When the market gives you a chance to buy, unless it's the stock of a retailer you have to take advantage of it.
That's pretty much the truth day in and day out and I think that's what makes this market so mystifying to so many.
You literally have to take action right into the negativity to get the best buys.
Let me give you some examples that are front and center with us.
Let's start with Apple (AAPL) . Not that long ago this stock had plummeted from $164 down to $150 on fears and chatter that the new iPhone was a bust.
Now the stock's back to $160, up big today, and when I look to see why that is I keep hearing that there was never anything wrong with Apple the whole time but the stock got too heated and then too hated in a very short period of time.
When I saw the stock run today I asked around and many people pointed me toward an upgrade from Keybanc's research department. Now, while I am enamored of KeyCorp (KEY) and my Charitable Trust owns shares in the bank, I have never thought that it is the axe in Apple, meaning that its analyst should move the stock with his pronouncements. Sure enough, when I got the upgrade it didn't say anything much that we didn't already know, that Apple has good pricing power on its phones, excellent app store growth and an ever-expanding service revenue stream.
So why is Apple's stock going up today? My conclusion: It shouldn't have been knocked down in the first place. There was nothing wrong with the company; its stock just went down too much on what will end up being a very good 2018 pricing strategy that makes the stock abnormally cheap versus other consumer products companies. Remember who trades the stock of Apple. Traders who look at is as an expensive tech company because it doesn't have breakthrough products that are putting everyone else to shame in rapid fashion.
But you know who buys it when it is down? People looking for an inexpensive consumer products stock vs. say, Procter & Gamble (PG) or Clorox (CLX) or Unilever (UN) (UL) . These opportunistic buyers got a terrific price.
Now, let's look at another story, JPMorgan Chase (JPM) , the largest bank in the country. Last week JPMorgan reported a fantastic quarter, one of the best I have ever seen from a bank. What happens? Hair-trigger traders bail from the stock not happy with every line item, particularly line items revolving around credit card debt. But then what happens today? Investors come in and say, you know what? This stock trades at 14 times earnings, which is much cheaper than the average stock, yet, like Apple, it has an unassailable franchise that is, indeed, backed up by a fortress balance sheet. It's hard to justify not buying the stock.
I felt the same way about an analyst today who downgraded the stock of Citigroup (C) to a sell. The analyst questioned whether the company wasn't receiving too much praise for what's been accomplished and the risks aren't being factored in correctly. To me, though, the stock's now down from $76 to $71 and you have to jump at that discount because that may be all there is before it bottoms, especially when you consider that the tangible book value is right about here, making any shares bought back by management good for the other shareholders -- not renters -- and the criticisms raised about the bank's efficiency seemed spurious to me.
Oh and what the heck, even as I don't care for the stock of Wells Fargo (WFC) because of the cross-selling fiasco, I can see when a stock doesn't want to go down any more. I prefer both Citi and JPMorgan to Wells Fargo. Same with Bank of America (BAC) . Yet, I can see a case to be made that it's been overly punished already. (Citigroup is a holding in the Action Alerts PLUS portfolio.)
There are examples of this kind of re-valuation all over the place. Two weeks ago PepsiCo (PEP) reported a quarter that was much stronger than most consumer products companies out there but showed a disappointing carbonated soft drink line. What happens? The stock drops from $111.50 to $107.90 intraday. Again, traders flipped out about the soda line. But investors took a look at the discount that these traders gave them and they bought the stock and now, like the stocks of Apple and JPMorgan, they are higher.
This is a common pattern in the market. The quick money finds things it doesn't like about stocks and throws them away. Then the slower money uses the selloffs to get in.
One month ago a very good analyst at JPMorgan downgraded the stock of 3M (MMM) to sell. He correctly pointed out the shares had run a great deal but also said that perhaps the valuation was too stretched to justify buying them.
The stock goes from $213 to $208. Not it is at $218. Again, same deal. Sure the analyst may be dead right about a stretched valuation. But if the global economy stays strong then the valuation won't be all that stretched.
Today the drug and health insurance companies got hammered by the president who trotted out a lot of his campaign rhetoric that the drug companies are getting away with murder and the health insurance companies have made fortunes from Obamacare. Pow, both groups were instantly pummeled by traders. But almost as soon as the stocks were pulverized by traders, investors used the discount to start to accumulate positions. A blink-of-an-eye selloff followed by a blink-of-the-eye rally.
Now as I said at the top, there are some situations where the discounts can't be taken advantage of, but they are almost exclusively in the retail business. We have seen some horrendous declines in the department-store stocks. We learned today that Nordstrom JWN was unable to raise the capital to go private because of how difficult the retail environment is.
That's stunning. Nordstrom is a terrific franchise and the family, which knows retailing, must have believed that it could take advantage of an overreaction on the part of panicky traders -- like those in Apple, or JPMorgan or PepsiCo or Citigroup or 3M and scoop up the company at what looked like a discount price.
Nope, there's no financing to do so. So the retail group gets hammered. Why? E-commerce in general and, specifically, Amazon AMZN. Any time Amazon chooses to go against another retailing group, like it did when it bought Whole Foods, crushing the grocery store stocks, you cannot buy the decline. I have watched the stocks of the drug stores go down endlessly because of fears of Amazon buying a drug-store chain.
The stock of Ulta Beauty ULTA got a downgrade from Goldman Sachs -- Conviction buy to buy -- on worries about a slowdown in sales. In truth, though, the big slide in Ulta's stock that started in June at $313 and continues at $194 has much more to do with Amazon wanting to be in that category. Last week we saw a nascent move up in the sportswear and apparel group only to have it crushed, you guessed it, by Amazon.
How bad is the retail situation? Consider that even oil, aided by the internal struggle over Kirkuk in Iraq, has managed to lift, taking those stocks with it.
Even that group has become investible on a dip, a rather incredible statement when you consider how pathetic that sector's been.
So what's the takeaway here? I think it's that the traders keep giving you gifts when they bolt, and with the exception of the Trojan horse that is retail, the gifts have to be taken.