Everybody gives up so easily. Just a few days ago everyone gave up on the industrials because of the decline in the railroads. If those are weak, then what they ship must be weak and that means the industrials need to be sold.
Then, a couple of days later we get a really good number from 3M (MMM) on top of a very positive earnings report from General Electric (GE) and the beginning of what might be a long skein of good quarters from United Technologies (UTX). All of these were supposed to be crushed by the strong dollar and weak orders.
Now even Caterpillar (CAT) reports a quarter that is not as horrible as many people expected, including the analyst from Goldman Sachs who took it from hold to sell last Friday, and the group becomes a darling again. It had become too hated.
We decided that apparel was miserable, and all of those stocks were hammered mercilessly as a result of the weather. Then it snows, and people like Columbia Sportswear (COLM) and Lululemon Athletica (LULU) gets some love because it might be the last bad quarter. Then there's the curious case of Under Armour (UA), where an analyst over at Morgan Stanley slapped a sell rating on the company ahead of the quarterly report, scaring the dickens out of everyone. I told people, you never made a dime betting against Kevin Plank, the CEO -- who will be on Mad Money next week. And the stock proved me right -- it once again became a sucker's bet to do so, as UA soared after reporting, today.
The negative analyst wasn't counting on the amazing growth of the connected fitness market, and focused on discounting of footwear against Nike (NKE). I totally respect Nike, but maybe the takeaway here is that there's not as much overlap between these two companies as one might think, given the wellness focus of Under Armour versus the performance emphasis by Nike.
We know that the long knives are now out for Apple (AAPL) because the company is supposed to have nothing other than a device to sell -- and that device may have peaked.
Now as I said yesterday, a billion devices comes with its own ecosystem, and now you have to pay for that ecosystem through a bunch of recurring fees that are mounting without much resistance. The stock's too cheap, in light of that $31 billion in recurring revenue that could be expanding rapidly in a razor-blade-like business model -- where the device is sold and an automatic stream comes with it.
Yet the stock sells at 10x earnings, as if it were Dell or Hewlett Packard (HPQ) -- with no ecosystem to speak of and certainly no recurring revenues. As Apple opens stores in dozens more cities in China that are the size of Philadelphia, and rolls out in India -- which could ultimately become the second largest market after China, with a demographic that's 10 years younger than the 36-year-old average in the People's Republic -- then you have an awful lot of recurring revenue from music, from iTunes, from iCloud and everything else down the pipe. And does anyone besides me care about the iPhone 7, which could be rolled out at the same time many of the current iPhone contracts run out with the big telco companies? Obviously not.
A week ago, everyone gave up on all things oil. Everything. Crude hits $26 and it's the end of the oil world. Next thing you know, oil does the unthinkable: it rallies, as one oil service company after another details dramatic cutbacks in production - billions and billions of dollars' worth -- with Schlumberger (SLB), Halliburton (HAL), Baker Hughes (BHI) and Core Labs (CLB), last night on Mad Money, talking about how 2016 will be the bottom. Of course, at the same time we get clarification that oil's not like iron or tin or copper or aluminum. Usage is up, not down, in the world -- including China. Next thing you know, the group's on fire -- and whether you think it should be or not, those who gave up on the oil outfits both, large and small, and the master limited partnerships, are getting a much better price to sell than they had five days ago. I mean, much, much better. They were all going under a week ago, now we realize it was an amazing buying opportunity, because of the outsized give up.
Now along comes another group that's being obliterated: health care. Many investors had hidden in these stocks, because of the slowdown in the industrials and the weird and bogus linkage between the decline in gasoline and the concomitant selling of everything retail - a trend that reversed when McDonald's (MCD) reported a good number, the department stores became oversold and Wal-Mart (WMT), the biggest of all, stopped going down.
But now, because of political issues and a couple of missed quarters from select companies, the collective money management cerebral cortex is giving up on health care. Just throwing all of them away.
Lets go over why that might be.
First, we have the leading candidates of each political party bashing health care. While the Republicans as a whole take the stage and will largely avoid any discussion of pharmaceutical pricing, Donald Trump is on record uttering the ultimate anathema to the drug companies: He would allow Medicare to negotiate with the drug companies to save the Treasury $300 billion.
Even though Trump's not debating the other Republicans, there are still many on Wall Street who fear that he will stake out this ground, again tonight, as he gives a talk on his policies. It happens to be the one issue that Trump, Hillary Clinton and Bernie Sanders all agree on, meaning all the front runners are in favor of the government negotiating with drug companies. Set aside the fact that I don't think any President will ever have any luck doing so, given all the friends the drug companies have in Congress, let's just say the rhetoric is really bad - as terrible as it was when President Clinton staked out this turf and failed to get it changed.
Now it is true that we are the only Western power that doesn't use its national health care heft to bargain with the pharmaceutical companies. And there is a huge amount of money to be saved if we did. So you can understand why these stocks are in such weak hands. The fear is that they might be until the election, so don't even bother owning them.
While I acknowledge that fear, would it be so bad to think a little longer term and do a small amount of buying, as you had to do in the heat of it, when Hillary's husband took it to these companies?
In other words, it's bad: the same bad as we see with all the hatred and woe of the other sectors that have been given up on.
Then finally there's the give-up on FANG: Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google (GOOGL) -- the latter of which is now christened Alphabet because people feared they were over-owned. Well, they are over-owned for a reason: They can grow and are not sensitive to macro headwinds, as anyone who was on the Facebook call, last night, knows. Yes, it is ridiculous that they all rally, especially because we don't even know what Amazon is going to say, tonight. But the market is breathless in its love, as much as it is vehement in its hatred.
I am not trying to call a bottom in anything. In fact, you could read this whole column as a reason not to sell into the mayhem and the vortex, because there could be better opportunities. And sure, some of these health care companies might turn out to be IBM (IBM) or American Express (AXP).
But I do believe that when you look at the sum total of what's going on, you can simply say we have panic mixed in with over-ownership, because so many portfolio managers had rotated to safety and it seems that the better bet right now, if you are long-term, is to buy the best of the best of what's being thrown away, in stages -- not all at once, because you never know when the new rotation is going to end.