WALL STREET STRATEGIES

Transcription

1 WALL STREET STRATEGIES Wall Street Strategies- providing independent stock market research since 1991 through a balanced approach to investing and trading The Hype and the Reality By Charles Payne The reports of my death have been greatly exaggerated. Mark Twain It s really quite amazing how one day a company is the king of the world and the next it s as cold as ice. The short-term short-sightedness of the stock market has resulted in so many people taking so many losses in great stocks simply because the trading mentality of Wall Street has turned investing into teenage fashion. Hip one week and completely out of style the next. The wild swings make it tough for the average person that is probably also dealing with other aspects of life s ups and downs and watches the news (for a daily dose of the world coming to an end) and goes to bed each night fretting. The next morning the sun comes up but the anxiety lingers. The next day something we thought would be awful actually turns out to be okay or even better. But we are still supposed to believe the hype - both negative and positive. Just think over the last couple of years we ve been told America is all about being healthy and eschewing things like fatty foods and cigarettes. Take a look at the chart below and it underscores these trends Page 1

2 except not in the way one might expect. The lime green line that s up 60% in the last three years is Altria (MO) the maker of cigarettes including Marlboro while the darker line is Wholefoods (WFM) the pioneer in healthy eating with the cult-like following. So what gives? The masses don t change their habits nearly as fast as the hype and often never match the hype. Not only do broad trends take longer to take hold, and many never do, but the same thing happens with the adoption of technology and services. (How many people would be surprised that people are still using Netflix for their old DVD business and it has generated $337 million in revenue this year or those Redbox machines generated $958 million for DVD and games on disc.) In the last couple of years we were supposed to the see the demise of Gamestop (GME) and Best Buy (BBY) - which hasn t happened and in fact their shares have made impressive moves off low points when it appeared death was imminent. Page 2

3 Is the Mouse Dead? That brings us to the first market crisis of Stocks are under big pressure following the collapse of commodities and exacerbated by concerns over China and Federal Reserve policy. Bulletproof stocks have joined the parade lower that has steamrolled everything, even those names with great earnings and guidance. The timeline seems clear: Disney Gives Lower Guidance China Devalues Page 3

4 Fed Minutes Muddy the Waters It s going to take time to understand what Janet might be thinking and China has been trying to engineer a soft landing for a decade and honestly they ve done a pretty good job. Of course you can t build ghost cities forever (just ask Potemkin) but they ve been able to bulk up the domestic economy well enough to be one of the largest buyers of luxury goods in the world. But push came to shove and it is back to exports and perhaps the devaluation was a little late. On Friday August 21, 2015 Chinese manufacturing data came in at a 77 month low reading of Yes, that s a big time contraction. As we wait for these very macro events to play out along with the question of global deflation we can focus on individual stocks that are becoming much oversold. The biggest and most important names are Disney and Apple. Disney posted its last earnings report to typical applause until the conference call. This line was the headline and opened the trapdoor. Disney warned on lower than expected profits from ESPN and other cable channels due to fewer people ordering cable television packages. Cord cutting! The same driver of Netflix to the moon was about to destroy the house the mouse built. Of course we could see there were already issues brewing with the media segment of the business. Take a look at the year to year operating margin trends. Media Operating Margins 3Q 2Q 1Q 4Q Last Four Quarters Previous Four Quarters Disney shares were hammered and all of a sudden cord-cutting was an epidemic. Then, the stock found terra firma and seemed to be settling down until the brokerage firm Bernstein downgraded the name. Down the stock went again and all of a sudden one of the top ten businesses in America was being treated like a ship with a hole in it taking on water fast. There is no doubt Disney has near-term issue and disruptive business models including ala carte pricing for cable users means the company has to become creative. Page 4

5 Imagine that! Disney having to become creative. It will happen and it will happen sooner than the market anticipates. So, when do we buy the stock? I m not sure but the better question now is should long term investors sell and that answer is absolutely not. Technically the next support point is $ This isn t about the Star Wars reboot or new park attractions this is about people not cutting cords as fast as the Street thinks they will and assuming Disney will not come up with ways to participate in any behavior shifts. At the end of the day (great) content is king and the mouse is not dead. Page 5

6 The Broad Market The stock market might be in a down phase but individual American companies that have redefined the way humans live and interact are not dead. There s no doubt stocks get ahead of themselves and good companies can have overbought shares just as bad companies can have oversold shares but that said I would rather have the former than the latter. And, when those great company shares begin to pullback I salivate even more. But, we all like sleeping well at night so we need to make sure we don t sate that salivation and can still sleep at night. Technically here are your worst-case scenarios for the current downturn. Worst Case Support Dow Jones 16,117 NASDAQ 4,592 S&P 500 1,874 I ve talked about the stealth bear market for some time now and that carnage is on full display when we look under the hood. 66% S&P 500 in correction mode (down more than 10%) 28% S&P 500 in bear market (down more than 20%) 40% S&P Tech in bear market For a long time, a handful of big name stocks were holding up the entire market. But now those big names are getting clipped and the results are massive selling into the close and sessions not seen since the good old days of the meltdown. Check out the Friday August 21, 2015 close zero stocks on the New York Stock Exchange made new 52-week highs but 612 made new lows. Page 6

7 Market Breadth NYSE NASD Advancers Decliners New Highs 0 16 New Lows Your buy signal will not be touching or testing a low but establishing an upside breakout out that is cleared on convincing volume. Sifting Ashes Okay it s time to start making lists and checking them twice. The following names are mostly based on the belief there can be higher moves in the underlying principle. There is a place for dividend-payers but I ll leave them off this list for the moment. Important Note The following are thoughts and stocks on my radar. What is not clear is when or even if I ll pull the trigger on them although there are various reasons to want to be long soon and going into the end of the year. There are several elements we always look for in long term investing ideas which are different than trading ideas. Big tech visionary companies with legendary stocks have to be at the top of everyone s list. List AAPL FB AMZN TSLA Page 7

8 There are high Beta names or stocks that trade in wild gyrations that can be bought and sold for big trades but also bought and held for those that can stomach volatility. In that camp, I love cloud, cyber security, drones and Internet of Things. List BRCD PANW CYBR AMBA CSCO Market leaders companies that dominate their industry and continue to take market share. Capturing market share without having to discount is the ultimate goal of any business and these names have been hot for a long time and any dip on their share price is a chance to own. List AAPL V NKE UA TGT SIG Crude oil is oversold and I think talk of $30 west Texas Intermediate is the biggest sign the experts are too pessimistic. That said these names are trickier. I could see shale/frackers surge fast on a bounce in WTI toward $45+ but for those looking for less volatility think big names with big dividends. List COP XOM Page 8

9 Conclusion This isn t about picking bottoms or timing the market per se but seizing opportunity or as Warren Buffett always says buying when there is blood in the streets. I will sharpen the list and make ideas official but I think this is a great start and these stories are important to keep in mind as the calmest market in history has now become the Wild West. Thanks Charles V Payne Page 9