You never know whether it is just an era of good feelings at the dawn of 2016 or if there's just a sense that things aren't bad as we thought.
That's what forgiveness mode is about, and we are seeing forgiveness all over the place. Last week, CVS Health (CVS), which is being held in the Trifecta Stocks portfolio, came out at an analyst meeting and raised the low end of its estimate range, while giving you a 21% increase in the dividend. It was an outstanding day, but Goldman Sachs used the occasion to downgrade the stock -- it may have been coincidence, but it did have a huge impact, and the stock got rocked from $97 to $94. I came out swinging and said this was ridiculous and it was a terrific opportunity to buy, because the company is doing better than expected and it is one of the best retailers out there.
On Tuesday, it roared back above $97 to $98 on no real news. It probably isn't done either, as there is so much good news flow that is going to come out from its tie-up with Action Alerts PLUS portfolio name Target (TGT) and its pharmacy benefit manager business.
It should never have been down to begin with.
Or, how about General Mills (GIS)? The company reported a miss on the top and bottom lines, and growth is continuing to slow despite the Annie's acquisition and the changeover to more natural and organic staples plus the sale of Green Giant. U.S. retail sales fell 4%. Now, that's not international, that's domestic. No strong dollar issues.
But the company continues to buy back a tremendous amount of stock -- about 30 million shares out of a total of 593 million outstanding. CEO Ken Powell is talking up some of the big changes in the line-up that could reverse some of the slowing trends. He gave a very vigorous presentation that made you feel you should own the stock, not sell it, and although it fell immediately from $59 to $56, I figured it would just be a matter of time before it is forgiven. It didn't even give you much time, as it is $0.80 under the level at which it was when it reported.
How about Celgene (CELG)? Can you believe how many people have written this company's stock off because of generic woes and patent challenges? In the meantime, it is expected to earn $7.20 in 2017, making the stock sell at a discount to the average stock on that number. Why not? If a patent challenge is going to win or a key drug like revlimid is going off patent, then the 2017 number is a stretch. But all of that's over, now that Celgene made a deal last night that gives it seven more years of exclusivity. Now the 2017 number is for real and the stock is free to soar.
What else could be next to rebound? I thought that Costco (COST) got the short end of the stick when it reported not that long ago, and a close reading of the transcript of the call explained away any weakness. The stock fell from $168 to $158, but now it is starting to mount a comeback, and I suspect that it can clear the mid $160s from its $161 perch. Quality retailers like that don't stay down very long.
Finally, one more: Accenture (ACN). Here's a stock that went from $109 to $101 on what was supposed to be a bad "miss" when it reported last week. The company's got a huge overseas business that made the earnings come in weaker than what was expected. This is such a high quality company and all of the lines of business did quite well, but everyone is so used to seeing this company blow away the quarter that its double-digit overseas sales didn't count as much as it should have.
Now, both Costco and Accenture have hair on them, certainly more than CVS, but both the retailer and the consultant company are doing so much better than General Mills, it's silly to compare them.
I think that these two will be the next to be forgiven, and the market's already started the process of rehabilitation that is expected when you get terrific companies with one-off sales that happen only a few times a year.
