Thanksgiving day is rapidly approaching, and in anticipation of a more festive meal, it seems the sentiment in the investment universe has improved quite a bit over the last month. You see, major stock market indexes are now sitting on on four straight weeks worth of gains. Nearly every sector has participated, absent those locked in the familiar dog pound, namely oil, small caps, and anything resembling coal or Russia. The biggest beneficiaries of the reduction in energy prices are thought to be those centered around discretionary spending, specifically restaurants and retail.
There was plenty of action on the earnings front as Toll Brothers (NYSE:TOL) reported a nice number on Monday. With unit sales up 16% year over year due to strength in the western portion of the country, many in the housing complex benefited as Wall Street bid up the entire group. In the retail sector, Wal-Mart (NYSE:WMT) reported a better than expected number and then guided down for the rest of the year. Still, the stock made a nice move so shareholders will gladly take it. With Costco Wholesale Corporation (NASDAQ:COST) at an all time high, Target licking its wounds from their poor execution in Canada, long suffering Sears (NASDAQ:SHLD)continuing to lag the field in every meaningful way, and Amazon.com Inc (NASDAQ:AMZN) poised to grow the top line another 30% during the next few months (notice I did not mention the bottom line), has retail ever been more competitive for the big boys?
Cisco again showed its strength on Wednesday with improvement in data centers, security, the cloud, and software defined networking to offset weakness in hardware and routing. Cisco (NASDAQ:CSCO) is a massive company and John Chambers chimed in on the net neutrality issue which was addressed by our lovely President earlier in the week. You see, Cisco is the supplier of equipment to the big telecommunications carriers. When AT&T's (NYSE:T) CEO Randall Stephenson mentioned they have to cut back on building out their fiber to the home platform because they have an uncertain regulatory environment, Mr. Chambers sat up and took notice. Chambers then proceeded to make the simple defense that you cannot expect the carriers to invest capital if they do not see a return. Not rocket science, but economics 101, and politicians routinely forget it to appeal to the masses.
In the oil patch, the sector remains under pressure from hedge funds and other investors in the commodity area who have made leveraged bets which have gone sour. As the week ended, it was reported that Halliburton would try and buy Baker Hughes, its long standing rival in the oil services sector. Time will tell how this plays out, but consolidation across the entire sector cannot be considered unreasonable, especially if oil prices stay low.
I would not expect oil to gain much ground during the rest of the year. The government stated this week it believes gas prices will remain subdued for the next year. Make sure you take that one to the bank as soon as possible as you know how accurate government forecasts are.
In the merger and acquisition space, our friend Mr. Buffett participated in an interesting deal. He bought Duracell batteries from Procter & Gamble (NSE:PROC) but swapped his shares in P&G for the ownership stake. By using this method, in the process he saved Berkshire shareholders a ton of dough on taxes. You notice the media did not give him any grief about it, eh?
Conversely, our other friend Mr. Malone, took a beating in the press when they found out about Liberty Global's(NASDAQ:LBTYA) tax inversion last year and Malone's personal shuffling of his trusts. His net savings were over $250 million on the personal side and a cool billion on the corporate side. The media might not like it, but shareholders benefit from the tax efficiency. Can you really blame them for being as creative as possible to find ways to minimize and defer taxes? Especially when you read every week about the way the current U.S. government operates? I cannot, and remain a loyal shareholder of both Malone and Buffet, as well as an admirer.
Alibaba reported that singles day in China was a massive success for them, shock of shocks. The massive Chinese payment processor detailed gross merchandise sales of over $9 billion during the day, considerably higher than the 5 billion from last year. Based on this data, the shares of Alibaba Group Holdings Ltd (NYSE:BABA) rose the rest of the week, as did those of its biggest shareholder and fan, the Yahoo's. I expect commission checks from all of you who bought Yahoo! Inc (NASDAQ:YHOO) when we mentioned it earlier in the fall (didn't think I remembered, did ya?).
Last but not least, we got some 'sunshine' over the heavy use of political content in the column last week. I would just note investors should remember the effect regulatory events have on industries, and the companies in those industries. You saw it last week with cable stocks falling, telecom carriers rising, and the defense industry continuing to rise. We might dislike politicians, but it would be unwise to not pay attention to them, and more importantly, their actions (no matter how ill advised). Certainly, staying informed can benefit, or hurt, your portfolio, depending on your positioning. Good luck with it as I know it is not easy.
Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.