On days like today, people often lose the forest through the trees. The trees, individual bank stocks, are graded on such arcane data as net interest margin and net charge-offs.
Then the cognoscenti rate them, JP Morgan (JPM) vs. Goldman Sachs (GS) yesterday, or Wells Fargo (WFC) vs. Citicorp (C) today. It's a parlor game played by institutions that means little unless you are trying to round a portfolio with the stock most poised to run of those that are reporting.
We can play that game. I think Wells has the most upside, because it is the worst. Goldman Sachs had the biggest upside surprise, blah, blah, blah.
But what really matters, what's the real takeaway, is how darned rich this country is. The pandemic changed us from a nation of overspenders, taking down credit card debt, well beyond our means, to miserly savers with the best balance sheets ever. That's what happens when you get money from the government at the same time that there is nothing to spend on.
So those are the trees.
How about the forest?
Often good investing is about spotting a trend and riding with it without fear and with a belief that you can buy more if the stocks you pick go down.
I think that we are at that inflection point, where spending can truly ramp and in a way that is entirely unexpected. Now some of the banks are talking about how the consumer is in such good shape that they are set to borrow more. I am lukewarm on that, but I do believe that the forest includes continued home buying. That, however, is now too tied up with mortgage rates. I don't want the parameters of our ideas to be set by something beyond our control. That gives us too low a ceiling as we will simply be dreading every tick up in rates.
Instead, I want to focus on what people in this country do and buy when their coffers are full, because it's a new area of thought that's just now being discovered and, in part, because these bank conference calls give us tremendous fodder for decision making.
The first thing people do? They travel, especially the younger people. Bank of America (BAC) , which has about as good a bead on the America people as anyone, pointed out that there was an 8% increase in travel from 2019 -- when America was healthy, not 2020 when the pandemic tore us asunder. The implications? These airlines including American (AAL) and Delta (AAL) , which will soon be profitable, can still be bought -- especially because we don't even have much in international yet. We see that the destinations are all over the place: Florida, California, New York. No dispositive direction. But, so what? We are about the airlines, which some might think have moved too much but I think can be rallied around. Delta's stock traded at $52 in March when the vaccines started becoming a must, vs. $40 now. American, my less favored, galloped to $26 back then; it's now at $20. Room to run.
But my favorite pin action play off this feisty wealthy consumer who likes to go out and spend a lot of money at dinner, according to several bank CEOs I talked to, is American Express (AXP) . Now American Express doesn't report until July 23. You have a lot of time between now and then. But think of American Express as a play on travel, on dinners out, and on airline tickets. Ultimately, think of it as a pent up demand play on going to foreign countries. It's going to be a winner.
What happens when people go out? That's a second derivative. Younger people are all about places like Poshmark (POSH) , the second hand circular road. You can't beat Poshmark if you want to invest in that ethos. I like the story, because it has both an economic and an environmental component to it. This one's come down a great deal, from $104 to $38. To me it jibes with the thriftiness I am seeing.
A balance sheet like the millennials have means some exotics that can take off. When the average American's balance sheet was godawful, boat sales were much, much bigger than they are now, even as the pandemic brought it home how much fun they could be. That means Brunswick (BC) with a complete line of boats from starters to killers. I wouldn't mention it, except it is well down from its high. Brunswick boats cost a lot of money and tend to be bought on credit, but one thing the Americans can get very easily is credit. The stock has stalled here, as people expect that rates are going to rise and choke off the industry. I like a stock at $97, down $20 points from its high that sells at 12 earnings.
People with good balance sheets want to splurge. I know that many on Wall Street think this is a story well played out. I'm not buying that. I am looking at Best Buy (BBY) for big screen TVs and at $110, down from $128, with excellent management, count me in. The people getting them now are not early adopters. They need the geek squad. Reverse chic? Try Cramer fave Costco (COST) , near its high, but isn't it always? There's an amazing thing about Costco: pricing. It is not trying to make a lot of money when it sells you a bottle of Caymus at a price that is similar to what it pays. Costco wants volume because it wants satisfied members. It fits right in. Younger people who are flush? They go to West Elm from Williams-Sonoma (WSM) . Older? It's off to RH (RH) with such a collection of astonishing furniture and fixtures that I defy you not to buy something when you go. I used to think that if I could keep my wife away from RH, we could afford it. Turns out they deliver and assemble. A balance sheet dent for certain.
Finally when you have money you want to see what Apple (AAPL) has. Can you go get a new phone by switching carriers? Why not go to T-Mobile (TMUS) ? Can you go to a reseller? Why not? Can you just go to the store? We are reading that the stores aren't doing well. But that's like hearing that the components for Apple phones aren't doing well, something we heard at $120 from a newspaper in Japan. Thanks for nothing -- now that the stock's at $149. No, thank you, Toni Sacconaghi from Sanford Bernstein who, said at $116 there was no catalyst coming. Toni, a simple apology is warranted, the kind I have given when I screw up.
Of course, when you say Apple you are saying Qualcomm (QCOM) , Broadcom (AVGO) , and Skyworks Solutions (SWKS) all from the great pin action that is the largest company in the world. Don't forget that when you get a phone you get Apple revenue streams and I think that Apple may grant my wish and tell us the lifetime value of a customer.
We can't just see the trees of Wells and Citi or Goldman or JP Morgan, we need the forest and the forest says the consumer has never been this flush and a flush consumer climbs out of the foxhole, delta variant be damned, and does some buying.