Are we going back to the halcyon days of the great senior growth stocks, the stocks that deliver and deliver pretty much like clockwork? The stocks that make endless buying of index funds and exchange-traded funds look silly, because these stocks are so much better than the average 499 other stocks out there?
On a day when the averages roared in part because of still one more story about face-to-face trade talks in China next week, I am seeing action in this market that's reminiscent not of the 2000s -- when stocks routinely blew up -- not of the 2009-until-now decade rally, and not even of the run up to Armageddon in 1998-1999.
No, today's rally -- besides the semiconductors that would benefit with anything positive happening in trade -- was made up of the same stocks that led us in the 1980s, as we transitioned from an industrial to a post-industrial economy, and it was a big deal for Merck (MRK) to surpass the side of GM (GM) or Ford (F) .
This morning Kimberly-Clark (KMB) reported, and this tissue maker that has struggled mightily over growth and costs in the last few years, blew Street numbers away.
The company, which makes Kleenex, had 5% organic growth, which is pretty extraordinary. But that's not what's so intriguing here. What mattered to me were the incredible gains in the less developed world. As Michael Hsu, who seems to be doing an amazing job as CEO, said on the call that "in China, organic sales were up double-digits compared to a soft performance last year. In diapers, our net price realization was helped by reduced and more targeted promotional spending."
In other words, the company is spending less and making more; that's a recipe for printing money.
It isn't just China. In the Association of Southeast Asian Nations, or ASEAN, organic sales were up 10% with continued strength in Vietnam.
In Eastern Europe, organic sales increased about 20% driven by double-digit volume growth and positive pricing, because of new innovations. Again, that means the company raised prices and nobody balked.
I cannot stress to you how important this all is. When we used to recommend these stocks in the 1980s, when I was at Goldman Sachs (GS) , we did so because we knew that the emerging markets were becoming more middle class, they wanted better diapers, better toilet paper and tissue.
Now, because of innovations and because of good online marketing, and because of the maturation of the population -- a population that would now benefit from Depends for incontinence -- Kimberly's back to how it used to be.
Moreover, the company took multiple price increases on its domestic business to cover raw costs and those prices stuck. At the same time, now you are seeing a cut in the rising rate of commodities, which is giving the company larger gross margins.
Higher sales, higher prices, lower input costs, incredible demand from the emerging markets? We are in the Wayback machine, taking us right into the 1980s.
Whenever you met a client who already owned Kimberly-Clark, you then recommended Coca-Cola (KO) with a very similar story. But then it ran out of gas.
No more. Now CEO James Quincey has reignited the business -- it, too, has 5% organic growth. Not only that, but, again a throwback, the company is talking about a huge secular growth opportunity in developing markets. They are 80% of the population, but one quarter of beverages consumed are commercial vs. three quarters in the developed market. I thought they were saturated overseas. Nope, they have opened more than 750,000 new outlets in Asia alone this year.
I know it seems trite that a staid company like Coca-Cola could be an innovation machine, but almost 25% of the company's revenue is from new or reformulated products, up from 15% just two years ago. The smaller format soda cans are working. So's the new Coke Energy drink.
Trademark Coke had the highest volume growth in 10 years.
Both companies have about a 3% yield. Both companies are able to buy back stock as aggressively as they like.
It might as well be 1985.
Now, this is still the same old rotating market.
There's not enough money in the stock market to move all stocks. This rally in the classic growth stocks comes at the expense of the FANG stocks and the cloud kinds like VMWare (VMW) , Adobe (ADBE) and Salesforce.com (CRM) .
That's a big difference from the 1980 where Kimberly, Coca-Cola, Procter & Gamble (PG) , Colgate-Palmolive (CP) , PepsiCo (PEP) along with Merck, Schering-Plough and Pfizer (PFE) were the real growers and the techs, companies like Motorola (MSI) , Texas Instruments (TXN) and IBM (IBM) took a back seat in growth.
What does this return to 1980s growth for these companies mean for this market?
First, it means that you have some very good stocks to fall back on if this market stumbles. I think as freight prices come down and raw costs continue lower and big ad budgets turn into smaller, more targeted digital buys, the gross margins here will just continue to grow. Normally, I would be worried about encroaching private label brands, but it just hasn't happened to date. Something to watch, but right now there seems to be some real demand, despite rising prices.
Second, it means that if short rates go down because of the Fed, these stocks will have much more competitive returns than CDs.
Third, if we get a slowdown, it will not affect these companies' numbers.
Fourth, Coca-Cola and Kimberly-Clark are addicted to returning capital to shareholders in terms of boosted dividend and buybacks. Numbers like these will only tempt the boards of these companies to approve even bigger buybacks and dividends.
Fifth, if we really get any break in trade talks, the Coca-Colas and the Kimberlys have huge businesses in China. They are not obvious China plays, but they sure could be helped by anything positive that would make it highly unlikely that they could be banned or taxed into oblivion.
Finally, even though they have moved a great deal, the street hasn't gotten behind them yet. I expect multiple upgrades of both stocks.
I want to emphasize that this is really the first quarter that these consumer-product group stocks have gotten the wind at their back. They have been raising and raising prices to cover their increasing raw costs and for the most part, they have stuck, but they barely covered the commodity increases if they covered them at all.
Now the raw costs are coming down, but the prices to you aren't. There aren't that many companies that make these kinds of products, so don't expect a price war. The targeted spend that comes from giving money to Alphabet (GOOGL) or Amazon (AMZN) or Alibaba's (BABA) Tmall or Facebook (FB) to reach the right audience worldwide instead of wasted ad dollars on everyone, including those not interested in carbonated drinks or diapers is finally falling into place.
So let's do this. Let's stop complaining that stocks have gone up too far, too fast. Let's stop with this endless parlor game of whether the Fed will cut rates. And let's settle into owning companies with pricing power and vast untapped markets overseas that aren't tech stocks, so they give you that dividend and that buyback that so many of you crave.
Alphabet, Amazon, Facebook, Google, Salesforce.com and Goldman Sachs are holdings in Jim Cramer's Action Alerts PLUS member club.
