I hate it when the wrong FANG goes up. Did you know there are two FANGS? There's the right one, which is my acronym for Facebook (FB) , Amazon (AMZN) , Netflix (NFLX) and Google (GOOGL) (Alphabet), and then there's the wrong one, which is (FANG) , the cutie symbol for Diamondback Energy - Fang, get it - and today is the wrong FANG's day to shine, or, more accurately, to bite.
Now I am using FANG, the Diamondback kind metaphorically, as it rallied because the price of oil soared back to life after two down days. Diamondback is probably the fastest growing oil company in the incredibly lucrative Permian basin. When crude goes dramatically higher, as it did today, you can see why traders reach for Diamondback: the assets are fabulous, the balance sheet's darned good, it pays a nice - and growing - dividend, and it's a very low cost operator.
It's just that when the oil FANG goes up, the tech FANG can't rally and we have to ask ourselves, is that just nuts? How can some stock of some company that produces a commodity that is going to be on the ropes by the end of the decade because of electronic vehicles, a company that's stewards a wasting asset, be worth so much more today than yesterday. How can companies with incredible intellectual capital that are growing like weeds, not because they are attached to a commodity but because of sheer brain power be marked down because oil goes higher?
The answer is simple: this market is about the great reopening trade and investors have made up their minds what's a reopening trade and what isn't and there's nothing anyone can do to change their minds.
So you have to use whatever weakness there is to buy the great reopening trade because, like the great lockdown trade, it's not going to end any time soon unless companies change their stripes and that's an awfully hard thing to do.
We saw this just the other day with one of the Great Reopeners, the stock of Union Pacific (UNP) . Here's a company that's levered to everything that matters at the end of the worst pandemic in 100 years. We know that President Biden wants to build out infrastructure. Union Pacific is a huge hauler of cements and aggregates, the stone that's needed to build roads. The president advocates clean energy: Union Pacific moves wind turbines. We know we have a housing boom: Union Pacific transports household appliances, lumber, and roofing products. Non-residential construction's also made a turn here: Union Pacific lugs all sorts of steel. Oil's making a comeback and Union Pacific traffics in the sand you need for fracking and the pipe you need for shipping. You keep hearing about this incredible back up at the ports in California. Take a guess who transports those 20,000 twenty-foot shipping containers once they get on shore as part of its intermodal operations? Union Pacific is a veritable one stop shop for the Great Reopening.
Now this company, with an amazing management, run by Lance Fritz, with an incredibly conscious environmental stance - a train gets 470 miles to the gallon - okay less than a Tesla (TSLA) but you're really going up against stinky diesel trucks - rarely sees its stock go down. That's why I said you had to pounce on it when Canadian Pacific (CP) bought its Mexican rival Kansas City Southern (KSU) on Sunday. UNP's stock fell from $215 to $205.
Now here's where it helps to know the score. By being aware of what this market wants, you could buy Union Pacific's stock without trepidation and know that if it falls more it will only get even more attractive to these Great Reopening believers. Sure enough, Union Pacific's stock is all the way back to $213 and I think it can go much higher.
Now let's contrast that with the stock of Adobe (ADBE) . Even though Shantanu Narayen went to great lengths on his conference call to show you that business is amazingly strong, including guiding for a higher year forecast even with just one quarter under his belt. It was astounding. All three clouds, the creative cloud, the experience cloud, and the document cloud were amazingly strong, much better than expectations. Yet it didn't matter. Adobe's regarded as a company that benefits from the work at home trend that is definitively not a part of the Great Reopening. There are so many examples in the conference, all that refute this pigeon-hole but investors would have none of it. So it's stock got cast off and I don't know if it can be bought yet because it might take a collapse in oil, and a new strain of COVID-19 to burst on the scene to make it work higher. It doesn't matter that I think that's all ridiculous and I believe it's a buy. It's the market stupid, not me.
The market abounds with wounded lockdown stories. For example, you have the insult to injury story of General Mills (GIS) . The company reported a fantastic quarter this morning, but the giant cereal maker had talked about how growth just couldn't be as robust with the great reopening. This on top of "The Curious Case of the Cinnamon Toast Crunch Box," a story making the rounds that some errant shrimp tails were found in the box of the aforementioned cereal. General Mills can't catch a break.
But how about one that does fit the pattern, an industrial that's down because it offered stock on a bad day and got slaughtered: MP Materials (MP) . That's the rare earth materials company that just made money and is the source needed for metals that electric vehicles need. I think the company's stock has paid the price and while it most likely won't soar back I do think that it's got the wind at its back when it does. Sure I wish they hadn't done the deal and there was some insider selling, but if you don't own MP, you are getting a chance to do so at a heavily reduced price.
Ideally you might want to hedge your reopening trade bets. The G in FANG, Google, which is actually now Alphabet, is a perfect bet hedger. It's an advertising driven model with the principal advertisers from the travel and leisure industry. What was the point of advertising if you couldn't go anywhere. Now it's what's the point of NOT advertising when everyone wants to go everywhere. Google's the preferred place to advertise. I bet the advertising numbers are way too low.
Long-term I am unwavering in my support of Facebook, Amazon, Netflix and Alphabet. Facebook's hated but it's gotten incredibly cheap for a growth stock. Amazon's prime membership will most likely surprise to the upside and it just landed Adam Selipsky, the former CEO of Tableau Data that was bought by Salesforce (CRM) two years ago, to run Amazon Web Services. I was concerned when Andy Jassy, who did an amazing job at the helm of AWS, took over Jeff Bezos' CEO job. Who would run this most important division? Selipsky, who toiled for years at Amazon, before turning Tableau into a digital powerhouse, now gets the nod. Fantastic choice. Netflix? I keep hearing the international business is better than expected. Apple (AAPL) ? Multiple notes about how strong the service revenue is.
Here's the deal though: you can jabber on all you want about what's good when it comes to the lockdown winners. They might all be filled with toasted shrimp tails.
But reopening trades? You can buy them all you want, and unlike the work from home stocks, this market thinks they get cheaper as they go lower.