In this particular market, you have to wonder sometimes if anyone even cares about how expensive certain stocks are. At the same time, you have to be concerned that there seems to be no level that's cheap enough to attract buyers to certain names.
Let me give you some classic examples. I swear it doesn't matter what's happening right now at Mastercard (MA) , Visa (V) , Global Payments (GPN) , Intuit (INTU) or Square (SQ) , those stocks are going to go up on good days and barely get dented on bad ones. They have jumped whole multiple turnstiles on nothing, not a word. On crickets!
At the same time, there is really nothing that JP Morgan (JPM) or Citigroup (C) or Wells Fargo (WFC) -- or even the regional banks -- can say that would entice people to buy them. I look at Goldman Sachs (GS) every day and marvel at how little people are willing to pay for its shares because it is somehow viewed as a keeper of a moribund industry. But S&P Global (SPGI) or Fiserv (FISV) , there really isn't a limit to what's too expensive. It is value trap vs. ever-higher value, regardless of what's been said or done.
Periodically you get a chance to buy these stocks, like when American Express (AXP) reported a number where revenue growth allegedly slowed and spending ramped. That knocked the stock down from $102 to $99 but you literally had to ignore every single negative word that was said about the stock -- and there were plenty -- and you just had to hold your nose and buy it.
Same thing goes for anything involving health care insurance. These stocks and you know which ones I am talking about -- Centene (CNC) , UnitedHealth (UNH) , Humana (HUM) , Anthem (ANTH) , Cigna (CI) -- it doesn't matter, does it? Whatever they say is well received. Whatever they do is A-Okay.
It doesn't matter if there are quarrels with states or with employees or with the Federal government: Everything negative is just a speed bump to a higher place.
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Don't you wish you owned nothing but medical device and equipment stocks? Can you imagine owning nothing but Boston Scientific (BSX) , Becton Dickenson (BDX) , Illumina (ILMN) , PerkinElmer (PKI) , Abbott Labs (ABT) , Medtronic (MDT) , Thermo Fisher Scientific (TMO) , Zimmer Biomet (ZBH) and the like? Would you ever be wrong? Intuitive Surgical (ISRG) ? Canonized. Sainted.
And yet, when you look at the price-to-earnings multiples of these, you struggle to justify owning any of them. In the old days, they would be per se shorts no matter what. But there is such a scarcity of stock to buy -- especially of the winners -- and such overwhelming ETF money coming in, that it pushes up these winners endlessly. And the same mutual and hedge funds that are winning with them are getting more money in BECAUSE of them, so that it never seems to end.
I could go on and on about particular industries: Anything that helps small business, companies that are in cyber security, any cloud king or prince. The valuations don't matter.
But then you have the oil and gas stocks and, literally, they are just toxic. And when you try to buy them, you are annihilated. It doesn't seem to matter how low they go; They can go to where oil was at $40 going to $26, and, despite oil being strong at $69, it means nothing.
Periodically, you do get some variation within a group. For example, most of the housing-related stocks are terrible, except for Sherwin-Williams SHW, which I think is because it is reaping the benefits of the bold action to buy Valspar, its competitor. Most consumer packaged goods companies look weak, unless they are perceived to be acquisition targets -- Hormel Foods (HRL) , Colgate-Palmolive (CL) , Hershey (HSY) and Kellogg (K) come to mind -- or they are thought of as acquirers: Clorox (CLX) and McCormick (MCK) , the spice company, come under that rubric.
I probably have a dozen more outliers.
What's so frustrating, what's so maddening about this market right now, though, is that valuation makes no difference whatsoever in anyone's thinking. Anyone. You get these downgrades by analysts on valuation and you just roll your eyes because, you see -- and this is really the rub -- the buyers do not care. They aren't going to stop here. They get new money in, they look at their stocks, they think their stocks are cheap and they buy more of them.
It's an insanely non-rigorous virtuous circle. You want to boil down the current investment thesis? It goes like this: I buy them because they go higher and they go higher because I buy them.
Could there be a more stupid or a more profitable investment strategy at this moment -- and perhaps until the end of the year? I don't know. I can't think of one.
