I wish the market wasn't so darned stupid lately. Maybe President Trump's thrusts and parries have thrown investors off their games, but I am becoming increasingly aware that information's not being valued accurately. It's a daily occurrence and it's a big factor in the rally that's been hidden right in front of you until today, which can only be regarded as a consolidation of the recent big move.
Take last night. Cisco (CSCO) , the gigantic networker that's morphing from a hardware to a software company, reports revenues that look anemic and the stock gets banged down instantly. I am sitting there, having done a ton of work for tonight's interview with Cisco CEO Chuck Robbins, and I can see from the deferred revenues, the real number that matters in a software company, that it's a much better-than-expected quarter, especially when you compare it to the previous one. I am aghast that once the stock does tick down the writers are out in force justifying the decline in a self-fulfilling miasma of misreporting, like this gem: "Cisco shares dip as it reports a 25% drop in after-tax profits" by a seemingly reputable news agency.
It's a never-ending battle that sometimes gets won the next day as Cisco immediately rallied to be the strongest stock in the Dow.
Or how about PepsiCo (PEP) . Yesterday morning the company reported a much better-than-expected quarter with exceptional growth and then offered a forecast that took in the obvious challenges of foreign exchange given the super-freaking-strong dollar's ascendancy. (Cisco and PepsiCo are part of TheStreet's Action Alerts PLUS portfolio.)
What happens?
The stock ticks down, not up, and the stories about how PepsiCo cut its forecast expecting weaker sales appear as if by magic, and then the sellers reload and new ones come into the market. It rapidly becomes one of the biggest decliners in the S&P 500. I am practically screaming at the machines about how wrong the sellers are and ask questions to Hugh Johnson, executive vice chairman and CFO, in a Squawk on the Street interview that are meant to quell the panic. I wanted to elucidate how this was a much better quarter than its companions in the consumer-products group, and Johnston totally delivered.
But the moron sellers had their minds made up that somehow this was a true guide-down based on slowing sales and they just kept selling to the low $106s. Painful. What happens today? A total reversal, up almost two bucks from the lows because people figure out that perhaps the company's just being conservative and adjusting a fabulous forecast, truly strong with good-for-you products accelerating, for the greenback's ascendancy.
We saw this pattern with 3M (MMM) , one of my favorite stocks, which got crushed, falling from $177 to $173 because of what the headline writers called a weak consumer-products division. Sure, you can pull a line and see an unexpected decline. But declines do not necessarily mean weakness, which, to me, connotes a failure to have the right product and flagging sales. If you go listen to the conference call, you discover that the weakness had to do with a particularly retailer's troubles. Sure, you could argue, why do we trust this company? I come back and say, you trust them because CEO Inge Thulin has been money in the bank for years and there's no reason not to trust him.
Maybe it dawned on people in that delayed reaction because it's not up eight straight points and it is really breaking out to hitherto unknown levels.
Sometimes it's a little subtle. Take Chipotle (CMG) . The numbers looked terrible, but if you had followed the company's numbers trajectory, you would have realized that the company is seeing the beginning of the turn in business that we've been forecasting.
Now, that doesn't mean the stock has to turn up. We have been saying that history dictates you can't get a rally in the stock until 18 months after the last incident, and we are only in month 14. But the idea that the stock should be hit on the numbers that show progress seemed a little strange to me.
Until we saw a Barron's article that weekend predicting a 35% decline in the stock. Boom: $423 goes to $394 on what were truly numbers that you needed to see for the stock to put in that bottom. Wouldn't you know it? Chipotle's stock is at $424.
Speaking of food, I really liked that McDonald's (MCD) conference call where the numbers were better than expected and the forecast looked really strong, augmented by some big changes by CEO Steve Easterbrook. Somehow, though, the narrative got hijacked by a chorus that said the gimmick of all-day breakfast had run its course, anniversaried, so to speak, giving you no reason to own the stock of the Golden Arches.
No reason to own? How about all the tech and menu changes the guy's tinkering with that have brought numbers better around the world and are coming here? It was a stunning comeuppance by those who simply looked at the calendar, saw that Easterbrook had put through all-day breakfast a year ago and marked the moment as a reason to sell.
That was wrong. The stock's up five points since then and I think it can go higher.
Sometimes there are clues that are there for the hard-working, but they are lost in Trump press conferences and national security issues and labor appointee resignations. Ever since Micron's (MU) held an analyst meeting saying nothing but good things, the stock has been drifting lower. I have liked it since the mid-teens and at $22, down from $24, I still do even as I get blasted on Twitter for ruining people with that $2 decline.
So last night I am listening to the fabulous Cisco CFO Kelly Kramer -- no relation -- and she's asked about the gross margins of some of their products and why they were weaker. Her answer? She says there was a headwind to the quarter: "We are facing a significant cost increase to our memory costs -- our DRAM memory costs that we are paying. It's a very tight supply right now and we are seeing dramatic increases there. So that's hurting us quite a bit as well."
When I heard it, I said to myself, "Hey, suckers on Twitter taking me to task about Micron, now you have your chance to go buy some two bucks lower than it should be or maybe much more as DRAM chips are a boom-bust business and we are in the boom cycle."
I figured I would have to spend the rest of the day tweeting why Micron's stock was up because all of the people who listened to this call would no doubt scoop up some shares.
Nope. Nothing.
What an opportunity.
I just don't get it.
So when you see a stock that's down and then you read a headline that tells you why it's down, don't presume that either the stock or the headline is right. Go deeper. Read the reviews, find out what people were saying ahead of time and grab that conference call. You will be doing far more than others are doing and you could be starting a good investment instead of dumping one because a thoughtless crowd and its amen press chorus turned you against it.
