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Aug 09, 2024

Howdy! 👋

Bada boom ... right on schedule!

Markets were red this morning as big traders “faded” yesterday's monster rally.

Let ‘em.

People playing for pennies at moments in time usually lose out to those playing for dollars over time.

I think they could be green by the time you read this and possibly even into the closing bell.

Here’s my playbook.

1 – Narrow up or broaden out?

There is considerable debate right now about whether to stay “focused” or to “broaden out.”

The argument is usually framed around the so-called “Mag 7” because those stocks have led the way for much of the past few years. Loads of people knowingly nod their heads in agreement.

Like a lot of common wisdom held as gospel these days, it’s bull feathers.

Profits are always concentrated in those companies that lead the way:

In 1963, for example, just 10 companies accounted for 51% of the top 100 businesses' profits. The winners were 5 oil companies, two auto makers, two conglomerates and IBM according to Morningstar’s John Rekenthaler.

AT&T made up 13% of the entire stock market in 1960 all by itself – and people are worried about Apple at ~6.7% of the S&P’s capitalization??!!

In the 1950s, three stocks accounted for more than 30% of the S&P 500’s capitalization.

My two cents is to stay very focused on the world’s best companies regardless of industry.

If you want tech... buy the best, ignore the rest.

If you want dividends... buy the best, ignore the rest.

If you want small caps, zlots, whatever... buy the best, ignore the rest.

The markets always bet on concentration. And investors who bet on markets that bet on concentration tend to go directly to the winner's circle.

It is undoubtedly the single smartest move you can make right now.

BBQ Brain Follies: Try whipping out a few of the data points I’ve just shared with you the next time you hear somebody sagely blathering on about the need to broaden out. If it’s your advisor who’s doing so –and a lot of ‘em are - I submit it might be time to rethink that relationship. As always, I’d be happy to provide a referral if that’s helpful, btw.

2 – 10-year treasury yield dips

In yesterday's 5 with Fitz, I pointed out that anybody who wants to know what’s really going on should forget about the headlines and focus on the US 10-year yield. It’s down as I type which tells you big traders are in search of safety or simply wanted to take profits. That, too, may reverse shortly but who knows. (Read)

Now, that sounds scary but what 99.9% of all individual investors miss when it happens is that this is the financial version of hanging out a “on-sale” sign.

Remember how the game is played.

Buy low, sell high.

Break out your buy list and do a little shopping.

Sell Cash Secured Puts to take advantage of elevated volatility, enter a few LowBall Orders to pick off anybody who’s fallen asleep at the wheel or is holding scared money – there's always a path to profits!

3 - Time to bet on Boeing?

New CEO Kelly Ortberg has taken over.

There are going to be a lot of people who bet on Boeing now that he’s in charge.

Admittedly, I’m tempted too.

In contrast to his predecessor who seems to have rarely, if ever, left the C-Suite, Ortberg is moving to the PNW where he can have “eyes on” the production line and the factory floor. (Read)

He strikes me as the kind of guy that workers will relate to.

Some LEAPs call options might be worth a flyer – pun absolutely intended.

4 – Discount wars are NOT reason enough to buy fast food stocks

Micky D’s, Burger King, Taco Bell and other fast-food chains are going to war with each other using discounted menus to lure back cash-strapped, inflation-addled consumers.

I wouldn’t bet on any of ‘em.

Save one.

White Castle, but it’s privately held.

VP Jamie Richardson spoke bluntly during a recent interview noting that. "Families everywhere are tired of almost needing a small loan when they go out for fast food, and we know these days our customers want to make every penny count.” (Read)

Let’s see if any of the publicly traded food stocks can find their way forward with a similar on-point message... and, if they do, think about buying their stock when the time comes.

For now, steer clear of the lot but I recommend the White Castle Sliders, a personal fave.

5 – Coke or Pepsi?

I’m often asked by dividend investors, “Coke or Pepsi?”

Unka B. prefers KO but I’m with PEP.

Pepsi has a higher true shareholder yield of 2.77% and has logged 52 consecutive years of dividend increases. The 10-year annualized dividend growth rate is a healthy 8.13%.

Coke, by comparison, sports true shareholder yield of 2.65%. And even though the company has also logged 52 consecutive years of increasing dividends, the 10-year annualized dividend growth rate is only 4.91%.

Three guesses which stock has outperformed over that time period?

Yep.

Pepsi has returned 153.56% while Coke has returned 139.00% as I type.

If you find this kind of insight helpful or valuable, I’d be honoured to toss my hat in the ring. You may enjoy One Bar Ahead® (Learn More)