Give me a thesis. Any thesis. I am a buyer. That kind of thinking, which I used to exhibit constantly at my old hedge fund before I retired, is at play right now.
Money managers are desperate to put money to work at this moment, desperate for a new idea and for a reason that makes for a compelling buy. And they are finding them in spades.
Let's take them sector by sector starting with the largest one, technology. Here's a sector that's been stalled of late. We haven't had a lot of data points. The big cloud plays haven't been able to mount rallies. The stocks of the internet businesses seem to be just plain tired.
But if you are a desperate manager you look at the world quite differently. First, you see Apple (AAPL) going higher and that means that the consumer is still spending on technology. If that's the case, then you can buy Skyworks Solutions (SWKS), which just reported a great number but hasn't really moved selling at 14x earnings. It means you are going to download a lot of pictures to your personal cloud: that's Western Digital (WDC) at 12x earnings.
Research helps out on a day like today. Goldman Sachs (GS) bumps numbers for Micron Technology (MU) saying that DRAMs, the lowest form of semiconductor plant life, are in short supply and pricing is good. That's not supposed to be happening this late into the cycle. If DRAMs are tight though, you are going to get some ordering in semiconductor equipment stocks, which allows you to buy Lam Research (LRCX), a high-quality equipment play that we know from Mad Money is doing quite well. Applied Materials (AMAT) could also be doing better and its stock looks to be breaking out.
If Micron's doing well, then I think the PC industry's probably doing well, which allows me to buy everything from Intel (INTC) and Microsoft (MSFT) to Hewlett-Packard (HPQ), Seagate Technology (STX) and SanDisk (SNDK), none of which is expensive based on next year's earnings.
Cisco (CSCO) just reported a widely panned quarter when it shouldn't have been panned at all. The quarter was a testament to how well Cisco can do in a tough environment. Great gross margins. Terrific execution. Can you imagine what this horse can do when things get better? Cisco has vanquished the competition. It's pretty much game over for everyone else. I like that.
You might even be willing to reach down to IBM (IBM) as a laggard. When I see it up a couple of bucks I get suspicious that an activist is taking a stake. How can you not? There's no fundamental reason to own the stock. I don't know what an activist could do there. The company has no revenue growth. But maybe an activist thinks that there's enough there to turn things around.
How about these internet and social media plays? We have witnessed them stalling out for some time now, almost as if Alibaba (BABA) took all the rocket fuel away from them. Let's remember, though, that when we listened to the best consumer packaged goods companies and restaurant chains and retailers, what do they talk about? The need to switch from print and television ads to the web, somehow, whether it be through Google (GOOGL) or Facebook (FB) or Twitter (TWTR). These are the equivalent of NBC, CBS and ABC and Fox for the younger generation.
Domino's (DPZ) and DineEquity's (DIN) IHOP and Popeyes (PLKI) and Buffalo Wild Wings (BWLD) and Starbucks (SBUX) wouldn't emphasize to me over and over that they need social media to get the exposure they need if, well, they didn't need it. Sure Google didn't show spending discipline. Facebook seems to be doubted ever since that the What'sApp overpay. And Twitter? It needs a new CEO. I believe Dick Costolo just doesn't have the gravitas. These could all be justified. There's simply too many reasons to buy to not do so.
How about the financials. Stephanie Link, co-portfolio manager of Action Alerts PLUS, and I were debating selling Bank of America (BAC) for the trust the other day. It has been doing nothing, up 10% for the year. Roughly around book value. But I said, wait a second, if you are a portfolio manager who has sat out this rally why wouldn't you want to buy Bank of America? It's cheap. The economy's getting better. It really is a proxy for the country and it is so far behind the other banks. She agreed and we realized this could be the ideal stock for a bullish manager who feels like he has missed the boat.
In truth, the whole complex is cheap and it wouldn't take much to get it going. Even 2.65% on the 10-year, a ways away, would make for some OK comparisons. If loan growth were to pick up these could go much higher.
Health care doesn't need much help. There's so much that's good here, whether it be the trio of cost containers -- AmerisourceBergen (ABC), McKesson (MCK) and Cardinal Health (CAH) -- or the biotechs, namely Regeneron Pharmaceuticals (REGN), Celgene (CELG) and Agios Pharmaceuticals (AGIO), or the medical devices firms, Edwards Lifesciences (EW) and St. Jude Medical (STJ), or aggressive big pharma Actavis (ACT) and its antecedent, Allergan (AGN), I can't believe how much there is to choose from. Yes, the hospitals have run but anyone who thinks that President Obama is going to moderate the Affordable Care Act even one bit has been blown away by his intransigence in light of the Republican victory. This group, big or small, doesn't matter. It's just money.
Consumer discretionary? Two words: gasoline and jobs. We are seeing gasoline plummet now and while the analysts may not drive enough to know or are too rich to recognize it, the lower gasoline prices are a huge shot in the arm for consumer spending. Plus, with worries about joblessness fading, individuals can afford to spend again. So they are. On their homes, on themselves, on others. Analysts have been falling all over themselves to downgrade these stocks on valuation. They don't seem to realize that we have had so many disappointing holiday seasons that this one could be revelatory and harken back to when Target (TGT), Wal-Mart (WMT), Kohl's (KSS) and Macy's (M), or Ross Stores (ROST) and TJX Companies (TJX) were growth stocks. Same with the restaurant group.
Easy buys.
Industrials? Here we have the perfect combination of strength, so the numbers get made, and weakness is over there where Europe's starting to really ease and China's doing its best to come back on line. Japan, too.
Maybe it doesn't happen. Maybe things don't get better. That's OK, expectations remain amazingly low. I don't see a lot of disappointments and when you do, you get activism as we have seen with Dow Chemical (DOW) and Dupont (DD).
Consumer staples won't see much top-line growth. In fact, a strong dollar is a killer for these stocks. But oil is integral for packaging and for gasoline to take goods to stores. A huge positive.
Which brings me to the last big part of the S&P 500 -- energy. Sure it's been hideous. Yes, we don't know how low it can go. But can you really resist one of these stocks going into an OPEC meeting on Thursday that could be the beginning of the end of overpumping by the Saudis to keep the U.S. from developing its fields? I think that's going to put a bid under oil until we get to the meeting and then I suspect that a Venezuela or a Nigeria may have to break ranks and cut back production to let the price rise.
So, here's how things shake out. If you are a portfolio manager and you are well behind the market, as so many are, you are dealing with a very limited amount of time to get in some performance. You do need a thesis to buy, and this market has more reasons for you to buy stocks than pretty much any time the whole year. That's a recipe for higher, not lower prices going into 2015.
