We've got roving bear markets all over the place. The bears maul health care. Then they hit the oils. Then they go after the international industrials. And then the restaurants.
The averages may be having a great month, but underneath there's plenty of pain.
So who has proven immune to the bears' prowess during this period? Where are some solid bull markets that you can expect to trample any bear that comes on the range?
I've got two big obvious ones: auto parts stores and defense stocks. First, get a load of O'Reilly Automotive (ORLY) today, long one of my favorite auto parts stores. Here's a company that just keeps beating and raising and beating and raising. It's the most consistent company in the industry. Incredibly, every time it happens, analysts are blown away. They were blown away again. Now what's truly amazing to me here is that every major publicly traded company in the industry -- O'Reilly, Autozone (AZO), Advance Auto Parts (AAP) and Pep Boys (PBY) -- is at its high.
That's very rare. Most retailers don't trade together like this. But there are not one but two secular tailwinds to the sales of these companies: the aging auto fleet -- now thought to be on average 12 years old -- and the high price and huge debt load you have to deal with if you buy a new car.
How positive are these tailwinds? Take a look at AutoZone. Here's a company that has been a serial buyer of its own stock -- it had 48 million shares five years ago and is down to 31 million shares outstanding -- because management recognizes those tailwinds and wants you to profit from them. Is there a better way to demonstrate that steadfastness than buying back stock endlessly? I think not.
You know how to gauge the all-encompassing velocity of a sector's tailwinds? You look at the worst company in the group in both sales and earnings. In this case, it's Pep Boys, a long-underperforming auto parts store based in my hometown of Philadelphia. What a canine this one's been. Until this week, when Japanese tire behemoth Bridgestone (TYO) paid a hefty 23% premium over the stock price to get this 800-store chain and add it to Bridgestone's 2,200 tire and automotive stores. Now that's a strong sector.
The other bull? Defense. Here's an incredible group, one that is continually overlooked in a powerfully positive secular trend: the demand of nations around the globe to bear arms against their neighbors now that the United States is no longer the world's policeman and the two biggest adventurers in the world are Russian and Iran. The rap against these companies, though, was the sequester: the end of big U.S. spending on defense.
That's over. Now all the candidates know more has to be spent on defense and the budget limitations are over. How bullish is this? Northrop Grumman (NOC) just won a gigantic contract to build a next-generation bomber, a hotly contested piece of business against Boeing (BA) and Lockheed Martin (LMT). All three had run up in anticipation. When Northrop Grumman won, it correctly vaulted a dozen points. But what's really amazing is that neither Boeing nor Lockheed Martin gave up much of their gains. Why? Because there are so many big contracts behind this one and these companies truly are lean, mean fighting machines. (Boeing is part of TheStreet's Trifecta Stocks portfolio. Lockheed Martin is part of the Action Alerts PLUS portfolio.)
So there you have it: auto parts stores and defense, two bull markets where bears need not apply, unless they want to be stampeded under foot by voracious buyers.