Do not adjust your TV set or your cellphone. The prices you see are real, and even though they are insane, they are what happens when we are in a moment where there is radical change in the landscape. I am talking about what's moving up and what's moving down and how strange and otherworldly it really is.
What makes me say this? How about the fact that this morning I saw the worst quarter of any railroad I have ever seen, the earnings and revenues from Union Pacific (UNP). Almost every single cargo was down tremendously. It was without a doubt a quarter that at one time would have signaled the end of the rails as we know it. Agriculture, chemicals, industrial production, cargo figures -- all off big. Coal, the mainstay of the railroads for a century, was down more than 40%.
That's right Four-oh. Astounding.
So how much did Union Pacific lose on this miserable, horrible, no-good quarter? Nope -- it made nearly $1 billion, or $1.16 a share, versus last year when it made $1.30 a share. That's right -- despite massive declines on everything that Union Pacific ships, the business only made 16 cents less than it did last year.
And that's why this company could see its stock jump more than three dollars a share, a remarkable achievement.
UNP's huge jump in shareholder value is happening on the same day that, once again, PepsiCo (PE), which reported the best quarter so far of any packaged goods company, just keeps seeing its stock cascade down (PEP is part of the Action Alerts PLUS portfolio). It's joined by former winners Verizon (VZ) and Travelers (TRV), both of which reported just good quarters but needed to do far better than that because of how much this market doesn't like the winners of yesteryear.
You know when you have this kind of change of pace you have to break out the texts that got you through to where you are, the business texts of the Almighty -- you have to go to Bob Dylan, who famously crooned:
"Come analysts and investors who prophesize with your pen. Keep your eyes wide the chance won't come again, and don't speak too soon for the wheels still in spin, and there's no telling who that it's naming. For the losers now will be later to win, for the times they are a changin'."
OK, so I took a little license with that analysts and investors line. Then again, if Dylan is willing to sit down with Watson from IBM (IBM) -- another stock that fits the "times they are a changin'" dictum because it was up again today -- then who am I not to crib from the master?
Remember what I keep saying: When you are at a fulcrum, when the world is about to get better, you get these kinds of situations because the big portfolio managers are saying to themselves, "If this is the kind of number that this old rail line can put up when everything -- and I mean everything -- is bad, you can only imagine what it can do when everything's good."
Oh, and how fast is this thing turning and how hard is it to tell who is the winner while the wheel is still in spin? Take United Rentals (URI). Here's a down-on-its-luck equipment rental company, mostly the heaviest of equipment like Caterpillar (CAT) earth movers, that reported what looked like a horrendous quarter, one that sent the stock down gigantically before the bell. But then what happens? In that darned conference call, the company says that finally -- finally -- things are beginning to get better after an extended rough patch, particularly in oil, and now it's the best it has been in a year. Next thing you know, not only is the stock not down, it's among the biggest winners of the day. Talk about a loser now that's later to win -- the direction of United Rentals stock is now changing.
Or how about apparel? Is there an industry that people have been more likely to give up on of late, whether it be of the teen type, where bankruptcies are erupting all over the place, or of the fancy type, with Ralph Lauren (RL) bumping along an elusive bottom, or a just plain-old dress wear, the kind that Macy's (M) seems to have too much of, or footwear, the bane of none other than Foot Locker (FL), which probably wishes it sold foot lockers. They ought to call that thing Hurt Locker.
Then along comes Under Armour (UA) with a number that makes you think that CEO Kevin "Protect This House" Plank is re-running the tape and Cam Newton, his man on the gridiron, led the Carolina Panthers to the Lombardy Trophy. Plank reported a quarter that was so dominant, so eye-opening, so spectacular that you have to think, "Is it even possible?"
Can someone make more in one quarter in China than he did already this year? Can he really be ready with a new Steph Curry shoe for when the Warriors go fo fo fo and win out? I guess so.
Not only was Plank the world's sweatiest man -- which is why he had to invent charged cotton, so that he still had a modicum of chick magnet in him -- but he's also clairvoyant! Slowdown in apparel? How about a slowdown in everyone else's apparel! How special was this quarter? You know how I always say that too much inventory can spell disaster for most retailers? This company had oodles of inventory left, much more than when it started the quarter, but all the better to serve the 160 stores he wants to open in China this year.
Now, unfortunately for the rest of the market, there are more stories out there about companies that were already doing well than there have been about companies that were doing badly or were supposed to be doing badly.
For example, Mattel (MAT) had been the star of the toy show this last year, handily outperforming its arch competitor, Hasbro (HAS). But this was the quarter where Barbie was blindsided with a huge decline in international sales at the same time that Hasbro is getting a tailwind from Disney's (DIS) amazing suite of movies. I like Mattel, but with that miracle slate of Disney movies ahead, it is very difficult to bet against Hasbro.
And let's go back to Travelers, the insurance company. Here is a company that had become the jewel of the Dow Jones average, one that made you think it could do no wrong. But in that industry, when it rains, it pours. And I mean it both literally and figuratively, as the catastrophic storms in Texas truly crushed the insurance side with losses while the investing side got dinged by how stingy bond yields are. You don't go down that much for no reason. Or even one reason.
How about the innocent bystanders such as Clorox (CLX) and Kimberly-Clark (KMB)? Their stocks are being drubbed as if their employees are drowning in Clorox or at least downing it, or have ceased to have colds so Kleenex just isn't necessary, although it is hard to believe that toilet paper is suddenly being rationed.
Their misfortune? Back to the sage Dylan: The line it is drawn, the curse it is cast, the slow one now will later be fast, as the present now will later be past, for the times they are a changin'.
How long does it take before the order changes back? Here's the issue. The order has just started changing. Even two weeks ago it hadn't been the case.
So, my bottom line is: Let it happen. Accept it and recognize that at a certain point the losers now will have won and we will circle back to the old winners. But not yet. Not now. Because the times are changing between 9:30 a.m. and 4:00 p.m., and we just have to be ready for them.