We are still dealing with the reverberations from the Great March Crash, the one that brought us down from 28,000 to 18,000 on the Dow. Too many stocks went too low and these stocks want to rally. At the same time there are companies that have little exposure to the economy that are just so strong it's almost unreal: Amgen (AMGN) up to $235 when it battled with $180-190 forever, Kraft Heinz (KHC) and J.M. Smucker (SJM) making an incredible comeback. Alibaba (BABA) , Amazon (AMZN) and Shopify (SHOP) trading as if they are all being taken over.
This dispersion is a nightmare for people trying to be thoughtful. It's like every day someone wakes up and says, "You know what, I have a good idea, let's buy some Amazon stock..."
In reality though we are seeing something I haven't seen since the 1990s when growth stock mutual funds were outperforming index funds in a major way and so the next thing that happens is they get new money and they keep buying their favorites.
I used to call it "transom money," meaning they would come in on Monday morning and a flood of money would come in on the transom.
The mutual funds that get transom money, as a rule, don't have price targets. They just buy what they have determined to be good stocks. And then they buy some more.
What are they buying endlessly?
Let's take a look:
First favorite: Amazon. Every day we are in lockdown is another day where people realize they need something and they just go on to Amazon and hit buy. In many cases they hit buy and they take a subscription. I took a subscription for Sensodyne the other day. I said to myself why should I always stop at Walgreen's when it can just come to my house when I need it. Sure it has to marinate for 24 hours before I will bring it in. But then it's mine and I haven't had to go anywhere.
Next? Zoom (ZM) : What can I say. It's just too darned easy. I just got the longer zoom subscription and we schedule things constantly and we are truly starting to get a kick out of it. No, it is obviously not as much fun as getting together, but if you have a daughter in Spain and a daughter in Greenwich Village it is really something to have a talk where you look at each other rather than texting.
Third is Roku (ROKU) : The mutual funds buy Roku every day because they think it is the Amazon of television. There is always something on with ROKU and it has taken the place of sports programming. I can't believe how much sports programming I miss. But Roku makes up for it.
Alibaba makes so much sense. The Chinese are back spending, the government has juiced the economy and it's the Amazon of China so why not buy it. These transom mutual funds don't feel there is any level this stock shouldn't trade to. Remember these buyers do not give one whit about valuation. They make one decision: Alibaba is a great company and they just ride the wave. New money in goes to their favorites and Alibaba is a favorite. It's been so long that we have seen this phenomenon that it seems highly unusual that American money can levitate a Chinese stock but that's what is happening.
They love Amgen, too. I think that's because a lot of managers think they stole the psoriasis drug Otezla from Bristol-Myers (BMY) when BMY bought Celgene. They just buy and buy and buy and buy.
Of course they pick which food stock they want to buy. Kraft-Heinz. Smucker. Campbells (CPB) . It really doesn't matter. Pick one. That's about what they do.
It just doesn't seem to matter.
Transom money. They buy and buy and buy. The same stocks. Over and over. No end to it.