Growing up, I loved reading the Guinness World Records (GWR) and for a while, I knew almost every world record in every category. One story that stood out was the rattlesnake with the longest fangs ever.
According to the GWR, the snake died from poisoning after it accidentally bit itself. I suspect it was inevitable that this would be the demise of this snake.
This brings me to those stocks commonly grouped together stocks known as FAANG, Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG). MSFT also gets lumped in this category. Their size and appetite have been boundless, so it was inevitable FAANG would begin biting itself and inflicting some serious wounds in the process. Not only have those upstarts begun to go after the core business of their brethren, but old tech is also catching up as well. Their size and appetite have been boundless, so it was inevitable FANG would begin biting itself and inflicting some serious wounds in the process. Not only have those upstarts begun to go after the core business of their brethren, but old tech is also catching up as well.
Microsoft saw its cloud business grow faster than Amazon in the most recent quarter, and in the process, leaped Bezos & Co into second place on the most valuable companies list. Now content with its current good fortune, Microsoft also made a $7.5 billion acquisition of GitHub, sharpening its fangs and expanding its appetite.
And finally, the International Business Machines Corporation (IBM) is getting into the mix. I have said for years, the company must forget about growing its way into becoming a real player into today’s snake pit. By offering $34.0 billion ($190 a share) to acquire Red Hat (RHT), the company is announcing it wants to be relevant again. This is the biggest deal in IBM’s history with the prior record being the $5.0 billion takeover of Cognos (COGN).
Management plans to use cash and debt to finance this deal. That leaves me wondering if they will remain committed to their buyback plans. It’s an approach that has backfired miserably for IBM, but for the most part, has been a winner for many publicly-traded companies, even after the October scare.
Those buybacks have been put on hold going into earnings season and will come back with a vengeance. At least, companies won’t be buying at record high levels. Some market observers think the fact an absence of share buybacks makes stocks so vulnerable is a red flag. However, I have to say with investors pulling so much money out of the market in up and down moves, buying must come from somewhere.
On that note, there is a political effort to demonize buybacks. Corporations have a right to do what they want with their earnings, but I have cautioned in this political climate, corporate America has to be smart. Worker wage increases are important, big capital investments are important, and even returning more earnings to shareholders via dividends would help to curb the anti-capitalism wave.
The biggest user or abuser of buybacks (depending on your perspective) reports financial results this week. Apple is stepping up to the plate after a rough week, which attributed to the debut of a cheaper version of its iPhone. The company has become the best proxy for luxury retail, and any dent in its average selling price would be more than just bad news for the company.
Facebook reports as well, and there is more pressure on the company to deliver a monster report. In fact, it’s not hyperbole to suggest this could be a short-term make-or-break for the company. Meanwhile, the NASDAQ composite is nearing a major test of support.
After turning out of a reverse head-and-shoulders formation in the summer of 2016, the index went parabolic. Even before then, the index performed well, but the October rout has left it in correct territory.
- One Month: -10.9%
- 2018 YTD: +3.8%
- 5-Year +81.8%
Now, the index must hold around 6,900.
NASDAQ
By many measures, the stock market is oversold and cheaper than it’s been in a long time. The question remains for the stock market: have investors become snake-bitten?
Portfolio Approach
On Friday, we updated the Portfolio Approach (PA), our road map to building a balanced portfolio. Going forward, the PA will come out once a week, on Friday evening. We have also rebalanced our sectors and weightings. We have reduced our weighting in Industrials and have increased our Cash position.
The PA is based on 20 equally weighted positions, which include cash. The following table represent our new Sectors along with their current weighting. If you are not currently on the Hotline service, call your account representative, or email us at Info@wstreet.com to get started today. To take a trial to our Hotline, click here.
Communication Services | Consumer Discretionary | Consumer Staples | Energy | Financials | Health Care |
2 | 2 | 1 | 1 | 1 | 1 |
Industrials | Materials | Real Estate | Technology | Utilities | Cash |
2 | 4 | 0 | 2 | 0 | 4 |
Today's Session
The major indices are in the green this morning. Let's see if this holds.
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