The Trump trade has become a bit erratic of late. In fact, our president is becoming someone who is starting to confuse the heck out of everyone in the business world and, while he's certainly able to ponder anything -- he's the president of the United States -- you can't invest on his musings. Companies' stocks are going up because of earnings, they are going up because of self-help, and then there are some that are going down because of uncertainties created by the offhanded tweets and the casual comments that then reverberate around the world.
When you say out loud that maybe the big banks should be broken up, when you tweet that the country needs a good shutdown in September, you are giving a signal to the American people: "Don't take me seriously, I just think and tweet as if I am not president, but a provocateur-in-chief who doesn't know my own power."
We've come a long way in the last 100 days. We've gone from thinking that Trump's going to save American business to asking if American business can handle the erratic nature of this man's pronouncements. Can American business bank on a one-page tax plan that seems to have few friends in Congress? Can the modern-day CEO run a company without thinking, oh man, what's he going to tweet next?
It's not as onerous as the endless regulations put through in the last eight years. But it's also not what was expected when he came in with guns blazing, vowing to help the American worker while supporting American businesses.
So what happens? Domestically, we're stalled. We got some really weak car numbers today, sales so putrid that the idea our auto sales haven't peaked is now out the window. The incentives are too high, the supply too great, the used-car prices too low to think this industry can give us some oomph. My hope had been that small business would grow so much that it could be a spur to sales. Instead, I think the repeal-and-replace buzzkill repealed and replaced boom with gloom.
Gross domestic product, a fancy name for how much business is getting done in this country, has slacked off to a level that it is getting increasingly hard to justify raising rates twice this year, something the banks need badly. It sure doesn't help, by the way, if you now have to think your bank should be broken up. I don't care, an idle comment by this president is then backed up immediately by a phalanx of people willing to testify that they are too big, a casualty of the Great Recession when banks were allowed to merge in an unprecedented concentration of power so they all didn't go under.
And yet the market, so disconnected from the American economy, continues to go higher.
Why?
Not a stupid question.
In order to get your stock up in this environment, you have to do one of four things:
- Split your company into separate entities to bring out value.
- Buy companies that augment your core business in order to grow.
- Have a sizable business in Europe and Asia to offset American weakness.
- Have a better mousetrap.
Every stock that roared today had one of those boosters going.
Let's start with the most obvious, the split-up. Barry Diller, the founder and chairman of IAC/InterActive (IAC) , has created a huge amount of value since he started a company that has had many moving parts over the years. Yet he doesn't get the credit for making brilliant moves. That ends tonight. This morning his company bought Angie's List (ANGI) and then merged with it with Home Adviser, an overlooked division that pre-screens and rates service professionals, which is the original mission of Angie's but the latter just couldn't scale.
Maybe only Diller can spend $570 million buying Angie's and then see his stock go up almost $900 million as Home Adviser will now be its own stand-alone company. Twelve points made; bravo.
How about No. 2, buy some additional companies to augment your core. That's what Cramer fave Martin Marietta Materials (MLM) has done acquiring aggregate companies all over the place -- making it so it has grown from being a small regional player to one with businesses in every growing state. That's how it could act like a fast-growing tech company when it blew out the quarter last night. Stones aren't supposed to have growth -- and a rock feels no pain (couldn't resist Simon & Garfunkel) -- but the numbers here suggest this company isn't waiting for the president's infrastructure plan to pass or fail at the hands of that genius, House Speaker Paul Ryan. State road budgets will do just fine. MLM ramps 17 points or more than 7%.
I was agog at the strong quarter from Cummins (CMI) this morning. The engine maker reported such a fantastic number that I found myself thinking, how could I be so wrong about how soft the American truck market is?
Whoops, I got it right. North American engine shipments declined by 1%. But international revenues increased by 17% and, most important, first-quarter revenues including joint ventures were $1.1 billion, an increase of 49% because of growth in Cummins' highway and constriction business. Industry demand for medium- and heavy-duty trucks in China increased by a staggering 73%, aided by aggressive infrastructure spending and truck replacements. The stock tacks on nine points or 6%. I think there's more to come.
Finally there's No. 4, the better mousetrap. To me, that defines Apple (AAPL) , which traded to still another all-time high today, up 27% for the year. Why? Better mousetrap. The world's largest company reported after the close, and even before the cyber ink was dry, we heard that while the headline numbers were better than expected, there was disappointment in the number of phones sold, especially in China. (Apple is part of TheStreet's Action Alerts PLUS portfolio.)
Here's what I have to say. If you are going to play the handset game, meaning you are trying to pin the tail on the number of units sold and hold it against Apple that it sold 1.2 million phones fewer than some thought, even as inventories were down big, then you shouldn't be in the stock. If you are going to assess this company as if it is one phone away from death's door, then by all means sell it. That is, if you didn't sell it at $93 last year, or $103, or $113, or $123 or wherever else panic guided your "thinking."
Me? With a price-to-earnings multiple way below the average stock, with a gigantic buyback that you are more than welcome to sell into because CEO Tim Cook is adamant that the stock is cheap -- and he has been more right than any analyst -- and with a potential for repatriation of tens of billions of dollars at low tax rates if the president and Congress could see eye to eye on anything, I say be my guest. But after scrutinizing the quarter I am sticking with my long-held view to own it, not trade it.
Oh, and don't forget, Warren Buffett, who has a lot of firepower, agrees with me and he will be on CNBC from 6 to 9 a.m. with Becky Quick on Monday and I don't think he's trading out of it. I bet he's a buyer if it comes in.
Of course, there are some other counterintuitive ways to see your stocks go higher. Getting hauled in front of Congress, for example, as United's (UAL) Oscar Munoz was today because of the now infamous drag-by. I think this was one of those cathartic experiences and the next data point will come again when Buffett praises this group on CNBC. No wonder the stock of United Continental is now above where it was when the unfriendlier skies paid customers a visit. In fact, it was up $3.67 or more than 5%.
And then there's Coach (COH) , a franchise written off as mall roadkill when it is anything but. It's got style and new brands besides just Coach and I think we should have all known it could have an upside surprise when Selena Gomez wore a Coach dress to the much-ballyhooed Metropolitan Museum gala. That stock advanced more than $4 or 11%.
But the bottom line is in an environment where Trump's trumping himself with inconsistent pronouncements that are throwing off pretty much everyone, it pays to merge, spin, sell internationally or have a better mousetrap. Without one of these, all I can say is good luck.
