirings.
VIX did not care one wit for the decent jobs report. Stocks are trading on Ebola, HK, ISIS, Russia and other ...
My baseline view of the December Es contract, and the market as a whole remains unchanged. I continue to belie...
I mentioned the eveningstar pattern on the daily chart of the DJIA

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.