We're back! We're back in a world of volatility, one where I don't know what's going to happen even a couple of hours after the market opens and there's no real way to know about the afternoon and where she stops? How about nobody knows.
So, what do you do? You fall back on themes. Themes that work on days when we have wild swings. You fall back on these because when the market gyrates like it is doing now, you need to use the gyrations to your advantage, even intra-day.
I know people are scared of buying on the way down. They fear that something's happening that's bigger and badder. But that's almost always NOT the case. Even if it is, given the state of the U.S. and the world's economies it's unlikely that we get something that can rip through this market endlessly as we saw from 2007 to 2009.
Instead, I want you to look at the market the way we do a flash sale. There was a time when I used to say that a selloff is like a sale at the mall where you go in and buy when you see the red tag.
These days, though, e-trading has made it so a selloff doesn't even last long enough to debate whether to buy or not to buy. You can't even try things on.
So you need to have a list, like the kind of list I put together for club members of actionalertsplus.com where you can say "that's it, my buy price has been hit, it's time to purchase." This way it's bloodless, unemotional and given that it may not be your last buy, small enough that you don't have to worry about further markdowns. They can work for you, too.
What kind of themes have I found to be lasting in my 39 years of buying? Secular growth themes, which means themes that work in any environment.
Why not just buy any stock with good earnings that's cheaper than you think it should be?
I will tell you why: because the reason we have volatility has to do with big institutions flitting in and out of stocks based on data points that may not be right but trigger action.
For example, take this two day selloff we just plowed through. What was it about? On Sunday night we saw interest rates, the 10-year treasury to be specific, pick up to where they ticked at 2.7% which, on a percentage basis is a lot higher than they were not all that long ago.
There's plenty of gigantic index money that leaves the market when you go to a new highest interest milestone like the one we had Sunday night and it lasted for two days, exacerbated yesterday by concerns about health care costs after Amazon's (AMZN) Jeff Bezos, JP Morgan's (JPM) Jamie Dimon and Berkshire Hathaway's (BRK.A) Warren Buffett got together to form a non-profit that's meant to improve the technology of health care while bringing down the cost.
The thrust of the selloff, though, has to do with a belief that if interest rates go up too high too fast then the global recovery will be derailed.
So even though the most pressure yesterday was felt in the non-cyclical health care stocks, the real damage occurred in the industrial leaders which would theoretically be most threatened by higher rates. I say "theoretically" because in my time I have seen a ton of money made in stocks when the 10-year treasury yielded not 2.7% but 7.2%. Still, I am not about being a hero, I am about getting the best prices for suddenly undervalued goods.
Which brings me back to secular growth stocks.
Now, one thing you need to know about "secular growth" is that every manager and her brother wants to see their company as having secular growth. They don't want to fall prey to cycles. I was debating with my friend Marc Chaikin of Chaikin Analytics at a teach-in today whether semiconductors, for example, long a boom-bust industry, have lost their cyclicality and are now secular growth. Are chips that go into the internet of things or cellphones cyclical. It's a tough call: if you are building chips to go into autonomous driving cars and a car sales peak, guess what, you are thinking you are in secular growth mode and won't get hurt, but if we sell far fewer cars than anybody thought because of a slowdown induced by higher interest rates, believe me you are going to regret it.
So where are the secular growth themes and how can we get them to work in our favor?
Let's start with aerospace. We have heard over and over again that the demand for aircraft has to do with the great, rising global middle class and the lack of planes to meet the secular growth needs of the billions of people who have never traveled but will.
The premier example? Boeing (BA) . We have liked the stock of Boeing for ages and on December 7th of last year with the stock in the $270s we interviewed CEO Dennis Muilenburg and concluded that the stock could go to $400 that's how strong the financials are and the demand is.
Sure enough yesterday the stock dropped a quick 5%, a nice flash sale a day ahead of earnings.
What happened next is a classic example of the rigorous nature of thematic investing: Boeing reported an astounding quarter this very morning and the stock zoomed? Who did the best? Those with their secular growth shopping list right in front of them. The whole aerospace cohort went up right with it, which is happens when you have a tailwind that powerful.
Second theme: gaming. We have been all over this one saying that those who are part of the stay-at-home economy and there are tens of millions of them, like to play video games when they are not perusing Youtube or Netflix (NFLX) or buying things on Amazon (AMZN) .
So last night Electronic Arts (EA) , with its Star Wars franchise just tears through the numbers and the stock explodes today as we thought it would. It takes up Take Two (TTWO) and Activision Blizzard (ATVI) . At the same time the stock of Nvidia (NVDA) runs higher because it powers the Nintendo Switch where we got some incredible numbers. And, we were similarly dazzled by the numbers game-chip-maker-among other things AMD (AMD) put up. Demand's incredibly strong.
The easiest secular growth names to take advantage of right now? The defense stocks. Last night President Trump called on the need to spend more on defense, but anyone who just listened to the Lockheed Martin (LMT) , Raytheon (RTN) or Harris (HRS) calls, the spending is aggressive already both here and abroad. It's just bountiful and when the stocks wilt under say, an interest rate induced, decline, these are total go to.
Finally, there's the cloud stocks, the ones that benefit from the shift to the cloud from on-premise computing and offer cheaper and better ways to analyze and profit from big data. Who fits that bill? The quintessential company is Salesforce.com (CRM) . But I like Workday (WDAY) and Servicenow (NOW) , too as companies that automate and improve on old fashioned and expensive ways of onboarding new people and providing them with health and human services. I like the tools of the cloud, Adobe (ADBE) and VMWare (VMW) which seems to be back on track to be a growth vehicle after all sorts of rumors about how it might be diluted down to buy its related company, Dell, in a reverse merger.
Finally there is the cloud king itself, Amazon (AMZN) , with its remarkable Web Services, part of a troika of sales the company has including retailing and advertising.
These stocks of these companies after languishing for a bit, represent the ultimate in secular growth as the data center, I believe, is still in its infancy of adoption. Don't forget the data center is filled with Nvidia, AMD and Intel (INTC) chips.
Is my method dicey? Only if you decide "this is it, I am going to buy all the Salesforce or Boeing at one level."
Nothing is risk free -- these are stocks for heaven's sakes -- but it's a method with rigor, time-tested and devoid of emotion, exactly how good investing should be.