September may break the usual pattern
September might not bring the volatility that usually shows up this time of year. Markets are green across major indices, helped by positive earnings reports. Still, some defense makes sense, because seasonality often works against investors in September and October. The plan: hold stocks with strong fundamentals and strong earnings, and buy names that sold off after earnings.
How much cash to hold
Keep some cash ready on the side, maybe 5-10%, to add anytime a stock dips. Use volatility to buy dominant companies. If the market falls another 5-10% - the number that keeps coming up - that cash goes to work.
TJX (TJX) - dip buy on the consumer
TJX (TJX) sold off about 16%, driven by worries over an inventory sorting problem. The drop looks a little unwarranted. If inflation stays high, TJX does very well, because people keep hunting for deals. Inflation looks in check for now, but the deal-seeking behavior holds either way. TJX is expanding its stores and footprint. This looks like a short window to pick up shares cheap ahead of the fourth quarter, with good earnings likely toward year-end.
Apple (AAPL) - buying at a transition point
Apple (AAPL) sits at a transition point, not a dip. John Ternus is taking over as CEO, and a new CEO should bring energy and innovation. Ahead of the "sunrise and shine" event, a foldable iPhone is expected, priced a little above $2,000. That price is not for everyone, but it is appealing to some and offers something different in the market. Apple's technology keeps getting better, and the foldable should be a big advancement. If the market keeps rising with no pullback, Apple has the most upside the market may be missing, with a price target of $400.
Netflix (NFLX) - the most aggressive buy on a pullback
Netflix (NFLX) is beat up this year and the least defensive of the three. It reported revenue of $12.5 billion, with ad revenue expected to double. The ad-tier growth engine is set to double to $3 billion this year. Netflix is enforcing separate profile emails, pushing viewers into more paid accounts. Its live sports push looks strong, and the anticipated NFL holiday streaming games bring large new ad inventory. The valuation is compressed and trades well below its historical highs.
Advertising is the main revenue driver, more than the live events themselves. The more popular Netflix gets, the more advertising it brings on, helping the bottom line. Live sports demand is heavy across streaming - Larry Ellison has said he cannot get enough sports broadcast rights. The holiday season is where much of this live-sports value sits. Netflix could move up quite a bit toward year-end. If the market pulls back, Netflix is the pick to buy most aggressively, with real upside from where it trades now.
On a possible Fed hike
Would a Fed rate hike in mid-September change the thesis? No. A hike would not kill the market, and it looks somewhat priced in already. Apple still looks good, and all three names - Apple, Netflix and TJX - are strong buying opportunities heading into year-end.
