We're in the midst of a tremendous break out above price ranges for a ton of companies. Typically, they would be held back by the gravitational pull of profit-takers and of the intrusion of higher rates or politics or weaker business.
We have none of those now, though. Yes, you could argue that rates have gone a lot higher but the most sensitive of rate sectors, like housing, keep rallying. I know that you could argue that we have a political minefield on a daily basis. But that's not how the market views it. Earnings? They are insanely positive to the point that even when they first are received negatively the judgment often gets reversed after a couple of days.
Still, though, you wonder, how about the gravitational profit-taking pull? What counteracts that?
Simple? Price target boosting and research defenses and insurgents trying to make things happen.
Let's go over all three starting with the target boost. This morning we got a very innocuous note from Wells Fargo about Nike (NKE) . I say innocuous because the note wasn't about Nike per se, it was about number one client Footlocker (FL) and all the good things they had to say about Nike. "Footlocker believes," the note says, "that Nike's new premium footwear silhouettes are resonating with consumers (VaporMax, Air Max270, Epic React) and Signature Basketball may be stabilizing. Footlocker's message, Wells because "this positive tone from Nike's primary brick and mortar in North America is noteworthy as we believe it gives credibility to Nike management's guidance for an improvement to flat North American revenue growth in Q4 and growth in Fiscal Year 2019," versus declines.
As a result? Wells raises its price target from $62 to $74.
Now consider where the stock is: $74. What the analyst has done is shrewdly to use the Footlocker visit as a way to get his tight price target more in line with the reality of Nike. It doesn't matter, though, a price target boost in this environment works. It keeps the ball in the air and while the stock didn't advance, a natural time to take profits gets averted.
How about Signet (SIG) ? Here's a once sad-sack company that many had written off given its wayward management. Analysts had been falling all over themselves cutting price targets because the old management had made the story into more of a lender than a jeweler. Then a new CEO, Virginia Drosos, a person with plenty of Procter & Gamble (PG) experience took over and started executing a turnaround. The last quarter was a big, big miss so there were more price target cuts. But then the company blew out the numbers last week and the analysts have been scrambling ever since to upgrade the stock. This morning RBC, saying there's still a lot of heavy lifting to go, is still intrigued by the "trajectory of improvements." With the stock at $56 the analysts raises the price target from $38 to $51. Like the Nike analyst, the price target is still way too low. That will come later as I think Drosos' turn is for real and many analysts will have to raise price targets.
Until a week ago, everything Allergan (AGN) did went for naught. But last week two hedge fund managers took stakes. Dave Tepper, now owner of the Carolina Panthers, and Carl Icahn took stakes in the company. Analysts who had frantically tried to slash and burn numbers and downgrade the stock found themselves suddenly on the wrong side of the trade. So you have Mizuho going from $150 to $176 on stronger Botox expectations in both migraine and cosmetic indications as well as the activists, so the price target goes up.
It's all very self fulfilling.
Sometimes the price target stays the same but the thesis switches. Keybanc today says that Instagram, not Facebook (FB) , could be the primary driver for a stock that was faltering over the endless New York Times revelations that the company had done something with your data that you could figure they might do. The firm is using big numbers for Instagram and it would make the story more compelling.
Every company that has broken out is a candidate for a price target boost. United Health's (UNH) stock is roaring, so is Estee Lauder's (EL) and Valeant's (VRX) . I could see every one of those companies' stocks getting a boost tomorrow. Same with the gaming stocks like Electronic Arts (EA) and Activision Blizzard (ATVI) which have overrun their targets. That's just how it happens when you are analysts. It creates a rosy hue for stocks to go higher.
How about the defenses? We know the stocks of the cruise lines have been pulverized after Morgan Stanley did a survey that said that pricing wasn't that good for the group. This morning JP Morgan did its survey and it showed that cruise pricing was very strong for Royal Caribbean (RCL) and almost as strong for Norwegian Cruise Line (NCLH) . It's caused the stocks of this once popular group to stabilize. What typically happens now is that other analysts see that there is little downside to the group and they will climb out of their foxholes and try to get them rolling again.
Then there's Eli Lilly (LLY) . Not that long ago this one was the goat of the game. I mean just terrible. Every time it reported the stock got crushed. But of late it's been sneaking up seemingly on no good reason. JP Morgan couldn't resist. Its Lilly analyst came out and said that it is one of the "best position names" in the group. It then totally rehashes exactly what could have been said when the stock was in the $70s except now it is in the high $80s. Lilly, unlike a lot of other drug companies, has a lot of different assets. And even though its diabetes franchise is very challenged - what drove it to the $70s to begin with - is now regarded as diversified anti-diabetes wonder. Where were you at $76 may I ask?
Finally there is activism. You don't want to sell an underperformer, like Allergan, if an activist might strike. Sempra Energy (SRE) , a plain vanilla utility that hasn't done much, got a letter from Elliott Associates, Paul Singer's firm, talking about how it should unlock value. The stock started slow today but then took off and is up 15%. Fifteen percent! Can you imagine if you had sold Sempra Friday and you came in today? You would feel like an idiot. Just like you would have felt if you had sold Athenahealth (ATHN) because it was so poorly managed right before when Elliott made a $155 bid, one that given the fact that the former CEO, Jonathan Bush resigned last week, seems more and more likely to succeed.
Now we don't know where the activists will strike next. But I can tell you that after running a full-day corporate governance conference for The Deal last Thursday, you should almost presume that someone is going to target the shares of your company if you haven't seen a lot of value being brought out.
There are many reasons why a stock market that you think should go down, doesn't go down and they aren't all that linked to trade. You should be thinking positively, not negatively, these days, if your stock has had a run or even if it hasn't as a preponderance of good things is liable to happen.