Sure, the whole thing could be a mirage. If President Donald Trump is stopped on all of his initiatives that need congressional help, then you know we've probably overshot where this market should be, especially on a day like today when the market had regained its footing.
But I've got a few of my favorite things that I want to present to the myriad doubters of this rally, especially now that many say it has stalled even as it's strong today. Think of them when the dog bites, when the bee stings, and when you're feeling bearish, and then you might not feel like selling.
My first favorite thing? Housing. We have been talking about stocks that are in the Trump-free zone, meaning that they don't have foreign entanglements in an America First world. Today the largest homebuilder, D.R. Horton (DHI) , reported a magnificent quarter, a gigantic beat with orders up 15% and the value of those orders up 17%. What's so spectacular about this favorite thing? Mortgage rates went up this quarter, that's what. We have all been conditioned to believe that when rates go up, housing gets hammered, and you have to sell the stocks. Nope, the largest homebuilder is talking about terrific demand, great traffic in communities and a level of confidence that is surprisingly strong. It said better employment is leading to better housing demand. I don't see that running out with a president who is uniquely focused on growing jobs.
Second of my favorite things?
How about the fact that rates are up and commodity prices are rising. We need rates to go up to maintain the momentum of the very stalled bank stocks. I have told you endlessly not to give up on this group. You get a strong economy, as Horton talked about, you get higher rates, both short from the Fed and long from the market. If the Fed listened to the Horton call, then the three-rate-hike plan is certainly on the agenda. Suddenly all the bank haters are scrambling to get back on board after two weeks of drift. I like Citi (C) , an Action Alerts PLUS stock, because it remains the cheapest and is buying back 7% of its stock at an accretive price. Don't be too cute. Own one.
It's not just the rates going higher. Oil's at last reacting to OPEC discipline and is going higher. Own one. Maybe more important is that copper is breaking out and you need copper when you build. Watch Freeport (FCX) , it's incredibly strong and it is the copper play. With a fixed balance sheet and plenty of low-cost copper, it's rapidly becoming the fave in the category.
Third of my favorite things? The hills are alive with the sound of deregulation, and when there is less regulation you can put more people to work. We keep thinking that deregulation is somehow a long process to overturn. I didn't learn all that much at Harvard Law, but one thing I did learn is that the administrators of laws hold the key to stopping or greenlighting a ton of economic activity. I don't know about you, but it is really clear to me that Trump is appointing people who hate regulation. Regulators who hate regulators will quickly drive away those who interpret regs heavy-handedly.
Take a look at what Trump said today about the Dakota pipeline and the Keystone. He's all for them. Now the Keystone's going to be hard to resurrect because it isn't economic at $50 oil. Fact of life. But the $3.5 billion Dakota? That's economic right here. There are enough federal regulators involved with this one, which is currently stalled, to make it so Dakota will be greenlighted. I am not a fan of Energy Transfer Partners (ETP) , the Dakota sponsor, because it has too much debt, but it could sure use a federal hand on this one.
Moreover, there are so many pipelines in the cards as we move natural gas from the north to the south and we move oil from the Permian and Oklahoma to the Gulf that you are talking about gigantic projects that will put maybe hundreds of thousands of people to work. Again, you may hate pipelines, you may love them -- I personally know oil's going to come out of the ground at higher prices and when it does, I want it delivered by pipeline, not by something that can run off the rails. Pipelines need lots of people, plant and equipment to build, hence why Quanta (PWR) , a contractor that builds pipes, and United Rentals (URI) , which is where you go to rent equipment to build out pipes, are both up today. All the materials stocks are rallying; you know my fave is Martin Marietta Materials (MLM) . Allegheny Tech (ATI) makes hollow pipes. That's screaming.
Plus, you have to like the pipeline companies themselves. My favorite? The most disciplined is Magellan Midstream Partners (MMP) . But Enbridge (ENB) and TransCanada (TRP) , the putative builder of Keystone if they want to bother, and even Kinder Morgan (KMI) could be winners. (Magellan Midstream Partners is part of TheStreet's Action Alerts PLUS portfolio.)
Sure, the president wants to press the auto companies to build here. But the pipeline greenlights are going to produce far more jobs and produce them now because there is demand now. I wish I could say there is more demand for auto plants. That's not the case, but we are crying for more pipe in this country.
Another of my favorite things? How about when the re-valuation of earnings in a positive way when there's an initial hiccup. I thought American Express (AXP) reported a fantastic number, but it was widely pooh-poohed as not being strong enough. That's crazy, I think this one's going to $90 from the $70s because when it was last earning as much as it is, the stock resided at that level.
Or how about IBM (IBM) . The stock of this technology company plunged right after it reported, falling down to about $164 from $167. Now it's at $175. You know I have been saying this company turned the corner on becoming a successful, fast-growing consultant to companies that are going cloud, and that you have to get in before everyone realizes how lucrative this business can be. Now it is happening. I think IBM's cloud business looks a lot like Accenture's (ACN) , which is a fabulous company that gets a very high price-to-earnings multiple of 20. IBM, on the other hand, gets a 12 multiple. I am not saying IBM deserves a 20 multiple, but 40% of its business deserves it. That would advance the stock at least another 25 points. That makes sense to me.
Or Procter & Gamble (PG) , which rallied again off its fabled quarter, no doubt spurred by an equally rosy report by competitor Kimberly-Clark (KMB) this very morning, which importantly missed on its last turn at the reporting bat.
Finally, there's tech. We have multiple reports of tightness in DRAMs and flash memory. That's fantastic for Micron (MU) , which makes them both, and for the incredibly undervalued Western Digital (WDC) , which has terrific flash courtesy of its brilliant acquisition of SanDisk (SNDK) . Skyworks (SWKS) , on Mad Money last night, is still ramping, as are Broadcom (AVGO) and Nvidia (NVDA) . They and the red-hot semiconductor equipment companies like Applied Materials (AMAT) and Lam Research (LRCX) are the reasons why the Nasdaq took out its old high. Good demand away from just cellphones, demand for PCs, Internet of Things and mobility devices is driving the business.
So my favorite things -- housing, earnings, deregulation and materials strength and higher oil and rates -- are all in the here and now. They aren't going to be delayed by Congress. They are independent of it. That's why the market made a move opposite of what so many thought could occur. The market, like Trump, continues to confound. I can safely say this rally would have occurred with or without Trump's initiatives, with the exception of the deregulation spur, and therefore it might very well last longer than the doubters believe possible.
