Investing in stocks is a leap of faith. Think about it. These are pieces of paper. They have a value that goes up because you believe in the future. They have a value that goes down because you don't.
The market is made up of all sorts of leaps and all sorts of faiths and on a day like today it is worth it to ponder which companies are being given the benefit of the doubt that shouldn't be and which aren't being given the benefit of the doubt that should.
I want to start with a positive. Last night Bob Iger, the CEO of Disney (DIS) told a story that I thought sounded terrific. The slate of movies that are coming? Blockbuster after blockbuster. Theme parks? Hitting on all cylinders. Programming? Killer. The vision with the combination of the Fox (FOXA) Properties? I can craft a story that grows as far as the eye can see... and then some.
Okay, here's where the rubber hits the road. Iger talked about how well ESPN+, their over the top offering, is doing and he said it is doing better than expectations but then he didn't share the expectations that it was doing better than. He basically said "take my word for it."
I take his word for it. Is there any reason at all not to? Wasn't he the one who first flagged problems with ESPN and cord cutting? Wasn't he upfront about the need to do something? Hasn't he taken radical actions to give shareholders more when it comes to Fox or when it comes to buying technology like BAM that makes for a fantastic offering?
The stock's down today, though and that means one of two things: either the stock has run too much - it's up from $100 at the beginning of June to $116 going into the quarterly report, or Bob Iger isn't being given the benefit of the doubt.
And that's really where the opportunity comes in. If you can take a long term view - and most hedge fund managers can't by the way - how about having some faith that all of these moving parts are going to come together over the next few years and give this iconic entertainment company some credit. Iger didn't just fall off a turnip truck. And while Netflix (NFLX) has a lead on them when it comes to the over the top product, who says it is zero sum? Who says it is either Netflix or Disney, two go in into the cage only one comes out?
I know I sure don't think like that. You shouldn't either.
Then there is Tesla (TSLA) . My partner on "Squawk on the Street", David Faber, made it clear that not one of his myriad contacts gives any credibility to the idea that a management led buyout of some $80 billion is possible given how much money the company is losing. Elon Musk essentially is being given too much faith despite his obvious prowess as an engineer and a visionary with a car that pretty much everyone loves.
Now let's talk about the prospect of a merger that had created a chasm of faith versus no faith: the acquisition of pharmacy benefit manager Express Scripts (ESRX) by CIGNA (CI) , a deal that hangs in the balance because noted investor Carl Icahn doesn't believe in the deal. Now I will say upfront that Icahn admitted that he probably can't block it. He knows that he accepts that shareholders are going to approve it. But he took the extraordinary tone of actually using a scatological term to describe the deal itself. He doesn't believe the combination is totally wrong because Cigna is paying way too much for Express. He also questioned whether antitrust issues could nullify the deal.
I have to admit that I, too, was skeptical about the deal and thought it was going to keep back Cigna's stock. I still feel that the stock of Cigna currently would be higher if it weren't making the bid. But that said, we have Cigna CEO David Cordani on "Mad Money" and he convinced me that Cigna would be able to have much better data and reach far more customers with the two together and I came away thinking that long term the combination could be a killer.
Now unlike Carl Icahn, who pretty much questioned Cordani's sanity - or at least he seems to from the comments - I look at how Cigna has performed under Cordani's leadership and the answer is much better than the market. More important, I look at the data business that UnitedHealth (UNH) has created - and the stock of that company's in my charitable trust, which you can follow along by joining the Action Alerts PLUS club - and I say that Cigna one day could be toast without Express Scripts because that company will give Cigna the power to compete with the real juggernaut in the industry.
I have a leap of faith that Cordani knows what he's doing. There is no reason for him to do this deal if he doesn't. I think the combination is terrific which is why I have been recommending his stock here since $170 and it is now almost at $190.
Let me give you one more. There is an acknowledged wisdom that if you are going up against Amazon (AMZN) you are finished, that you are roadkill, you are just going to be trashed and your stock is just a big joke. We have seen this time and time again with so many different retailers. That's why we call it the Death Star.
But you know what? Sometimes Amazon doesn't get its man. There was a time when we though that Amazon was going to crush the auto parts industry. Back in May we heard over and over that Amazon could put these auto parts retailers in chapter 11 by just looking at them. AutoZone (AZO) , a terrific retailer, saw its stock plummet from $793 to $693 almost in a straight line because of the threat from the Death Star.
Well, guess what. It never materialized. Now the darned thing is at $733 and I bet it goes still higher as we overestimated the prowess of Amazon in the space and underestimated the power of AutoZone.
This morning CVS (CVS) reported and if you look at that drug store chain's stock you can see that nobody has given this one the benefit of the doubt in ages. At least until today. Today CVS reported a much better than expected quarter, a real barn burner and its stock flew up in reaction to it. Now CVS is about to merge with Aetna (AET) , another health insurer like Cigna and UnitedHealth, and I had been concerned that Amazon could make the combination mighty unattractive. Again, though, after today, I think that we are giving Amazon too much credit and CVS too little. This quarter opened my eyes to the fact that this combination could be a wellness killer so to speak, or to speak in an oxymoronic way. Sure you have to be worried about Amazon, particularly its venture with Berkshire Hathaway (BRK.A) (BRK.B) and JP Morgan (JPM) to rein in costs. That said, though, I think that CVS and Aetna aren't the problem to runaway costs. They could be a solution and CVS's excellent CEO Larry Merlo sees exactly that in the combination.
Sometimes you gotta have faith: faith in Disney, faith in Cigna and faith in CVS. But you also have to be a little more skeptical, or at least skeptical about Elon Musk. Stocks are predicated on faith, but they have empirical underpinnings. The stocks I like here? I expect them to be higher a year from now. Why? Because their CEOs deserve the benefit of the doubt.