Weren't we supposed to get hammered this August? Wasn't that supposed to be another one of those months that was supposed to cause pain and selling? Sure isn't looking that way now. In fact, right now we are looking at the best August in 14 years, a remarkable 4% performance.
What's behind this amazing run, which has taken us to record highs and challenged the S&P 500's 2,000 level? We've got tons of stocks that are up double digits that are responsible for this entirely group effort. But I think we need to drill down on the winners to figure out where they came from, and to assess the health of the rally for this moment.
Why bother to assess the health of such a powerhouse of a rally? Because what's past can be prologue in this game, and if there are too many one-hit wonders driving us, then we might be due for a pause as much as "the action" is pretty terrific.
Let's start with the biggest contributor to this fantastic month: Monster Beverage (MNST), up 35%. We loved Monster on the show and pushed it hard, still do now that all of the hot money has cleared out of it and we got the downgrades I was expecting. However, while Monster is a Monster and I think it can go higher, this stock moved because of a huge stake taken by Coca-Cola (KO), which means it is more of a one-time takeover-like jump and I don't expect another. The energy drink is going to grind higher from here. I am calling this one more of a one-off gain.
Next up is Mohawk Industries (MHK), the carpet company, which gained 17% in a month even as it didn't even have that good a quarter. That's a play on lower rates and more spending on your home. Some would call this the largesse of Fed chief Janet Yellen, but I call it a survivor: There just aren't a lot of publicly traded carpet companies and people are itching to invest in catch-up housing plays. Despite its run, this one's still down for the year. It could just be beginning its move.
The third name? One that shocked me because it actually is going down today is Gilead (GILD). I have championed Gilead for so long that I am embarrassed to keep mentioning it. It's up 41% for the year as well as 17% for the month and hit a new high today before reversing. Yet here's something that's incredible: It is the cheapest drug stock I follow, selling at only 11x earnings. How is that possible? Because most people don't believe it can earn $10, like I do, because they know that its earnings are heavily dependent on a single pill that cures hepatitis C, which is an often-fatal disease. First, there is supposed to be newfound competition, and, second, the insurance companies are supposed to be balking at its $80,000 price tag. I say that the Food and Drug Administration will be very reluctant to quickly embrace another drug in the category when this one works so well; the insurance companies are just doing their usual grousing. It can go to $125 before it even gets as expensive as the average big pharma dinosaur.
Dollar General (DG) is fourth, and its 15% gain could be a one-off, having rallied because of its bid for Family Dollar (FDO). I suspect that gain will be rolled back if Dollar Tree (DLTR) is successful in arguing that there are serious antitrust concerns with DG and FDO that are avoided if Dollar Tree mergers with Family Dollar.
Ross Stores (ROST) and Gap (GPS) are five and six, each with 14% gains. I think these stocks were coiled springs, having fallen well behind the market and just waiting to rally with better-than-expected quarters and forecast raises. They gave us both. If gasoline keeps going down and the expectations remain low, I believe these stocks could give us more gains for the year simply because Ross still hasn't taken out its old high from a much lower level for the averages and Gap just got there, and neither is expensive versus their historical averages.
Netflix (NFLX) is next with a 13% gain. I believe that had "Orange Is the New Black" won a slew of Emmys last night, this one would be higher up on the stock pecking order. That said, Netflix got enough publicity just from the fact that it got a ton of nominations, and I think it is both a play on international sign-ups and more streaming content. It can definitely repeat even as it is now worth $28 billion and is up 30%. If I were AT&T (T), I would have bought these guys, not DirecTV (DTV).
When I interviewed Southwest Airlines (LUV) CEO Gary Kelly after it reported a terrific quarter, I filed it away as the airline stock to beat after Spirit Airlines (SAVE). Sure enough, it's been off to the races, up 13%, but the airlines rally on booking and the price of jet fuel. One's still going up and the other is still going down. That's a terrific combination and it will continue.
Tenet Healthcare (THC) rallied 13% and I think that this move, along with HCA's (HCA), is totally about the gift to hospitals that the Affordable Care Act has delivered, and that gift is going to continue giving. Say what you want about Obamacare, it has been terrific for hospitals and health maintenance organizations, even if it has been not so hot for the consumer of healthcare -- oops, wasn't it supposed to be the other way around?
Masco (MAS) and Home Depot (HD) at 13% and 12% again represent better-than-expected demand for home goods, as Masco makes paint, cabinets and faucets while Home Depot sells all three. They both seem extended to me, but given how low rates seem to be going, they have room to run.
First Solar (FSLR) is an odd one. This 12% gainer used to be considered the darling of solar, but then its proprietary cells became too expensive versus the cutthroat competition, particularly from China. But the dumping from China has been stanched and First Solar has lowered its costs. This stock is too cheap even after its run, and I expect it to lead us throughout the rest of the year.
Kinder Morgan (KMI) is next and, given that it's going to give you a $2 dividend next year and it trades at $40, I suspect that its 12% gain is just the beginning of its move, which is why the charitable trust has been amassing a position in the name. Kinder is rolling up all of its properties into this one and guaranteeing a 10% boost in the dividend each year. This is a core holding for all who are watching, with much more room to run.
Green Mountain Coffee Roasters (GMCR) has moved up 12% in part because of a recent licensing agreement with Kraft Foods (KRFT) but also because it, too, like Monster, has a big-time backer and owner in Coca-Cola. I continue to believe that in the end, Coke, which is very earnings challenged, just buys the whole thing. Like Monster, call me a buyer not a seller, although I don't expect a repeat of this monster move.
Finally, there's Urban Outfitters (URBN). Like Ross and Gap, this one's just been depressed for so long that when it didn't report a disappointment, it rallied rose 12% for the month. I think that this was the first quarter of what could be many good ones, and it has another 10% in it without much difficulty.
While there are certainly some one-off entries into this top 15 S&P 500 performers list, the majority just happens to be playing catch-up to the rest of the market -- something that can continue without much effort. That's a terrific sign, and while we have every right to be wary of any red-hot market, these leaders hardly seem like fly-by-nights and are certainly, for the most part, not that expensive.
In short, there's not much to fear here, and like the rest of the market, there's a ton to embrace.
