This is the moment where you cannot be disheartened. This is the hour when you have to say to yourself, OK, we've been up big for the past three days, the best consecutive days since the bottom of 2011. This is the day, where you must say, OK, now we have to roll up our sleeves and get to work on what shouldn't be down that is and what can be bought now that we've had a monster rally.
First, we are pretty far along earnings season and we have had a real good feel for how companies are doing and how we can approach what stocks are going to get appealing as the market comes in.
Why is it worth bothering if there are so many open issues? First, they aren't as open as they were. The Federal Reserve is more on our side than we thought. Last night James Bullard, the hawk to end all hawks last year, the St. Louis Federal Reserve President who was so optimistic back in the fall, openly questioned the need to discuss rate hikes because of all of the turmoil out there. Ah, a man who realizes the facts have changed and he's changed his mind, too.
That level of flexibility is a godsend.
Second, the dollar, the bane of so many companies' existence, has ceased to climb relentlessly against the basket of currencies I follow. Oh, sure it's gotten hammered again vs. the Venezuelan currency, a massive devaluation just last night where a dollar now buys you 10 Bolivars instead of six. Woe be the companies that have made big bets there that something will change for the better. It, like Brazil, keeps getting worse.
And we know that we are still flirting with danger when it comes to oil. It's been able to hold $30 on talk about a deal with the Saudis and Russians not to pump even more than they do if only Iraq and Iran keep their supply down. But both the latter have pledged in the past to pump more, not less, so who knows how there can even be a deal.
Meanwhile, Rusty Braziel, my energy expert from RBN Energy, now reports that not only is Gulf of Mexico oil on the increase this year because of wells started a few years ago that are finally coming on line, but also because the heavy oil out of the Canadian tar sands has really started flowing to the States. The costs all in to bring it to market? In many cases after transport they are selling it at a loss of a couple of dollars per barrel. You can't make it up in volume.
Warm weather has made it so natural gas can't get out of its own way.
That all adds up to producers being dreadfully short of capital, which is how you can see Devon Energy (DVN) offering 69 million shares last night at $18.75. Four months ago it was at $47. Someone smells a bargain because initially it was only going to offer 55 million, but the company upsized the deal and it still has gone to a terrific premium.
Nevertheless, we have to be heartened that one of our key boxes of worry, the lack of mergers and acquisitions, seems to be assuaged by the second deal this week, where a Chinese company launched a bid with a $10 premium for Ingram Micro(IM), a company that's a lot like Avnet (AVT), a supermarket of tech. That's right on top of a huge bid for ADT (ADT), the home security company, by the value-seeking Apollo (APO). You don't get a couple of bids for $6 billion and $7 billion, respectively, out of thin air and not think something's changed. Something's more certain.
So what has done well that you can take a hard look at given these circumstances?
First, I am still enamored of McDonald's (MCD) here. Why not, the turn is for real and the weaker dollar is only going to help things. Sure Wendy's (WEN) and Burger King are firing on all cylinders. But we discovered last night that competitor Jack in the Box (JACK) is feeling the pressure and you have to wonder who else will be felled by Mickey D's aggressive marketing including all-day breakfast. I am as furious, by the way, at Jack in the Box as I am appreciative of Panera (PNRA) because the former overpromised badly and quite recently and severely under-delivered while the latter was classic UPOD, underpromising and overdelivering.
Jack truly hurts as my charitable trust, Action Alerts PLUS, bought into its blithe reassurances. But Panera's more than made up for it as you could learn if you follow along with my bulletins where I play with a real open hand filled with both Jack agony and Panera ecstasy. JACK's now gotten too cheap to dump. But let's include Panera in the mix of stocks we want to buy, too, as it comes down. The turns at McDonald's and Panera are for real. That's why it is such a delight to see them head down for an opportunity that might pay off, not for days or months but even years.
These selloffs offer goodies like Clorox (CLX). We just spoke to Benno Dorer, the CEO, and he reminded us that business is real good and that raw costs are coming down, especially energy. In the meantime, remember Clorox is the only large capitalization consumer packaged goods company that had the foresight to ditch Venezuela, literally give up on the darned place. What a brilliant decision.
How much do you hope Cisco (CSCO) comes down? This company, another charitable trust holding, reported an amazingly strong quarter, made a terrific acquisition, announced a $15 billion buyback, and most important, boosted the dividend so large that it yields 3.95%. You get this stock at 4% with the 10-year Treasury at less than 2% and you are going to be a long-term winner.
Maybe a decline allows you to get into the two best-performing industrials this time around, Honeywell (HON) and 3M (MMM). The latter at $156 is still way off its high of $170. But Honeywell is just pennies from its $107 peak. Why is Honeywell doing so well? One reason is that it's benefitting from what truly is a robust aircraft cycle and it's being bought in large part by those who want nothing to do with Boeing (BA) and its alleged accounting issues. You know my dictum: "accounting irregularities equals sell" and while I know that this principle has kept me out of an occasionally terrific opportunity I have to stick with what's kept me out of trouble more times than being in.
Why focus on these two? They've been hammered by a strong dollar even as they've gotten so much right. Their earnings could get a tailwind instead of a headwind if the dollar stays on a weaker path. No, I by no means am slighting General Electric (GE) with a 3% yield, but I know a break in oil will allow you to buy that $29 stock at $28, which would be sensational. Penny wise? No, just sticking with the hoped-for downturn thesis that has often happened after this much of a rip-snorting rally.
Finally how about Action Alerts PLUS holding WhiteWave Foods (WWAV)? Remember that old friend. It had been brought down by a weak quarter from Hain Celestial (HAIN) as well as worries that natural and organic had been going out of style or was too competitive. But this is the branded Horizon snacks and plant-based liquids company that reported the good quarter, not a weak one, yet is still down for the year even after a good quarter. The company spoke today at a big food conference and reaffirmed numbers given just last week while admitting it hasn't gotten China right. I think that means it's only upside, if they do, given how much better and cheaper plant-based milk would be vs. the kind that comes from cows living in a highly polluted environment.
So there you have it. Some opportunities that are going to knock now that the rally peters out. Instead of saying "darn I missed it," just recall that these three-day bursts have been followed by some multi-day declines despite some definite improvements in the backdrop. Get ready. Let the bad times roll, at least when it comes to stock prices, as we let the better times roll with the fundamentals.