Let me say right up front, when you are looking for good investments among the fourth quarter winners and losers, it's the losers that stand out as 2019 possibilities, not the winners. Any eyeballing of the two lists shows, in the winner's corner, lots of utilities, real estate investment trusts and higher-yielding drug companies. I don't know if they can repeat, but there could be some gold here worth betting on, literally and figuratively.
The losers? Mostly oil and gas and tech, down and outers with some potential.
Why don't we start by kicking the tires on the top seven winners -- it is hard to go more in depth than that -- and then we will have a look at the losers in the next segment.
1. Red Hat (RHT) . The first and by far biggest winner was Red Hat (RHT) , which got a gigantic bid from IBM (IBM) . Typically, I would omit any reference to a closed-out situation; Red Hat is not going to be a big winner for 2019. It won't exist. It's more important for IBM that Redhat's Jim Whitehurst stays on and becomes a possible IBM CEO one day for this combination to have full throttle.
Moreover, I want to stress that this deal signified, at least to the market, that your own stock will get hammered if you buy an expensive company -- even a cloud king that helps you on board to the cloud. In IBM's case, it was a brutal bludgeoning -- and I think it kept others from snapping up well-run, expensive techs.
Now Broadcom (AVGO) was able to buy CA with little-to-no consequences, and its buyback has been ferocious ever since. But that was a rarity -- and it will be a further rarity in light of the Apple (AAPL) shortfall, especially because of the nature of the deal. How many other tech companies made acquisitions to diversify away from cellphones, as Broadcom did with software company CA? Bulls have to hope IBM's stock decline, after the merger, is isolated and that the crash of so many good data-related techs has created a tremendous opportunity for acquirers. Bears just have to point to IBM's drooping stock and say "can't touch the group."
2. Newmont Mining (NEM) . Second? Oh my, a real weak one when it comes to the overall market: Newmont Mining (NEM) . You know all of those ads about single stock risk, meaning you want to own the best and the worst in a sector, not just try to use a brain and isolate the good from the bad.? Guess what, you got one of the worst if not the worst with Newmont in 2018.
But it doesn't matter because of the ETFs, which, when it comes to gold stocks themselves, have almost magical powers levitating good and bad -- including Newmont, which otherwise would HAVE barely advance based on a rally in gold that we had in Q4. Yeah, that's how weak this company is.
Nevertheless, as with every one of these stocks, you have a real allegory for the market. When you think that gold is going higher and you want an investment, you buy, say Randgold Resources (RAND) , which, under Dr. Martin Bristow, has negotiated amazing deals in Africa and is a very low-cost producer, despite the uninviting terrains. His deal to acquire Barrick Gold for $6.5 billion just gives the company's stock more allure.
Newmont is the opposite. It has very high-cost gold and needs a huge gold move to get the stock going. The anticipation is the reason for the move, the anticipation of chaos and inflation. Oddly, I think the central banks' actions around the world are deflationary and will hurt this group. So, stick with some growth and buy Randgold.
3. Starbucks (SBUX) . You know what is amazing? The quick changes CEO Keven Johnson has brought about with Starbucks (SBUX) to really get the chain going again. First, he sold off some coffee assets to Nestle at an inhumanly high price of $7 billion. He then began to buy stock hand over fist as he knew -- and was telling people -- the turn is at hand domestically, because of some strong tech suggestions to get the line moving and people through the stores faster.
Starbucks is also getting its sea legs back in China, solving a critical delivery issue that really held the company back. Will it suffer the fate of Apple, too expensive for the regular Chinese person to buy in a slowdown?
Coffee's never been that economically sensitive. If people hit it on an analogy to Apple, buy it. I think this stock, even in the thick of the selloff, held up miraculously. It could be a big winner in 2019.
4. CME Group (CME) . Not that long ago, a knowledgeable friend asked me what I thought of CME. I said the market's due for a big selloff and I didn't want him to commit any capital. I was right, but I was also wrong. The market took a hit; CME didn't. This stock, which is at the essence of futures, turned out to be the quintessential fintech equity, now that the payment stocks hit a cyclical wall within a secular stream.
You know what? I don't think this company's sheen will turn to rust, because this year could be even crazier than last. I want to do a real work-up on this one to explore the possibility of what could be a real repeat in 2019.
5. Realty Income Corp (O) . There's always a dispute among real estate investment trust owners about how to approach stocks: Do they want safe, incremental dividend boosts and okay stock performance. OR do they want the super-charged growth stocks -- the Federal Realty's (FRT) , Boston Properties (BXP) , Simon Properties (SPG) and data center REITS like CyrusOne (CONE) and Equinix, Inc. (EQIX) .
This fourth quarter, the market clamored for yield, and Realty Income Corp got the nod, because it's a compromise between the two, a faster-growing real estate investment trust company that caters to individual strong retail credits.
You know it's pretty amazing how well the stock market, especially the REITs, telegraphed the collapse in bond yields -- certainly better than Fed Chief Jay Powell, who probably figured 10-year rates would soar after his intemperate October comments that he has still not repudiated even as many, wrongly, think he has. Only someone worshipping the false idol of the Phillips Curve producing skyrocketing inflation. Should it really shock us? Most of the Fed had the same textbook I had when I went to school. With yields plummeting, the REITs with the highest yields and some growth offset a possible brush with recession, and none shone more brightly than Realty Income.
6. Church & Dwight (CHD) . Next is such a strange one: Church & Dwight, a high-premium-multiple packaged goods company that used to be a rocket ship, but now seem a bit like a turbo prop -- which is good enough in a terrible quarter like the last one. The market likes the product lines. It's clearly not up for M&A, given how much it would hurt any acquirer because it is so expensive. I don't think it can emulate -- although its got lower raw costs because of deflation in the oil complex and its got powerful innovation for a small consumer packaged goods company. I like it on a pullback which, if you check the stock, you rarely get.
7. Dollar Tree (DLTR) . Finally, we have the called shot of retailer Dollar Tree. After reporting a quarter that looked soft, the stock starting rallying post the number cuts. Unusual? Well, buried within was a turn in the painful acquisition that was Family Dollar three years ago. No more shortfalls, Gary Philbin, the CEO, told me on Mad Money not long ago. That, more than anything else, produced the run we got. Philbin also told us that China, while an important source of merchandise, would rapidly dwindle as a choke point because of ease of sourcing, one of the things they do best.
You put it altogether, and there's a lot to like here in principle. I do think gold could have more of a run because people fear chaos; go with Randgold, though, not Newmont. I like Starbucks right here, right now, after that last quarter. Church & Dwight seems elevated but always has been and has a raw cost kicker. Realty Income seems played out, but if Powell tightens again it's a winner.
Best for last: I think this could be THE year for Dollar Tree -- and the stock's worth buying anywhere around the $90 area, especially below it, where it represents tremendous value now that Family Dollar is fixed and China becomes a rearview mirror country to source from.