Nothing like a stock market sea change orchestrated by the Federal Reserve, at least if you are bullish. That's what's happened today after yesterday's remarkable about face where Fed Chief Jay Powell said we won't need another rate hike in 2019. I think he came oh so close to saying that he wish he hadn't raised rates in December, something that accelerated a slowdown that was months in the making.
But that would have been too difficult for even the most confident of rate chiefs and Jay just took the job.
Now I have heard a lot of people today say they are scared that things must be much worse than they seem or Powell wouldn't have made such a sweeping statement about the slowdown that's engulfing us.
I think that's nonsense. I do wish that he would have said that he's data dependent and right now the data says we shouldn't tighten.
But then again, he did something very crafty yesterday, which was basically to tell you that you can ignore all the myriad governors and presidents who talk that it's time to tighten, because he's deemed that ain't going to happen.
What you need right now is a playbook for this sea change because it is dramatic and requires, if you are a trader, to change direction and own a whole different group of stocks because the low-to-no growth force is now with you.
I have that playbook.
First, let's get one thing straight. We have a market with more stocks that do well in low growth than high growth. In other words, Powell has stated that we won't have much of an economic tailwind. So you don't say, shoot, there goes the market. You say, gotcha, who can make a lot of money without the economy blowing wind into the sails.
Second, you have to remember that in a low interest rate environment like the one we have now, and may have for some time as the 10 year has gotten down to 2.5% from 4% not that long ago, you can pivot back to the 3% yielders that people fled from not that long ago.
Third, the best stocks to buy in this environment are the ones that have the greatest growth because there is almost no inflation so companies that have the ability to have tremendous profits in the out years - think the cloud kings or companies like the very-soon-to-come-public Lyft or Uber or Airbnb - are especially good.
Finally, when rates are done going higher, particularly the short rates, the currency the rates are denominated in becomes less appealing. That means you can buy the stocks of companies that sell a great deal of product overseas that then translates into weaker green backs and better earnings. So just because a company may be in the cross hairs of the trade war, one where you know the president has been taking a harder line of late, doesn't mean you have to walk away from it.
So what stocks fit the profiles?
Exhibit A is Amazon (AMZN) . The company is almost completely insensitive to growth, worldwide or otherwise. It has the "out years" component that makes you willing to worry less that its earnings in the 2024-2035 period, say, will be eroded by inflation. It's got management that knows how to deal with the lower prices that may be needed to attract a consumer that conceivably may not be doing as well as last year. Plus it has Amazon Web Services, the 47% cloud grower that will offer strong comparisons year over year, so necessary in this environment
Second? People jumped the gun here, but it would be Apple (AAPL) . Apple's proven to be less economically sensitive than people think because of the subsidies the phone companies offer. It's probably the most sensitive stock to a weaker dollar than any in the S&P 500.
It has a budding subscription business that is sticky and is easily augmented by new products and acquisitions. I don't like how much the stock ran today as so many analysts tried to get ahead of next week's product meeting. It's precisely why I always say "own Apple, don't trade it." I was driven crazy today by analysts who are upping their price targets right now as it goes higher. Some of them are the same people who cut their targets when it goes lower. Talk about value subtracted. It was hard to stick with, I know that. When I went on Twitter as Apple dropped to $140 and I said own it, don't trade it because you may not know when to get back into it, I had the usual catcalls for riding it down. That's why I only like to listen to myself. I would have whamma jamma'd you nine ways to Sunday if I had listened to the tweetnut gallery.
Next up: Take your pick of the cloud kings as they are all expensive as all get out but they are also the highest growth and aren't particularly economically sensitive. Salesforce.com (CRM) reported a good quarter. So did ServiceNow (NOW) . Both work well here. I know it isn't a king but pay attention to Twilio (TWLO) . That's a perfect example of a company riding a great secular growth trend and, remember, it powers Lyft, which comes public tomorrow.
You need a semi. The fastest growing semi is Nvidia (NVDA) , especially since it just bought Mellanox. Machine learning, artificial intelligence, gaming, it's all there. You can go with Advanced Micro (AMD) which just won a big piece of business from Alphabet (GOOGL) for gaming. Micron's (MU) management announced a production cut last night and that should solve the glut for DRAMS and Flash. I think it's ahead of itself but it can still work as does Lam Research (LRCX) which makes the very capital equipment that Micron's cutting back on. I know it seems counterintuitive but history says that's precisely when you buy the stocks of the companies that make equipment. They have long cycles and their customers are going to put in orders six months from now, which could make 2020 a good year.
If you want a safe growth stock with a dividend and some exposure to a weaker dollar you are describing PepsiCo (PEP) where I can see that the growth will be terrific and a new product pipeline that is going to be additive out one year. I like the stock and I think that its 3% yield is simply marvelous.
I know a ton of people are worried about talc and Johnson & Johnson (JNJ) , worried about the legal exposure to an alleged carcinogen but I think the product pipeline is magnificent and it is a gigantic weak dollar play. I also like General Mills (GIS) which reported a better than expected quarter and sells with an almost 4% yield. That one, though, can only be bought on a pullback.
Now what can't be bought? The banks are still problematic. The economy isn't strong enough to entertain big construction. The net interest margin isn't going anywhere. Bad loans should start showing up. It's just a bad situation until they become higher yielding. The big cyclicals have historically been wrong unless overseas can carry them. That sure isn't the case right now. And the oils are simply lame with few redeeming qualities in a low inflation environment.
Now I am not saying do some switching right here, right now. I am saying that if you want to be in the right frame of mind for this new market you just got your playbook, the one I have used as a professional that has worked literally every single time since 1981.
(Amazon, Apple, Salesforce, Nvidia, Alphabet, Lam Research and Johnson & Johnson are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AMZN, AAPL, CRM, NVDA, GOOGL, LRCX, or JNJ.? Learn more now.)
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