Maybe they were just all undervalued? Maybe there's been a shortage of these stocks and it was just a matter of time before we all realized it?
I'm talking about the incredible run the cyclicals have had here, one that now has divorced itself from the possibility that there might not be a new trade accord or that all there will be is a Phase One agreement and no more.
In fact, after last week's bullish action in the group, even after the hard-core ideologists triumphed in their battle with the free-trade leaners in the White House, I am beginning to wonder if we are seeing just how small our industrial base of stocks is -- too small for all the money that wants in right now.
The best example is the stock of Caterpillar (CAT) . I think that almost anyone other than the hardest core CAT enthusiasts -- of which I include myself -- could believe that the stock wouldn't get hammered and stay hammered after that earnings forecast cut and tepid view of the world.
But I know of no one who expected it to put on an amazing rally, one that doesn't even seemed linked to China.
Now, a couple of things are in play here. One is that the company has actually been diligently working to cut down exposure to China as part of its mosaic of business. They aren't simpletons at this great company. When it became clear that China was no longer a trough to feed in they worked hard to diversify away from the PRC. It's not easy: The oil and gas component of its business has become more important for its earnings power than China, yet, as we saw from the disastrous Diamondback Energy (FANG) quarter, we are going to see a lot of cutbacks in drilling next year in the Permian -- and that's not good news for this re-configured company.
You know what is good news, though?
After being episodic and desultory, Caterpillar's buyback is aggressive and it soaks up more stock than anyone I know thought it could. CAT's shares outstanding have sunk from 591 million to 556 million in the last year. Not only that, but it is persistent. There's seems to be buying in good and bad days.
The shrinkage is working. I think the power of a share takeaway is not considered enough in this rally and the Fed's influence is overrated. But the Fed acolytes have the microphone and don't understand the way stocks trade, even as they pontificate on it.
We see many industrials buying stocks constantly. You take out 53 million shares of your entire float off 294 million five years, as Ingersoll-Rand (IR) has, and your stock is going to rally. I think that, more than the Fed, can explain how this stock was propelled from $57 to $137. How about Honeywell (HON) ? You retire 69 million of your 795 million in five years, you are a factor yourself in the stock's run from $95 to $185. I know United Rentals (URI) has not been an easy stock to own, but to buy? The company has taken shares down from 97 million to 76 million in just five years.
Now there are other industries where the shrinkage is eye-opening. Six years ago, Apple (AAPL) had 6 billion shares outstanding. Now it's 4.4 billion. Intel's (INTC) gone from 4.9 to 4.3 billion in that time. Qualcomm's (QCOM) 1.6 billion down to 1.2 billion. Or Texas Instruments (TXN) , which has been very consistently shrinking from 1.06 billion to 935 million.
The big banks have all taken shares out, too during this period: Citi (C) dropping from 3 billion down to 2.3 billion, JP Morgan, (JPM) 3.8 billion to 3.2 billion and Bank of America (BAC) 11.2 billion down to 9.3 billion.
The difference, though, among the financials and the techs versus the so-called value cyclicals is the shortage in companies themselves. We don't have enough cyclicals or enough stock of the cyclicals to go around, something that can't be said for the other sectors where buying has been aggressive. We have way too many banks in this country and the big ones aren't allowed to buy any more. Techs get printed everyday, it seems.
But industrials? Even as we all admit that the economy is slowing, even as the trade talks took a step backward last week, this is the group everyone seems to want -- including, perhaps most of all, the companies themselves.