They are slaughtering the good ones and embracing the bad ones. That's what's happening and it's crushing people who are used to seeing companies that are doing well have stocks that travel with them.
Not this time. The companies that are doing well are simply being left behind. In their places are companies that aren't just doing poorly, they aren't doing at all. The most mystifying part of the whole equation? The worse the better!
How can all of this be justified? Simple, because there is a cohort of buyers who are simply uninterested in things like tech, and are far more interested in what I have said are the obvious stocks: airlines cruises, hotels and second rate retailers that presumably can make a comeback if everyone decides all at once to book cruises, take trips and go shopping.
Now one of the most continual themes in this market is that anything that was liked last year is hated this year. Anything. So last year, when the economy started shutting down, governments all over the country designated Costco (COST) , Walmart (WMT) , Target (TGT) , Home Depot (HD) , and Lowe's (LOW) to be essential, shorthand for they could stay open. Pretty much everyone else was forced to stay closed, not just private mom and pops but companies like Michaels Cos. (MIK) , where you get arts and crafts. I used to love to bring my youngest there so we could buy endless amounts of things to decorate for the holidays.
That's why all of the so-called WATCH stores, Walmart, Amazon (AMZN) - don't' forget them - Target, Costco, and Home Depot had amazing stocks.
Now the tables are turned. Do you know about one year ago Michael traded at $1? Today it got a $22 bid from Apollo, a very smart firm. You can't give away the stock of Costco and Michael is going private for $21 more than it was last year?
Kohl's (KSS) . Same. Nobody wanted it. They got rid of the dividend. Took down a big slug of expensive debt and it traded to $10 as most of their stores closed. Now it's at $57 with a dividend reinstated and a hedge fund that wants to shake things up that will put a floor underneath it.
Or, insult to injury, one of the great success stories of 2020 was Nike (NKE) which, despite a world wide epidemic that closed so many stores was still able to make a ton of money selling to the Chinese - they opened first as well as direct to the consumer. The stock was a rocket.
Now Nike acts like sales have just stopped. But you know what is doing well? None other than Foot Locker (FL) , the biggest seller of Nike which just reported a terrible quarter, a huge miss and didn't give you must hope in the future.
Or remember Bed Bath & Beyond (BBBY) ? This bow-wow traded down to $3 and the short-sellers cleaned up on it.
But then the same insurgents that are after Kohls decided to go after Bed Bath & Beyond's board and management and replaced them with Mark Tritton, the fabulous merchant from Target. The short sellers didn't believe. And in what amounted to a mini GameStop (GME) , the stock went to $28.
I told you the other day that I was blown away that after the huge run that Royal Caribbean's (RCL) stock has had based on the idea that the company will sail next year which will be against the most easy comparisons in history because they sure aren't t' sailing now - management was able to offer 16.9 million shares at $91. This stock was at $19 last year. It's been a total juggernaut. You would think that after such a move people would be stuffed to the gills with Royal Caribbean. Think again. Everyone who bought the stock on the deal is up on it - the stock's at $97. Norwegian (NCLH) , my favorite, seems to not have had a bad day in months. Its up another 7% today on the idea that people will soon be sailing. From the looks of things they will soon be headed to their old highs.
You want really crazy? United Airlines (UAL) is offering 37 million shares to help pay for all of the planes it wants to buy? And what happens? The stock rallies? If this were a tech stock offering equity it would be crushed? Just look at Roku (ROKU) , once a darling that's offering $1billion worth of stock and is being clobbered.
And that's why my favorite stock right here, right now is Boeing (BA) , yes, the hapless, hated Boeing. I thought I would never write this but if this company were to offer a billion dollars of shares - and it doesn't need to - the stock would actually go up. If it offered $5 billion it would go up even more.
Oh, and a basket of industrials, classic industrials, I am talking General Electric (GE) , Emerson (EMR) , Eaton (ETN) , Honeywell (HON) , Rockwell Automation (ROK) , Raytheon (RTX) , Nucor (NUE) , and 3M (MMM) can not be denied. It's almost willed that they are to go up.
So how long can this go on?
That's really the issue because it's become totally zero-sum. There simply isn't enough cash around to have both groups go up and there are too many software as a service for puppets or widgets or nitwits for that matter. We have so many companies that make customers happy and help onboard new people and run customer service centers and have zero trust while capable of making payments and analyzing data.
And we have too few companies that make things.
So what happens to change this? That's the real issue, right? When do we go back to buying the winners and stop buying the losers?
Isn't there some level where we want to own the best and toss the worst?
As I have been saying now for ages, we need to be using the 2015-2016 playbook where the economy got too hot and we threw away the same stocks we are throwing away now. The dripping down would be punctuated by heavy selling bouts. The problem then was that we didn't even have the cyclical to root for. The problem now is that you need the Fed to raise rates - as it did back then - and then the economy, including the software as a service to on board new people to 5G chip factories, has to have one of its fellow travelers have a shortfall. It's only then, with a cathartic collapse of far more epic proportions than we are having do we get to switch back to buying winners.
In other words, while we have never seen such a loved group of travel, leisure and industrial stocks, we have seen the hatred of the high price to earnings or price to sales tech stocks. The thicket to a bottom, though requires a rate hike, a slowing economy and some high profile blow-ups and we haven't had any of those yet.
So do you sell the big techs and the little techs and go and buy the industrials, the planes, the trains, the automobiles, as well as an oil stocks or two, namely Chevron (CVX) and Pioneer (PXD) , the only ones I am blessing?
I say if you can be nimble do it. We have been scaling back these names for my charitable trust and replacing them with industrials knowing that they aren't making more of those while they keep pumping out tech every day.
But if you can't be nimble may I suggest scaling back on tech so you can buy them lower as the story I just traced unfolds? It's tough to just stand there and take the punches. It's easier to say if it is any good, and has done well even during a pandemic, it will come back, but only until the sequence I described occurs and we are still not near its conclusion. Too many techs, cyclicals in short supply. Says it all.