Just when you want to quit on this market, just when you think "What the heck am I doing in this darned thing?" you get money just falling into your lap from mergers and acquisitions and high-growth stocks.
Despite real concerns about what the Federal Reserve might do later this month -- something that weighs on the market every day -- the mergers and acquisitions and growth stock performances just draw you right back in.
Just consider one day's action.
Let's start with today's blockbuster: the possibility of a $65 billion deal for Monsanto (MON) by German company Bayer. The idea that you can own a stock at $107 that's on the verge of getting a bid as high as $127.50 is the kind of thing that's remarkable to me. Remarkable because, frankly, Monsanto hasn't been doing all that well and its customers, the farmers, are doing worse.
Prices for all sorts of agricultural commodities have been crushed but these companies could be going ahead with it anyway. The importance of this deal? To me, it's all about the inability to bet against stocks.
Remember, unlike most retail investors, at all times hedge funds like to have short bets on. They like to wager that certain stocks are going to go down. If you had to create a security that should be going down right now, that is incredibly high, way too high, considering the circumstances. It's a reminder that not everything is based on short-term consideration with this market and you have to view the stocks of companies through the prism of whether they are worth more to someone else than they are to the market. Monsanto is an example of that kind of company.
Next is the stock of EOG Resources (EOG) . Here's a pattern we have seen before and I have flagged it to you endlessly. A very good, very forward-thinking oil company uses the chaos of low prices to consolidate and make acquisitions that would otherwise not be possible. In this case, EOG, which is the largest producer in the lower 48, pumping 551,000 barrels a day, shells out $2.5 billion in mostly stock -- 26 million shares -- to buy Yates Petroleum, a storied company with fantastic assets in the Permian basin. Yes, oil is down today, but so what? This kind of deal gets EOG into some fantastic acreage where there's already a ton of pipe.
I keep wondering when the heck the majors are going to go fishing in the Permian, but these independents simply aren't waiting. They are consolidating all the good prospects, particularly the Permian ,where the acreage seems as plentiful as it is in Saudi Arabia, at least according to the dean of the Permian, Scott Sheffield from Pioneer Natural Resources (PXD) . The important thing here is that, as is so often the case in the energy patch, the acquirer is soaring. EOG is rocketing nearly six bucks, not unlike the big moves made by SM Energy (SM) , PDC Energy (PDCE) and the aforementioned Pioneer.
The moral here? If you simply thought of oil stocks as an extension of the price of crude you would be selling every one of these stocks. However, it's the opposite. They are being optimistic in the face of lower oil prices and they are killing it.
Then there are the pipelines. Talk about a group that's been killed because of the collapse in oil and gas. This group, long the bane of many retail investors, has seen a series of deals fall through or collapse from their own weight. Suddenly, though, totally out of nowhere, two companies I have loved for ages, Enbridge Energy Partners (EEP) and Spectra Energy (SE) , get together to create the largest pipeline network in the country. Enbridge gives Spectra $28 billion in stock to own 43% of the combined entity. Both companies have terrific balance sheets. Both companies complement each other; for instance, Spectra has a pipeline to the Northeast that is the envy of the industry. Neither company needed to do this deal. The stock of Spectra was up 50% going into today's session.
Again, because of the wisdom of the deal both parties went higher, with the target, Spectra, roaring up $5, but the much larger Enbridge seeing its stock gain $2. The takeaway? A beaten-up sector, one that seems to have been left for dead, suddenly comes alive because two companies decide that two plus two equals a lot more than four.
No one can blame the sellers of Cepheid (CPHD) , a molecular diagnostics company with some of the best tools to identify diseases with tremendous precision in a very expeditious way, when it announced a delay in a key diagnostic device back in April. The stock dropped from $35 to $25 on the pushback. The company told you not to worry about it. But that was little solace to those who were banking on it.
The company should have been heeded because today Danaher (DHR) , the life sciences company I like so much, bid $53 a share for a company with a stock that was at $34 on Friday. The trigger-happy dumpers simply got it wrong. They took a short-term view and they paid for it.
Then there's Johnson Controls (JCI) , which has combined with Tyco (TYC) to create, as the company said, the No. 1 building efficiency solutions company and the top fire and security business in the world. The company will be shedding its slower-growth auto parts business, allowing its valuation to soar.
It's a fabulous deal, fabulous company, and all because the execs who run these two companies were willing to surrender their independence to create value for both shareholders.
Now, perhaps you may say, oh come on, Jim, who can find these companies? Who knows what they do, where they stand? They are not obvious. They are not visible to the naked, non-professional eye.
Then let me come back with a growth thesis. When you fear the Fed taking action, when you believe the Fed would be wrong to tighten, you don't just stand there. You reach for the companies that do well even if the economy slows. It's a time-honored way to invest in a declining economic environment.
So, who gets the nod? How about Alphabet (GOOGL) , formerly Google, which is in the sweet spot of good growth with low expectations, with very little economic sensitivity. What has Alphabet (which is a holding of my Action Alerts PLUS charitable trust) been up to of late? How about cutting back on losing projects and funding winners? Disciplined spending -- that's exactly what a growth investor wants, and CFO Ruth Porat is going to give it to you.
How about Amazon (AMZN) , which the influential analyst Gene Munster from Piper Jaffray insists it is still very undervalued. That's how Amazon hits an all-time high.
How about Facebook (FB) , with a stock that is only now starting to react to what was probably the finest large-capitalization quarter of the most recent earnings period (it's also another Action Alerts PLUS holding). Or Netflix (NFLX) , which Piper Jaffray says is undervalued by 25% on the sum of its parts. Hmmm, sounds like FANG-Facebook, Amazon, Netflix and Google, now Alphabet -- is back to me.
Too obvious? You can go toward hyper growth Acacia Communications (ACIA) , with its disruptive, high-speed optical equipment for both cloud infrastructure and telecommunications service providers. Or go overseas with the red-hot Alibaba (BABA) , which has done nothing but go higher since its blow-out quarter one month ago.
It takes an awful lot of factors to overcome the downward pressure of the possibility of a rate hike into a slowing economy. But these companies show that not only can the gravitational pull down be stymied, it can be beaten with the right set of circumstances that happen all too often to be dismissed as one-off and too hard to find.