I got an email last week basically saying, "Reity, you lost your way", states Steve Reitmeister, editor of Reitmeister Total Return.
Meaning that I am a downright fool for not getting more bearish when obviously the market is telling you that it’s time to run for the hills. And yes, I appreciate that many of those who believe in price action saw the break below the 200-day moving average as a call to watch out below.
But I believe that price action is horribly distorted by algos and HFTs. And thus, there is very little truth in price action. Instead, fundamentals much more accurately point the way forward.
Gladly, I clung to the True North of the fundamentals allowing us to find ourselves now closer to the all-time highs than the recent bottom. And soon the recent lows will become a distant memory...then forgotten altogether.
Yes, fundamentals are the True North of investing. Gladly, they continue to point to the market retaking the previous highs of 4,818 and beyond in the year ahead.
This year, 5,000 is a near certainty in my book. And my yearend target of 5,500 is still very much in play.
Because even with omicron, inflation, and supply chain issues, we find that the economy continues to rebound in healthy fashion. That was on full display this morning with a 57.6 reading for ISM Manufacturing. New Orders points higher at 57.9. And best of all is a new high for the manufacturing employment indicator, now up to 54.5.
More importantly, across all companies we see the vast majority beating with estimates rolling higher for the future. The latter part is the most important, as it says there is no reason to suspect an economic slowdown any time soon.
And if that is true...then there is little reason to continue on with the charade of this recent sell off. So just as the price action guys were jumping ship, this created capitulation that showered rewards on the fundamental investors who understood what was really going on.
Reity, are you saying the selloff is over?
In short, yes.
The longer answer is that just like much of 2021, volatility is a big part of the stock market equation. So, we can take a step back at any time for any reason.
That is why you need to keep your eyes fixed on the long-term horizon painted by the positive fundamentals. And that points to higher earnings...and higher share prices.
When those gains are made is unknown and unknowable. But the firmer your grasp on the bullish merits of this market the less likely you will be fooled into selling just as the market is ready to rip higher once again.
There are still some unattractive red arrows in the portfolio. But those are also the stocks that are in general rebounding the most.
So your best bet is to stay focused on the real scorecard which is the movement of the overall portfolio. In that case we weathered the recent storm quite well, with our portfolio down less than 1% year to date while the S&P is at -4.61%.
Soon that modest red will flip to green leading to an increase in prosperity and overall joy.
Now onto insights on various portfolio positions.
Happy Monday: Stocks made a clear breakout back above the 200-day moving average. And as expected, the stocks that were the most beat down of late did bounce the most, showing the virtue of our patient strategy to wait for this bearish nonsense to go away and the bull to re-emerge. All 14 of our positions were in positive territory on the day, but these were the top performers:
+6.03% Olin Corporation (OLN)
+5.35 Virtus Investment Partners Inc. (VRTS)
+5.01% Kulicke and Soffa Industries Inc. (KLIC)
+4.68% Alarm.com Holdings Inc. (ALRM)
+4.21% MKS Instruments Inc. (MKSI)
+3.08% Insperity Inc. (NSP)
ManpowerGroup (MAN): We enjoyed an impressive beat and raise this morning with shares rallying +4%. There is no surprise given the obviously positive trends in the employment space. This is one of the reasons I selected MAN as one of my top picks for our special report, Top 10 Stocks for 2022 (KLIC was my other choice). I look forward to continued outperformance going forward.
MKS Instruments (MKSI): Shares acted funny when it was a clear beat on top and bottom line for Q4. But guidance was done in a way that management should rethink because it is not as obviously positive as stated. Meaning they give a range that at first blush seems low because of the ways computers read them and make automated decisions leading to a sell off. The reality is that customers usually expect to meet or exceed the top end of their range, while the computers calculate the mid-point.
To put it another way, this is a short-term problem that gets rectified as analysts dig in deeper and give updated estimates and price targets where they still see 32% upside in shares to fair value.
Olin (OLN): Very confusing earnings report with lots of false reporting of a big miss which was not true. The key with all earnings reports is what the future holds. And a very interesting piece of information emerged on the post earnings conference call. Management talked about this crazy notion of a $10 cliff on EPS. Meaning that level would be peak earnings and they would falter, which is limiting the upside for shares.
I believe that management gave a convincing story that this is not true which was a big part behind Monday’s +6.03% outperformance. And another +1% today. JP Morgan analyst certainly believes in this leading to a $85 target for shares, which gives us ample reason to hold through the recent insanity for what lies ahead.
Alarm.com (ALRM): Just like OLN we have a stock unduly brutalized by the recent market selloff. Gladly there are signs of life with shares bouncing +8.7% from the Friday low of $67.66. If it remains timely and continues to come back with gusto it will stay in RTR...but if that changes, then it may too be flipped over to POWR Value to convalesce).
APA Corp (APA): Continues to rebound with gusto and making new highs once again. +78.46% and counting!
Earnings Season Keeps Rolling Forward: MKSI has been the most disappointing. Whereas MAN and OLN are in the plus column since the report. But all in all, I would say we had three positive reports. Let’s hope that trend continues with the upcoming slate of announcements starting with KLIC tomorrow.
2/2a KLIC, 2/3b SNDR, 2/4 VRTS. 2/10 NSP, 2/17 VNT, 2/24 ALRM, APA (a = after market close / b = before market open)
I know it’s not easy seeing the red appearing on your screen the past month. However, I appreciate the faith you put in me to help navigate our way to more profitable shores.
Learn more about Steve Reitmeister at StockNews.com.