Don't just stand there, find something to recommend. That's where we are right now in this market and it is a powerful incentive to stay long and keep buying stocks, even if it seems fanciful to do so.
Most of the time, analyst recommendations don't amount to much. They are like trees falling in the woods. They make a big crash but then they just sit there and, unless you were right underneath the darned thing, it really didn't matter.
But periodically they have tremendous clout and your goal should be to anticipate them because they are so poignant and market-moving.
So let me give you some examples of what I am talking about so we can anticipate these pieces together.
Case in point: Disney (DIS) . Here is a company with a stock that has been well off its highs but is now well off its lows. Last week, I predicted some analyst would stick out his or her neck and make a case that the stock be bought. (Disney is part of TheStreet's Trifecta Stocks portfolio.)
Today, Jessica Reif Cohen, the terrific Bank of America Merrill Lynch analyst whom I have followed for years and years, put it on that firm's U.S. 1 list. What were the reasons?
- Growth and international parks and resorts.
- Strength of U.S. parks and resorts including new rides.
- Stable to low growth of media networks buoyed by virtual multichannel video programming distributor launches and nascent direct-to-consumer efforts.
- A solid studio outlook with blockbuster-level visibility for all major studios labels -- Pixar, Marvel, Disney, Lucas.
- Significant capital returns including a $1.64 dividend per share and $7.4 billion in buybacks.
- A possible reduction in the company's 35% corporate tax rate under Trump.
That's a solid litany, but what's absolutely incredible about it is the lack of any emphasis on ESPN, the big cash generator of which Disney owns. You have to understand how important this lack of attention to ESPN really is. All of these strong initiatives Cohen mentions were known and positive all the way down from $120 a year ago to $88 back in February and $90 in October and were completely overlooked and overshadowed by the decline in ESPN subscriptions.
Now that doesn't matter beyond some risk factors that could keep this $106 stock from reaching her $125 price objective, including "a significant slowdown in ESPN's growth." In short, it doesn't matter anymore.
The worry that crushed this stock is now in the rear-view mirror without any mitigation of sub-losses. And what happens? It works. The stock goes higher.
Or how about today's Costco (COST) upgrade by Citigroup? For months, I have been saying Costco must be bought ahead of the big turn we are seeing. It has been a pound-the-table buy for all members of the Action Alerts PLUS club. Total deaf ears. But today Citi says it is time to step off the sidelines to buy the stock and it vaults three points. Why? A membership-fee increase should be coming along with a special dividend in 2017 and the possible end of gasoline, food and tobacco deflation. The latter has plagued every food store, as Kroger (KR) talked about recently, but will be annualized and therefore not focused on in 2017.
Once again, I regard this piece of research as a yawner. There's nothing here that I didn't know and haven't talked about endlessly in our Action Alerts PLUS bulletins, right down to the positives now that Costco has switched from the American Express (AXP) to the Visa (V) card and the kinks are ironed out.
It doesn't matter, though. Costco, like Disney, had run back to its high. It has a good story. It has marked time. It was ripe for an upgrade and it got it.
Then there is the United Technologies (UTX) upgrade by Credit Suisse that I find astounding. Here's a fabulous company, one we profiled not that long ago in conjunction with the call from President-elect Trump to CEO Greg Hayes urging him to keep jobs in Indiana, something he did for half the staff.
The 2016 rap against owning United Technologies goes like this: In 2017 there will be headwinds against aerospace and a collapse of Otis Elevator margins. What does this upgrade say? That both of these are going to be resolved in 2018. That's right, a year from now. We are in a rare moment where we literally are asked to look through the whole year in a total leap of faith and just start buying knowing that two years from now things will be better.
The upgrade has legs; the stock's up two and close to breaking out.
These are on top of two other recommendations that shocked me in their ability to actually work, to move stocks even though there really wasn't anything new. Last week Sanford Bernstein, which has had a hold on GE (GE) for ages, went positive, deciding all the changes and reshufflings that management has done -- including buying Alstom, the engineering and construction company, combining with Baker Hughes (BHI) and spinning off oil and gas and reducing exposure to finance -- haven't been recognized by the marketplace and it is time to realize that it is a new GE, one that could earn $2 a share in 2018. Mind you, not 2017, but 2018. Again, we are being asked to look right through what could be a tough year. In most markets, we don't look through what could happen next quarter. This one says we are OK to look through all of 2017. What happens? It works. (Visa and GE are part of TheStreet's Action Alerts PLUS portfolio.)
On more stunning one. Last week, Loop Capital came out with a buy recommendation on one of my absolute favorite semiconductor stocks, Nvidia (NVDA) , which is at the intersection of machine learning, auto and gaming, the triple crown of high-growth uses. The stock had been biding time in the low $90s. I had even gotten some complaints on Twitter about how some had bought it and the stock had stopped going higher, so what gives?
Sure enough, the push worked and the stock took off into the $100s. It reminded me that I used to joke that stocks that go to the $90s go to the $100s in a real bull market. Maybe they do. What shocked me about this?
OK, I have to admit I had never even heard of Loop Capital before. After I canvassed people, I couldn't find many who did. But it worked!
Considering the tenor and tone of these upgrades and the ease with which they worked, which are the next candidates to receive this praise?
First is 3M (MMM) . The company held an analyst meeting last week and nobody really thought much about it. Everything seems fine but there's no catalyst to get it going. That's perfect. You can say the company will benefit from Trump, and that Asia could get better and that the fountain of innovation is about to turn on.
How about Walmart (WMT) ? Here's a story that will be all about Jet.com next holiday season. We can look right through this one and bet that this acquisition will give Amazon (AMZN) a run for the money next year. (Amazon is part of TheStreet's Growth Seeker portfolio.)
Finally, there is Home Depot (HD) . This is a simple story to bump up. First, it is almost all domestic, so it can be a big winner from deregulation and lower corporate taxes. Second, the retail analysts are desperate to be recommending something. Anything, as we see from Costco. Finally, Home Depot's big season isn't this holiday, it is the spring, and last spring was just OK. Why not say buy now ahead of a just OK spring?
I love it. Believe me, I can't tell you how tempted I am to tell you to buy Nike (NKE) ahead of tomorrow night's quarter, but I think numbers have to come down before I can do that. I am also anxious to say Honeywell (HON) can get a boost after the confusing guide up that was interpreted as a guide down.
Yep, we are in the sweet spot where analyst upgrades can make any stock jump. Now that you see how the game is played, you need to, as they say, "get some." In the last two weeks of the year, there's plenty more to come.