Like everyone, we are trying to figure out when you can buy some value, whether it be down-and- out oils, or retail, or banks.
I listened rapt to Lee Cooperman on the Halftime report with Scott Wapner yesterday, because I know he is a value guy. Sure enough, he's picking up some oils. Lee was research director at Goldman Sachs when I was there, and he had a knack for picking value. Nothing's changed 35 years later, except he's been at Omega Advisers, his hedge fund for ages.
Here's the problem, though, with buying oils as anyone who listened yesterday knows: every single buy has been a bad one. Every one. I don't think today will be any different.
It's been an incredible slow motion crash in the group that's leaving nothing unscathed and yesterday's merger between oil service companies Ensco (ESV) and Atwood (ATW) meant nothing. Nor did the inability of oil to roll over as many thought it would today. Maybe it's just taking its time. Whatever; the desperate gambit to get out seems to know no bounds.
Last week we picked at some oils for Action Alerts PLUS. We are still quietly trying to buy back with a wide scale what we dumped when we thought oil would go down. But these stocks have now far overshot where I thought they could go, which is usually a sign, frankly, that they aren't yet done going down, because there are so many people trying to call a bottom that you have to expect one big give-up. Cooperman has staying power. Most don't.
I think the stocks are now signaling a serious breakdown in oil, perhaps through the $45 level where the Saudis last jammed the shorts. The question is, will the oils have bottomed before that occurs? And, can you afford to catch what looks to be like an endless falling knife?
To me, as we have told Action Alerts PLUS subscribers, we want to buy some of the stocks back that we sold higher. We also want to be sure, though, to leave plenty of room, using what Karen Cramer would call wide scales, where we aren't going to accumulate a big slug at one level. It's almost as if I would like it more to be buying these on an upswing after oil has bottomed than to continue to average down. Hence the wide scale comment, with the idea that if we don't get the bottom tick, we can buy a little higher if necessary.
Retail? The market only seems to want winners. The losers gather moss or rot. It doesn't even matter if you are dealing with a retailer that reported a good cadence -- meaning that things got better as the quarter went on -- or not. Only Costco (COST) , Walmart (WMT) , Amazon (AMZN) and Ulta (ULTA) seem to be able to rally.
The banks? What can I say. Worst I in show. They just can't seem to rally at all. So much for the two-rate hike thesis? I don't know. But, again, you are just killing your performance if you own any of them.
When will that change?
I think it will take the earnings to come out for the banks unless we get some sort of statement from the Fed that blesses unlimited buybacks and dividends. For retail? It will take mergers and buybacks. For the oils? You need oil to go to $54, not $45, or else it will just be more of the same, even if great value investors are making a stand right here.