So we didn't get to Dow 20,000, much to the chagrin of the headline grabbers and the momentum fiends who so often grab the microphone just when stocks have given us all they have to give. That's an important concept I want to teach in 2017: that we ask too much of stocks just when they have given us all they can.
I think we asked too much of FANG in 2016, hoping that Action Alerts PLUS portfolio name Facebook (FB) , Growth Seeker's Amazon (AMZN) , Netflix (NFLX) and Google (GOOGL) , now Alphabet, could somehow continue to power higher regardless of all the wealth they had already created. At times we thought they owed it to us, that they were responsible for the hype and they had to deliver.
But could you really ask for more from Facebook other than repeated guide-ups for both earnings and sales? Did we really want Amazon to start making all of that money and, alas, be "over" as a growth story before it was ready to dominate the world, not just the pedestrian U.S., just because it was busy destroying traditional retail?
How many original productions that were watercooler-worthy did Netflix have to produce? How many times did it have to explain itself that it, too, like Amazon, wanted to dominate the world so give it a little slack? And Alphabet? It was the year to clean up its act, to bow to the wishes of Ruth Porat, the CFO, that it couldn't be all fun and games just because it had laid to waste the competition, including the stunted management at Yahoo who favored capital allocation over capital competition.
Now I feel the same way about the winners in the Dow Jones Averages of 2016, the five stars that provided so much of the performance for the index even as it stalled out so close to 20,000 and spent the last days of the year in reverse, perhaps because of a recognition that the Trump rally needed something more to stay in the air, like Trump himself, becoming president already, as the interregnum simply failed to end in time to save the day.
How much can we ask of these stocks that wasn't given to us already in the remarkable post-election romp? It is almost as if we are saying "look, all the gains you have seen from these winners came simply because Hillary Clinton lost; now we are going to see what happens when Donald Trump enters the White House."
I think that's too much to ask.
But let's examine the five biggest winners to see if they, indeed, have given us all that can be got after such a monumental run.
First up is Caterpillar (CAT) , with a gain of 36%. I keep a tattered and coffee-stained copy of a Goldman Sachs downgrade from hold to sell of Caterpillar from earlier in 2016 to remind me not of Caterpillar's greatness, but of how fallible we are when it comes to prognosticating about this great American machinery company.
The stock, which rallied 36%, should have been upgraded when it was flailing in the $70s and $60s rather than be denigrated with a Scarlett Letter S. Why? Because Caterpillar, through innovation, supply chain management and a reining in of its peripatetic dealer network does haves some control over its own destiny.
That said, in 23 days Caterpillar reports, and while that is after the inauguration of the infrastructure-loving new president, in the end the company has to deal with a skyrocketing dollar, which helps its arch-enemy Komatsu, a yet-to-be realized road building program in the U.S. -- think shovel ready, not -- and a China that now not only accepts 5-6% growth, down from 7% but surely would love to punish some American companies for Trump's taunting and Caterpillar's an easy enough target.
In short, if you buy CAT here you have to believe that numbers come up, not down. As much as I have championed this stock, I believe it fits the credo that it's given you all it has to give, at least for now, unless Trump issues $500 billion in 50-year Make America Great Bonds where the money is earmarked for purchase of U.S. made product only. Sorry, Komatsu. No matter how much Japan may manipulate the currency, the orders got to Peoria.
Second best? UnitedHealth (UNH) , up 36%. You know, in the old days, when United Health became the nation's great health administrator, growing from a regional Minnesota company to an American powerhouse, I despised the stock. All seemed too cut and dried. You mean they were going to cut our health bill at the same time as develop a premier data base for all medical procedures? I used to short the stock endlessly because I hated the darlings when I was young, innocent and stupid.
Well, guess what? It did that and much more. And now, while Cigna (CI) and Anthem (ANTM) and Humana (HUM) and Aetna (AET) are busy trying to merge, UnitedHealth stands out as the one company to challenge President Obama in his health care wheel house, speaking out publicly against the health care exchanges. If you recall, the Affordable Care Act had a lot of lobbyist help in its creation, including the HMOs, but if you were Trump who would you call on to help redo healthcare other than Obama apostate UNH?
I believe that the only thing that is reflected in this stock so far is its ability to walk away from bad business. What's not in the stock is its ability to influence what could be sensational business under Trump's redoing of the American health care system, something that I think has as much chance to pass if not more than corporate tax reform and regulation.
United Health is the most likely to become a two-year dynasty.
Goldman Sachs (GS) has rallied 32% to go from a bank that sold at a discount to its peers to a financial consultant, including to itself, that sells at a premium. Does that make sense? I would say absolutely, because Goldman, my alma mater, actually fared better in the great recession debacle -- at least financially, certainly not in terms of public relations -- than every other bank, yet was probably penalized more than any other through Dodd Frank.
That legislation took issue with the banks of lesser light with looser restrictions, but those went under, leaving the yoke to be placed only on Goldman's neck. Now the presumption is it will be Goldman's turn, not the least because of the appointment of so many Goldman alums in high places under Trump.
I think that the stock deserves the premium, because Goldman can go back to being Goldman, a company that makes money with its own money and deserves a premium for being clever. Let it come in as press wags of a Democratic leaning report that Elisabeth Warren and Bernie Sanders vow to bring Goldman to heel. Good luck.
How in heck did Chevron (CVX) rally 30% last year? Perhaps because it fell from $135 to $70 in 2015 and is still trying to claw back, now that oil's moving to the $50s? Or perhaps because it is viewed as the most aggressive of the majors, simply because it ratcheted back spending well while at the same time maintained its dividend, thereby becoming the new blue chip in the group? All I can tell you is that Chevron's the one trading in lockstep with oil. I suspect that oil's stuck here for a bit, so I wouldn't bet on a huge run here beyond its current recovery.
Finally, there is JP Morgan (JPM) up 30%, and here's one that you better hope comes down, because it may be the best of the top five performers if the Fed sticks to its guns and raises rates multiple times in 2017. It will be a huge beneficiary of deregulation -- it has been held back dramatically from lending by tight-fisted regulators. It is a gigantic winner under future rate hikes: four hikes equals $3 billion in found money for doing nothing.
And if the U.S. economy starts growing the way that Trump has promised, it will provide the fuel -- and make the profits -- like few in the Dow can without any pressure on earnings from a strong dollar. Suffice it to say, it's the biggest winner of the five and the one of these I would bet on to go higher if you think that the Trump revolution hasn't already played its role in taking stocks higher after his stunning upset in 2016.