Does value matter all of a sudden? This is a market that has disdained low-valued stocks. Its mantra has been, "Sure, it is cheap, but so what?"
It's not saying that anymore. Take, for example, the airlines. These companies' stocks have been selling at levels that are the equivalent of roughly half the value of the average stock. Now each has issues. Southwest (LUV), the best-run, might be hurt by weakness in Texas. Remember that Steve Holmes, the CEO of Wyndham, just told us his Texas business is in severe decline. But it's currently doing fabulously. Delta (DAL) and American (AAL) are going against the Zika virus and the strong dollar. Again, though, people seem willing to overlook these negatives now that it seems possible that oil will stay lower longer even with a Russia-Saudi promise not to pump more oil if Iran and Iraq agree. I don't think the latter two will play ball, which makes the airlines a pretty good bet. I like them.
Cummins (CMI) and Emerson (EMR) are two industrials that seem to have caught a bottom in orders, but both are starting to talk about a return to growth and each yields around 4%. Yes, Cummins has rallied from $79, where things looked pretty darned dire, to $97, but if I am right about a pullback, it's a real value play as it traded at $146 a little more than a year ago.
I would call Emerson deep value because it has been beaten down for ages. I look at monthly orders and they seem to have been weak forever. But January orders, down 5% to 10% -- up from a 10% to 15% decline in December -- are a harbinger of a good spring for a stock that's gone from $41 to $48. Keep in mind, it's down from $62, though, so it's not like you could be stumbling into a top.
Oh, and let me give you one other value play that's front and center on my radar screen: Apple (AAPL) at $97, where it trades at just 10x earnings. The company just announced a $12 billion bond deal that it can use to buy back stock. At the same time, its Apple Pay feature just went live in China, where electronic payments are far more prevalent than here. I know people have been focused on the rock and a hard place that CEO Tim Cook finds himself in over the encryption issue. Does he betray his clients to help stop potential terrorist acts? Or does he stick by his guns having promised privacy as a hallmark of the company's basic existence? I think the courts will decide. (Apple is part of TheStreet's Action Alerts PLUS portfolio.)
But you don't need a court to remember that Apple is now getting $30 billion in service sales a year. That's the revenue stream that so many want Apple to have. They have it! Why mention Apple now? Because its value doppelganger, IBM (IBM), caught an upgrade from Morgan Stanley today and it soared more than 5%. IBM's stock is now valued much more highly than Apple's because everyone is so worried about the current quarter's cellphone sales. How about the iPhone 7 that both Lowell McAdam from Verizon (VZ) and John Legere from T-Mobile (TMUS) are so excited about? How about the incredible gains Apple could have if the dollar really has peaked? Go back and listen to its call. Other than IBM, no company I follow has been so winged by the super-freakin' greenback. If IBM can rally that big on an upgrade, what would happen if one of the newfound bears on Apple changes his mind?
Yep, value's making a return in this market. There's finally some urgency here with stocks that had been qualified by "yeah, cheap, but so what?" How about if that's replaced by "yeah, cheap, but get it before it's hot."
That's what may be happening in this market that suddenly craves what it hated just a few short weeks ago.
