Growth on! That's what happened today, with the explosion higher of such powerful growth stocks as Nike (NKE), Panera Bread (PNRA), Lululemon Athletica (LULU), Under Armour (UA), Ralph Lauren (RL), Starbucks (SBUX), Michael Kors (KORS) and Herbalife (HLF). All of these stocks have greater than average growth, and the market just lapped them up as if they were flapjacks at your favorite IHOP.
So I want to spend a moment talking about terminology here, because something really bugs me. We keep hearing this stupid term "risk-on/risk-off," and we try to justify it somehow by saying it provides a way to think of the market.
Before we had that horrid bit of genuine Wall Street gibberish, we used to have a different equation, one that, to me, makes a ton of sense. It went like this: Are people buying growth, or are they buying value? Now that's something that can help us, because it allows us to figure out how to make money.
When the market wants growth, it's a terrific sign. It says that stock-pickers can purchase shares in companies that are doing better than the average stock and pay up for their earnings, because there's visibility and there's low inflation.
Let's take these apparel plays, Nike, Under Armour, Kors, Lululemon and Ralph Lauren. All of these are high-growth discretionary plays that use a ton of cotton. Their actions today say that the consumer is feeling wealthier -- the discretionary side -- at the same time that these companies' raw costs are going down. That's a recipe for tremendous leverage and huge margin expansion.
If a company sells more goods at higher prices while spending less to make them, you get the holy grail. All of these companies offer something so special that they have pricing power. All of these companies are expanding like mad. All of them are in the catbird seat.
Why is this all so important? Because when people say the stock market is "cheap," what they mean is that you could pay much more for their earnings than where these stocks are trading now. We are seeing the classic case of price-to-earnings multiple expansion right before our eyes. This move today is people saying, "Those earnings are going to be terrific, and I will take more risk in order to get a bigger reward."
I love it when we get growth on, because it means that if you can identify the best-run businesses with big addressable markets and terrific managements, you can make money.
Contrast that with this risk-on/risk-off nonsense. How can that make us money? Is VF Corp. (VFC) risk-on? Is Starbucks risk-on? No, not at all. It's about stock-picking and analyzing the great growth companies of our time.
I am fighting against not only Wall Street gibberish but gibbersh that has seeped from the hedge-fund world to the media. I want to speak in English. Right now, people like growth. They are paying more for it. Seek growth, and you shall find profits. Seek risk on or off, what do you get? Frankly, I have no idea. And, as my late mother would say, if I've been around this long and I have no idea, then perhaps there isn't any idea at all.
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