When we get through this Georgia Senate election and when we triumph over Covid, we are going to be faced with a new world, a positive world -- some even say a roaring twenties world, especially with all of the stimulus that governments have applied to the economy.
On days like this, you can see the eagerness that people have to invest, with the prospect that the vaccination process will soon speed up and we will get back to some semblance of normalcy
The question, as shocking as this may seem to be, is how many companies will really benefit from normalcy vs. the ones that are flying high, but might fizzle out when normalcy descends upon us.
We tend not to think of "the market" as doing better when we get to nirvana, but that is truly the old style of hedge fund/media group think that really nauseates me. It presumes that interests will go up, because of economic activity, so you have to sell stocks that have high valuations, because they tend to sputter when rates go up, and buy value stocks instead.
Why do I say that this kind of thinking is no longer cogent? Because we are no longer under the tyranny of broad market practitioners who say they can't own or talk stocks. We are now in a market where figuring out which stocks will work is far more important.
Last night I traced out some large themes that I believe can be used if the market goes down because of a shock - whether it be the Senate going Democrat, or something else, some other exogenous surprise whacks us. But here I want you to get you to think like a stock picker within those themes, so that you don't think I am painting too broad a brush.
To do that I want to introduce you to the term that you will be hearing a lot going forward: Sustainability.
The rallies last year were pretty spectacular, as individuals and smart-stock picking institutions, of which there were many, centered on stocks that they believed offered sustainability after Covid gets beat.
I think way too many stocks are viewed as sustainable post Covid, so let me show you what I mean so you don't step into the wrong ones.
Let's start with Kimberly Clark (KMB) and Coca-Cola (KO) , two household names that permeate portfolios everywhere. Both companies have terrific exposure to the at home theme that I traced out Monday. We've stockpiled our homes with both in case Covid strikes us. But they have been hammered, because they also have institutional businesses that have been really hurt: soda fountain sales and office paper towels.
Meanwhile, they both have attractive 3% yields and good managements.
What's wrong with these?
While they have been sustainable over the long haul, I do not expect them to be sustainable investments after Covid is conquered, because we don't want the consistency that Coca-Cola's stock can give us, and we don't know if offices are ever coming back to the way that they were. Plus, if we think that interest rates are going to go higher, those yields will not protect us from the downside.
Next is Peloton (PTON) . Oh my, what a fabulous stock this is and it's a terrific business. But should it be a $43 billion dollar business? While I believe that many people have discovered the joys of working out at home thanks to Peloton, even more like to work out together or be in an atmosphere of congregation-spin class, treadmills, places like Planet Fitness (PLNT) , which will be on "Mad Money" tonight. I know that Peloton is tony and Planet Fitness isn't. But I do not think enough people have been won over by Peloton to justify that valuation. Lower, yes. But $147? No. Not sustainable.
But how about Docusign (DOCU) ? Unlike Peloton, which happens to represent a good replica of a real gym, Docusign happens to be better than the former real thing. Expensive meetings, days interrupted going to places you don't want to go, checking off on documents, endless closings that drag on: Done. We may go back to a SoulCycle or Equinox kind of place that can hurt Peloton badly, but we aren't going back to the old-fashioned, silly, non-digitized way we did business, if you can call it that.
I've said that I think digitization is here to stay: Square (SQ) and PayPal (PYPL). But does here to stay turn into sustainability post illness? Square is in the very crowded payments processing business, and it's darned good at it. But there's no real moat to it, and it is a matter of time before the bigger players and banks figure out Square's edge in point of sale and perhaps even give it away for other business. That they haven't done it is pretty insane. I think Square's stock really went crazy, when it said it would traffic in bitcoin and bought $50 million worth of bitcoin in the first week of October at $10,000. It's now a $33,000. Square has become the de facto way to play bitcoin, a sort of chicken bitcoin, if you will. I have championed Square forever and recognize how it has become one of the best ways to help start an online business, and that's growing leaps and bounds. Why can't Wix (WIX) or Adobe (ADBE) or Clover or Shopify (SHOP) , however, come underneath them? I think they can. At $100 billion not sustainable.
But Paypal has used this period to become a sort of worldwide banking and payments transfer company via Venmo. It's done an end around the entire banking system without the risk. It's been remarkable in its simplicity and while it shares Square's kinship with empowerment of all sorts of businesses it also empowers unbanked individuals globally. And it, too, deals with bitcoin. Sustainable.
Finally, let's get really tough: Let's talk vaccines.
Right now supplies are tight and that's good news for everyone in the business or trying to get into the business. We've got Moderna (MRNA) with an approved two-shot vaccine and a $42 billion market cap. We have Pfizer (PFE) with an approved two-shot vaccine and a $200 billion market cap with a lot more drugs than a vaccine. And then we have Johnson & Johnson (JNJ) with an unapproved, but trialed one-shot vaccine with the possibility of producing a billion vials in a short period of time. JNJ has a $415 billion market cap and a tremendous pipeline.
We know that Pfizer isn't even up since it got approval. In fact, it's stock has dropped more than 10%. What the heck happens to little Moderna if JNJ delivers as I think it will?
My verdict: Who cares about Pfizer, it must not be going anywhere. JNJ? Good without the vaccine. Totally sustainable. Moderna?
Now, every one of these stocks - sustainable and unsustainable - as we keep bungling through the vaccination process. As long as it is as protracted and ridiculous as it seems to be, you don't need to fear a steep falloff. But if JNJ comes through, and if Biden actually adopts a real plan to get these needles into those arms, then the wheat, sustainable, and the chaff, unsustainable, will be exposed for that they really are.