Nothing Beats Contractual Cash Flows During A War
Inside today’s Daily Journal…
Essay: Why Big Pharma Might Be This Year’s Top Sector
Americans say they are worse off
Tariffs lead directly to inflation
AI is increasingly power hungry
Chart Of The Day… Energy
Today’s Mailbag
Remember: the first casualty of any war is the truth.
In time, we’ll learn that nothing the government has told us about the war with Iran was honest. Nothing. Not the reasons for the war. Not the battles in the war. Not the three dozen times that President Donald Trump has claimed victory.
What is certain are the size of the various economies that haven’t received any additional crude feedstock from the Persian Gulf for more than 30 days, countries with billions of people in total that are going to run out of diesel.
But, so far, our stock market has remained mostly immune to the risk that this war escalates and has massive impacts on the global economy.
Since the United States and Israel launched Operation Epic Fury on February 28, the S&P 500 is off less than 1%.
I am virtually certain this false calm will not last.
Iran’s 92 million people, its control of the Strait Of Hormuz, and its ballistic missile reach across the Persian Gulf are permanent risks that are not going away – despite what Trump will surely claim in his next post. And these risks are not “priced into” the market yet.
We’re investors – not generals. Our job is to help you make money in the stock market – even when a war in the Persian Gulf makes that a lot harder than normal. So far, many of the traditional safe havens, like gold, have actually traded lower on “risk off” days in the market.
The best-performing stocks in the S&P 500 have been concentrated in two narrow themes, both tied to the insatiable demand for artificial intelligence (“AI”) infrastructure.
Sandisk (SNDK), the flash memory pure-play, has been the most spectacular performer in the S&P 500 – up 282% year-to-date (“YTD”)
Ciena (CIEN), the optical networking company whose coherent optics technology underpins the ultra-high-speed data links connecting hyperscale data centers, has gained 106%
Corning (GLW), whose optical fiber and specialty glass sit at the physical layer of every major AI buildout, is up 98%
These are the picks-and-shovels beneficiaries of a structural capex cycle that has proven remarkably indifferent to geopolitics. But they are also volatile, richly valued, and offer no income.
Ciena trades at 303x earnings. Corning’s P/E sits at 95. Sandisk is not yet profitable on a GAAP basis.
Could you trade these names? Maybe.
But that’s a game where we have no edge. For investors seeking durable cash flows rather than momentum, the war has clarified a different opportunity: Pharma.
