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PrintThey're back! The stocks that do well in a declining rate environment have come roaring back and the crash of oil will only accelerate the move. It's incredible, what stocks get bought at this moment almost seem literally etched in stone. It's the same group of stocks that starred when rates were first on the way down. There are almost no changed whatsoever. I guess these managers doing the buying feel that the money will be taken away if the declining rate playbook isn't adhered to.
We've got a few "must owns" that don't fit the usual advances in the face of lowered rates, and I will go over those, too, but the sameness is quite irking because it says "don't do your homework, shut up and buy until rates stop going down." There are always a couple of sectors that rally because some circumstances are different. In this case, collapsing oil is spurring a whole cohort. Soon, I anticipate some of the stock intelligentsia to craft a theory that lower oil coupled with Italian-led European turmoil are symptoms of a nearby recession. It could be a long hot summer of self-fulfilling stock stupidity.
(See Part 1 of Jim's "Stocks That Do Well In a Declining Rate Environment Are Back")
We always think of Amazon (AMZN) as a winner. I know I do. It is our largest position for the Action Alerts PLUS club. But the generic "freight" that we keep hearing as a major source of friction for the down-and-out consumer packaged goods companies, is manna from heaven for all the truckers, of which JB Hunt (JBHT) is the preferred given that Knight (KNX) keeps faltering. Check out Landstar (LSTR) for an unheralded trucker. Far more obvious, and perhaps better, are the Amazon direct players, notably United Parcel (UPS) and FedEx (FDX) . The breakout new hit in the group is XPO Logistics (XPO) which is just so hot it keeps overrunning everyone's targets (it's the Ollie's of the group, if you want to analogize to the hottest company in all of retail). I like the rails, CSX (CSX) and Norfolk Southern (NSC) but most important Union Pacific (UNP) which has an analyst day on May 31. It's almost impossible for the latter to screw it up. At least that's how I felt about the company after interviewing Lance Fritz last week. What a horse, driven by pretty much everything from intermodal to crude by rail to fracking sand and ag related products. Notice I am not even including the airlines, which are beneficiaries of low rates, in part because you don't need to: these freight companies have oil surcharges. Bargain hunters will go for the airlines with oil falling, though, and the one that seems to get all the attention, always, is the worst one: United Continental (UAL) . I think Southwest (LUV) is going to come back here despite the accident. American (AAL) and Delta (DAL) are better bets though.
We are in a high employment mode, something that I do not think will be pinched by the brewing oil related slowdown thesis - remember it really is supply overwhelming demand - and three always make the list: Insperity (NSP) , a professional employment organization, meaning they do all sorts of benefits chores, Automatic Data (ADP) , which has become synonymous with low unemployment and Cintas (CTAS) , the uniform company which is regarded as THE investment for the industrial revolution. I think it's been the winner ever since it bought out its chief competitor G&K, although I would be careful here given that it is about to lap the close of that deal. Two more quarters and then you might have to exit. ADP seems overextended and that's happening way too close to the Labor Department's non-farm payroll report for my taste. Why not go for Insperity, the old Administaff, which no one ever champions.
Now let's go off the beaten path with some one-offs that might have some staying power. First there is retail and apparel, with some completely sainted names even if they are hard to stay in because of erratic trading. They are all getting the benefit of lower oil even if I can't even prove a link. Neither can you.
Let's start with one that had been knocked off its perch after a few quarters of erratic numbers - I know it shook me out - but has now been so ensconced that when it missed numbers the stock took a pre-market dive and then experienced a renaissance, none other than TJX (TJX) . A spartan conference call to be certain, but a loved one. Once on a roll it is hard to roll back.
Then we have a few new ones, namely Ralph Lauren (RL) , which finally bit the bullet on some poorly performing outlets and is now faring quite well, and Tiffany (TIF) , which like RL, had been missing a CEO but that's certainly no longer the case. Judging by the performances of these two you are going to have multiple quarters of victories here with them. I would buy Tiffany with both hands.
I know that there are some others that have been inconsistent but that's no longer the case: Urban Outfitters (URBN) which is still not even firing on all cylinders but is winning on fashion, Ulta (ULTA) , which has been derisked after a thorough cleansing of Amazon worries, Kors (KORS) , which is now regarded, once again, as the premier apparel company, even as I think that title should belong to PVH (PVH) , which reports this week and actually began the return of money to the category.
Remember, this is a one-off group, meaning it doesn't fit the typical buy-on-a bond rally slowdown. So, two that report this week, American Eagle (AEO) and Abercrombie (ANF) , are front-running good numbers, at least in my opinion. Macy's (M) is the lone department store winner, and it's still gaining adherents. Costco (COST) won't quit and Home Depot (HD) needs to play catch-up to Lowe's (LOW) , an oddity given the disparity of earnings performances the other way. Williams Sonoma (WSM) wants to be in this group. I say one quarter does not make a serious anointment.
Foot Locker (FL) just put in quarter one of good news so it is too early to crown it a kind. Not so Nike (NKE) which is so back that even though it lost a huge number of execs it doesn't even seem to matter. The surprise victor here is Under Armour (UAA) . Twenty-five percent ago I dared Kevin Plank to come on and say why UA is back. He came on and talked new product and attention to detail. Has he ever delivered on those promises.
The final reliable group? The cloud kings, the companies that have thrived from being facilitators of clients who need to get on the web. It's a fairly simple staple: Salesforce (CRM) , which reports today, Adobe (ADBE) , Workday (WDAY) , RedHat (RHT) , VMware (VMW) , ServiceNow (NOW) , New Relic (NEWR) and Splunk (SPLK) . Periodically one of these will be perceived as having done something right, a not spectacular analyst meeting or a less than huge blowout quarter and it sells off, as is the case with Splunk last week. It's just an out-and-out opportunity.
Now there are other groups that are struggling for attention. Many of the "takeover" semiconductors - both of the acquiring and the quarry - could get a lift from a real sealing of approval by the Chinese regulators of the once-thought-to-be-dead Qualcomm (QCOM) to buy NXP (NXPI) deal.
The regional banks are thought to be the winner under loosened Dodd-Frank rules, but I worry that there will be way too much rate pressure to keep this group hot, but if you care I like Zions (ZION) , Regions (RF) , Comerica (CMA) and Cullen/Frost Bankers (CFR) , the latter also being a play on the strongest economy in the country, that of Texas.
But I don't like to overthink it. The groups that are winners will stay winners as long as interest rates maintain their downward trajectory. And the commodity/industrial companies? Just too many headwinds to warrant wholesale buy interest even if the company you are thinking about yourself - in my case Honeywell (HON) or Emerson (EMR) - has an exceptional quarter ahead of it.
