Sam Zell succinctly summed up my feelings toward 2019's furious market rally in his CNBC appearance yesterday. If you haven't already, check out the clip, which has gone viral.
On air, Zell fired off his favorite expression, "what a crock of ####," in a parting shot aimed at Queens Democratic Congressman Gregory Meeks, whose party's opposition torpedoed Amazon.com's (AMZN) deal to build its HQ2 in Long Island City and employ 25,000 people at an average salary of $150,000. As a New Yorker, the Amazon Affair both hurts my heart and embarrasses me profoundly, but as a stock analyst I have to let those things go and focus on the bottom line.
So, is this week's pullback a sign that the last eight weeks of market gains after December's plummet were, as Sam Zell would say, a crock? On a macro level, I do not believe that. I cannot imagine a Fed chair propagating more dovish rhetoric than Jerome Powell has done in 2019. Even "Helicopter Ben" Bernanke wasn't that dovish. The market will move on rumblings from the Fed -- always -- and an expansionist FOMC should be good for stock prices.
On a micro level, however, there are always special situations created by market overreactions. That is true in both directions. I should have had the intestinal fortitude to step in on Christmas Eve and buy Apple Inc. (AAPL) at $146, The Boeing Co. (BA) at $294, and JPMorgan Chase & Co. (JPM) at $92. Argh! Missed it! Those are all high-quality, best-in-breed companies, and while I thought BA trading at $440 last week was a bit of a stretch, I cannot argue against anyone holding BA, AAPL or JPM for the long run.
The problem for market players, though, is when the rising tide lifts all boats, including companies with leaky balance sheets. General Electric Co. (GE) is a prime example. At $6.92 on Christmas Eve, I was considering giving Edison's company a whirl, but was cautious owing to negative comments from ace J.P. Morgan analyst Stephen Tusa. I am an old sell-side analyst, and I know the difference between being "less negative" on a stock and actually being positive. Tusa has clearly been in the first category on GE and it was at JPM's industrials conference this week -- with Tusa sitting on the dais with him -- that GE CEO Larry Culp dropped the bombshell that GE would be cash flow negative in 2019. Culp also noted that GE Power's troubles are far from over, and so I find GE's January and February rally to be a crock, and am looking to short it if it regains $10 per share.
What of Amazon (AMZN) ? Well, brushing off the handiwork of those in the New York State Senate and New York City Council was light work for Bezos and Co. With Amazon's announcement that it would be closing its 87 "pop-up" in-store locations, I sense a gathering storm for retail. Clearly Amazon got what it needed from those kiosks in terms of data, and now the company can begin to roll out -- as reported in The Wall Street Journal last week -- actual brick-and-mortar locations.
Every food and drug retailer should be scared to death of Bezos and Co. Kroger Co. (KR) shares are getting slammed this morning on the back of the company's profit warning, but let me tell you, that is just the beginning of the pain if Amazon moves into physical retail. In terms of demographics of potential Amazon store shoppers, we are not talking the patchouli-scented, Birkenstock-wearing folks who pay ridiculous prices for basic products at Amazon's Whole Foods. No, shoppers in Amazon stores would be a price-conscious consumers like myself; people who can tell the difference between the $0.99 it costs for a vitaminwater zero at Target (TGT) (which posted a great quarter earlier this week) and the $1.89 that same product costs at Walgreens Boots Alliance's (WBA) Duane Reade.
Walgreens and CVS Health Corp. (CVS) (which has hit a new 52-week low each day this week) are out-and-out shorts if Amazon expands into physical retail. While I think Walmart Inc. (WMT) and Target Corp. are strong enough to withstand such an onslaught, I am not sure Kroger is. I don't own any retail stocks now.
Be careful when you analyze your portfolio. Make sure a Fed-driven rally hasn't made you blind to any potential "crocks" in your universe of stockholdings.
(Apple, JPMorgan Chase, Amazon and CVS are holdings in Action Alerts PLUS, Jim Cramer's charitable trust).
