Destiny. It often comes down to which companies are in charge of their own destiny.
Today the stock of Twitter (TWTR) is down hideously after a pretty decent quarter and many are aghast that it could slash its earnings forecast so drastically and not even offer a revenue outlook.
They shouldn't be. First, Twitter has only so much live-action programming that advertiser's want. Second, sure the president tweets and people go to see what he's tweeting. That's bringing in new users for certain. However, there's been a very big change on the web. For the longest time, when a web company increased users, its advertising revenues would go higher. That's no longer the case because there are so many sites to choose from and because Facebook (FB) and Google (GOOGL) are taking share from everyone -- including, by the way, Snapchat, which will soon have an initial public offering.
You can argue that no one is in charge at Twitter. I would argue that, unlike Facebook and Google, now Alphabet, Twitter's simply not in charge of its destiny.
I think you saw today that Coca-Cola (KO) isn't currently in charge of its destiny because its chief product, soda, is not the growth business it used to be. It's taking action to become leaner, offloading the bottlers, but it doesn't have a model that can put it in control. Contrast that with Action Alerts PLUS holding PepsiCo (PEP) , which has a snack business that makes a ton of money and is a true growth company. CEO Indra Nooyi is in control of PepsiCo's destiny and that's why it should sell at a substantial premium to Coca-Cola. It doesn't yet. I think it will.
We talked with Allergan (AGN) yesterday and here's another example of a company that's in charge of its own destiny at the same time that the rest of its cohort isn't. While so many of the other big pharma companies need big price increases on their old products, something President Trump doesn't want, Allergan's bought a series of little companies that could produce blockbusters for Allergan. Unlike old drugs, you can charge more for brand new pharmaceuticals that solve big needs, like depression and suicide and non-alcoholic liver disease. CEO Brent Saunders has created a powerhouse with a stock that does not fully reflect it yet.
We know restaurants are a challenged sector where you are always hearing about companies not being able to triumph over the weak consumer. But that's not true. Management at Panera (PNRA) has triumphed over so much, enrolling 25 million people in an affinity plan that is now responsible for 50% of its sales and going digital for 25% of the business. Its delivery business is on fire.
Panera is in charge of its destiny. That's why the stock could rally $19 in a single day. (Facebook, Google, Allergan and Panera are part of TheStreet's Action Alerts PLUS portfolio.)
Now there are some companies not in charge of their destiny that happen to be in a good part of their cycle. I believe some of the big cyclicals like Emerson (EMR) and Cummins (CMI) and Caterpillar (CAT) have done much good to improve their companies, but it's only because worldwide economies are improving that their stocks are catching bids. Micron's (MU) stock caught a huge upgrade from Bank of America Merrill, going from Sell to Buy, because there are shortages of its DRAM and flash memory products. Micron's distinctly not in control of its destiny. That's just demand overwhelming supply.
Right now, in this market, companies that have destiny in their hands are getting bid up. Those that don't and the cycle's against them? They need a rising tide to lift their stocks, and after this run that's not something I want to bank on.
