Something is happening. You can feel it. Bad days, as painful as they are happening, seem more muted. Rising days indicate tight supply. Most importantly: As we hit earnings, we’ll have a lot of companies buying back shares, and more than ever, that could become important. Without a lot of “above”, which means not much to sell, bulls can really mess around.
The skepticism is certainly there. My wife Lisa has her own mezcal called Fosforo (which means “fit” for the smoke in her expression) and we had the chance to go to Chicago to do some bottle signing at a few Binny’s, the famous liquor store chain in the area. She told the story of the brand, I talked about stocks with the fans of that wonderful town, and we took lots of pictures.
We had a great crowd, including many grateful Club members, and I always took the time to talk to everyone. Here’s what I found: Most people are worried about the stock market. They were unconvinced by Friday’s rally, when the S&P 500 and Nasdaq rose 2.37% and 2.31%, respectively. They have been hurt by semiconductor stocks which, in turn, have been hurt by President Joe Biden.
I understand that. The intellectual power of semiconductors can make the slowest chip from Advanced Microphone Device (AMD) and Nvidia (NVDA) target banned by the White House. Maybe the Chinese have figured out how to get them into data centers. Or use them militarily. It may be too much for President Biden to allow.
That is why we withdrew from the group, despite the decline, and focused instead on our many defensive names.
Still, no cravings for our most recent purchases.
That’s a mistake. Own a Johnson & Johnson (JNJ) or a Constellation brand (STZ) is not interesting. But they have some of the strongest cash flows and best balance sheets in the business. Johnson & Johnson really had a great quarter, and perhaps more importantly, we now know that the company’s consumer products business is growing faster than any of its other businesses. pharmaceutical company. That’s important because it will become the darling of a new group.
Constellation Brands is front and center at Binny’s, as the maker of the Modelo Negra, Corona and Pacifico beer brands continues to capture market share. CEO Bill Newlands is reinvesting cautiously. No more money spent on cannabis or craft beer, meaning more money is returned to shareholders. I’m pricing Canopy, the company’s big game, at zero at the moment. Constellation has so many strong brands to export that it’s always surprising to me that they haven’t even made it to Victoria, a large luxury retailer in Mexico, and at Bar San Miguel.
The stock that intrigues me the most at the moment is Eli Lilly (ONLY). It feels a lot like Merck (MRK) during its historic run in the late 80s when it discovered the link between cholesterol and heart disease and created a drug called Mevacor to lower cholesterol. It was a remarkable success, and even more remarkable is that no analyst has been able to keep up with the numbers from a drug they thought would never be worth more than $400 million. It and its ilk became the best-selling drug series of all time, the biggest of which was Lipitor.
This time, the drug, called tirzepatide, has been shown to reduce weight by about 22% in adults with obesity. The name we will know is Mounjaro. That’s why Eli Lilly’s stock has been such a rogue horse and why it’s the only stock in the S&P 500 to hit an all-time high on Friday.
As a Club member, I want you to think about this. Back in 1987 when Mevacor was powering Merck higher and higher, the stock was hit by the crash and then continued to grow. I used to pray it would drop so I could buy more. That’s what happens when the drug is quickly approved by the Food and Drug Administration because obesity is a killer of so many. Right now it’s still in beta, but it’s being taken off the label. Once it is fully approved, we will see a big wave in numbers from analysts.
But let’s step back a bit and talk about the market as a whole.
First, we’re at one of the most important seasonal patterns of the year. As my good friend and legendary technician Larry Williams reminded me, we are now past the most painful moment. And even though we may have a recession in November, it’s still a good time to buy.
Larry told me that the Dow Jones Industrial Average was leading. When I look at companies that have reported, I like Home Depot (HD) and UnitedHealth (UNH), Procter & Gamble (PG) and Johnson & Johnson. Finance like Goldman Sachs (GS) and JP Morgan (JPM) can go much higher. Traditional manufacturers such as Merck and Amgen (AMGN) could go higher.
But the actual industry doesn’t seem to be in such great shape. Caterpillar (CAT) can surprise with infrastructure orders. Honeywell’s (HON) stocks are too bearish. McDonald’s (MCD) always tries to drag the quarter. And I don’t see anything wrong with IBM. Coca-Cola (KO) should go. It will be more of a group move.
A lot of what I see is predicated on the idea that we might see a peak in what the Federal Reserve is going to do with us and also stability in hiring. The ring we must go through – including the unemployment report and the Fed meeting (November 1 and 2 respectively) – may not be as important as the midterm elections. Do we really think that a politically neutral person like Federal Reserve Chairman Jerome Powell wants to signal more rate hikes ahead of the election? If he says he is going to do a rate hike to 75 basis points and that’s all, that could trigger a rally.
Now that earnings season is over, I see new management from companies already stuck with unrelentingly high raw material costs, especially transportation and plastics and paper, which in the coming year will go from hard to wind. . We’ll get a big boost from that short-term as well, as analysts haven’t taken into account the tremendous investing power banks have when they take your deposit and invest it. risk.
But the best thing over the next few weeks is realizing that there haven’t been any new releases in a year, and there’s still a lot of money looking for a home. Yes, the 2-Year Treasury, yielding 4.46%, is amazing competition and I accept it. However, with stocks as low as this, you have to invest in at least some high-quality healthcare and financial services while staying away from technology.
Sure, FAANG looks appealing. Netflix (NFLX) had an amazing quarter and could continue higher, possibly much higher. Amazon (AMZN) has a lot going for it when it comes to cost reduction. Meta . Platform (META) is a black horse at this point. Alphabet (GOOGL) needs to show some real growth in the cloud and some good growth in YouTube advertising. And Apple (AAPL)? Let’s just say it’s the hardest of all. However, if it is affected, we will all buy shares.
So I like what I see. It feels different. The bear market is almost a year old.
Enough is enough.
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