Can stocks go up on nothing? We have an experiment going on right at this very moment, and the answer is a resounding yes.
But let me first describe what "nothing" is, so you don't think that I am some sort of curmudgeon or nihilist. I actually enjoy the lift-off and we maybe even deserve it, given the era of Covid.
There are three major ways that stocks go higher. One is on better earnings, that are better than analysts predicted. Second, is self-help, the company does something, either sells itself or breaks itself up to create more value. Third is hype. Now in our business we don't call it hype. We call it "multiple expansion," meaning that we pay more for something that is already known, betting that someone will pay even more and take us out of or position or increase the value, because they pay even more for the same news.
Today's one of the great multiple expansions of this particular era, because it coalesces the best of the best and takes them higher.
Let's start with Apple (AAPL) . If you know Apple at all, even casually, you might be aware that it launches a new phone Tuesday. It's the ultimate non-event event, because people have it on their calendar and know that there will be some positives and negatives about size, weight, cost, because there always is before we end up buying it.
But that didn't stop Dan Ives from Wedbush Securities, putting out a piece entitled "The Grand Entrance for iPone12 Begins; Cook Kicks Off Supercycle Tuesday." Calling it the most important launch in six years, he signals, in what is supposed to be news I guess, "we are seeing Apple and its Asian suppliers anticipate stepped up demand for the larger 6.7 inch model which is raising the overall iPhone12 expectations heading into this 'once in a decade' potential launch. What needs to happen? China has to step up. In fact, Ives tells us "China demand a linchpin to Apple's 5supercycle." With a fabulous installed base, Ives says "Cook & Co have the stage set for a supercycle product release which should drive shares further in our opinion."
Well, well, well, when you call something a supercycle, you are going to catch peoples' attention. Unfortunately, calling something a supercycle has been something of a jinx. We had a coal super cycle in 2011, right before coal just crashed and burned in spectacular fashion. In October of 2015 Morgan Stanley called for a fracking sand supercycle. That was almost the exact top.
Now, you know, I don't think that you should sell Apple. I would just own it. But because Wedbush couldn't resist, the bar has been set so high by the firm that now Apple might disappoint causing everyone who bought it Monday to shed it Tuesday.
Is there anyone who, in this great country, doesn't know that tomorrow begins Amazon (AMZN) Prime Day, or Prime Days if you count the extra day. We are in a pandemic. We know that means there's going to be a ton of shopping. I say, why don't we wait and see. But that's now what John Blackledge at Cowen sees things. He has to jump the gun and give you a "preview" that's outrageously bullish on "Prime Day" and extended holiday shopping. He's expecting a "demand surge" that will produce second half 2020 e-commerce growth. The demand surge "suggests permanence to Shifting Consumer behavior."
Again, there is nothing wrong with this. Except that everyone kind of knows it and there is nothing new here. In fact, it would have been better to say nothing, have Prime Day and then see how it all worked out. Nope, he had to jump the gun, create hype, and it worked.
Have you noticed that the stocks of Alphabet (GOOGL) and Facebook (FB) have lagged their smaller competitors like Snap (SNAP) and Pinterest (PINS) ? Well Lloyd Walmsley from Deutsche Bank sure has, and that's a big reason why he says it's time to buy them both. He says he struggles "to pick a favorite among GOOG vs. FB as we like them both. Google has underperformed since last quarter, is marginally more of a recovery play (easier comps, travel coming back) and has less noise, e.g. no boycott," as well as social media noise about the election. But Facebook has a big fourth quarter e-commerce product cycle. "Net Net we probably prefer GOOG here," the note concludes, but there is enough heft in here to buy them both.
In truth, Google's been a laggard up 17% and it has continually disappointed. I was hoping for once that expectations would be low so it wouldn't blow up in our faces. I actually am rooting for the House Antitrust committee to break the darned thing up, because Google Cloud, Waymo, the health business, YouTube and search are all worth so much more separately.
Facebook? I like the small- and medium-size initiatives. Have you noticed how the heat has died down since they have started helping the small- and medium-sized up-and-comers as partners? It's a remarkable transformation that has brought the company a ton of good will. All that said, there is nothing in this report that boosts numbers or has anything proprietary. It's just believable hype.
How about another piece by a Deutsche Bank analyst, Taylor McGinniss. Oh this one's a goodie. The analyst made checks in Microsoft's (MSFT) cloud business, Azure and the "checks came back more mixed" on deal activity and demand. But don't let that bother you. "Given the durability and fundamental strength of Microsoft and tailwinds from the work from home phenomenon we continue to believe it will weather the storm better than most of its software peers and we remain bullish" on Microsoft's cloud because of an information technology spend recovery.
I don't mean to pick on Deutsche Bank; it was responsible for a lot of the tech rally. Now, Walmsley recommends Twitter (TWTR) with the Catchy "Come Fly With Me: Upgrade to Buy and Raising TP-that's target price not toilet paper. I always love composer Sammy Cahn, but I never thought he would work his way into a recommendation, especially one that admits that what's going on it a "re-rate" meaning Twitter is starting to get respect for its turnaround.
When you see "re-rate" that's code for "it's the same company but now people are starting to pay more for it." I think and have been saying that it is radically undervalued for ages. So it is nice to see someone else carry the torch. The only problem is that you need some other firm to come out tomorrow to keep the balls in the air.
It's not all tech. Wendy Nicholson, a top-flight analyst over at Citi Group Monday goes from hold to buy on Pepsico (PEP) . I read through the note, and it's really one of those pieces that says, enough with the stock's underperformance. It's gotten too cheap vs. the rest of the group. The headline captures the theme: "After Nearly Five Years of Relative Underperformance We think Now is the Time to Buy PEP." A price target rise to $169 follows, saying that it should catch up to the others in its group. In other words, it is performing better, but its stock is worse.
Me? I don't want relative performance. I want absolute performance, and I am not getting it from this piece, even as my charitable trust owns the stock.
But lets understand the takeaway. We have a rally here based on hope and hype not facts. It can, of course, go higher. But these pieces are thin reeds that make me want to hold, not buy, stocks, and be happy when I have and no more.