Find your theme and stick with it. Don't deviate from it. Own it. This morning, we got a terrific number from F5 Networks (FFIV), which is the on-ramp to the Internet. We saw VMWare (VMW) blow the estimates away. That's big data speaking. That's a secular growth story that smokes employment claims. That's a proprietary trend that laughs at Spanish bond action. That's a long-term love affair that can smash the jilting of the public by the stock market.
That's what you need.
When you have a theme that works through thick and thin, it allows you to pick up stocks on weakness that otherwise people are scared to death of. When you think of big data, you need companies that are levered to the cloud as a subset of big data. Who dominates the cloud? Who can make money with big data and massage it to make it work? How about Salesforce.com (CRM)? How about Red Hat (RHT)? Sure enough, they are at 52-week highs. How about the fresh-faced IPO, Splunk (SPLK), which orders the data in a way companies can use it? What a winner.
You stick to that theme, you can make money.
What I like to do is look at variants that are being thrown away because they are not understood. Here are two: Intel (INTC) and EMC (EMC). First, EMC actually owns VMWare, which is the virtualization cloud play, meaning it's the cheap way for enterprises to tap into the cloud. EMC is a dominant player in storage for the cloud.
Intel? Simple. It makes the processors that go into data farms where the big data is stored.
Of course, people were worried about EMC and Intel revenue growth compared with the other plays. I think that owning a mixture of low-price-to-earnings stocks that are levered to the cloud and big data, like EMC and Intel, and high-multiple stocks, like Salesforce.com and Red Hat, is the best way to make money off this theme.
I know that people want instant gratification, and they are willing to throw out Intel and EMC because they didn't give it to you.
My problem with that is that you have to buy stocks that play on this theme when they are cold, not when they are hot. The big gains in Red Hat and Salesforce.com came from when people thought they had lost their way. Of course, they hadn't. The companies simply failed to blow people away when they reported the previous quarters. The next time, they succeeded, and you got the gains.
That's what I believe will happen to Intel and EMC next time. Patience does get rewarded. But, alas, oxymoronically, patience cannot be rewarded instantly. If it did, we'd all be instantly rich, like MegaMillions winners. Then again, the odds of winning with MegaMillions are slim. The odds of winning by exploiting secular themes? Now that's money.