Time to move into small caps. Time to buy the oils. Let's get cyclical.
Yada, yada, yada. On a day where the market got hammered, it is important to remember what got us to these hallowed levels and to keep them in front of us, no matter what you hear to be the flavor of the day, or week, or even nearly a month, as has been the case with the wondrous month that just ended
I am talking about FAANG, which, once again, has fallen out of fashion and favor with the cognoscenti, those who are always talking about the need to rotate. They want you to embrace the companies that are small in size or to make a big bet something that needs the economy to move faster and faster.
Why am I so adamant about the need to not abandon FAANG? It's because these companies are almost living, breathing organisms. They aren't so much connected to the economic winds that can blow as often in your face as behind your back, as they are to their own qualities, strength of management and scale. They don't care about who is in the White House or how soon we get needles in our arms.
Nothing like having an acronym to control the order of your thinking.
Let's start with Facebook (FB) . For the longest time I think that many investors felt that Facebook was squirrely, that its founder and CEO, Mark Zuckerberg, seemed to be about nothing other than how to make the most money using his products.
But last year Facebook began to roll out a slew of initiatives to help those who have been using Facebook or Instagram to build businesses. The sainted part of this economy is always going to be small- and medium-sized businesses and not just because they are the principal organizations that do the hiring in this country, but also because the pandemic has threatened or wiped out so many of them. Facebook, it turns out, is the biggest bargain when it comes to advertising for these enterprises.
I was on a show recently with one of my favorites, Gary Vaynerchuk, the world's foremost social media expert, and he was waxing profound about what a bargain advertising on Facebook is, particularly Instagram, when it comes to small business. At the same time I have interviewed multiple consumer-packaged goods and apparel companies and they, too, like the ubiquitous Gary V., love the value proposition. What I care about, though, is that by embracing small- and medium- sized business in an actual, not-for-show way, Zuckerberg has managed to change the view of his company from something that's rapacious to something that's almost avuncular. I say, almost, because the taint of what Facebook was remains strong. But if the company keeps it up, the image will change, perhaps for good. The insanity here is that it once wanted its own currency. It could easily move into banking, take the Squares (SQ) on and even "do" bitcoin. Can you imagine?
Apple's (AAPL) up Monday because not one, but two, positive research pieces. Loop, which went from hold to buy, talked up the strength of the next phone iteration. Morgan Stanley, long a supporter, talked about Apple as a great play for 5G. I want to add that the service revenue just keeps growing and growing and growing. And it will continue to do so because Apple is about customer service satisfaction. Talk about something that doesn't go out of style.
I simply don't understand, after all of these years, why people don't split the value of Apple. Right now there is a sense that the company's overvalued at 30-times next year's earnings. First, I think those estimates will turn out to be way too low, especially given the decline in the dollar, something that's not even talked about. Second, why not use a blended value, a hardware multiple, and a consumer-packaged goods model, all of which leads to something that I could argue is in excess of what I believe the ultimate price-to-earnings multiple as the "E" is too low. Third, I simply do not believe that people still ignore the wearables. It has crushed the competition. They are winners. Finally, Monday morning, out of nowhere, our country slapped penalties on a gigantic Chinese oil company and a semiconductor company. I don't care if President-elect Joe Biden is tough as nails toward China, I do not think he will ever be as arbitrary and capricious. That means, to me, the end of the endless worry about the Chinese boycott. Gigantic pe-enhancer.
Amazon (AMZN) was down, and I know that it's old hat, but when the pandemic rages people turn to Amazon to shop for pretty much anything. We know Covid is out of control. We know from every expert that it is just going to get worse and worse. Sad for our country, fantastic for Amazon. I think that Amazon is a good example of a company that can reinvent itself once a month if not more. Amazon just announced it is going big into pharmaceutical and it pretty much destroyed the stocks of the competition. That's whom we are dealing with. Don't mess with the Death Star. Oh, and cyber Monday? Do you think that people will ignore the number you are about to get from these guys?
You want to write Netflix (NFLX) off? Think about this: The company made a series about what maybe the most cerebral, abstruse game in the world, chess. This should have been a gigantic loser, right? No, because it is Netflix you are dealing with. "Queen's Gambit" was watched by 62 million accounts. That's just incredible. Just when you might have said to yourself that the pandemic has frozen new productions or that there's nothing on the schedule that seems remotely interesting, Netflix has its biggest breakout hit in its history. Did you meet a soul who didn't love this one? The story, the acting, the clothes!
Finally there is Google, now Alphabet (GOOGL) . I can't believe how pervasive YouTube has become. It's got great economics, and it can only grow. If Google wants to own the NFL, I mean actually own it, it could. It can certainly get the rights to it. The big reason why you want to own Alphabet, though, is the amount of travel and entertainment advertising that will come back to the site next year after we have wide acceptance of the vaccine. Travel is the biggest category.
I know that oil was up big this month. But so what? Very few oil companies can make estimates at these levels and we have a new president who is no fan of fossil fuels. I love the cyclicals as much as anyone, and you can bet that these companies can have more lift. But there aren't that many out there and they have been bid up already. I like tech, given what Advanced Micro Devices (AMD) said Monday -- booming sales -- and what Dell Technologies (DELL) will say later. But the winner and old champion is FAANG and don't you forget it.