It seems that many are getting scared with the recent price action in the stock market heading into the close on the past two sessions. There is a need on Wall Street to be heard and to be right, but far more emphasis has been placed on calling tops and corrections than picking buying opportunities in recent years which has caused a bit of a phenomenon among the talking heads. Skepticism is great, because it is that worry which helps build bull markets but everyone looking for a 10% pullback which has thus far not taken place has become a recurring event.
In fact, this waiting game has actually caused a lot of smart money to be caught on the sidelines during many rallies over the past year. This is why momentum stocks have fared so well at times - the need for hedge funds and the like to chase returns - and probably shall continue to do well heading into 2014.
Chart of the Day:
The 10-year U.S. Treasury traded above 2.80 yesterday before retreating this morning. The taper fears are real, but with each good piece of economic comes a bad piece and we remain in the camp that thinks the Fed keeps their purchases at the same level through early 2014.
(Click to enlarge)
Source: Yahoo Finance
We have economic news today and it is as follows:
- Auto Sales (2:00 p.m. EST): Est: N/A
- Truck Sales (2:00 p.m. EST): Est: N/A
Asian markets finished mixed today:
- All Ordinaries -- down 0.44%
- Shanghai Composite -- up 0.69%
- Nikkei 225 -- up 0.60%
- NZSE 50 -- UNCH
- Seoul Composite -- down 1.05%
In Europe, markets are trading lower this morning:
- CAC 40 -- down 1.92%
- DAX -- down 1.47%
- FTSE 100 -- down 0.85%
- OSE -- down 0.99%
Commentary:
It has been our belief that the economy would turn for some time now and many of the steps we said would need to be taken for the ship to turn have in fact occurred. As one of the original bulls for the current bull market we think that gives us a little bit of credibility when we say that as we enter the fifth year of this move that we are not done. We may be in for some volatility as the Fed moves to taper and many market participants are getting anxious, but our thinking is that 2014 shall be a solid year.
There is thinking that the NASDAQ is overextended at these levels and that the index will run into trouble next year with some of its big cap tech names lagging the general market. That may hold true to a certain extent, but we continue to believe that there is still tremendous value out there if one knows where to look.
Yesterday we looked at Apple (AAPL) again and discussed why we thought that name still had higher to move, and today the stock is higher on the news that it appears the company is going to get its products carried by China Mobile.
The value in Apple is hidden by the very large stockpile of cash that the company has amassed in recent years that inflates certain valuation metrics/methodologies. Take the cash out and look at the company's operating assets and the amount of cash it generates and it becomes abundantly clear that the bears got way ahead of themselves here. Apple will continue to grow into their valuation and their product pipeline could always reinvent a category again and reignite growth.
That is a larger story, something that not all stocks will have going for them over the next year. We suspect that news such as what Tesla (TSLA) got this morning (that German regulators were closing their inquiry into the crashes which have seen fires start from the batteries with no recalls required) will be the real driver over on the NASDAQ. Little events, when repeated, are generally what leads a stock higher over time. With the pullback at Tesla over safety concerns and production questions having brought the stock back to more reasonable levels, we think that speculators will return. The company has a cult following and is expanding into new markets, creating even greater demand with production still not able to keep up. Yes the company could see the demand for their vehicle drop, but they have a pipeline which should work to bring in a younger crowd and create somewhat of an ecosystem for buyers who buy progressively nicer Teslas as their income grows over the years.
Tesla shares have been hit by production and safety concerns, both issues which we believe will pass over. The company could see a 20-25% gain through the end of the year if we get the 'Santa Claus Rally' that traditionally takes place in December.
(Click to enlarge)
Source: Yahoo Finance
Another topic to pay attention to as 2014 approaches, and is probably one of the top two most important story lines for the NASDAQ moving forward (not just over the next year but over the next decade), is the continued R&D investment that the biotech names are engaging in. Readers know that Celgene (CELG) was one of our big winners this year before totally exiting the trade to book the profits. Although we sold it does not mean we do not like the company, just that we saw some better places to put our capital to work short-term. The company remains a top biotech name and cheap by many measurements, especially when one looks at the Celgene's growth. The announcement today (see press release here) that Celgene would work with a small biotech company to develop six cancer drugs is the real value creator here. The large biotech names have been using this blue print to capitalize on others' workforces and jointly working together to develop these blockbuster drugs. More often than not the partners buy up the smaller names in whole or their rights to the jointly develop the drug when it becomes apparent that the venture might be onto something.
The more we look forward to what 2014 could hold we think that the NASDAQ offers some compelling buys, both on an individual basis and by industry. We will continue to update readers as we develop our 2014 playbook, and will publish that outlook once it has been completed.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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