Just like that, the bull market is back in action. Vladimir Putin ratcheted down the rhetoric against the West on Tuesday, and portfolios were being churned once more. Since there were not many sourced accounts from on the ground in the Ukraine yesterday via Twitter, the situation remains quite precarious. The number of calls I have had this week have made all of these things clear:
- The only structural risk to the market in the medium term is Fed policy. Anything else will be viewed as non-structural that places undeserved pressure on stocks. Hence, dips should be bought hand over fist.
- Investors' portfolios are being positioned for a boom in housing and retail in the first half of 2014.
- Fresh rounds of corporate restructurings may lead to earnings upside in the first half of this year on tempered Street forecasts. Analysts are rightfully concerned with sales, but the market says, "Who cares?" Margins could go higher on flat to 5% sales growth for a multinational.
- The market is betting that the aforementioned economic boom is so robust that it clouds the risks associated with an unwinding of Fed policy.
The old-school market watcher in me wants to pay attention to the relative underperformance of the consumer cyclicals on Tuesday and the strength in telecom stocks. However, if the market is going to wear blinders, we might as well go along for the ride. By the way, did you see the fresh move in this share buyback ETF, the PowerShares Buyback Achievers (PKW)?
Perhaps I have been a touch too hesitant on stock recommendations in the last month. There are personal reasons for that. And on Tuesday, March 11, I will meet with Starbucks (SBUX) execs in New York, so send over a question or two in advance. Anyway, the one investment theme I could get behind right now is the rebuilding effort in the U.S. after a destructive winter. The theme is solid enough to spur renewed buying interest should headline risk resurface.
Use these names as a guide to this theme:
AutoZone (AZO) has about 30% of its store base in storm-ridden states, and many of those stores are open 24-7. Same-store sales, a key metric for retailers, continue to outpace that of its closest rival, Pep Boys (PBY).
WD-40 (WDFC) products keep infrastructure-related machines greased, and the company also owns Lava, the soap that is a friend to the dirty, beaten-up hands of construction workers. The company has recently successfully raised prices globally.
Monro Muffler Brake (MNRO) has 71% of its sales coming from tires and maintenance. Not only is the company benefiting from solid tire and maintenance sales, there could be a rebound in vehicle servicing over the next 12 months. Motorists may finally realize that in order to survive another harsh winter, their cars have to be in better shape.
Martin Marietta (MLM) derives 88% of its sales from sand and gravel shipments. The recent acquisition of Texas Industries will give the company a significantly greater presence in the cement market.