We need better reasons than what we have to buy most stocks. We need something more concrete to expect or anticipate than this economy and this world can give us.
This morning I went over 300 stocks - three hundred stocks! - with an eye toward finding a new stock to introduce to members of the Action Alerts PLUS club where I give a talk each month and offer a compelling idea.
You know how many I found? How about four. That's right, four stocks that I think could survive the tests that I am looking for.
What would make a good stock in this environment? Let me give you the items I want to see before I bless buying anything in what has become a plain, out and out, treacherous market.
First, I want a stock that does not need a trade deal to make me money. As these talks drag on the list of those impacted grows and grows. Earlier this week we had David Farr on, the long-service CEO of Emerson (EMR) , and I think the company might be willing to do something big, literally split in half, if management thinks that it can bring out value. Classically that's great and worth buying, if the fundamentals allow you to hold it through the process.
However, I don't think you can do that with Emerson. Farr's been a visionary. He has a gigantic presence in China because he correctly anticipated that's where the growth will be. But he, along with pretty much everyone else, didn't see the dramatic shift in policy when President Trump came into office. What do you do now? Hope things blow over? Hope the Chinese economy isn't hurt too badly? Hope that your factories aren't expropriated and your executives kicked out of China? What a terrible parade of potential horribles awaits the most forward thinking U.S. manufacturer.
To me Emerson has become binary: a deal no deal situation and that makes the stock too difficult to own.
China can be totally toxic. Remember when the 2% of Cisco (CSCO) business that was China played a role in its shortfall last quarter? Here's Cisco going down again today and while it has become incredibly cheap how do I know that numbers aren't done coming down?
Of course the ramifications are so huge we never know when a solid story can spring a leak. Who knew that Nvidia's (NVDA) stock would plummet seven points because our government is cracking down on technologies that could be used for facial recognition against Muslim enemies of the Chinese state? What would have happened if Apple (AAPL) hadn't pulled its app showing where police were located in Hong Kong because it puts its policy in jeopardy violating its safety promise? How about if you are a retailer without the clout of a WATCH, a Walmart (WMT) , Amazon (AMZN) , Target (TGT) , Costco (COST) or Home Depot (HD) ? How about if you are a supplier who can't switch supply chains fast enough ahead of the next round of tariff increases next week? When I was flipping through the S&P a huge number of stocks had one or more of these flash points.
Next, am I about to buy a stock that's going to be disrupted by those who play with free money? Think about Domino's (DPZ) the other day when CEO Ritch Allison talked about how third party delivery companies are willing to lose big money to get business with companies that Domino's competes with. Domino's has the best distribution system in the food delivery business but it can't compete effectively with a pizza chain that has a delivery option that's sold below the cost of delivery because the venture funds backing the company are insensitive to anything but scale. Where does that leave the publicly traded GrubHub (GRUB) ? How about near the 52 week low list?
There are disruptions going on all over the place. Amazon has disrupted freight deliverers like FedEx (FDX) . Online and off price retailers have disrupted traditional brick and mortar companies like Macy's (M) and Kohl's (KSS) . Merck (MRK) has disrupted the oncology protocols with Keytruda. Wind and solar have disrupted coal and natural gas. Pipelines have disrupted crude by rail. Roku (ROKU) has disrupted traditional cable. Facebook (FB) and Alphabet (GOOGL) have crushed newspapers and magazines. Rent the Runway has disrupted clothes buying. Harry's and Dollar Shave have disrupted razors. And most visible of all? Cloud and its derivatives are crushing anything on premise.
It's tough to be worried about something that hasn't happened but there are fewer and fewer stocks of companies that are immune to disruption.
Some markets can't be sold into and therefore some stocks can't be owned. GM's (GM) on strike. I didn't want to own any stock of a company that sells into autos to begin with. Now with a strike that's expected to linger anything from a paint company to a glass company to a seat company to a parts company to a steel company to an aluminum company to a plastics company is likely to miss numbers. You can't miss numbers in this environment.
Then there's Boeing's (BA) woes. There are so many companies that make parts for airplanes that they are too numerous to list. But you will soon hear from them and they will all tell the street to lower numbers. Total no-fly zone.
Fossil fuels? They are toxic wherever they are found, whether they are involved in the drilling, the servicing, the packaging, the piping and, of course, the actual liquids. Of course this extends to plastic, which the millennial fund managers think is the new coal.
Finally, there's the Warren factor. This is the one that fund managers can't stop talking about. She's a one person disruptor in the eyes of Wall Street. Single Payor? The end of managed care and the beginning of the end of big profits for drug stocks. Banks? Break-ups and re-regulations. Fracking? Out of the question, which eliminates any growth that's left from the fossil fuel cohort. Big tech? Massive antitrust investigations.
Fund managers fear for their own livelihood if Warren is elected.
I think all of this is alarmist. I do think that Warren stands for ending the great wealth disparities in this country and that is a very popular view among all but the millionaire and billionaires.
But my view means absolutely nothing when it comes to what Wall Street regards as the second coming of Lenin or at least a mixture of Huey Long and Mary "raise less corn and more hell" Lease.
Now the problem isn't that there are no stocks to find given those off-limits parameters. There are. There's just not enough of them. They are too hard to find. And because there are so many that are in trouble or potential trouble you are not going to be immune from huge waves of S&P futures selling. Sure, you can buy the stocks of companies that can escape the grim reaper after they are knocked down by endless S&P futures tsunamis. But then when the next wave occurs you just go down again with them.
Of course, we could get a trade deal of sorts. I think it is possible that the President forestalls the next round of tariffs if the Chinese give him any concessions, including a buy of something like all the hogs we produce given that the African Swine Flu has decimated the supply which is vital to the Chinese.
But then there will just be another deadline and another set of talks and another rinse and repeat. And throughout the water torture bankers will heap more and more supply on the market with hapless Smile Direct (SDC) like IPOs.
It's an unhealthy moment with the only saving grace being that I don't know a soul who feels it isn't. Sentiment is so negative. But occasionally, rarely, the sentiment is correct. If we don't do some sort of trade deal on the President's terms, then the sentiment will be right.
(Cisco, Nvidia, Apple, Amazon. Home Depot, Kohl's, Facebook and Alphabet are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
