When this market falls in love with something, it just won't let go. When it hates something, the hate is so palpable it borders on the pathological.
The dichotomy explains a lot of what goes on every day and companies have to change their stripes in order to go from being despised to being the apple of the market's eye.
The most beloved group in the market right now? Payments. Yes, financial payments. It isn't loved, it is worshipped. The analysts just can't resist payments, which are at the heart of the anointment of financial technology as the way to play, well, finance.
Now, the love for financial technology stems from a long-term theme of paper to plastic to, now, digitization. Half the world still uses paper, so Visa (V) and Mastercard (MA) , the two big plastic issuers, have a huge total addressable market, or TAM, still in front of them. Unlike banks, which are still disliked even though they had good quarters, these companies have no interest rate risk. They don't have to worry about the President saying that he doesn't like the Federal Reserve's decision to keep taking rates higher. Which means you don't have to worry about it. They don't make loans so they don't have any bad loans. They have no brick and mortar outlets. It's finance light.
That's why Visa's stock is up 23% and Mastercard's is up 36% year to date.
Now we have the digitized payment companies, notably PayPal (PYPL) and Square (SQ) . Today eBay (EBAY) reported a noxious quarter and its stock got hammered. But PayPal, a spinoff of eBay has been going gangbusters. It's up 18% this year. More important, Paypal's stock has doubled in the last year in large part because it has become a huge force in on-line purchases. It's also the leader in the peer to peer payment space with Venmo. We have interviewed Dan Schulman, the CEO of PayPal, and he aspires to have his company be the de facto hand held bank for the two billion people who have a cellphone but no bank account. I think he will be right and it is a big position for my charitable trust which you can follow along by joining the Action Alerts PLUS member club. Schulman's a visionary who makes you understand that the digitization of payments is a super growth business.
As great as the returns these companies are giving you, consider Square, the "other" Jack Dorsey company, which we have had on Mad Money, via its amazing chief financial officer, Sarah Friar. Square's a product ecosystem that helps merchants of all sizes to do everything from handling payments to making small business loans. I have been a huge supporter of Square - we use some of its services at Bar San Miguel - but even I did not see this company's stock advance an astounding 103% this year. It's worth it, for a moment, to point out the most visible Dorsey company, Twitter (TWTR) , is up only 81%.
Do these stocks deserve to be up like this? All I can say is that analysts are still upgrading - Credit Suisse just jumped in going from "hold" to "buy" on Square. Morgan Stanley just today put out a piece of research about Payments Processing entitled "Great Businesses with Undervalued Leverage Positioned Defensively: upgrading Industry view to attractive."
I know, I know, both seem well after the fact. But, again, that's indicative of what's going on. It's never too late to show a sector some love.
Now let's consider the need to change stripes to bury the hate hatchet and embrace the love. In the last few years Disney (DIS) and Comcast (CMCSA) , parent company of CNBC, have become prisoners of their own success. Disney's become an entertainment kingpin, with theme parks, cable properties and movies. Comcast is the most lucrative cable operator with incredible profit growth.
Yet, Disney's been on a total treadmill. For example, it keeps putting out hit movie after hit movie and no one even seems to care. Yet when it puts out a relative loser, Solo, everyone's all over it. I thought Disney should have gotten much more credit for those movies. Nevertheless, it's ESPN subs, or more accurately, the dropping of ESPN, that has swamped the narrative.
So Disney decided to go for some terrific Fox (FOXA) assets, including some international properties, that are so big they simply overwhelm, in a positive way, whatever may be going on at ESPN. Now Comcast tried to snatch those assets from Disney, forcing Disney to pay more for them, but today Comcast dropped out of the bidding, and that sent Disney's stock soaring as it's now changed its stripes in a positive way.
Comcast makes a ton of money but ever since its bid for Time Warner Cable got shot down by the Justice Department, it's not gotten any credit for its broadband growth or its massive cash flow. Now, though, investors are getting their heads around the possibility that Comcast gets to buy the majority or perhaps, all of Sky, the biggest pan-European broadcast company. With more than 22 million customers all over Europe, Sky gives Comcast the new growth it needs to reignite its love with growth stock investors.
I think these two stocks aren't up nearly enough on this news and will be rewarded with a total re-valuation or re-rating up of both of them.
Now consider IBM (IBM) . Here's a company that gets no respect because most of its revenues have, historically, come from its now plodding mainframe business. IBM has been busy trying to change its stripes, but it wasn't until yesterday when it reported a quarter that had half of its revenues coming from much faster strategic imperatives, including the cloud, that it has gotten the respect I think it deserves.
Now IBM's overall business doesn't have much growth to speak of, its revenues were up about 4% year over year. Yet, the company's stock should be re-rated upward given that IBM's making considerable progress and getting some big wins in the cloud and blockchain product lines.
Finally there is Danaher (DHR) . Now, unlike IBM, Disney or Comcast, there hasn't been any visceral hatred of this incredibly run med and environmental tech conglomerate. However, it does have one division that was universally despised, a division that involved dental consumables. With the exception of Align Technology (ALGN) , the maker of Invisalign invisible braces, there's not much growth in anything connected with dental. We have seen havoc wreaked on those companies that are mired in the space and just yesterday Goldman Sachs savaged the sector, anticipating some ugly forecast cuts.
For more than a year I have had to listen to Danaher conference calls and hear that it is well except its dental division and no matter how hard they tried they couldn't get it up to Danaher's higher growth standards.
So what does a great company do when it has an intractable asset? It does its level best to spruce things up and then it announces a spinoff and that's just what Danaher did this morning. The result? The stock got about a 5% bump and I think that its nowhere near done going higher given that the dental millstone has held it back for a very long time. The market's thirsting for a high growth health and environmental med tech conglomerate with nary a fly and it just got one.
Yep, beauty is in the eye of the investor, and the investors love the fintech space, the growth entertainment sector, the cloud and the med tech. The love seems irrational at times, but to portfolio managers, loving these stocks means never having to say sorry to your investors.