Clearing the Way for GARP?

  • Posted by
  • on May 7th, 2011

I’ve been chirping about this short momo/buy boring for a few weeks now, but questioning where the next crop of leaders would emerge.  It’s been a lurking thought in my head that plodding laggards would grab the baton and take over for the exhausted cloud/Chinese Internet/trendy consumer name themes that have dominated for 2 years.  But would they really?

After reviewing my scans this week, the answer is a resounding “Yes!”.  This list of emerging relative strength stocks is somewhere between laughable and frightening, but there is a major move in old tech names that is too obvious to be ignored.  Maybe it’s the clean balance sheets, maybe it’s the Windows 7 cycle, maybe it’s that these companies finally transitioned their businesses to compete in mobile.  But how about the following murderers row of stocks exhibiting absolute strength through April and relative strength through this week’s commodity drubbing:

$YHOO, $DELL, $CY, $KLAC, $LSI, $AMD, $VRSN, $LLTC, $MCHP, $JBL

The list goes on to include a bunch of other names that could have been on Soundview’s Buy List or been big holdings for Louis Navellier or Garrett Von Wagoner.  Given my distance from Silicon Valley, both physically and intellectually, I lean not on the fundamental drivers but on the upward pattern pressure on these stocks as reasons to own them.  Combine that with new bull markets in stocks like $JNJ, $PG, $ABT, even $BSX, I think the logical answer is that those smart or lucky enough to kill it in commodities and high growth stocks are looking for new places to earn more than 0.1%.  These companies fit the bill, having gone nowhere for over a decade but keeping balance sheets (mostly) clean and cutting costs quarter after quarter.

This does not look to me like a short-term rotation.  It looks like, after turning every stone since 2009 to find stocks to own, institutions are now turning to “growth at a reasonable price” names that can be justified not solely on explosive growth or deep value but on a combination of potential growth and decent value.  Or they might just be parking money there until the next big thing comes along.  Either way, the move is unfolding and I’m choosing to join.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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