Sometimes you can just sense what they are going to come for. Classic example: Ever since Western Digital (WDC) told analysts that demand had picked up back on Dec. 6, including the personal computer business, the semiconductors have taken their turns going up pretty much each day.
Yesterday was Seagate Technology's (STX) turn -- and it rallied 4%. You could say it moved up on nothing. But I think the reason is clear: If business is that good for Western Digital, and that includes disk drives, then it has to be good for Seagate, which makes similar products.
So people just bid up Seagate too, with an understanding that its dividend, which people had thought to be in jeopardy, turns out to be safe. That gives you a 6% yield in addition to any capital appreciation.
We've seen this play out with all of the component companies that are similarly situated to Western Digital, including Intel (INTC) , Advanced Micro (AMD) and Micron Technology (MU) . They just play leapfrog as the multiple incessantly expands.
Now that we have seen some of the traffic numbers balloon for the airlines, I believe the same thing will play out with that group. Alaska Air (ALK) and Southwest (LUV) , the premium companies, get a 12x multiple now, up a multiple point from a month ago. American Airlines (AAL) , United Continental (UAL) and Delta Airlines (DAL) are around 8x to 9x times earnings, also up about one-to-two multiple points.
I think you could see the same progression for those laggards. Another game of leapfrog.
Now this game works only as long as you have stocks that are valued so appreciably lower than any others in the market that actually have a chance to do well in 2017.
Most of the industrials are incredibly highly valued now, given the Trump tripod of deregulation, lower taxes and repatriation. There are other areas that could be revalued though. The autos, for example, are still selling at ridiculously low multiples, but there are secular-decline concerns involving both self-driving cars and younger people not buying cars as they used to.
So I wouldn't play leapfrog too deep. But it does seem as if the components and the airlines are still ripe for more revaluation. And who knows? After some catch-up by the laggards, I bet people go right back to buying Western Digital and Southwest again.
