December disconnect: 2020 outperformers reverse course
| Security | Month-to-date performance | Year-to-date performance |
|---|---|---|
| Salesforce.com | -9.5% | +37% |
| FedEx | -9% | +73% |
| Regeneron | -6% | +29% |
| D.R. Horton | -6% | +33% |
| Costco | -5% | +27% |
Two market analysts told CNBC’s “Trading Nation” on Tuesday that these were simply “overdue” pullbacks for a group of largely investable names.
“Although they’re taking a little bit of a bath here through December, I think there’s a reason to find all of them attractive,” said Bill Baruch, founder and president of Blue Line Capital. “Whether we stay in a lockdown mode or shift into a vaccine-and-reopening mode, I think these are here for the long run.”
Here’s how he and Mark Tepper, president and CEO of Strategic Wealth Partners, would play the group.
Salesforce.com
A favorite for both traders, Salesforce is a stock “you could hold forever,” said Tepper, who added to his position in the name in early December.
“It’s all recurring revenue, very sticky customers with high switching costs, and if you think about it, data is a company’s most valuable asset only if you’re actually using it properly,” he said. “A lot of people thought maybe they were overpaying for Slack. But they have proven that they do very well on acquisitions. They integrated Tableau and MuleSoft very, very nicely, added a lot of synergy, and when I look at the Slack integration, I feel like that’s just going to completely improve their competitive advantage.”
Baruch, who also recently upped his stake in Salesforce, said the company’s weaker-than-expected forecast for this year created the potential for “some exacerbated downside coming into the first part of 2021.”
“Ultimately, this is welcomed,” Baruch said. “This is a good stock to hold for the long run.”
Pointing to a chart of the stock, Baruch said his buy zone was $220 a share, a 38.2% Fibonacci retracement of the stock’s rise from its March lows to its September peak. Some chart analysts use Fibonacci levels to spot patterns in the market and denote key resistance and support levels.
Salesforce shares Tuesday closed down nearly 1% at $222.46.
“It’s also the gap from the post-earnings close with a big spike up at the end of August. There is a tremendous amount of support technically at 220 in Salesforce,” he said. “It’s a great place to be a buyer. I love it down there.”
FedEx
Baruch, who owns shares of both FedEx and rival UPS, said he also added to his position in FedEx during this month’s weakness.
“Technically, it’s been holding very good at 260,” he said. “But the real buy zone I’m looking down is, again, that 38.2 retracement. That comes in around 220, 200 bucks.”
FedEx finished trading Tuesday down half of 1% at $261.56.
“The e-commerce and holiday season, a lot of this really kind of gets those gears going for FedEx, UPS,” Baruch said. “Fundamentally, they’re on the more expensive end of where they have been historically, but not by any exorbitant measure.”
D.R. Horton
Tepper’s favorite homebuilder “by far,” D.R. Horton will likely continue to benefit from a hot housing market in the new year, the trader said.
“D.R. Horton specializes in affordable homes, so, those entry-level and move-up level homes, [and] has a very asset-light model, which means better risk-reward metrics for all of us investors,” Tepper said. “For those reasons, it deserves a premium valuation over its peers.”
He added that a number of positive catalysts should stay in place: people relocating to suburbs from cities, millennials’ increased spending power, low interest rates and improving pricing power.
Regeneron
Regeneron’s reversal could be a sign of what’s to come for health-care stocks in the new year, Tepper warned.
“Regeneron really benefited from Covid. They had that antibody cocktail. What I think is going to happen come the second half of next year as the vaccines are distributed is I think you’re going to see a reversal in health-care names next year,” he said.
Once the vaccines are more widely distributed, other focuses of the health-care space such as cancer, diabetes and the aging population will once again be “front and center,” Tepper said.
“I would be gearing up and looking for ways to play that now, whether it’s Exact Sciences in cancer or Tandem Diabetes in diabetes or Stryker, which makes orthopedics for the aging population,” he said. “I think those are some opportunities that you could see in the second half of next year.”
Costco
FedEx and Costco may be the only stocks on the list to directly benefit from a second round of stimulus checks, Tepper said.
Like the first set of payments, consumers are more likely to spend the extra cash on smaller-scale purchases such as home improvement, particularly as Covid-related lockdowns continue, he said.
“When we look at the last round of stimulus checks, people did not pay their rent with that money. They went to Costco and they bought a new flat-screen TV,” he said. “I think you’ll continue to see more of that.”
Disclosure: Tepper owns shares of Salesforce and D.R. Horton. Baruch owns shares of Salesforce, FedEx and UPS.
