Sure, the market went down today. But there's been a persistent bid underneath the market for months, despite the virus, despite the high unemployment, and despite the uneven earnings we have seen so far.
It's a puzzle, I know. I scrutinize every major earnings report for answers why. I don't find them. I divine the Fed, examine its pronouncements. Same with House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin. How did we get up here? Why do people keep buying despite the negatives?
And then I had an epiphany, a real eureka moment. I went over the positions in my charitable trust in preparation for my Action Alerts PLUS monthly call to see how they would fare under a Trump vs. and Biden administration. Of the 32 stocks that the trust owns, fully two thirds would arguably do better in a Biden regime.
I was shocked to see this. The trust's portfolio is certainly not built for a change at the White House. In fact, because it's not meant to be a politically leaning at all, I didn't think the trust owned many "Biden" stocks instead of "Trump" stocks. Even more, I presume that the stock market almost has to go lower, given that we know Biden wants to raise all sorts of taxes, including the corporate tax, which would be bad for stocks. Companies do hire with the excess cash. They do spend on technology. But they also buy back stock with the money and boost dividends, too. So it's a natural belief that Biden has to be terrible for valuations, given how he would remove key props to the bull. In fact, I would say the average stock owner fears that Biden will shuttle the bull right to the slaughterhouse.
So, let's understand that it is possible that the whole market could take a hit from his policies, especially if both the House and the Senate go Democrat.
And on a day like this, you are tempted to say the most recent polls, which show Biden winning by a landslide, are the reason why we had such a poor market.
But let me go over the revelation I had with my trust, so you can understand why this dip, when it wraps up, may very well be a buying opportunity.
The No. 1 reason the trust's stocks identify with Biden, not Trump, is China.
Let me run them down.
First, the trust owns Apple (AAPL) . The president doesn't like any company that makes products in another country even, if that country is a big customer of the company. Apple builds in China and gets a huge amount of money from China. In fact, it's crucial for Apple's fortunes that the new iPhone 12 and iPhone 12 Pro, the iPhone Pro Max and the iPhone Mini sell well in China. The variety and the quality, I believe, trump anything that might be offered by any other company in the world. The Chinese should go wild for it.
Tim Cook has walked an incredible tightrope between Washington and Beijing, one even the great Wallendas would admire. It's an unenviable position, but he has done it deftly, with respect and graciousness to all. To me, he represents a great ambassador of our country and it's actually good for the U.S. that the Chinese lust for our phones. We want to be the top when it comes to the most important device people around the world must have.
But the simple fact is that Cook might be able to get off the tightrope with Biden in the White House. When you listen to him, he's not about trashing China. He's certainly tougher than President Obama was, but that's not saying much. I would believe Apple's stock could rally substantially if Biden wins, and it's the world's largest equity.
The trust owns a variety of semiconductor stocks, but the three most pertinent, Broadcom (AVGO) , Marvell Technologies (MRVL) , Advanced Micro Devices (AMD) and Nvidia (NVDA) could get a windfall under a Biden regime, because they all have solid relations with the Chinese that are eroded by Washington-Beijing tensions. Broadcom and Nvidia are acquirers of companies that need China to check off one. Hock Tan, the CEO of Broadcom, is extremely acquisitive. But the Chinese have made it difficult for him to be able to buy anything that has Chinese exposure, and the U.S. government has hinted that he is too close to the PRC. The man can't win. So he has turned his acquisition targets to software that doesn't need Chinese approval and therefore can be closed quickly, like his buy of CA Technologies, a software company, that was completed pretty much in record time.
Nvidia wants to buy Arm Holdings. China dragged its feet on the last buy, Mellanox, even as it was not anti-competitive and made an immense amount of sense, because it could bring down the price of Mellanox product vs. when it was separated from Nvidia's parts. The Chinese could now hold up the purchase of Arm Holdings, even though there's truly nothing anti-competitive about it. I think a Biden presidency would smooth that one over in a jiff.
Advanced Micro Devices makes some of the fastest, specialized chips in the world. The Chinese want the company's chips. A Trump administration makes the Chinese more likely to try to throw as many resources as possible stop AMD. But a Biden administration? There will be more important priorities.
Marvell Technologies, the best 5G play the trust owns, lost a lot of business from Huawei when the president shut them down. It ended up shifting to other customers not from China, so that business could be permanently lost. But you never know.
Then there's four companies that need China to be huge for them to make their numbers: Starbucks (SBUX) , Nike (NKE) , Boeing (BA) and Disney (DIS) . The best growth of Starbucks comes from the remarkable number of stores it's putting up in all the cities that it still hasn't scratched the surface of, like the low end of the second tier cities -- those between three million and four million, that could use many, many more stores. Nike's consistent business in China could only be enhanced as it, too, although it's been able to dominate the industry there as much as everywhere else. Sometimes I think the Chinese government would rather build its own planes than buy them from an American company because of Trump. I can envision a huge Boeing buy right at the time of a Biden inauguration as a statement of its intentions.
The Walt Disney (DIS) company plays ball in China, because it wants to expand there. The Chinese don't like being depicted in a negative light in movies. Disney understands that, small price to pay for an American company that wants Chinese customers for its theme parks and movies. But that kind of pandering is frowned upon by the White House. Disney can court the Chinese under Biden, and I don't think it would even hit the radar screen.
The trust owns Mastercard (MA) , and I think Mastercard could own China, as it now has approval to begin preparations to set up a clearing operation. But it doesn't seem to be making as much progress I expected, and I think that's related to the temper of the times, as stoked by Trump. You could raise numbers, Mastercard, with Biden in the White House for certain.
I could go on and on. JPMorgan (JPM) and Goldman Sachs (GS) want more Chinese business. It comes with Biden. Microsoft (MSFT) was about to make a deal for Tiktok that was kiboshed by the administration in favor of Oracle (ORCL) because of a belief that the Chinese e have more influence over Microsoft than Oracle. It would have raised numbers for Microsoft for certain.
You even have oddities. The trust owns Costco (COST) . It has enough money on its balance sheet to pay a huge special dividend. If Biden wins, dividend taxes may go up. So maybe Costco pays it ahead of a Biden inauguration. Honeywell (HON) has substantial operations in China as does Abbott Labs (ABT) . UPS (UPS) says it offers more delivery options in China than any other company.
Now, again I am not saying that Biden would be better for the stock market. Trump wants stocks higher. It's not a real focus with Biden. It's just that Trump has backed industries I don't want to own stocks in, like coal, oil, gas. I think they are uninvestable.
But when it comes to earnings, to prospects, to growth, consider me shocked that two-thirds of the companies the trust owns would definitely have higher revenues under Biden and the rest? It's a tie, with tie going to Biden.
(AAPL, AVGO, AMD, NVDA, SBUX, NKE, BA, DIS, MA, JPM, GS, MSFT, COST, HON, ABT and UPS are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
