There's a constant battle being waged in the stock market between growth and value. There are investors who want to buy something inexpensively, hoping it will blossom and there are investors who want companies that grow strongly and are willing to overlook how expensive these growth stocks are.
Right now growth is crushing value and while it's hard to tell from the averages, it sure isn't hard to tell from the stocks and sectors themselves.
I have always felt that a mix of both is the right thing, that being diversified with some growth and some value is appropriate to protect yourself from moments when growth becomes too expensive.
Right now, though, that philosophy has fallen dramatically out of favor. Right now the moment you step out of the classic growth and hyper-growth stocks and you buy down-and-out stocks that seem like they have less risk because they have fallen so far you take your financial life into your hands. It's as bifurcated as I have ever seen it and it is leading to some serious gains for the undiversified and some incredible losses for those who have even a smattering of value. That's how toxic the so-called lower-risk stocks have become.
What's behind these moves? Let's let the stocks tell us. I want to start with growth because in many ways what's happening in growth is very exciting. I did a bit of a rant this morning on Squawk on the Street about too much attention being paid to Nvidia (NVDA) and Advanced Micro Devices (AMD) .
I went to the point of reiterating that I have given my dog Everest the last name of Nvidia because I feel like Nvidia is with me when I eat and when I sleep and therefore is deserving of the recognition a last name entails. You don't want Everest eating or sleeping with you, but, Mr. Nvidia? It's slightly more palatable.
But I make the moniker not to mock the stock of the company (more on that later because I love the company) but because the growth rally has become quite broad and it's really worth talking about it.
As the progenitor of FANG I think I have a call on what's hot and what's not. And as hot as you may think those stocks are, let me tell you something, other than Amazon (AMZN) , they don't hold a candle to many of the other growth stocks in this market.
First, there's biotech. Ever since it became clear that President Trump has appointed some of the best friends of pharma in key places, so you don't have to fear price regulation or federal bargaining, these stocks have been extraordinary. The stocks of quality companies like Regeneron (REGN) and Celgene (CELG) have been zooming even as the news flow has been good, not great.
In the last two weeks Celgene's stock has vaulted to $131 from $114. A scan of the headlines doesn't show much that's really radical or new. Regeneron has gone to $525 from $366 during that same period. The company's had some good news for a diabetes drug and excellent news when it comes to a competitor's eye drug, but I would argue that those pieces of information would have failed to boost this stock even as recently as six months ago.
It's not just biotech. The stock of Johnson & Johnson (JNJ) has gone to $134 from $122 in that timeframe with some decent news about heart-attack prevention. But I think the main reason it's being propelled is the rotation into stocks of companies that do well when the economy is weak or there is deflation and their drugs won't suffer in price from Medicare, giving them nice profits no matter what. It doesn't hurt that JNJ is the ultimate stock to buy when the dollar's weak as it has been of late.
Tech's got so many winners that FANG's been outmoded. Adobe Systems (ADBE) , reported a monster good quarter last night and its stock (a holding in Action Alerts PLUS, my charitable trust) is headed higher on the strength of accelerating revenues. Workday (WDAY) and ServiceNow (NOW) and Red Hat (RHT) , which like Adobe is on Mad Money tonight, have exceeded all expectations. The cloud's just producing so many winners.
The video-game stocks may have stalled out in their velocity of their advance but they have been huge winners this quarter. Any company in the stay-at-home thesis sector has been incredibly strong.
In other words, it doesn't matter which you buy. It's going to go high. "Buy in May and go away" has been an extraordinary watchword for growth, it's just not at all poetic.
But as fantastic as growth has been I have to tell you that value has been a staggering nightmare. With oil at $42 and threatening to go to the thirties, a true bear market, it's hard to find an oil that hasn't fallen more than 20% and some are in the 30% and 40% range. It doesn't matter if natural gas has held up fabulously or if you are in a pipeline stock with little or no exposure to commodity pricing, you have been obliterated.
Those master limited partnerships with high yields, owned so often by people who want to get income when interest rates are low, have been laid to waste. The drillers, the service companies, best of breed, whatever, it's a nightmare.
Retail, with the exception of Amazon, Home Depot (HD) and Lowe's (LOW) , the latter part of the stay-at-home thesis sector, has just been so hideous it's hard to look at. My charitable trust, owns the stock of TJX Companies (TJX) and I was gratified to read a truly positive article in the Wall Street Journal today about how it is a big winner in this exact environment. But it opened lower and then proceeded to make a new 52-week low. If you didn't know better you would have thought the article talked about TJX being the next company to be destroyed by Amazon.
Another value sector, autos, has been impossible to own. The autos, the auto-parts companies, and the auto-parts stores have stocks that seem like they are pounded every day. The trust owns the stock of Snap-on (SNA) , which reported a terrific quarter and you would have thought it was a horrific quarter. The company should be buying back stock left and right but all I hear are crickets.
It's no country for old value, especially with no takeovers in sight to bring out the values.
So what happens? We are nearing the end of the quarter. The patterns that do best at the end of the quarter are the ones that are imprinted now, not in the last two days. I suspect that you will continue to see this brutal bifurcation as oil looks like it could head to the thirties, taking out my $43 target, the retailers remain under the spell of Amazon, auto sales stall out and the growth stocks levitate, unchecked by negative news.
So growth reigns supreme. Valuation parameters are ignored. And value? It just gets cheaper and more painful to own every day.
