"He came out with his Tommy gun and he slaughtered all the bears." So says Brian Sozzi, chief equities analyst of NBG Productions of Ben Bernanke's stunningly aggressive monetary actions announced Thursday afternoon. The language is probably a bit colorful for some tastes, but for those short stocks into the Fed's press release, Sozzi is being too gentle.
Many, but not all market observers expected QE3 in some form. Some expected more Operation Twist and it seemed everyone was expecting the Fed to push back the amount of time they expect to keep rates low. No one expected Bernanke & Co. to unleash all three at once. [See: 3 Reasons the Fed Should Avoid QE3]
In one very big move Bernanke made shorting equities a brutal proposition and gave investors the green light to chase stocks higher. You may not like what he did but you can't deny the price action. "You can't fight the Fed" and "Don't fight the tape" are two of Wall Street's most popular clichés for a reason. Staying short here to is a violation of both rules.
Here's how Sozzi is playing the set-up:
Charles Schwab (SCHW):
"This is a trading activity bet," he tells Breakout in the attached clip. Schwab is taking share from competitors and will benefit not just from commission volumes rising, but mutual fund fees as well. Investors getting off the bench means more business for industry leader Schwab.
Foot Locker (FL):
Sozzi is returning to a winning pick from earlier this year. He likes it as an early cycle play in retail; a step up in risk from cyclicals to take advantage of investors getting more aggressive. Sozzi says FL also had one of, if not the best, back-to-school selling periods of any of the names he follows.
Hovanian (HOV)
With gains over 170% year-to-date, investors may still hold the homebuilder in low regard, but have to respect the price action. Sozzi's been on board for a while and he's not changing his tune now. Citing a backlog of 42%, strong balance sheet and back-orders, he says HOV does have more room to run.
Dollar General (DG)
Put on the spot for a fourth name Sozzi goes with the General. It's a play not just on the company's tremendous momentum but the inflation risk inherent in the Fed's "just chuck money at it" approach to stimulus.
"I think Bernanke is going to create massive inflation," he posits. That inflation is going to ding the low-end consumer hard, leading them to seek value retailers closer to home. In other words, Dollar General's in the sweet spot.
Four names to play the market breakout. Is he right or is it time to take the money and run? We want to know what you think!
