The New Market Mantra: Down with FAANGs! Up with Growth!

Down with FAANGs! Up with Growth!

That’s the new market mantra — and it fits hand in glove with what I’ve been forecasting. More importantly, it requires adjustments to your investing strategy if you’re stuck with too few of the “right” stocks and too many of the “wrong” ones.

Let’s start with a basic premise, one I described this way to my High Yield Investing subscribers two weeks ago in the October issue …

“Lower for longer. Slower for longer. A ‘New Normal’ of sluggishness. That’s what investors have come to expect when it comes to economic growth. It’s all you hear about from mainstream economists and pundits on television.

There’s just one problem: It’s a bunch of baloney! We’re actually seeing a synchronized acceleration in growth both here in the U.S. and abroad. That’s a powerful recipe for rising sales, rising earnings, and rising stock prices.”

That’s not just my opinion, either. It’s what the numbers clearly show. A few examples: U.S. unemployment dropped to a 16-year low of 4.2% in September. Core business orders rose 0.9% in August after jumping 1.1% in July. Consumer confidence just surged to its highest since 2004. And overall global GDP is rising at a 4% annual rate, the most since 2011.

Corporate America is telling the same story, with rock-solid earnings news coming from some of the biggest, most-economically sensitive global bellwethers. Take Caterpillar (CAT, Rated “C”), the heavy machinery, construction, and farming equipment maker. Earlier this week, it reported profit of $1.05 billion, or $1.77 per share in the third quarter. That was far ahead of the $1.11 per share analysts expected. CAT also hiked its full-year earnings and revenue forecast.

Meanwhile, 3M Co. (MMM, Rated “B+”) shares just jumped more than $13, the biggest one-day rise since the bull market began in March 2009! The company makes everything from Post-It Notes to industrial equipment to health care products, and it reported Q3 organic revenue (non-currency, non-M&A-influenced) growth of 6.6%. That was the strongest since 2011. MMM also raised its full-year profit forecast.

As a result, investor dollars are flowing OUT of the “FAANG” names that do best in a slow-growth world and IN to industrials, financials, materials, and other sectors that prosper in an acceleration scenario. Check out this FAANGs Vs. Growth Stock Screener I created using the nifty tools available at the Weiss Ratings website:

Data Date: 10/25/2017

You can see the Screener includes all the FAANG stocks – Facebook (FB, Rated “A-”), Amazon.com (AMZN, Rated “C”), Apple (AAPL, Rated “B”), Netflix (NFLX, Rated “C”), and Alphabet/Google (GOOGL, Rated “B”). It also showcases five titans of the industrial and financial sectors, including JPMorgan Chase & Co. (JPM, Rated “A-”), Honeywell International (HON, Rated “A-”), Stanley Black & Decker (SWK, Rated “A-”), and the aforementioned CAT and MMM.

I sorted the table in descending order by 5-day performance through the close on Tuesday, October 24, and the performance spread couldn’t be starker. The smokestack and old-line industrial giants are leading the way, with MMM up 7.5%, CAT up 5.9%, and SWK up 5.7%.

On the flip side, the formerly red-hot FAANG companies like Facebook and Alphabet are lagging badly, down 2.4% each. Even if you look at a longer, 3-month timeframe, the same trend is apparent. Companies like MMM, CAT, and SWK are showing double-digit gains of as much as 21.4%. That’s more than four times as much as even the best-performing of their high-tech, new-media brethren.

So, what’s the profit play here? Well, if you were already a High Yield Investing subscriber, take a bow. You got my recommendation to buy MMM two Fridays ago, and just enjoyed the stock’s biggest rally in more than eight years! It was the “diversified industrial giant with employees, operations, and sales in every corner of the globe” I hinted about in this recent column.

Not yet on board? Don’t worry. You might have left some profit on the table. But I believe there’s more coming down the pike.

After all, I don’t see signs of crazy investor euphoria like you saw at market peaks in early 2000 and 2007. I don’t see signs of increasing credit market problems. And as I’ve repeatedly stressed, interest rates haven’t yet risen far enough, fast enough, and for long enough to crush the U.S. economy or U.S. stocks (That’s what I call my “Three F Rule”).

So, make sure you have exposure to industrials, materials, financials, and other deep cyclical stocks in your portfolio. You can use our Weiss Ratings Screeners to find them — or get picks like MMM right in my newsletter.

To subscribe, all you have to do is click here or call my team at 877-934-7778. It’ll be great to have you aboard!

Until next time,

Mike