What on Earth Happened While I Was Away? A Lot

 | Jul 18, 2016 | 9:31 AM EDT
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I enjoyed a week in Europe. It was the first time in a while I was able to be by myself, and think through some complex economic and investing ideas, as I continuously cast and revise a conceptual framework that guides my investing decisions. On the flight back to New York I was in the company of a European Union economic minister, from Luxembourg, who explained to me Brussels' next moves with regard to "Brexit." I also had a drink with a new acquaintance at my hotel who is a long-time Alphabet/Google (GOOGL) employee.

Every so often I allow myself to "unplug" and travel, leaving responsibilities behind and freeing up my mind. Remember, investing is just as much a creative process as an effort in math and risk/reward.

So what on Earth happened while I was gone?

1. Record Highs: I mean, wow, have I been wrong here in the near term about reducing exposure and neutralizing portfolios. While I have reduced exposure and taken some profits and losses on the long and short side, that has not stopped me from owning stocks. As our growth leaders outperform, we continue to see a strong broadening of the market. Domestic small-caps with some "hair" on them may continue to work.

Joy Global (JOY) , LSB Industries (LXU) , Anixter International (AXE) and Lindsay Corporation (LNN) are on my list of stocks that can continue notching outsized gains as the market broadens. This market is awarding "perfection" with extraordinary multiples, leaving some decent quality behind.

2. My First Best Idea, Harsco (HSC) raised guidance: Harsco raised guidance about 20% as stabilization in its largest segment, Mill Services, after a couple of years of restructuring and further optimization, is just starting to show. The stock has gone up 48% since we introduced the idea. While this is a strong short-term gain, I am sticking around for the long haul. There is plenty of raw material to play with in Harsco's under-analyzed portfolio of industrial businesses. Then company's stronger near-term business performance is only step one of a multi-step process to reinvent the company.

3. Fastenal (FAST) reported tepid results: It's just slow in the core of industrial land. Fastenal, among the most premium of quality companies, needs to show better-than-market growth for the stock to maintain its historically (very) premium multiple. After FAST's move toward $50 in the spring, the stock's fundamentals have not followed; but they haven't worsened either. Using historical valuation parameters, the stock is entering "Buy" territory.

I usually like buying FAST shares in the mid-to-high $30s, as does the company. Overall, I fear that as earnings season progresses, the near-term character of FAST's most recent quarter will be the rule, not the exception, and shares of others may follow suit.

4. Brexit Fears Assuage: My time in London was eye-opening. The liberal core of the city voted to "Remain," while those in the outskirts voted to "Leave." There is a near universal understanding that the U.K. will be entering some level of recession that will harm the very folks that voted to leave. Overall, Britain and the EU will remain intertwined. The biggest surprise to me, though, was the sheer adamancy of some folks' views on immigration. Nationalism at its worst was on display among some of the citizens of England.

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