There are many active stocks in this market – just look beyond technology
We are in one of those markets where nothing seems to work. The pain starts this morning with S & P futures and the Nasdaq giving you a double dose of red. But the trusty S&P Short Range Oscillator isn’t sold enough to hold your nose and buy something. So you feel like you live in your hands. The right word in my first sentence, however, is “seems,” because there are actually a lot of things going on – so many that it begs the question of what’s really wrong with this market. Consider the case of Wells Fargo, a stock with a price-to-earnings ratio of 12 that had a quarter that was completely unpopular with the analyst community, despite some price target increases. When I spoke with CEO Charlie Scharf, I was very excited that he would be breached, using his franchise power to expand into mergers and acquisitions, as well as initial public offerings. Why not? In 2008, Wells Fargo bought Wachovia, which had previously been combined with Prudential, AG Edwards, and First Union; the latter had bought Wachovia but kept its name, as it was considered a better brand. These brokerages were all very good and doing great business. But they disappeared with the Great Recession and the consolidation of them all under the roof of Wells Fargo, which would face so many regulatory problems. Even though the bank has a national history, it does very little M & A to speak of, arguably less than outfits like Centerview Partners and Lazard, and you don’t think of Wells as an underwriter, either. That’s not acceptable to Scharf, who knows everyone in the business and recognizes that there is talent that could be employed at rival banks. JPMorgan, for one, has a lot of executive talent transferred because CEO Jamie Dimon — with whom Scharf worked for 24 years — decided to stay in office longer than anyone thought he would (20-plus years). Charlie knows that in the new world of artificial intelligence, you can do a lot more with less. He’s cut about 23% of the workforce, he’s become more efficient, and he’s seen a limited amount of brick-and-mortar as his bank has a local feel. So what he’s been doing is putting together a team of very big bankers who would have run JPMorgan or any other firm if they had the chance, and tell them to do M&A and underwriting, which has better margins and lower risk than lending. It works. You get deals, and you move up the mergers and acquisitions league. I bring all this up because Wells Fargo’s stock went down on analyst commentary and then went up when smart people talking to Charlie directly, not through the NIM-NII filter the analysts involved, realized that he would give Bank of America and Citigroup at least a run for the money. In two years, we will laugh at how wrong the analysts were. In a bad market, this kind of awakening doesn’t happen. And yet, no one is focused on what’s happening at Wells Fargo. JB Hunt is a similar story. We’ve been monitoring the trucking and freight recession, both its depth and length, and marvel at the team’s lack of resilience. But over time, the cycle played out as it usually does, with the weaker players going lower and firming up the price until JB Hunt reported a big surprise this week. Even as the stock was about to explode, he’s still making money. This is a big reason why we emphasized FedEx Freight and added to our position earlier this month. The company, which was spun off from FedEx on June 1, has a whirlwind behind it. Or consider biotechs, a group that almost never fails to disappoint. Not at this time. The best biotech ETF, the SPDR S&P Biotech, has risen more than 27% this year, even as many experts say inflation is accelerating. There is a huge wave of biotech acquisitions going on, and not all of them involve companies being bought by Eli Lilly. This is a bull market group, and while nowhere near as important as the chipmakers, it is important to note that the biotech rally is a sign of a very positive trend in stocks. Or consider something unusual that’s been completely overlooked amid most of the tech frenzy: Stripe’s offer to acquire PayPal . We keep hearing how well Stripe is doing, so I don’t know why there is a need to buy PayPal, which is in some kind of morbid spiral. But consolidation in that fintech space could be a surprise in a market with so many players: Fiserv , Global Payments , Toast , Fair Isaac , Block , Affirm , and the like. We move that M & A activity, and we can incorporate at least the new stock that was coming to the market. Finally, if you have a decent story to tell in retail, like with Target, or with trains, like Union Pacific, or with airlines, like Delta and United, you’ll get a nice percentage profit to help with your overall performance for the year. Which brings me to the real issue of what is happening on this tape right now. The fact that I can pull off half a dozen good things happening right now, compared to what’s happening in tech, tells me that the market is trying hard to apply discipline to tech companies. Think about this: right now, with seven days of profit under our belt, if you report a good number, your stock goes up, and if you report a number that was not initially seen as good, your stock can still go up; think Wells Fargo or even – egads – PepsiCo. But anything you touch in tech can throw you off. Consider hyperscalers. It seemed, for a while, that we would see a trade where the hyperscalers would start to rise because the shares of the components were going up a lot. It seemed too good to be true, and it was. We had a few good days that brought you back to Microsoft, Amazon, and Google. Then they started their journey down again and they can continue down – something I discussed during our July Monthly Meeting on Thursday. I had argued against going with this conference thesis, but when I saw how much money had been made in that beloved SK Hynix trade, I thought I might be wrong, and there was still quick money to be made in IPOs even after the SpaceX and Cerebras deals. But it turned out that SK Hynix was shut down – some would call it fixed – and anything related to data centers would still be hard work. Another pain comes from the large number of benchmarks currently being used for anything involving memory, including Seagate, which had a curious wake-up call on Friday, as well as Western Digital, Sandisk, SK Hynix, Micron, Arm, AMD, and Intel. This trade is not being done at such a furious pace that we have had to back off from trying to be direct buyers of Intel because the sellers are relentless and they are being forced, and I can’t say when they will. Believe me, Intel is a good price here, but if the hedge fund community tries to chase those who borrow money to buy these stocks, they will still fall. We added to our position twice last week. As confident as I am that Intel will work, I don’t like going down that fast on a trade. I would actually like to buy it on my way up. I know I am not alone in this. Rest is a form of discipline. If you look at what happened to SpaceX, for example, you can just be thankful that the underwriters did everything they could to make everyone money. They priced it as requested and put it in good hands, as requested, but then it was hijacked by memesters who actually thought they could cheat one of the Top 10 stocks by buying overnight. Welcome to the real world, folks! SpaceX itself is talking about some discipline. Generally, if you have brand new security, it can’t or shouldn’t be compressed. Often, brokers will tell you that they can’t find a stock to lend you to sell short. But that doesn’t seem to be the case this time. If anything, it appears that the underwriters have a good handle on where all the soon-to-open stocks are and are allowing short sellers to pair their shorts with later-opening stocks. So it’s not technically a short sale, so it’s legal, or at least OK with this government. The decline in SpaceX stock, surprisingly, appears to be systematic, like other Tesla sales before, where true believers were relishing the opportunity to buy more at better prices. It didn’t lead to big sales involving space, energy, or self-driving cars. The big unanswered question is how long there can be such great opportunities outside of technology before it dawns on the tech giants that it’s not making enough money and that it’s not worth the risk. There is no bubble in technology. The possibility of a 2027 exit from those with more memory, such as Amazon or Meta, could explain what we see. But I understand if we continue to see easy money being made in other sectors during this lead time, money will leave the technology sector. If you’re a tech bull right now, you have to worry that each day seems more dangerous. It seems like the technology is tied to the train tracks and somehow gets free just before the train hits, then gets tied up again the next day. Eventually, he realizes that he would rather be on the train than trying to avoid being hit by it. To which I say: all of you on board. (See here for a full list of stocks from Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling stock in his charity portfolio. When Jim talks about a stock on CNBC TV, he waits 72 hours after issuing a trade warning before making a trade. THE PRIVATE INFORMATION OF THE BURNING CLUB IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AND OUR PRIVACY POLICY. NO LEGAL LIABILITY OR OBLIGATION EXISTS, OR IS CREATED, BY YOUR ACCEPTANCE OF ANY INFORMATION PROVIDED BY CONTACTING THE INVESTMENT CLUB. NO PARTICULAR RESULT OR INTEREST IS GUARANTEED.
