They'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 2 of Jim's "Stocks That Do Well In a Declining Rate Environment Are Back")
The most loved of the archetypes being bought? The companies that feast on our health care system: Anthem (ANTM) , Centene (CNC) , Humana (HUM) , United Health (UNH) , Tenet (THC) and HCA (HCA) . Of these Centene stands out having just bought Fidelis, the New York State Catholic Health Plan and immediately offering $2.6 billion in stock at $107.50 to help pay for it. The stock's now at $118.40 less than a month later. I had CEO Michael Neidorff on shortly before the deal closed and wanted to get the Action Alerts PLUS club involved, that's how compelling the deal was. But the news-and the offering -- came and went too soon. If this stock pulls back...oh well, forget that, it isn't.
United Health's almost too obvious for words except that it is given to hideous swings like no other in the group, including Humana and Anthem. The analysts quickly fall in behind it, but it's often scary to buy. We bought it for AAP in one of those swan dives and it seemed like that the company's vaunted growth had ticked down. Untrue, just a momentary misread of the darned press release.
It's hard to find health care companies with larger earnings gains than the hospitals: Tenet's got almost double the earnings power it had last year. HCA's profit gains are huge. The hospital stocks were supposed to be losers under Repeal/Replace. Nothing like a failed government initiative to spur earnings and now endless short-covering. Where are these stocks going to quit? Certainly not here.
Next? There's a lust for medical devices, which are faring so much better than their drug compadres, which remain in an awful bear market. Standouts? I would say there are too many to name, but here goes: Baxter (BAX) , which just delivered a mighty earnings surprise and has become a hedge fund darling, Becton-Dickenson (BDX) , which is still benefiting from last year's Bard acquisition and will do so for at least two quarters, Boston Scientific (BSX) , where Mike Mahoney continues to astound as CEO even as he still doesn't get the credit he deserves, Medtronic (MDT) with an amazing surprise blowout just last week, something that has, oxymoronically, become a given, Abbott Labs (ABT) , which is a recent breakout and I think represents good value. Stryker (SYK) , an unlikely company given a checkered earnings reputation, Quest Diagnostics (DGX) , benefiting from a United Health partnership, and Edwards Lifesciences (EW) , which actually missed its numbers, missed them big! But the stock came back anyway, a sure sign of the move's strength.
I find this group so hard to take because it's too obvious which is why I always approached it with such trepidation. How can it be good in thick and thin, not even selling off during a heavy rotation into industrials or oils? Everyone seems to have a favorite: I have adopted Abbott because of the management of Miles White, but right now I think that Baxter and Medtronic have the most, for lack of a better word, mojo. Intuitive Surgical (ISRG) remains incredibly reliable even when it often goes down the moment it reports; it's one of those stocks that the bears like to smash the moment the release comes out to "color" your view. It's not worth panicking over; the company's just fine, thank you. With the device companies you can throw darts and hit a winner. I must just do that tonight.
The incredible life sciences bracket always produces some winners, and this time you can still cash in. The money just can't seem to stay away from Illumina (ILMN) , even as I think most of the traders in it have no idea what it does, or Danaher (DHR) , the later having heavily converted from a curious but well-run conglomerate into an equipment maker for health care, one so predominant that it had the moxie to buy the very GE (GE) division that CEO John Flannery turned down not that long ago. But if you are still looking to get in, I have one for you: Thermo-Fisher (TMO) , which, amazingly, is now 13 points from its high. That's way too much of a disparity and I suspect that if oil ticks at $64 it will rapidly be closing in on the gap of its all-time high.
When we lose the bond market, meaning when rates stop going higher, there is a wholesale rush out of the super money centers but we gain EVERYTHING fin-tech, not that the group is ever in the doghouse. The big three, American Express (AXP) -- now fully back into good graces after a series of Costco (COST) related earnings misses when Visa won the business from them -- Mastercard (MA) , which had a picture perfect quarter under Ajay Banga, and Visa (V) , with Al Kelly continuing in the path of Charlie Scharf, have all delivered monster earnings gains. It is not too glib to say that EVERY SINGLE ONE OF THEM could work here. I like the numbers Global Payments (GPN) continues to deliver and when I had them on last week I was impressed that it still plays a huge role in merchant acquiring. So, does First Data (FDC) , which I lost patience with after a series of missed. I was wrong. It's right and it does even better in a declining rate environment because it is loaded down with debt from a leveraged buyout from the old days.
Boy oh boy is Paypal (PYPL) fighting for acceptance in the group but there are sellers, I think uninformed sellers, at every new level. I think it breaks out soon after a strong analyst meeting. Nevertheless, the love for Square (SQ) always seems to impede this company's stock as well as the pure size of the darned thing at $96 billion. So few can believe that it can have such a big market cap. However, I say go read what CEO Dan Schulman said at our teach in about the opportunity, something that he painstakingly went over in his analyst day last week. Ours was a darned good preview and that was 6 points ago.
There are other fintechs that still stand out that allow you to get in, namely Bank of New York (BK) with its asset light model, as well as Morningstar (MORN) , which never seems to fall out of favor even as so few really cover it, and broker E*Trade (ETFC) , which is a good play off margin rates going higher as well as a margin return of the retail investor. Never overlook FleetCor (FLT) , which is a payments processor for truck fleets and oil companies. It is quirky but has its dyed-in-the-wool buyers on any weakness whatsoever. Oh, and there is Intuit (INTU) , which is a remarkable performer here and I can't recommend it enough even after this run as the small business side is not seasonal, a trait that has long been the bane of this stock's existence.
The other kind of tech that can't be stayed away from? Cyber security. Here we have a couple of big winners: Proofpoint (PFPT) , Nice (NICE) and Fortinet (FTNT) , all of which I can vouch for as companies with a consistency of earnings that you can take to the bank. Proofpoint, in particular, works even up here because so much of it is devoted to stopping e-mail thievery. An acquisition, Wombat, made by Gary Steele, who is truly amazing, has brought in a whole new set of buyers of his wares because it does simulated attacks, which every CTO dreams of having in order to enforce the drills needed to keep employees from being lazy targets.
The inconsistent cyber security companies are vying to lose that up and down distinction and seem to be doing so: Palo Alto (PANW) , which had a sales reorganization that initially slowed sales, is now paying dividends and should for the rest of the year, Cyberark (CYBR) , which endured a slowdown in its "keys to the kingdom" battles against those that burrow in to the most important parts of an entity, is now back with consistency, and now FireEye (FEYE) , which people continue to believe is a takeover candidate but is much more of an earnings story now.
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.
