The relative gambit, the price target game, the tax reform boost, and the better-than-expected pop.
Those are what's driving many stocks now and you have to decide whether you are sufficiently impressed with what I can only describe at this point as a bit of artifice. But, we must always remember that on Wall Street artifice is a major mover of stocks. If you ignore it because you think, I mean come on, of course Target's (TGT) was going to beat estimates, everyone else did, or sure, Amazon.com (AMZN) price targets are being raised, they've been blown right through, or yes, 30% tax payers are going to pay less, so who cares, you are being ignorant of how Wall Street works.
Let's take the cruise lines. Last night I got a caller about the stock of Norwegian Cruise (NCLH) and how it had lagged of late. I didn't think much of it and I said that I wouldn't worry about it and that business is strong for Norwegian. I had studied the cruise group near the end of December in preparation of interviewing the CEO of Royal (RCL) , and had seen that bookings were strong across the board.
What was strange to me, though, is the strength of the lodging versus the cruise ships. Sure enough, today Credit Suisse upgrades Carnival (CCL) hold to buy with a price target of $78. Why? Among other reasons but the one that stands out: the cruise group is BEHIND the lodging stocks. In other words, the relative underperformance of Carnival's stock is a terrific opportunity to buy none other than Carnival!
Or take Target. Here's a stock that was bid up endlessly on takeover talk. In the last few days, though, we have heard retailer after retailer say things are better than expected. Today Target says things are better than expected and the stock rallies. Some of it is comparable store sales being better but there's also some tax benefit, too, as there is with almost all of the domestic retailers.
In a bad market this stock goes down on the news we have all expected in part because the main reason it is even up this high is because of the takeover talk. However, in a good market like this one, even though the stock has run on speculation, even as the "beat" is a predictable beat, as predictable as all of the beats that CEO Brian Cornell has given you in the last year, the stock goes up anyway.
We also have price target boosts like one I saw today on the stock of Amazon which is probably going to make the stock go higher. But why was there a boost? Pretty simple: Because the stock had overrun the price target. In other words, a reason to buy a stock is simply that the analyst underestimated how high the stock could roll. That's right, this morning Piper Jaffrey, which had been recommending Amazon with a $1,200 target, bumps its price target to $1,400 because business is stronger than he thought when he made that target.
Is that a reason to buy a stock? No more than is an obvious increase from a tax benefit or from a stronger consumer when everyone knows she is stronger judging by what we have heard endlessly, or from a relative underperformance of like sectors.
Nevertheless, you have to understand that in a bull market we do not look through these kinds of situations to find fault in their reasoning or logic. We simply recognize, yes, that's enough to send a stock to go higher and we can either watch it unfold and dismiss it, or we can take part and make money.
I read a lot of cynical articles about how none of this should matter. That's true, in a different kind of market, a more discerning and cynical market like we had before the election of President Trump.
We do not have that kind of market now. We have one where these devices have power, have the ability to create higher stock prices. You don't have to go along with it. But you must at least recognize that it's working or otherwise, what's the point of trying to make money owning or trading stocks?
