Does anyone mind if we give some people the benefit of the doubt? I'm talking about buying the stocks of companies left for dead because of a single quarter when the executives have proven themselves time and again to be able to navigate rougher waters and right the ship.
On another record-breaking day for the averages we have some stocks that have been left behind and I have to question the judgment of the sellers of some of the stocks of companies that are being wrecked and left behind amid the juggernaut that is this market.
Before I get to these bedraggled situations let me offer praise to the companies that provided the impetus to today's rally: Caterpillar (CAT) and McDonald's (MCD) . Talk about faith. People had lost all of the faith in the world in Caterpillar during the downturn. I remember seeing a sell call out of Goldman Sachs on Jan. 25, 2016 when the stock was at $57 saying it was going to $51. It's at $114. What happened? Well, end markets got better for certain after a big downturn. But more important, Caterpillar took tough action after tough action after tough action to reduce its costs so when there was even a minor recovery in resources and small bumps in road-building orders earnings soared.
Here you have to thank not only CEO Jim Umpleby, but also former CEO Doug Oberhelman who, after not initially seeing the downturn coming really figured it out and took costs out like the grim reaper. It's important to note that this is really the first good quarter this company has had in a while. The first good one! So there's no reason to think this is one-time only. If we ever get an infrastructure bill in this country then this stock could really soar. I saw a headline today that said Caterpillar's rally is gaining steam. Huh? This is the first time it even has steam. All aboard.
Then there's McDonald's. What is it about Steve Easterbrook, the CEO, that people don't get? It seems like every quarter since he came in back in the $90s, has been a quarter that he has been doubted. People laughed at his breakfast all day, mocking it as a one-time winner. They didn't believe it would matter that he simplified the menu, or that he fired up the jets for mobile pay or that he started delivery service-Ubereats, or that he came up with radically new and good tasting sandwiches or that he offered value beverages. They doubted that his Experience of the Future strategy, where he used some countries as incubators, such as Poland, to come up with new ideas would lead to anything big. Everything has worked. That's how you get a stock to go from the $90s to the high $150s. I will say it again, everything has worked and there is so much ahead even though he had an astounding 6.6% global comps.
OK, enough praise. Let's talk about other names that should get the benefit of the doubt today.
I want to start with Inge Thulin, the incredibly good CEO of 3M (MMM) who saw his stock chain-sawed by 10 points for delivering a good, not great quarter after so many terrific ones. I couldn't believe this one lost 10 points when 3M had organic growth of 4% and positive growth across all five of its business groups. There's so much good here, including some terrific growth from new products. I think Inge spoiled people with quarter after quarter of margin expansion so after he didn't get good margin improvement and missed estimates by a penny, the darned thing went right to the slaughterhouse. A penny miss, 10 points decline? Make sense to you? Not to me, especially when Inge promised second-half improvement in the key healthcare division.
Can I suggest that you use this opportunity to buy shares in one of the most high-quality companies out there?
Next is Domino's Pizza DPZ. Here's a case where domestic same-store sales took off once again, with a 9% comparable sales number when the Street was looking for 7.9%. But international numbers? They were only up 2.6% when many were looking for double that.
It's troubling. Britain, for example, was very weak even as McDonald's had the best numbers in Britain in 43 years. So it isn't like they've turned against fast food. But here's a case where you simply have to give Patty Doyle, the CEO, the benefit of the doubt after all he has done right. It's not like he's oblivious. As he said on the call, "Our sales performance is soft and below what we've come to expect from the best international model in quick service restaurants. With this proven foundation, a diverse portfolio of geographies and issues, easily categorized as correctable I am confident we can get top-line performance of this business to levels we are used to."
Not content with that promise, he came back on the call and said, "The slowdown in same-store sales this quarter was driven primarily by the European region where the issues in a few select markets are known and fixable."
You want to bet against him? Be my guest. He's been nothing but a winner since he took over when this $190-and-change stock was at $10 just seven years ago.
Last night we had Brian Goldner, the CEO of Hasbro (HAS) on Mad Money after his stock fell 11 points on, frankly, what was a rather inconsequential quarter. In the next few months you are going to see numbers jump from a new Star Wars and a Hasbro production of My Little Pony, and a revival of Dungeons and Dragons, perhaps in synch with Stranger Things, which featured it in season one.
I think that Goldner is champing at the bit ahead of the analyst meeting just next Thursday where he will lay out a timeline of what I think will be an amazing fall and holiday season. If you looked last year the same thing happened to his stock after this quarter and Goldner totally delivered. Yet the benefit of the doubt just didn't exist yesterday or very much today. I think the selloff was absurd and, again, a creature of people being spoiled by endless blow-outs.
Finally there's Action Alerts PLUS holding Alphabet (GOOGL) , where the company showed cracks in its advertising model as it can't make as much per click on mobile as it did on desktop. What people don't understand is that the management team gets this and has so many levers to raise its rates on other businesses like YouTube where 1.5 billion people watch one hour of programming a day that, remember, they don't have to make.
Do you know this company has $94.7 billion in cash? And that's up from $92.4 billion last quarter despite a $2.7 billion fine from European regulators. Can you imagine if this company could get its hand on the $57.9 billion overseas cash now that the Congress is about to take up tax reform?
It's incredible to me that when the onslaught of selling began nobody even thought about Waymo, the autonomous driving leader that is owned by Alphabet, or its data centers, which the company says are going to be a huge earnings provider. Was it a perfect conference call? No. Has Ruth Porat, the CFO, who has done such a good job creating a level of discipline suddenly become untrustworthy?
Are you kidding? Sure I know the sellers aren't done. But this is one of those situations where I could easily say, it's done, except it isn't. This company is making fortunes and even as we know it can't make as much money on mobile as it could on desktop, the company's ready with lots of other ways to make money.
So here are my thought: you have to have some faith in companies' managements or you would never ever buy a stock at a discount. These four are all being discounted the same way that McDonald's and Caterpillar were. They won't u-turn and go right up, but I think they make a ton of sense to start buying now, and leave some room for more buying if the sellers don't relent or don't wake up long enough to realize that they have created their own buying opportunity with their own panic.