The stock market has turned into a huge spring break bash, and it's only February. Now, I am not surprised with the trends, only the pace. I continue to look for 1500 on the S&P 500 later this year, a call I initially made in early October but reiterated last week when discussing the cheapness of Mega-Caps as well as a month ago when I described the implications of a boom in dividends .
Still, I am blown away by some of the action I saw last week. An insider adds to his position and says he wants to buy Family Dollar (FDO), and the stock soars initially by more than 25%. Timberland (TBL) is selling lots of boots - that's worth a 30% gain after earnings. Weight Watchers International (WTW) jumped 47% on good news last week. The list goes on, but I think you get my point.
While I expressed some caution in my weekly message to my subscribers at Invest By Model about a potential consolidation ahead, the PE expansion I have been discussing is likely to persist all year. It's not about the economy, it's about valuations. As long as the economy doesn't tank, the stage is set for stocks to continue their care-free ways. My advice: Get used to this.
One of the big drivers is that investors are beginning to see the implications of very strong balance sheets. A month ago, I touched on this them when I shared some examples of "high-quality cash-rich companies" that had boosted their stocks with repurchases (Copart (CPRT) and C.R. Bard (BCR) as well as three names that are in my models that I think are likely to do the same. I am revisiting this idea because it is a easily exploited opportunity for investors to take advantage of inefficiencies in the market.
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