Some groups just won't quit.
No matter what seems to happen: Brexit, terrorism, slow employment growth, lots of hiring, political turmoil, it just doesn't matter. It's almost ineluctable and a tad unnerving that they can be so relentlessly buoyant when nothing's really happening to them, at least yet, because earnings season really beckons.
Let me give you the unassailable themes, because they have started the third quarter with the same buoyancy they left the second. The only difference? There's been a few more groups added.
First, there's the medical device companies.
The only word I have for it is insane. Really, how long can Bard (BCR) , Baxter (BAX) , Becton Dickinson (BDX) , Edwards Lifesciences (EW) , Boston Scientific (BSX) , Stryker (SYK) , Zimmer Biomet (ZBH) , Medtronic (MDT) and Intuitive Surgical (ISRG) keep going higher? They all vary in price-to-earnings multiple, most clustered around 20-22x next year's earnings, except exceptions like Edwards Life, with its revolutionary device to avoid open heart surgery and Intuitive Surgical at 38x and 32x times next year's earnings. These are the real and un-championed stars of this market.
Joining them now on their relentless journey higher are two that got sidetracked by Theranos: Laboratory Corporation of America (LH) and Quest Diagnostics (DGX) . This is literally a who's who of anything health related, as if when you see those numbers of health care costs and you think about the aging baby boomers you just pick one of these. You simply aren't going to go wrong as long as we have a slow economy. In other words, these are the stocks people by now when they see slow GDP worldwide.
You hardly ever hear of anyone saying that you must own Becton or Bard or Baxter, but you sure should. I can't believe how much money is made in these stocks vs. the much-beloved biotechs.
The staples don't come in either.
I thought with interest rates going higher this week that there was always a chance that this group stops in its tracks. Nope, it just gets broader.
Colgate (CL) , Kimberly Clark (KMB) , Clorox (CLX) , PepsiCo (PEP) , Smucker (SJM) , General Mills (GIS) and Kellogg (K) have been fabulous for ages. As has Campbell's (CPB) . But ever since the Mondelez (MDLZ) bid for Hershey (HSY) , this group can't stay down and that includes Conagra (CAG) and Tyson (TSN) . Something's going to happen in this group, as witnessed by the bid for WhiteWave (WWAV) . The advance got broader this week with Procter (PG) making a big move. Watch Estee Lauder (EL) -- weak quarter last time. I think there won't be this time.
The market keeps taking a liking to Johnson & Johnson (JNJ) , Pfizer (PFE) -- ever since the end of the Allergan (AGN) deal -- and, of course, Bristol-Myers (BMY) . But you can't help but notice Merck's (MRK) on the list now. Merck with so little growth. But it's got yield and that's enough.
Next perennial winners? The defense companies.
The idea that the U.S. is not defending the rest of the world means the rest of the world has to spend on defense and if you spend on defense you are going to write checks to Lockheed Martin (LMT) , L-3 (LLL) , Northrop Grumman (NOC) , Harris (HRS) and Raytheon RTN. I have watched analyst after analyst downgrade these stocks and then, when they report, the analysts have to raise numbers but really can't figure out what the heck to do.
We have known about the home theory for ages. But that doesn't stop the buyers from continuing to step up to Fortune Brands (FBHS) , Masco (MAS) , Stanley Black & Decker (SWK) , Home Depot (HD) , Lowe's (LOW) , Newell Brands (NWL) , Sherwin-Williams (SHW) -- which they will like even more after the Valspar deal closes -- RPM (RPM) (Rustoleum and a variety of other home care products) Leggett & Platt (LEG) and TJX (TJX) because of HomeGoods.
But what's really exciting here for the bulls is something in contravention to what Dougie Kass talks about a great deal: peak housing.
When you see Horton (DHI) , Pulte (PHM) , Lennar (LEN) , Weyerhaeuser (WY) and KB Home (KBH) -- KB Homes, allegedly the worst of the worst -- going higher can you really believe in the peak housing thesis? Or do we, instead, ponder the idea that at last we are going to break out of the million-housing-starts period we have lived in seemingly forever, or at least since the housing crash. We know that there have been new projects being developed. That's what Martin Marietta Materials (MLM) and Vulcan Materials (VMC) tells us, as does Waste Management (WM) . But this is a definitive move.
There's been some sainted industrials for ages.
There are 3M (MMM) , Illinois Toolworks (ITW) , General Electric (GE) and Honeywell (HON) come to mind. You have to marvel at United Technologies (UTX) , but that's a story of defense, innovation and, yes, offshoring. But now joining the looking-good industrials are Eaton (ETN) , Parker-Hannifin (PH) , Emerson (EMR) -- remember them? -- and Ingersoll-Rand (IR) . Many of these companies have substantial business in Europe, which would make you think that something good could be happening there, as I have been contesting when I say that European rates are absurdly low.
The change for the last two weeks is money going into the so-called China plays.
Those are Caterpillar (CAT) , which everyone "smart" still hates, Cummins (CMI) , with excellent truck figures globally, Joy Global (JOY) -- and you thought coal was dead -- and Alcoa (AA) . The latter kicked off this move with that fantastic quarter just one week ago.
The steel stocks maintain their power ever since our nation slapped tariffs on the Chinese. I like the action in AK Steel (AKS) , US Steel (X) and Nucor (NUE) , but it really doesn't matter what steel company you pick, they all look good on the charts.
Another new group? Packaging, because of declines in containerboard inventories, according to Bloomberg.
Packaging Corp. (PKG) , International Paper (IP) , Bemis (BMS) and Sonoco (SON) are all looking so strong that, again, you have to believe that business is picking up globally.
Now you know what's not to be found? Once again it's banking and tech.
Sure, there are faux banking stocks doing well, this time it's the exchanges. Nasdaq (NDAQ) and CME (CME) come to mind. All the insurers' stocks are doing well, which is pretty amazing at this point because there's really not much of a return that they can get on their premiums because rates are so low. I thought that group would sell off, but it remains a standout. Still, this sector's just not there.
Tech? Same old winners.
There are Nvidia (NVDA) , Applied Materials (AMAT) , Broadcom (BRCM) and Texas Instruments (TXN) .
Sure, old tech seems to be making a comeback.
Oracle (ORCL) , Cisco (CSCO) , Intel (INTC) , Microsoft (MSFT) and IBM (IBM) all seem to be going higher (the latter of which reports Monday. Maybe this is the real breakout. I thought the last quarter was darned good. Of course, worldwide turmoil's bad for business. But I think old tech's a heck of a lot better than new tech.
Still, SoftBank agreed to buy ARM Holdings for $31 billion, the Financial Times reported.
http://www.reuters.com/article/us-arm-holdings-m-a-softbank-group-idUSKCN0ZY03B
The semi space will be ignited on this news and it will broaden, so perhaps there is hope for tech as a participant in this next leg, at least on a takeout basis.
The stocks most people talk about, Tesla (TSLA) , Alphabet (GOOGL) , Apple (AAPL) , have failed to excite for so long it's hard to imagine why they are even talked about. Same with retail, which except for Amazon (AMZN) and Walmart (WMT) . Even the dollar stores seem peakish.
I think the airlines and the transports, hitherto the worst of the worst, all look better than the relevant machine-learning, artificial-intelligence spinning, social, mobile and cloud companies.
All I can say is that the mindshare of what people regard as the market and these stocks with good charts are very different. These stocks are the keys to this bull market.
They just percolate under the surface, adding adherents, the ideologues drone on about how the central banks are all at fault for trying to make us money.
It's pretty amazing how angry people can be about how wealth's created, isn't it?
