How many times did you hear "the gains from the tax bill are already in the market?" How many times did the chattering classes say "the move's been made, you'd be a fool to start buying now." Well, with another good day, get a look at who looks foolish now.
Every morning I examine the research that comes from the major Wall Street firms. Usually I get a mixture of about 10 upgrades and five downgrades. Most often we get a price target boost because a stock has overrun the projections. That's about as bullish as it gets.
Today I counted 29 upgrades of significance and two downgrades. Two!
Why are we getting all of these upgrades, including multiple recommendations that include estimate bumps?
Tax reform. That's right, the very event that was supposedly discounted, the one the wise men (and women) said we have moved too much in anticipation of, is proving to be the main reason for most of these upgrades and stock pushes.
Which makes me wonder, where are those people who kept you out of the market because they thought the rally had run its course? Where are the bears who told us be careful that you are coming on top of the old news of reform.
Frankly, I'm steamed about this. I had been adamant before year's end that the surprise of tax reform -- and come on, few people thought this could happen as late as November -- occurred so quickly that analysts didn't even have a chance to revise their estimates.
Now we are getting upgrade after upgrade of any domestic company that is even remotely a full tax payer. Cases in point? Ulta Beauty (ULTA) , up 15 points because it's going to see its tax rates lowered. Dave & Busters (PLAY) , same deal. Dick's Sporting Goods (DKS) , Oracle (ORCL) , General Mills (GIS) , and so many others that would bore you to list.
Typical of this kind of thing? Let's take Waste Management (WM) , a company that I have long championed that's in my charitable trust and has been recommended to the actionalertsplus.com club. This morning Macquarie research took its target price for this domestic company from $79 to $114! Main reason? Tax reform!
And you know what? I think these are buys. Ulta has spent enough time in the bear's den to surface without too much worry about Amazon (AMZN) . Dave & Busters has plenty of room to expand with an experiential feel and plenty of money to be made on liquor and those silly games like the claw that we spend $50 on to get a three inch tall bear that we were thrilled to get!!! What are the margins on that? Dick's? Oh why not. If Footlocker (FL) can do better and people like Nike (NKE) and even UnderArmour (UA) is going up, how can we not buy Dick's? Oracle's been oversold since that last quarter which wasn't nearly as bad as the bears made it out to be. General Mills did a better quarter than people expected so why not upgrade this sleepy but once great company.
And Waste Management? I think it will have a fabulous quarter because of the clean ups in Texas and Florida post hurricane and the homebuilding boom that's driving most of those domestic stocks to their fifty-two week highs despite Fed minutes revealed today that show higher rates are on the way. Can it hit $114? Hey, it's only at $87, but at this pace other analysts will have to raise price targets and the stock will continue anew.
You know what's truly amazing about these recommendations? Remember when we heard endlessly that the corporations will just go and buy back stock and give bigger dividends to the rich who own stock? Of all the recommendations I looked at, the only one that seemed geared toward buyback and not growth and hiring was Oracle and I think Oracle's going to go on a hiring spree to handle its cloud business.
Not only that but many of these companies are going to buy plant and equipment to expand and take advantage of the new accounting rules that make it very accretive to buy goods that often need new buildings and new construction.
Oh, and it's not just that. The snobs on Wall Street sniff at the $1,000 bonuses that many companies are now giving to employees in light of their newfound wealth. I am hearing that it's gimmicky, that it is typical of companies to do this upfront and then start buying back stock.
I say, wait a second. The last time there was a real tax break for corporations, the repatriation gambit of George W. Bush back in 2004, I don't remember any bonuses at all. Not only that, while Wall Streeters spend $1,000 on a couple of California cabs on a given evening, and I mean the sauvignons not the Ubers, a thousand dollars is a lot to many of the hundreds of thousands of people who are getting these bonuses. I am surprised that the president doesn't tweet about these -- he's got other issues on his hands. But there was a time when I didn't have a nickel to my name and if someone gave me $1,000 I could have gone to my myriad creditors and done a reorg.
Believe me, fellow main house, beach house folks, this is something huge and unprecedented. Sometimes it seems downright miraculous. Today Dominion Energy (D) bought the bedraggled SCANA, a South Caroline utility that's been raising rates to pay for huge overruns on nuclear plant construction. What did they immediately do? They announced they will give a $1,000 cash payment to all of SCANA's customers who have been crushed by the rate boosts. You think that's a small amount? It comes to $1.3 billion dollars! Yet, you want to know how cheap this SCANA was? The purchase will be immediately accretive to Dominion, long one of our favorite utilities. It may have been snowing in South Carolina today or was that a shower of C notes drifting down on peoples' heads? It's raining G's hallelujah! It's raining G's Amen! For the first time in history it's gonna start raining G's.
Now, I know that the critics will be out in full force saying that this is all madness and everyone knows that tax reform is just artifice, a reason to pound the table when there wasn't one before. But these recommendations are working. They are moving stocks. I worked at one of these big firms. Let me tell you what happens. If you are an analyst who covers individual stocks the director of research knocks on your door and says "did you see how much United Technologies (UTX) jumped on that upgrade? Did you get a look at how much Dick's rallied? Or the new high that Five Below (FIVE) hit? I don't care how long you have to stay, I don't care if you don't like any of your stocks, I want you to gin up a buy and have it on my desk tomorrow morning and I want you to get on with salespeople and you start calling accounts and you go make us some money, or else."
You think that doesn't happen? I've seen it happen for years in the '80s and '90s. But it's been 16 years since I have seen so many recommendations that actually move stocks and move 'em big. Believe me when I tell you it is contagious.
Oh, and guess what, we haven't even heard yet from the tech companies that are going to repatriate money. We haven't heard from semiconductor analysts who know that there's oodles of money on the sidelines begging to get into this group. Case in point? Nvidia (NVDA) . Without any news whatsoever, this stock has rallied 13 points. Do you know how many abandoned this one while it spent some time in the doghouse-an apt term given that my own dog, Nvidia, has been moping around of late, too. Okay, I didn't official change his name with Peta or the ASPCA or whoever keeps track of these things, but when you have a treat in your hands, trust me, this clown answers to Nvidia.
So, now we have to face some facts. We are going into earnings season. The analysts are now under pressure from the research directors to table pound. They want to get ahead of when the companies themselves take their estimates up. And guess what? This was day one of the process? Bears, let me ask you a question. Do you think all of this ends on day one? Or is this just the beginning?