It often seems that no one ever learns. That people just don't look at the market the right way. That they truly don't get what you are to do with something like the contagion story emanating from Turkey.
First, there's the hard way, and then there's the easy way. Consider it like the Ike and Tina version of Proud Mary: "You see we never do anything nice and easy, we always do it nice and rough."
So let's tackle the way Ike and Tina liked to do it. First, they actually like to puzzle over the impact of the collapse of the Turkish government. I think that's a fine thing to do. We start with the presumption that there's a bloodbath and the bloodbath will take a part of the banks first, because the banks are all linked to Turkey, via lending banks and because of ETFs that link emerging markets to Turkey -- and emerging markets perennially live on borrowed money thought to be from U.S. banks, even when that's not true. Remember, when it comes to talking and writing about contagions, the truth is an abstraction.
Now, it doesn't matter that there is likely no contagion. Our banks have never had a strong relationship with Turkey, even in the early 1990s, when the government was secular. You would no more sell our banks off of a collapse of Venezuela or Iran, that's how anti-U.S. Turkey has become.
No matter. Just like all of the previous contagions, we have to endure this poppycock because it's a shadowbox game. Remember Cyprus? Remember Spain? Ireland? Italy three times? Greece four times?
You could not hear from the din about how badly our banks could be hurt. Of course, when you have the VIX so low you are going to have some reaction and the reaction is going to be with the banks first, though and even as it can barely even be articulated it ALWAYS works. ALWAYS. There's always people who remember how there were hedge funds that had borrowed a lot of money from our banks, like when Long Term Capital went under in 1998 in conjunction with the collapse of the ruble, which led to some nasty decline in the bank stocks and those of us old enough to have lived through it who are bears can cite it chapter and verse and it has impact in its erudition.
In other words, count on it.
What Will Get Hit
You meld that with Chinese and Iranian tensions and the average portfolio manager simply can't take it. When that manager can't take it, not only does he sell the banks -- mainly Goldman Sachs (GS) and JP Morgan (JPM) , although its not as if they even do badly in these situations; especially the former, which needs the volatility -- but then he sells what I will never tire of calling the Chinese industrials. It must drive the good people at Boeing (BA) or Caterpillar (CAT) nuts, but they are just footballed back and forth endlessly on these issues.
Given that Turkey is considered part of Europe, our companies that do a huge business in Europe, notably our tech companies, get sent down hard. The most visible are the semiconductors, which have become everyone's whipping boy: consider Intel (INTC) as being the obvious, but throw in Texas Instruments (TI) , Tech Data (TECD) , Analog Devices (ADI) and some others that make for easy pickings.
Because they are first and foremost considered world trade investments in secular decline, Ford (F) and General Motors (GM) get hit on the turmoil. Let's not forget the parts makers, too. Tag, Magna (MGA) you are it.
The oils go down, too, because they are not viewed like material stocks that go down on a slowdown. Chevron's (CVX) a natural to go lower. So is Exxon Mobil (XOM) . They have no earnings momentum anyway.
One step further, you get a strong dollar, you then have investors selling the companies that get hurt by the translation, companies like Coca Cola (KO) and Johnson & Johnson (JNJ) .
You put it all together, and you have the banks, the industrials, the techs, the drugs, the autos and consumer packaged goods -- that's a formidable list of stocks that must be sold.
I decided a long time ago that I was not going to quarrel with this line of thought. There are way too many hedge funds out there that propagate this wisdom for me to say "you know what, I think you should take the other side of the trade." It is too hard. The people who come on and propound these points too numerous, and the possibility that you will be wrong for 48 hours too great to bother.
In the day of Youtube, you say something good about JP Morgan and it drops to $112 and you are reviled and ridiculed, so that it makes it not worth it. What's the point? Over the long term, my confidence in being right on these issues -- other than when I said there was actual systemic risk in 2007 -- "they know nothing" is pretty darned great. But as I said, disagree with the Ike and Tina version of Proud Mary. I like the Creedence version, which never even gets into the concept.
So what's the more logical way to look at it? I say that there are several groups that rarely if ever come down on their own, but do get brought down as part of an overall S&P 500 decline.
What to Buy on Weakness
I want to tick down five big-time meaty groups you know and give you specific names. These are the gimmies, the ones that Turkey and its analogues will give you time and again.
1. Retail
First up? The retailers and related companies. The following stocks almost never come down anymore, unless you have something like Turkey to bring them down: TJX (TJX) , Ross Stores (ROST) , Burlington Stores (BURL) , Dollar General (DG) , Urban Outfitters (URBN) and Five Below (FIVE) are the most relevant. Watch these. They almost never come in, as the funds that own them just buy more of them any time they are down. It's very self-fulfilling.
I am agnostic about them. You need to see which one is the most for sale and you need to buy some. Days like Turkey Day are days where you don't have to pay up, so it is worth it to pick them up. Oh, and let's not over-intellectualize here: Those who say these are "strong dollar stocks" as a reason to own them are simply trying to have grounding that doesn't exist. They are momentum stocks, a class of their own. If they don't come in, consider the apparel and footwear plays, like Ralph Lauren (RL) , Michael Kors (KORS) , Nike (NKE) and VF Corp (VFC) . They are joyous. As are the auto parts companies like Autozone (AZO) , O'Reilly Automotive (ORLY) and Advance Auto Parts (AAP) .
2. Cyber Security
Next up? Cyber security. Here's a group of stocks that used to come alive with local hacking but has now become the rage as plays on Chinese and Russian tensions, of all things. When you talk to the cyber security CEOs, they almost never mention China -- although they will grant you some state-sponsored Russian terrorism.
The fact is, though, that the essence of these stocks has to do with good order growth from companies that realize they could be vulnerable. The preferred stocks are Proofpoint (PFPT) to stop email terrorism, CyberArk Software (CYBR) , to block those who would steal the keys to the kingdom, the so-called privileged accounts, Palo Alto Networks (PANW) , a master of all cyber terrorism, run by the extremely able Nikesh Arora, Fortinent (FTNT) , and NICE (NICE) . I wouldn't go any lower. They are all strong. Just see which one gets hit.
3. Health Care
Third group? Health cares. I want to divide these into some very familiar categories. First is the insurers -- and you can buy any of them, including one the ones that are merging. So try to pick up UnitedHealth Group (UNH) , Centene (CNC) , Anthem (ANTM) , Humana (HUM) , Cigna (CIG) or Aetna (AET) . Then you can buy the instrument and diagnostic companies: Intuitive Surgical (ISRG) Perkin Elmer (PKI) , Illumina (ILMN) , Becton Dickinson (BDX) , Abbott Labs (ABT) , Boston Scientific (BSX) , Medtronic (MDT) will all do fine. Finally go for biotech: Amgen (AMGN) , BioMarin Pharmaceutical (BMRN) and Regeneron Pharmaceuticals (REGN) are all working fine, as is Vertex (VRTX) . I like HCA Healthcare (HCA) , too.
4. Railways
Fourth group? I like the rails: They are viewed as being the cheaper form of transport now that trucking rates have gone through the roof. Really don't have much to think about here: CSX (CSX) , Kansas City Southern (KSU) , Norfolk Southern (NSC) and Union Pacific (UNP) . The latter has more oil, KSU more auto, the rest more coal. They are all working.
5. Financial Technology
Finally there's the fifth group -- and that's financial technology. Talk about easy: Mastercard (MA) , Visa (V) , American Express (AXP) , Intuit (INTU) , Square (SQ) , Paypal (PYPL) and Global Payments (GPN) all work, and work well.
Now there are tons of other individual companies I can cite: Alphabet (GOOGL) , Amazon (AMZN) , Kellogg (K) , Clorox (CLX) , Cree (CREE) , Insperity (NSP) , Paychex (PAYX) , and Automatic Data Processing (ADP) , the list goes on an on. But I think people like to buy groups, so there you have it. These are all great fish, Turkey puts them in the barrel.
