It's terrific, joyous even, that we have a new trade deal with Canada. But with the fourth quarter upon us, it is worth thinking about how to lighten up on loser groups today and go with winners. What are the winners?
They are pretty clear. In fact, if you vary from the following four groups even for a second, you are liable to make a fatal mistake, given how concentrated the money flows are.
- Financial tech. That means Mastercard (MC) , Visa (V) , Global Payments (GPN) , Square (SQ) , Fiserv (FISV) , Fleetcor Technologies (FLT) , Equifax (EFX) , CME Group (CME) and Intuit (INTU) .
- Medical device: Abbott Labs (ABT) , Baxter (BAX) , Becton Dickenson (BDX) , Boston Scientific (BSX) , Danaher (DHR) , Henry Schein (HSIC) , Illumina ILMN, Intuitive Surgical (ILMN) , Medtronic (MDT) , PerkinElmer (PKI) , Edwards LifeSciences (EW) , Resmed (RMD) and Zimmer Biomet (ZBH) .
- Health care and health insurance: Aetna (AET) , Anthem (ANTM) , Cigna (CI) , Centene (CNC) , Express Scripts (ESRX) , UnitedHealth (UNH) , Humana (HUM) , HCA Healthcare (HCA) , Walgreens Boots Alliance (WBA) , CVS Health (CVS) , AmerisourceBergen (ABC) .
- Pharma: Alexion (ALXN) , Amgen (AMGN) , Biogen (BIIB) , Bristol-Myers Squibb (BMS) , Eli Lilly (LLY) , Merck & Co (MRK) , Allergan (AGN) , Pfizer (PFE) , Regeneron (REGN) , Vertex (VRTX) , Zoetis (ZTS) .
No matter, what people want to do is risk life and limb and go after other stocks that could be in the macroeconomic crosshairs. They can't resist, especially after a new NAFTA deal. Let me show you how treacherous that can be, because within individual sectors away from those four groups, there are grave differences.
Consider, for a moment, the subsets within sectors -- and how straying from the subsets could land you in quicksand. Within that subset, some are doing well but others are doing badly, a fact that distinguishes these groupings from the four anointed sectors.
Let's start with retail. The good ones? Amazon (AMZN) , Best Buy (BBY) , Walmart (WMT) , TJX Cos (TJX) , Burlington Stores (BURL) , Dollar General (DG) , Ralph Lauren (RL) , Tiffany & Co (TIF) , VF Corp, Lowe's (LOW) , Nike (NKE) , Hasbro (HAS) , Home Depot (HD) , Ross Stores (ROST) , Costco (COST) , Signet (SIGN) , Target (TGT) , Tractor Supply (TSCO) , Ulta Beauty (ULTA) , UnderArmour (UA) and Advance Auto Parts, O'Reilly Automotive (ORLY) and Autozone (AZO) -- the latter which reported a shortfall and is well above where it was when it was reported. But then you have a whole host of others, like Bed Bath & Beyond (BBBY) , like Limited, like Nordstrom (JWN) , like The Gap (GPS) , like Walmart or Dollar Tree (DLTR) -- where you really don't know where you stand. If you buy one of the "good" ones, is it about to go bad?
Or how about the cyclicals? Ingersoll-Rand (IR) and Emerson Electric (EMR) and Eaton (ETN) and United Technologies (UTX) and Honeywell (HON) look great. So does, of all things, Boeing (BA) . But 3M (MMM) and Illinois Tool Works (ITW) are pretty terrible. Are one of the good ones going to flip into the netherworld after today's rally? Will they have too much auto, the defining negativity, a group with pain that the trade deal does not alleviate?
Or how about the oil and oil-related stocks? So many suddenly look good, stocks like BP (BP) , Concho (CXO) , Marathon Petroleum (MPC) , Hess (HES) , Rowan (RDC) , Ensco (ESV) and Transocean (RIG) . But then you have Anadarko (APC) , Cimarex (XEC) , Schlumberger (SLB) , Cabot Oil & Gas (COG) and any pipeline company -- which, theoretically, should be spectacular when you think about how landlocked so much oil is.
Some entertainment looks good: Viacom (VIA) , Discovery (DISCA) , Disney (DIS) and, of all things, CBS (CBS) . The rest look terrible.
United Airlines (UAL) has a chart that is superb, and I like the way Southwest (LUV) and American Airlines (AAL) are trading. The rest of the transports? Way too dangerous, with the exception of Union Pacific (UNP) and Norfolk Southern (NSC) .
The cloud kings still rock: ServiceNow (NOW) , Salesforce.com (CRM) and Adobe (ADBE) in particular. I think Autodesk (ADSK) has staying power, especially after that good quarter. Oracle (ORCL) is doing well after that bad quarter. IBM (IBM) seems to be turning. But the vast majority of tech has gone from good to bad to terrible -- especially semiconductors.
In other words, I am not presenting a bear-market treatise. I am not even saying that there are only a handful of stocks that are good. There are tons of them. What I am saying is that there are plenty of stocks that look great -- but they are clustered in just a few sectors -- and then lots of one-offs -- stocks that could lure you in and then shut the door on you in a heartbeat.
As the fourth quarter rolls in, hedge funds will cluster in the four sectors where nothing seems to phase anything. If they have a lead on the market, there is nothing that would change their minds about these stocks.
However, if funds are underperforming, they are going to try to find stocks in the second group, the subsets, and make their name there.
One thing is for certain, though. If it isn't on these lists, then it represents what we call "value." And without a takeover, value is most likely going to fail you.
