What moves a stock these days? What's a surefire way to get it going? I'll tell you what does it. Tell the world that you are investing in technology to make things more efficient, to make them better.
Technology's the key behind today's rally and look no further than Home Depot (HD) , a big Dow Jones stock, which helped propel that venerable average with an announcement that it is looking to hire 1,000 technology professionals as part of its 11-billion- dollar strategic investment plan.
Cynics out there will say that it's just a press release by a publicity hungry hardware store and its four point run off this hiring spree is ridiculous. I will tell you right now how wrong that is. Home Depot has been pulling away from its competition, and staying ahead of even Amazon (AMZN) with a home grown technology effort, run by its chief investment officer, Matt Carey, that marries engineers with product managers and those on the floor who know the customer experience. As Marc Benioff, CEO of Salesforce.com (CRM) and a Home Depot supplier told me, "Matt Carey is a legend in Information Technology. He has personally transformed Home Depot in many of the most significant digital transformation and customer innovations in the retail industry. "
Why does Home Depot spend so much on tech? Why does he have Battles of the Brains to recruit the best coders in the business, and I am talking about not just the retail business? Why do they recruit hundreds of tech people right out of school, or train their tech inclined employees in a 12-week boot camp? Go listen to their latest "Give Me an H" podcast and you will know. Because if you think running a retail operation is about having a brick and mortar presence a cashier and a salesperson, you will be eaten alive by the Death Star otherwise known as Amazon.
That's why Home Depot has built a mobile app that, if you are a contractor, you speak into to ask where a fastener or a drill bit or a can of enamel paint is and it tells you exactly where to go. How can you compete with that?
I think you can't which is why I believe that so many mom and pop hardware stores have closed despite their often superior personal touch. I think it's why even arch-rival Lowe's (LOW) is losing a two-way national race, because the contractors of the world don't have the time to go to Lowe's anymore; Home Depot's too efficient, too quick.Plus, the big data mining that Home Depot does is brilliant. They know when you want something and where you want it. I think one of the reasons why the CEO of Lowe's was recently retired. Home Depot just never stopped investing in tech. Lowe's? It seems like a tech wasteland. Yep, not having the best new tech is a recipe for being canned, even if you are a long-standing CEO.
But it isn't just in retail. Last night CSX (CSX) , the giant railroad, reported earnings. Do you know that almost every cargo they carry, like chemicals, like autos, like agricultural products was down but the company still crushed the profit numbers and the stock soared 6%. How did the company do it? Because CSX had a remarkable increase in efficiency, making a much bigger profit from those down cargo lines with far fewer people and far less money. Yep, it was all tech, and tech made this railroad run on time.
Now there's tremendous pin action in the rails, and CSX ignited the whole sector. There's also a lot of graybeards out there who don't want to buy stocks unless the transports are running because the transports are the lifeblood of commerce. So, they were instrumental in why the market held in all day despite some very high profile losers. More on that in a moment.
Or did you see the other leaders today besides the transports? The oils. In the old days, just so you know, oil at $68 and change would mean breakeven for so many of our oil companies. They would have to sell calls and sell puts against their production just to bring in a little extra income. A dollar and change jump in oil like today would be a sucker's play. You go under the hood and you would recognize that all-in cost of production meant that only already drilled properties could make a company money.
These days, though, you have outfits like Schlumberger (SLB) and Core Labs (CLB) that are technology experts and they find oil in places that would normally be too expensive. Now, with the drilling technology we have, the properties are incredibly lucrative. You marry the oil in the Permian with the software of Halliburton (HAL) and you are making fortunes equivalent to what you would make when oil was at $100 not that long ago.
Or how about steel? Tomorrow Nucor (NUE) , our nation's best steel company, and arguably the best in the world, reports. Now we know that President Trump has decided to protect our steel industry as some of the globalists would say. To me that's nonsense. What's been going on at Nucor is that it has spent fortunes harnessing the best technology there is to become the lowest cost producer in the world of the best quality steel there is. But it hasn't mattered because the Chinese government, in an effort to put people to work, has no cost of capital and has systematically almost wiped out the American steel industry.
Now, with the tariffs, hopefully, tomorrow you will see how much money Nucor can make now that the playing field is getting level.
So, you might ask, if tech is so important, how the heck is the stock of IBM (IBM) one of the biggest losers in today's market? It's a tough question. First, the new CFO of the company, James Kavanaugh, mentioned on the firm's conference call, that he was disappointed in the results of his company's storage business. Yeah, in a bit of uber candor, he actually used the word "disappointed" when it comes to a product the company sells.
Put aside that storage isn't that big a line item. Forget that the company actually guided up next quarter and now 47% of its business is now about strategic imperatives, meaning the cloud, blockchain, security, artificial intelligence, everything a modern day CEO at any company now craves to stay competitive.
The fact is that the older, incumbent businesses just don't have growth and that means a huge percentage of its enterprise doesn't count in the eyes of this market. When we think of tech we want unadulterated growth and we aren't satisfied investing in a technology business with half of it fast growth, as is the case with IBM, and half of it an anchor to leeward. Sometimes I wish IBM could split the company into two, because I sure would like to buy the strategic imperative part, especially its terrific cloud business, at a fraction of what we pay for typical technology stocks. But you aren't going to get that bargain because the old and the new are too intertwined to break up.
And if we want a fast growing cloud operation why do we need IBM when we have Amazon, which, despite its 27 point leap today, is still not back to its all-time high. Portfolio managers don't asterisk their picks. They don't say "look I own IBM for the fast- growing stuff not the slow-motion business but given how low the price to earnings multiple is and how much capital it returns and how it has such a good dividend, I'm satisfied." These portfolio managers are about identifying companies with the best growth prospects and as far as they are concerned a company that offers a big dividend is a red flag. It's a sign that the company doesn't have the opportunities or the DNA to invest in the future, even as IBM spends a fortune on R&D and is a patent machine. It's unfair, but as Clint told us in that seminal stock treatise known as Unforgiven, "Deserve has nothing to do with it."So here's the bottom line: tech isn't just FANG, my acronym for Facebook ( FB) , Amazon, Netflix ( NFLX) and Google now Alphabet. It's about the companies that employ tech to trounce the competition, whether it be in the information technology field or on the rails or in a big orange chain store. With it, you live, without it? You wither on the vine.