What's not too late to buy? What do we bid on when the market starts coming in, either from sheer exhaustion or because there's too much profit not to take?
These are the questions that, after years and years of running money in some form or another, still swirl through my head as I look over the morning's pricing menu.
Now, if you like momentum, there's tons to choose from. You can hop on some Google (GOOG) or buy some Facebook (FB). You can go after the ripping industrials, grab on to a stock like Caterpillar (CAT) because it is behind the market and seize on some General Electric (GE) as a laggard because it is a new industrial, morphing away from its financial tethers.
We've also had some movement in the telco-equipment plays and the personal-computer-peripheral companies. But I have little conviction in that move, given that there might at last be capacity coming on in peripherals, Cisco's (CSCO) out there stinking up the joint and there's so much fretting about Apple (AAPL) -- even as I think the latter sentiment is unwarranted, and that Apple should be bought.
I understand any of those ideas. There are only a few days left in the year, and all of those constitute fertile ground of which to be a buyer.
But what I am talking about is what's cheap after the smoke clear -- what's just been ignored of late. I see five sectors that make sense.
First, there's the banks. If the Federal Reserve is to be taken at face value, there will be no increase in what the central bank has to pay you on your CDs, but there will be more capital to lend, and there will be enough inflection in the yield curve that the banks can make plenty of money.
It's a natural group, and the natural one in the natural group is Bank of America (BAC), because shares still aren't back to where they were just a couple of years ago after the crash. Only a handful of companies, notably Ford (F) and Alcoa (AA), can make that unfortunate claim. Of course, it also doesn't hurt that the prosecutions are winding down, and that the capital is brimming at the same time that the Fed seems to be willing to loosen restrictions on a return of capital.
The second area is housing. Yesterday Lennar (LEN) reported, and the market liked what it heard. That is pretty interesting, given how Toll Brothers (TOL) wasn't all that much different when it reported a few weeks ago and the market didn't like what it heard.
What's changed? Lennar told a compelling story that said: "Look, the Federal Reserve has won, home prices are going up too high and now they have cooled off while demand has stayed pretty consistent, but supply has fallen behind." The imbalance remains, and Lennar has the land and the homes to meet that demand imbalance. It's been a terrific, compelling story of a homebuilder that is going to make a lot of money per home. That thesis allows for some conventional price-to-earnings multiple to come in play. The company has about $2.50 per share in earnings power, and it has growth characteristics and margin-improvement possibilities that are better than the average stock in the S&P 500. Given all this, it wouldn't be a stretch to see it head to $40.
Now, this whole group isn't as good as Lennar, which has come out as the standard bearer of the industry after this difficult period. But this group has been slumbering for some time, and if Lennar goes to $40 than Pulte (PHM) and D.R. Horton (DHI) won't lag too far behind.
Third group? Retail. This group has done nothing for several months now, and we can make a judgment that the holiday season hasn't been a rip-snorter in part because of calendar issues, but also because of secular shift away from the traditional discounters in favor of Amazon (AMZN). That said, the turnarounds in GameStop (GME) and Best Buy (BBY) should accelerate because of new product in 2014 and Macy's (M) has already told you things are going great. The unseasonably cold weather has been fabulous for North Face maker VF Corp. (VFC).
They all work.
Finally we come to groups four and five: oil and airlines. These are the proverbial oil and water of this market, but hear me out. We have now all pretty much collectively decided that the only oil company worth buying is Exxon Mobil (XOM), because that's the company that's more of a bank than an oil company.
Market players all seem to think that domestic oils have had their day.
I think that's ridiculous. If the economy is really coming back, then oil is going higher, not lower. The companies that are repositories of oil and gas -- ConocoPhillips (COP), EOG (EOG), United Continental (UAL), Noble Energy (NBL) and their ilk have come down hard. Yes, day rates for rigs have come off; witness the hideous action in Ensco (ESV) yesterday. But the worldwide price is what drives Schlumberger (SLB) and National-Oilwell Varco (NOV). I think they'll work.
But if the market is right and oil is tame, I think you'll easily be able to buy the airlines, which have also stalled out. We now have the completion of the American Airlines (AAL)-U.S. Airways deal, and so many are basically saying, "OK, that trade is done." But I come back and say this: If you think oil isn't going up, but is going to stabilize, and that the economy is going getting stronger, then we are going to see fare increases and more filled seats. That means more money for American as well as Delta (DAL), my two favorites.
You can't have it both ways. Either oil's not going higher and the airlines are flying high, or oil is going higher and the special situations that are American and Delta will be able to handle the increases without much trouble. But airlines are acting as if oil's about to go up, and the independent oils are acting as if oil is coming down.
Someone's going to be right.
So we have banks, housing, retail, airlines and oil: the recent laggards that anyone can justify buying even after yesterday's remarkable rally. Those are the places to be.