Market Is Performing Despite Fears – Cramer's Mad Money (10/2/17)
Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Monday, October 2.
Cramer was horrified with the mass shootings on Sunday, but he was astonished to see the indexes hitting all-time highs on Monday. “This stock market is about as un-cynical as you can get. As we kick off the fourth quarter, I see rallies in stocks that only go higher when people believe in progress and the ability of companies to navigate their way through troubled waters despite the dim and, frankly, baffling news flow,” he said.
Despite President Trump tweeting about Secretary of State Rex Tillerson wasting his time on North Korea, the market was not bothered and even moved higher. Violence in Spain over the referendum for Catalonia’s independence should have troubled investors but that was shrugged off by the market too.
“The stocks rallying the hardest say that things are going great, so we have to note how true believers are frantically putting money to work right into the face of domestic and global uncertainty. Let me go over the examples of what I’m talking about, a lack of cynicism on Wall Street, as these dreamer investors keep dreaming and the hard-nosed traders find areas to exploit to the upside despite all the uncertainty around us,” said Cramer.
Firstly, analysts had written off General Motors (NYSE:GM) as the growth of self-driving vehicles would encroach on personal ownership of vehicles. But General Motors’ announcement of its push in all-electric cars and plans for an autonomous car fleet worked positively for the market. The best part is that one gets all this with 4% yield.
Second, after Altice (NYSE:ATUS) gave in to Disney (NYSE:DIS) on the cable deal, it made investors realize that Disney’s business was not dependent on ESPN. “This is a market that embraces the simple, and Disney’s stock is running because Altice basically gave in. In another time, this contract dispute would’ve been viewed as unimportant. Instead, it’s a clarion call to buy shares of this iconic American company,” said Cramer.
Lastly, activist investor Nelson Peltz got a boost in his long fight with Procter & Gamble (NYSE:PG) over a board seat. “The term ‘win-win’s’ being batted about a bit. That’s another sign of how this market embraces the positives and sees a glass half full as three quarters full at a minimum,” added Cramer.
Monday’s market performance shows there are many reasons to be hopeful for the market despite the fears.
When the stock of a company with a good track record jumps going into the quarter and sells off on earnings despite strong fundamentals, it’s a good sign. Accenture is one such company. The stock went down after the company reported Q4. Cramer saw this pattern and had recommended the stock after the earnings slump in March. The stock has gained 13% since then.
“My view is simple: if it ain’t broke, don’t fix it. Buying Accenture into even small bouts of weakness has been a hugely winning strategy, and I think it’s got more room to run,” said Cramer. The stock gets ignored every time it reports a good but not amazing quarter. They are regularly acquiring small companies to boost the consulting business. They made 47 deals last year totaling $1.7B.
With a great track record, Accenture just trades at 19 times earnings. “When a company’s track record is this good, you need to take advantage of the most modest pullbacks to do some buying, and they seem to keep happening after every quarter. When a company’s track record is this good, you need to take advantage of the most modest pullbacks to do some buying, and they seem to keep happening after every quarter,” he concluded.
Winners of Q3
With Q3 over, Cramer looked at the top 10 winners and gave his views on what lies ahead for these companies. None of these companies had anything to do with President Trump or the Fed.
- NRG Energy (NYSE:NRG): The stock has grown 50% in the quarter. This is because former CEO David Crane was ousted and the position was taken over by Mauricio Gutierrez. He has done a great job so far. “He’s gone a long way toward making NRG a utility that could one day rebuild its dividend. I also think, by the way, it could be a takeover target given its national reach and its relatively small $8B market cap. I think there’s something there,” said Cramer.
- Michael Kors (NYSE:KORS): Despite retail left for dead, Michael Kors rallied 34% in Q3. The retailer did well in the quarter with its popular smartwatch and $1.2B acquisition of Jimmy Choo. “This suggests that the business still has a pulse. Short-sellers don’t like to bet against any stocks where they can find a pulse. So, thanks to a combination of short covering and some easy [earnings] comparisons, Michael Kors is working, even if I don’t trust it,” said Cramer.
- Gap (NYSE:GPS): Gap has a similar retail story. It went up 32% in the quarter after closing under-performing stores.
- Albemarle (NYSE:ALB): The chemical company went up 30% as it’s a unique and pure play on Lithium which is a major component of electric-car batteries. Cramer prefers FMC Corp (NYSE:FMC) as a Lithium play but Albemarle is good too.
- Lam Research (NASDAQ:LRCX): The company’s 29% gain in Q3 shows the importance of it in the overall semiconductor market.
- Boeing (NYSE:BA): The stock gained 28% in Q3. Most of it was due to a large order book. “But most of it is disbelief on the part of the analysts who cover the stock that the Dreamliner’s making money. It’s the only large plane model that is doing well, but so what? You know what, it’s doing it,” said Cramer.
- CF Industries (NYSE:CF): The stock of this fertilizer manufacturer rallied as a play on the agriculture cycle. “I think this is purely a function of the fact that the agriculture cycle has come back to life. Everyone’s looking for ways to capitalize on it,” said Cramer.
- United Rentals (NYSE:URI), Applied Materials (NASDAQ:AMAT) and United Technologies (NYSE:UTX) were the remaining winners as Hurricane Harvey will require rebuilding, need of better semiconductors and growth in defense spending.
“I think the most important takeaway, though, is to stop focusing on Trump and Yellen. Instead, focus on the fundamentals and you’ll catch some of these. Yes, you’ll do much better,” concluded Cramer.
CEO interview – Hain Celestial (NASDAQ:HAIN)
The stock of Hain Celestial went up on board developments and speculation about ConAgra (NYSE:CAG) having an interest in the company. Cramer interviewed CEO Irwin Simon to hear more about these developments.
“We got six new board members with a lot of industry experience which is going to be very, very helpful to the company, very, very helpful for me from an international standpoint. I look at it as six new, independent board members for Hain Celestial’s shareholders,” said Simon.
He has dealt with activist investor Carl Icahn and he was open to Engaged Capital’s recommendations after they disclosed a 9.9% stake in the company. “They stepped up. They were very, very smart. They bought the stock in the $30s. Hey, you’ve got to give them a lot of credit. They’ve brought some great ideas,” said Simon.
The board views do not include the sale of the company to a larger player, but Simon did not deny the possibility of a sale by mentioning that every public company is for sale. “There’s a lot of hidden jewels within Hain. And it’s not about selling the company, it’s about building for shareholder value and continuously changing the way the world eats. There’s a lot of great things within Hain that most consumer packaged goods companies are missing,” said Simon.
Private label brands are doing well as consumer packaged companies are not innovating. Low margins are pressurizing the companies. The Amazon-Whole Foods deal has changed a lot of things in the industry. “I think the combination of the both of them will be great for the industry,” said Simon.
The company wants to focus on innovating and the millennials. “Millennials buy brands. But you’ve got to keep millennials happy. You’ve got to give them good pricing, good value. Board members are endorsing my strategy, but most important is consumers [have] got to endorse my strategy because they’re the ones buying the products,” concluded Simon.
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