"I thought I was bulletproof or Superman there for a while. I thought I'd never run out of nerve. Never."
-- Evel Knievel
The Adventures of Superman
More powerful than a locomotive? Able to leap tall buildings in single bound? At perhaps it's weakest moment early on in Wednesday trade, U.S. equities rallied. Oh, you can credit Secretary of Commerce Wilbur Ross, and you can credit the president's shiny new top economic adviser Larry Kudlow (I do) for speaking publicly in extremely timely fashion. The fact is that the rally would not have held last night unless investors had suddenly become more OK with the current condition.
So it was that the Nasdaq Composite flipped from -1.9% on the day to +1.4%. The rally was broad based, as broad based as was the preceding selloff. Technology, specifically software roared. Retail roared. Staples, Banks, pretty much everyone except the rails and energy names enjoyed this pop. Those groups must still wrestle with rising Russian production as well as expectations that the Saudis are considering a price cut for Asian customers.
Even withWednesday's dramatic recovery, the S&P 500 stands down 1.1% year to date, and more than 8% off of the January highs. The rally did push the already mentioned Nasdaq Composite into positive territory for 2018, but the Dow Jones Industrials and the Russell 2000 both remain below sea level.
Where am I going with this? The United States and China both appear to prefer to talk it out as they reluctantly prep for a trade war. Still, investors remain jittery. On top of this potential for conflict, there are other issues weighing on valuation. Short-term liquidity, volatility in Washington and a still wounded U.S. consumer all act as weights upon the economy's potential. That weight eventually passes on to the marketplace. There's more. Markets must still allow for an aggressive central bank that would pursue higher interest rates while simultaneously withdrawing overall liquidity from the very economy this group is charged with protecting.
You do know what question I have been hearing, right?
Right Here, Right Now
That's right. The cards and letters (emails & tweets) seem to be headed in the same direction. What can we buy right now? The good news is that anyone still referring to valuations as perverse is not looking at the same data that I am. Stocks appear very close to properly valued to me at these levels.
Everyone knows that I have been building a long in the VanEck Vectors Vietnam ETF (VNM) . Likely, that one is not for everyone. I honestly cannot tell you, without knowing something about you what you can buy here. What I can do, however, is tell you the last few somewhat well-known names that I have either initiated longs in, or added to when they present pricing that looks optimal to me.
1) Raytheon Co. (RTN) . Defense spending is only going higher. Where? the U.S., China, Japan, Europe, the Americas. Everywhere. The planet is arming itself. I believe that the focus will be on missile intercept. Two weeks ago, the Pentagon awarded RTN a $511 million contract for the "Cobra Dane" radar system set to be deployed in Alaska and completed by 2025. A few days later, the firm announced an 8.8% increase to the dividend. By the way, the stock goes ex-div next Tuesday.
Remember the Patriot missile? Yeah, well Poland just last week agreed to spend $4.75 billion (yes, that's a "B") on this (Yes, Raytheon) system. Raytheon, an Action Alerts PLUS holding, is also developing a drone swarm technology that sounds just incredible. If I had more time I'd explain, but the days of laying in wait in the darkness of night with your face, ears, hands and teeth painted are long over.
2) Goldman Sachs Group (GS) . The recent volatility forced my hand here. I had taken 40% of this position off when conditions became unstable earlier this year. The heightened overshoot in both directions for the marketplace had me taking this position back up to what I consider to be a full investment Wednesday. So, we extracted some capital on the trade, and we expect that if anyone benefits in a traders' environment it will be this firm.
Action Alerts PLUS holding Goldman reports on April 17. It is with nearly giddy anticipation that I look forward to trading revenue numbers for the entire group.
3) McDonald's Corp. (MCD) . Almost under the radar, this name has been under recent accumulation. Is the name a little pricey at 19 times forward earnings? Yes. This is a technical play. The stock price is breaking out of an obvious cup with a handle formation.
Still, fundamentally two items do stand out. One, the company has guided Wall Street to capex expectations of $2.4 billion for 2018. The corporation has seen the numbers improve at remodeled locations. Two, the firm continues to expand the rollout of fresh beef in place of the frozen variety nationwide. Have you tried one of these new burgers? Mmm. Trust this guy, a McDonald's hamburger is now much, much tastier than you think. (My opinion, I have a hunch that I will sell these shares above $170.)
4) Apple Inc. (AAPL) . Yeah, I know Apple hired John Giannandrea to put a fire under their artificial intelligence program. I can talk on end about the firm's eco-system, and how that is the one factor that can both corral its clients even if they are inclined to break away, and provide in the end a continuous revenue stream.
None of that is why I added.
I like the way that CEO Tim Cook differentiated Apple last week, not only from Facebook, Inc. (FB) , but from all of the internet stocks that collect the data of their customers. Wall Street knocked Cook for knocking a fellow CEO. Baloney. He put a flag in the ground, and said "Not us." I think the man showed leadership last week.
The Plight of Facebook
Yep, I'm the guy that wrote the article "Don't Buy Facebook's Stock on a Dip Here" published on March 19. The article, based really on instinct at the time, laid out why the stock would fall further. I also discussed three lines of potential rising support. It was close to that third and final line where the stock has finally found some help. So, is Facebook safe yet?
Safe? No. Has it bottomed? That's another question. As far as FANGs go, the stock is fundamentally cheap. Might the underlying fundamentals remain intact? They could. None of my friends have left the service. Then again, I am in my mid-50s. My sons and one of my closest co-workers are all in their twenties. None of them use Facebook, or even express an interest in ever using the forum. In fact, they kind of laugh at the idea.
CEO Mark Zuckerberg has finally agreed to appear before Congress to address the recent data privacy scandals. I guess he has to after embarrassing himself by avoiding appearing before the U.K. Parliament. A reputation is a terrible thing to waste.
Morgan Stanley and Deutsche Bank have both cut price targets for Facebook in recent days. Why? Simple. If Facebook is to terminate any relationships with third-party data providers, then the firm will realize less revenue. If advertisers take offense or feel that their own customers will take offense at what has transpired, then, again, this means less revenue.
Bottom line: You will likely see this week's rebound continue Thursday morning. This is both technical, and tradeable. I am not saying the stock is completely toxic. Is the name investable? Not for me.
Headline risk will increase as Zuckerberg's date with Congress approaches. He will be well coached, and will likely (has to) outperform himself to this point. The fact is that the door could swing either way coming out of that event.
Oh, the kid may want to try wearing a tie. As for my money, I'll invest elsewhere.
Economics (All Times Eastern)
08:30 - Balance of Trade (February): Expecting $-56.5B, Last $-56.6B.
08:30 - Initial Jobless Claims (Weekly): Expecting 224K, Last 215K.
10:30 - Natural Gas Inventories (Weekly): Expecting -27B cf, Last -63B cf.
13:00 - Fed Speaker: Atlanta Fed Pres. Raphael Bostic.
