The sum of the parts is worth more than the whole. You just can't tell it on a day-to day-basis.
That's how I feel about today's market after watching wave after wave of futures selling wash over individual stocks, a tsunami that has absolutely nothing to do with the vast majority of the stocks that it touches.
Today's market is a discordant symphony where two different conductors -- the Fed conductor and the oil conductor -- are calling the tune.
Neither conductor seems capable of making anything other than bearish music come out of this orchestra.
Until the other day when we realized that higher oil prices could trigger inflation, the oil conductor gave us an ever-rising bullish chorus.
Now, though, that oil conductor seems confused and has lost track of what page of the symphony he is on. The darned music sounds like one of those modern-day composers gone bad, just a bunch of notes thrown together to give me a headache.
The confusion is justified. Do we want higher oil to show the economy is better? Or do we hate higher oil because it wakes the second conductor, the ursine one whose work is antithetical to higher prices.
Now there is a pastorale solution that can be bullish. Oil stays high enough to make you feel as if the economy worldwide has a pulse, but not so high that the Fed conductor takes the podium for not just one hike -- we all accept that -- but two or three of them.
That's going to drive the audience right out of the hall.
Higher rates will bring about a strong dollar as investors worldwide who are earning nothing on their savings buy dollars to own higher-yielding Treasuries. The last thing our international companies need right now is a return of the freaking strong dollar, but that's a likely scenario with two rate hikes in 2016 and a given with three. That music has to stop right now.
At the same time, we're running out of solid domestic stories to hide in. If Amazon (AMZN) isn't destroying bricks-and-mortar stores, Walmart (WMT) might be doing so. That's right -- a return of the sleeping Bentonville giant, a Dow stock, buoyed that 30-stock index in the face of a dour S&P 500. You want to hide in Kroger (KO) when Walmart is kicking butt in food? You want to return to the depressed Macy's (M), J.C. Penney (JCP), Nordstrom (JWN), Kohl's (KSS), or now the company with a bull's-eye on its back, Target (TGT), which is part of the Action Alerts PLUS portfolio, while Amazon is on the loose? I guess we could all hide in Urban Outfitters (URBN) or American Eagle (AEO), but that's not much of a shield.
So, when so few stocks work, so to speak, why the heck do I think that the sum of the parts of the S&P 500 -- the individual musicians, so to speak -- is worth more than this stressed-out orchestra with the discordant conductors?
It's simple. There's hardly a day when one of the individual players doesn't prove itself worthy as a soloist even as it's handicapped by the conductor when it plays en masse.
Just take today's action if you disagree with me.
Let's start with some close-to-home names, Salesforce.com (CRM) and Cisco (CSCO), which also is part of the Action Alerts PLUS portfolio. Last night we heard about a quarter from Salesforce.com that was astonishing in its growth and profitability. I was stunned as much about the bountiful cash flow that is money in the bank as I was about the accelerating revenue growth, or arg. This company soon will be doing $10 billion in sales and all I can say is that it is just now getting appreciated, as many sell-side analysts -- the ones from brokerages -- always thought this company would never be profitable and existed only to grow and then would collapse under its own weight.
I care tremendously about who Salesforce is doing business with, who its customers are. I always listen for the big deals.
You always want their customers to be big, growing fast and needing them. Who would be the two best customers in the world right now? I would say Amazon and Uber.
Those are the two that Benioff talked about. They are probably the most in touch with their customers of any companies I know. That's what Salesforce does best. That's how you blow away the numbers. That, and snagging a gigantic government contract because those customers are voters and what do you do when you need them pampered?
You call Salesforce.com
How about this Cisco? So many fund managers have given up on Cisco because it was a slow- to no- grower. This quarter we saw Cisco re-invented, not as a boring old hardware company, but a subscription-based software company that sells hardware.
The customers for the software? Many of the major web companies that live in the cloud and have to worry about data organization and data management and security,. For ages I heard that this giant was sleeping as soundly as Walmart was when Amazon walked all over it. Not anymore. These new lines of revenue plus a $63 billion cash hoard -- almost half the darned market cap -- make the stock of Cisco the cheapest of all the big-cap growth tech stocks, even after today's gains.
What else? How about Monsanto (MON)? Here's a gigantic seed company that, speaking of music, has received a gigantic takeover overture from German chemical king Bayer for an undetermined amount, but certainly more than it was selling for yesterday -- hence the 4% gain.
Or how about Range Resources (RRC), the oil and gas company that just bought Memorial Resources, a Louisiana natural gas producer, for $3.3 billion. Why is it important that this stock is climbing again? Because while we hear endlessly about the oil and gas companies that go belly up, how about the fact that an acquirer of an oil company has seen its stock elevate almost back to where it was even as oil has gone down during this period. What does that tell you if you are an exec of a major oil company? Doesn't it say that perhaps it is worth kicking the tires on an Apache (APA) or an Anadarko (APC) now that they have gone from $133 to $56 and $114 to $49, respectively? If your stock doesn't get hurt on a buy and may actually rally, what the heck are you waiting for?
Or how about the stock of Church & Dwight (CHD), the maker of all of those Arm & Hammer products? I have always liked this company as an innovator but disliked the stock because it is so expensive at about 26 times earnings. Yet here's a stock that was up 10 points at one point, 10 juicy points that could have been had and taken by any investor even if you had no idea what the takeover rumor was.
Or how about Dick's (DKS), the sporting goods store that saw its stock pop more than three points, or 8%. Why? First, it reported a pretty decent number. But, more important, it had the good fortune to be the sporting goods store that won in the duopoly that was Dick's versus Sports Authority, which shuttered its 450 doors today for lack of a buyer. As Richard Hayne, the CEO of another outperforming store chain, Urban Outfitters, said today on his conference call, "Simply put, America is over-stored and overstocked. We have approximately 10 times more retail space per capita than our European counterparts."
You take out competitors, you win.
Or let's get down to it, the story of the day. We learned from the feds that legendary golfer Phil Mickelson had to give up $931,738 in profits and $105,291 in interest that he made off of a tip from the former chairman of Dean Foods (DF) to buy that dairy king's stock before news that it would spin off WhiteWave (WWAV), the natural and organic food subsidiary. He made nothing. Had he kept both Dean Foods and WhiteWave, which is part of the Action Alerts PLUS portfolio, he would have made 259% versus 45% for the S&P. I don't know about criminal trading -- he neither admitted nor denied any wrongdoing -- but honest investing would have made him a killing.
If these were all one-off affairs I would get the antipathy and the discordant symphony replete with multiple Fed voices in a chorus that's more cacophony than anything harmonic -- kind of like Beethoven's Ninth meets Nelly's "Hot in Here" would make for a violent backdrop to any day's session.
But the simple fact is that individual stocks are worth far more than the sum of the S&P 500 -- it's just a torturous concert masks the underlying musicians.
