Buy The Declines Gradually – Cramer's Mad Money (1/30/18)
Buy The Declines Gradually – Cramer's Mad Money (1/30/18)
Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Tuesday, January 30.
The market is seeing the volatility that Cramer spoke about on Monday. He also cautioned investors that not every decline is a buying opportunity and at times it’s best to pause and assess the decline. It’s best to buy in stages gradually as the stocks decline just in case there is more to come. In such cases, taking time to decide works in favor of investors.
Cramer pointed towards the decline in healthcare stocks after Amazon (NASDAQ:AMZN), JPMorgan (NYSE:JPM) and Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) decided to partner and launch a healthcare company that will be not-for-profit and provide affordable healthcare to its U.S. employees. “It’s bad enough that the most important man in finance, the most important man in retail and the best investor alive are teaming up to tackle the problems of our healthcare system, but even worse for the industry, they’re doing it for free. It is very hard to compete with someone who doesn’t care about turning a profit,” said Cramer.
Buffett had mentioned in 2017 that healthcare has gone from 5% of GDP to 15% in just 50 years. “Now that’s going to change. Now there is something on the horizon, a company of his own creation with the most technologically savvy provider of what people want and the smartest banker of our time,” said Cramer.
While analysts are reacting calmly to the deal and not downgrading healthcare retailers, Cramer is sure that analysts covering Amazon, JPMorgan and Berkshire Hathaway will view the deal differently. “I’ll tell you, if these guys were coming after my business, I’d be terrified,” added Cramer.
Cramer reminded viewers that when Amazon decided to go for the grocery business, the stock of Costco (NASDAQ:COST) went down for weeks before it subsided and recovered gradually. This situation is similar and the healthcare stocks could go down for weeks which will lead to many good stocks going down and being penalized with the rest of the group.
Hence investors should wait and buy good stocks in stages as the sector declines. He recommended Centene (NYSE:CNC) on a decline if investors want to take exposure to the sector. “I don’t like to enter a blast zone on the first day of a sell-off, especially when there are still plenty of stocks outside the blast zone that have come down,” concluded Cramer.
CEO interview – Nucor (NYSE:NUE)
The stock of Nucor went up on a solid earnings beat but took a 13% hit after the price guidance. Cramer interviewed CEO John Ferriola to hear more about the quarter.
Ferriola said that the company saw its best earnings since 2008 and the outlooks for the auto and energy end markets have been the strongest since 2004. He was excited about what’s in store for 2018.
“We’d also like to see some action on an infrastructure bill. We’re all seeing a robust recovery in the economy. That cannot be sustained without having a strong, modern, 21st-century infrastructure system, and we don’t have that today. We need it desperately to maintain momentum in the economy,” he added.
Chinese steel imports have captured 27% of Nucor’s market and are keeping the prices artificially low. This has led to 3 big blast furnaces being shut and if the Trump administration wants to see them start and create lots of jobs and supply 10M tons into the industry, they’d have to get the Trade Expansion Act to place tariffs on or ban Chinese steel imports altogether.
“We all understand the need for a strong national defense. There’s no way you can have a strong national defense, strong national security, without having a robust and sustainable steel industry,” said Ferriola.
Cramer was shocked to not see analysts excited about the Dr Pepper and Keurig deal. This will lead to $1.27 in additional earnings and a $0.60 dividend. “With those numbers, Keurig Dr Pepper, the new company, will immediately become the cheapest growth name in the consumer packaged goods space,” he said.
The deal is not being talked about on Wall Street as analysts find a coffee maker and soft drinks maker not exciting. The deal doesn’t seem intuitive at first and yet has many merits in Cramer’s opinion.
Many think that Dr Pepper doesn’t have strong prospects against legacy soft drink makers. Cramer is however excited that Bob Gamgort will be the combined entity CEO. “Gamgort, the CEO of Keurig who’ll be taking over the combined enterprise, is a miracle man in what many people believe is a dying industry, the consumer packaged goods business,” he added.
He has a track record of turning boring consumer brands into high functioning consumer packaged companies and creating value for shareholders. “If Gamgort weren’t involved, candidly, I wouldn’t be interested at all. But he is, so I want everything to do with it. Yep, he’s that good, and he’ll use this new company to create the same kind of vehicle and value he did at Pinnacle. Let others run away. I want to run toward Keurig Dr. Pepper, just like last time,” concluded Cramer.
The combined company will have scale, a good balance sheet and power to make more acquisitions to create value.
CEO interview – Trex (NYSE:TREX)
Trex is in the manufacturing of wood-alternative decking and railing. Its stock is up 66% in the last 12 months and 3.4% in 2018. Cramer interviewed CEO Jim Cline for the first time to find out what lies ahead.
Cline said he sees big opportunity in the U.S. as consumers choose their wood-plastic hybrid material against traditional wood. Their products are made from 95% recycled materials and offer colors. Their durability is 25 years compared to 12-13 years for wood (and that only with lot of maintenance).
When people renovate their houses, their first renovation project is often replacing their wooden deck. He added that their stadium railing business is expanding into residential markets.
Only 5% of their sales are from new home construction and the rest comes from remodeling and repair via hardware stores. “For every 1 point that we can move from wood, that’s worth about $50M of sales to us,” said Cline.
Viewer calls taken by Cramer
First Solar (NASDAQ:FSLR): Don’t sell the stock. It is likely to go up and Cramer suggesting buying more on weakness.
Nokia (NYSE:NOK): No matter how good the company, the competition has led to Nokia becoming a “has been”.
Kroger (NYSE:KR): At these prices, Cramer is neutral. He would buy at $25-26 and sell it at $32-33.
Newell Brands (NYSE:NWL): It’s too low to sell and Cramer recommended getting back in the $30s. It is being poorly run.
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