The “Own the Good Ones” playbook

Own the Good Ones:  That is the playbook!

Did the Fed pivot?  Didn’t they pivot?  Hard to say, but did you pivot?  That is the question.  Hopefully, our subscribers that signed up for our WhatsApp daily communications strung together some good trades last week.  No doubt it is hard to get super bullish when about ½ of the companies reporting are blowing up and talking about recessionary pressures, slowing demand and less visibility.  So, if you dipped a couple of toes into the water, but not both of your feet, you are not alone!  Intel, Meta, Best Buy, Walmart, Snap, Roku, Shopify, Comcast and Teledoc were very weak while Service Now, Apple, Google, Amazon & Microsoft jumped over a low bar.  Remember our discussion of wanting to see where there are “cracks” and where there are “holes”?  Holes got sold and cracks, that seem mostly de-risked, got bought.  As we predicted (yes, occasionally educated guesses work!), you wanted to buy the Microsoft print no matter what, while Meta was a let’s see just how bad this is before committing.  The playbook ahead is tricky given the Fed reaction was likely too strong to a “we’ll see” message, but we think you can own the “good ones”, those at reasonable valuations as investors crave anything considered “safe” during this ensuing recession.

Well, you might be saying to yourself can’t you always own the “good ones” and just hang on throughout cycles?  The “good ones” in 2020 and 2021 were massively inflated valuation SaaS companies growing fast but unprofitable.  Even the good ones got cut in ½ or more from their peaks.  So, the message in each cycle and environment is different and you need to adapt and always, always, always make sure you pay attention to valuation.  Yes, the sell-side brokerage houses do not.  They threw out insane relative valuations to justify raising targets, fanning the flames upward, only to do the opposite of late.  So how do we define the good ones right now and how to trade them?