Stop it. Stop saying it's over because FANG's down. Stop freaking out because the companies that use the web to profit are getting crushed. They can't go up every day. Can we just give someone else a chance to go up for a change?
That's how I feel on days like today where I watch big capitalization tech get pulverized while old dowdy stocks like 3M (MMM) -remember that one? -- and Caterpillar (CAT) get a reprieve from the slaughterhouse.
I know it is hard to resist saying that the highest growth companies are getting crushed and won't come back. Who can blame someone for selling shares in a stock where the CEO is being drawn and quartered in front of Congress, think Facebook (FB) or Twitter (TWTR) , or momentarily avoiding punishment, as is the case with Alphabet (GOOGL) which offered its chief lawyer but Congress wanted top executives that the company didn't produce.
How can you fault anyone from selling the cloud kings, the companies that do so much to on board enterprises and turn them into digital wonders when an important royal, Workday (WDAY) , allegedly blows up last night with subpar earnings report?
In truth, the actual earnings of Workday were terrific, but just not terrific enough for the moment. In truth Facebook is fading as a growth stock and trying to base as a value equity, it's just hard to find that floor when the long knives are out.
So let's do this.
Let's talk about the concept of rotation and what it really means. We want to start out with a couple of simple precepts.
First, stocks, even the best stocks, don't go straight up. We have seen the NASDAQ, an index heavy with FANG and friends, rally 16% this year. That's incredible performance, better than any major index in the world.
That's reason enough for a breather because as I told you yesterday, September is the month where profits get taken and when an index is up 16% that's a whole lot of profits.
Second, the S&P is up 8% but, more important, the FANG-less Dow Jones is only up 5%.
When you think of the disparity of performance between the NASDAQ and those other two indices, you can imagine that some who own the highest of fliers would begin to see value in the lowest of gliders.
Third, the industrial economy is incredibly strong, it's just one tweet away, however, from bringing out sellers, a tweet about how our trading partners are regarded as unfair brigands and greedy roustabouts. When you don't get that tweet and instead get some Wall Street research that praises the bigger cyclicals as opportunities, it is going to resonate.
Fourth, the stocks that are having a field day today are principally those of companies that many have given up on.
Take the aforementioned 3M. When we met with 3M at the time of the Super Bowl, or the last time the Eagles played if you want to be parochial, the stock had just touched an all-time high of $258. Everything seemed to be going swimmingly. Then in a short period of time the president decided to fight back against the trade brigands, especially China, where 3M has a terrific and growing business.
At the same time, automobiles, a big end market for 3M, just pancaked. The result? The dreaded guide down. Yep. The company lowered estimates first at a meeting with analysts but then further when it reported.
Next thing you know the stock plummets not once but twice and it becomes the object of derision and almost public enemy number one of blue chip America.
It finally bottomed at $190, down a staggering $68. That's not supposed to happen to a company that is known as a core holding, meaning it gets bought but tends not to get sold.
Then the stock began an uptrend when people unpacked the last quarter and realized that the company's growth had re-accelerated.
Now on a rotation day like today you can perform a pretty darned interesting exercise. First, you take the ailing stock of Facebook and you see what price investors are paying for it. No I am not talking about $167, down another 2%, I am talking about the price to earnings ratio, which gives you an apples to apples way to compare. Facebook's stock trades at about 23 times next year's earnings. At the same time 3M's stock trades at about 20 times next year's earnings.
But here's the rub. When you listen to Sheryl Sandberg, the COO of Facebook testify today about the need to be more rigorous in policing bad behavior, whatever that behavior is, you can think like a politician and angle for how you want change, or you can't think like a stock picker and say "change costs money" as in Facebook won't make the estimates that people currently think are possible.
On the other hand, 3M, after the last quarter, looks to be in acceleration mode. Business is stronger than the guide-down. If anything I expect a guide-up. Plus, unlike Facebook, you get a dividend -- the stock yields 2.5% -- and it has a long history of paying them.
We can play this same exercise for so many companies, including one that's on tonight -- Honeywell (HON) . Why own Facebook at 23 times earnings when you can own Honeywell's stock at 19 times earnings with a break-up coming and a level of growth that continues to surprise in a positive, not a negative, way.
I do not, however, want to leave you with the notion that as Facebook goes, so goes the rest of FANG, or the cloud kings or whatever floats your NASDAQ boat.
In fact, it is the opposite. As much as I like the industrials, I do fear that trade wars are going to amp, not get more gentle, and when that happens we literally might rotate right back to the stocks that are being throw away today.
For example, I said yesterday that Workday reported a very good quarter but it would trade down. It was over-extended, up way too much going into the quarter and could get walloped. After the pulverizing, though, it's time to buy because as much as you might want to rotate into cheaper industrials there are plenty of growth buyers who have been waiting for Workday and its compadres to drop so they can buy.
So do you just go in tomorrow and scoop some up? Nope. That's not the way it works. As my pal and fellow Philadelphian Marc Chaikin points out, stocks like Amazon (AMZN) , Apple (AAPL) , Salesforce (CRM) and Nvidia (NVDA) -- all favorites of ours -- need a couple more days of selling. Marc's going to be down at the Comcast Center at 3:45 p.m. ET for our Mad Money show, 17th and JFK to get really granular, and I hope you will join us.
I think that's pretty much the length of time it will take to get these stocks to settle.
Alphabet? A little harder because its failure to don the hairsuit today means more pain tomorrow. And Facebook?
It's always tough to know when the selling stops. That's why I like to do things in stages. Don't say "this is the bottom time to load up the boat on Nvidia. We don't know how seaworthy the boat is. And anyway the market likes its cheaper brethren AMD (AMD) right now as they are competitors in the gaming and data center businesses.
Unless you own a diversified portfolio, unless you own some industrials, you think it is the end of the world. Nah, it's more of a recognition that some stocks can't go up forever and others deserve a little time in the sun, too.