You know when I say I like this stock but it is worth waiting for a marketwide pullback to buy?
I say it because of days like today. This session was among the worst days for some of my absolute favorites, the cloud stocks, and I think we need to focus on the entire group to digest the voracious selloff.
First though, before we go into the individual stocks it's important to put a plug in for diversification. I often say that some stocks travel together so if you own a couple they are both going to be crushed regardless of whether they are doing well.
The performance of the cloud stocks may be one of the greatest examples ever. Consider that ServiceNow's (NOW) stock is down 12 points, Salesforce (CRM) off 5, Splunk (SPLK) down 5, VMware (VMW) clipped for 6, Workday (WDAY) for 12 and Adobe (ADBE) off 6.
Talk about trading it as a group; that's ridiculous.
Second point: there is nothing wrong here with these stocks. I checked everywhere and each stock issued no bad news nor was there any research that hurt them. They are all connected with the cloud and there's nothing weak going on with the cloud. Amazon (AMZN) Web Services, the big daddy in the cloud, is smoking. Microsoft's (MSFT) Azure is showing spectacular growth. Alphabet (GOOGL) is stepping up spending for Google Cloud.
Chip providers for the data center, Intel (INTC) , Advanced Micro (AMD) and Nvidia (NVDA) are putting up terrific numbers. We do enough work to know that the digitization of companies is still relatively early. Witness how a huge outfit like Walgreen's (WBA) , which had horrendous earnings, is just now digitizing, something it mentioned over and over again on its disastrous conference call.
Third point, I am not yet making a clarion call on these because sometimes there is a downgrade lurking, some sweeping call that we don't know about yet. It is possible that we just have a couple of firms liquidating high multiple stocks that don't have any China exposure to speak of, and they are buying industrials that do, a classic rotation. But I do smell a downgrade.
Finally, perhaps my biggest fear is being realized: growth funds are raising cash for the deluge of underwritings knowing that the next few deals will be done by firms that don't want another Lyft (LYFT) on their hands, Lyft being the new term for botched IPO. It makes sense when you look at the performance of today's big IPO, Tradeweb (TW) , a financial services/fintech company that jumped gigantically and orderly from its $27 offering price. Could firms be selling cloud stocks in order to buy the next great growth companies?
So, how about these declines? What do we know? Let's tick them down. First, ServiceNow? I just spoke with the CEO, John Donahoe, the other day on Squawk on the Street and he said business was very strong. I have implicit trust in John and it's a go-to name on this decline.
Salesforce, a stock owned by my charitable trust, which you can follow along by joining the Action Alerts PLUS club, just had an extraordinary quarter, and, again I have total confidence in the company. Splunk's not clear enough to me. I have nothing recent so I can't tell but I know that it's riding two waves: security and data mining. Security is as hot as ever, maybe hotter. Data mining has never been more important.
VMWare? We just had Sanjay Poonen, the COO on, and business is terrific and its relationship both with Dell (DELL) , which owns a majority stake and Amazon, where they are besties, couldn't be stronger. I think you can buy some now and buy some on the analyst downgrade or continued rotation.
Workday had such a strong quarter and you could argue that it has run too much from that or you can say, as I would, people are plain scared to buy a stock that's down that much. My trading instinct's tell me that there will be a second day of trading, something that typically happens when you get this kind of pressure. I would buy some tomorrow after margin calls are made: try 2:30 p.m. Finally there is Adobe. When it reported last month its stock tanked. A few weeks later it was above the level before it reported. I like it below where it fell after it reported.
So, use the swoon to buy, but wait until the coast is clear and nothing happens and it is just a random rotation. Those kinds of declines typically have their worst performance on day two, tomorrow. A late day buy could be the answer barring a big research firm downgrade. If we get that, the decline could be multi-day and you might as well wait until the smoke clears.
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