Market Milestones: Defense

At the RLT Newsletter, we focus heavily on tech stocks and have done so since January 2023 when we launched. Tech has been amazing for us, with our strongest portfolio growing 93% since our inception, and our Prosperity Portfolio, which only trades the QQQ, growing 43% with only 9 trades. The reason we focus on tech is primarily because we see an outsized opportunity in tech over the next several years.

Big tech companies are racing for A.I. dominance, which means they are spending billions with semiconductor companies. This synergistic relationship will continue to play out over the years to come and will benefit the mega tech companies as well as their semiconductor suppliers. However, growth can only continue so fast for so long before things have to cool off and chill. NVDA’s earnings report on Wednesday highlighted that sentiment. NVDA will surely offer enormous opportunities in the next three, six, nine, twelve months, and beyond, but it’s not the only stock that has the ability to go straight up. Actually, at that scale, it kind of is, and I do still think it will be the world’s first 4 trillion-dollar company. Wait, no, enough about NVDA! After doing a grueling few seconds of research, I found out that there are actually other stocks in the market besides NVDA. Who knew?

NVDA

One of these stocks, Berkshire Hathaway Inc. (BRK.B), actually hit a $1 trillion market cap for the first time this week. Ever since Warren Buffet sold half of their AAPL stake, the stock has been going straight up! Of course, "straight up" is all relative, as BRK.B is up 15.75% since the August 5th low, whereas NVDA is still up 28% even after “crashing” on Thursday. No, wait, come on. This is not about NVDA! This is about stocks that won’t go down 10% on a random Thursday, which certainly rules out NVDA and its peers cough SMCI cough. Berkshire Hathaway is a value name and a defensive stock, and defensive stocks have been absolutely slaying it in 2024. Of course, not as much as...never mind.

BRK.B

Defensive stocks are loosely defined as stocks with stable earnings, dividends and demand for their product that leads to higher stability during the various phases of the business cycle. I am admittedly late to the party in highlighting the shift to defensive stocks. However, given the current mixed bag of economic and macro factors and the underlying fear in this market, defensive stocks could continue to outperform. If you ask 10 different economic analysts about the state of the economy and where the market is headed in the next 6 months, you would likely get 10 different answers. The one thing 10 out of 10 people would agree on is the trend for these quality defensive names like BRK.B. It's solidly bullish: up and to the right. It would be best to wait for a retest before gaining any long exposure, but if you're someone who likes defensive stocks, you are probably already long and wondering why it took me so long to write a blog about them. If you're looking to add exposure to some defensive plays, here are a few of our favorites based strictly on the charts, not the fundamentals.

One stock that comes to mind when we think of a defensive rocket ship to money town is Progressive Corporation (PGR). PGR has been mega bullish for as long as I can remember. It didn't experience a lost 13 years around the dot-com bubble and The Great Recession like the SPY did. Instead, PGR made higher highs and higher lows and is up 2500% since the 2009 low. If you use Progressive, like insurance, defensive stocks, or just like money, PGR is a name to keep on your watch list.

PGR

Another stock that comes to mind when talking about rotisserie chicken, $1.50 hotdogs, enough samples on a Saturday afternoon to count as a three-year-old’s lunch, or the best place to fill up for gas if you don’t mind waiting in line for 20 minutes to save a total of $1.50, is Costco (COST). Oh, and it’s a defensive stock. COST has been on an absolute rampage since it broke out of its yearlong triangle in May of 2023. It has moved over 80% since the breakout and has formed a very complete pattern. It looks like COST could be in the fifth wave of a fifth wave of a fifth wave of a third wave. That is not where you want to enter a stock for the long term. One would ideally want to wait for the larger 4th wave retest. However, the 100DSMA on COST has acted as perfect support every time COST has gotten close to or touched it. If looking to ride this trend higher, watch for COST to come back down to the 100DSMA, but the 200DSMA makes a little more sense for such a stretched stock. COST is a great company and a great stock, but it will likely provide better buying opportunities in the future.

 COST