JPM, WFC, BAC, COST: Jim Cramer's Views

Jim Cramer shares his views on the rotation in stocks and market opportunities. JPMorgan Chase, Wells Fargo, Bank of America and Costco are among the stocks discussed here.
By Jim Cramer ,

NEW YORK (Real Money) -- Jim Cramer shares his views every day on RealMoney.Click here for a real-time look at his insights and musings.

Cue the Rotation in Stocks to Begin

Posted at 1:00 p.m. EDT on Friday, Nov. 6, 2015

Is good news really bad news? Do we really have to sell stocks because we, at last, got a bountiful employment report, 271,000 people being hired in the month of October, with a jobless rate of 5%, a seven-year low?

No.

But there will be a rotation in stocks, and that will make those not familiar with the profession of money management very uncomfortable owning certain stocks even as there are plenty of opportunities to make money in others.

First, a little explanation. The Fed must raise rates this year. It has to because all of the reasons it has been on hold are now gone.

We've been waiting for an unequivocally strong employment report that even shows some wage growth, and we've gotten it. We've been waiting for foreign turmoil to stop, and that's happened. China's stock market is, once again, in bull market mode, up more than 20% from the bottom. Europe is on the mend according to every company's CEO interview, with even Spain and Italy having a pulse. Only South America is horrible and our economy is strong enough to brush that off in stride.

Now, some industries really need ultra-low rates to prosper. Given that I think the first hike will simply inspire talk of more hikes -- even if the Fed issues a one-and-done statement -- you are going to see housing cool.

We know that every time we get a whiff of higher rates we see the dollar get super-freaking strong. We know that a powerful dollar hurts the earnings of the international companies, whether they be consumer packaged goods behemoths, pharmaceutical giants or manufacturers. We know that all of these companies' stocks have been screaming higher of late because few bet that we would have such a bountiful employment report.

Big money is out of position for higher rates, having bid up stocks of companies that benefit from low rates and a weaker dollar. Those are going to come in for profit-taking.

But the banks, oh the banks. They have done nothing for years relative to the rest of the market. They have been languishing under the pretexts of both intense regulation and ultra-low rates. Now higher rates are in the offing. They will make more money with your deposits. The regulatory environment has gotten more benign. The big fines are winding down.

In short, it's the banks' turn to rally. The biggest winners will be the ones with the biggest deposit bases, and that means JP Morgan Chase (JPM) - Get ReportWells Fargo (WFC) - Get Report and, most of all, Bank of America (BAC) - Get Report, the latter two of which are part of the Action Alerts PLUSportfolio. These stocks, which have moved nicely from when they reported, still are way behind the market. If you don't own one, you should, and make no mistake about it, the one with the most leverage to higher rates is Bank of America.

At the same time, the group that's going to be penalized the hardest is health care. Unlike the banks, which were under-owned going into this number, the health care stocks are over-owned. Ironically, they are also the ones with the most onerous headline risk because it is an election year and a couple of bad actors have created a health care piñata that all candidates and sitting politicians have a chance to take a whack at.

So, what do you do?

The good news is that for those with an index fund as their primary investment vehicle, there are enough financials in the S&P 500 that they could cancel out the downside of health care. The stocks of the highest-growth companies, like FANG, can do well, too. Their growth can always trump a strong currency's side effects.

But there are enough international companies that are hurt by the dollar that you have to expect more volatility until we see the whites of the actual rate hike, where we might not even sell off. Yes, it will be that baked in, even though chatter of the next hike will immediately begin. All I can tell you is that the big boys will be buying banks and selling health cares for the next month, and you have to adjust accordingly or accept the consequences of the brutal rotation that's just begun to occur.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long WFC and BAC.

Amazing How the Market Always Gives You a Chance

Posted at 11:11 a.m. EDT on Friday, Nov. 6, 2015

So we should sell everything on a strong employment number? Is it that simple?

Of course not.

First, banks are finally in shape to be able to reap the gains of higher rates and they are going higher. You can see billions added to the bottom line, with just a couple of rate hikes. The unequivocal best in show is Action Alerts PLUS portfolio holding Bank of America  (BAC) - Get Report, which has the most leverage to short rates by far.

I wanted to buy more for the charitable trust this morning, but it would so violate my basis I held off. Have to wait until an S&P swoon.  

The disposable income is going to go up in America. That's really what these numbers are about. You just have to figure out which companies can take advantage of it. I think Costco  (COST) - Get Report can, even though it didn't blow the numbers away. I believe the dollar stores can and they've not done well.

Now, the tough ones. Internationally oriented stocks, especially the industrials, are not going to have that great a go of it. They have run. Their numbers are too high, because of the dollar. Let them come in. If you see Caterpillar (CAT) - Get Report -- the worst when it comes to dollar exposure and customers -- then the industrials will have stopped going down.

Oh, it is worth mentioning here, even though it's not an industrial, if you see Johnson & Johnson (JNJ) - Get Report bottom, then you know the consumer products stories are done going down, as it has the most exposure to the weak dollar in all of pharma and packaged goods. Oils are okay. EOG Resources' (EOG) - Get Report number was terrific and it isn't going up. That speaks loudly, doesn't it?

Finally, tech. Really tough. So much overseas exposure. But the action in Growth Seeker portfolio name Skyworks  (SWKS) - Get Report and Avago (AVGO) - Get Report is encouraging. The high-growth techs can triumph over a weaker currency. Low growth? Unless it's levered to Windows, there's probably too much dollar exposure to make it work.

And, of course, there is FANG - Facebook (FB) - Get ReportAmazon.com (AMZN) - Get ReportNetflix (NFLX) - Get Report and Google parent Alphabet (GOOGL) - Get Report. When these sell off, you have to buy one. This is not yet a selloff. Isn't it amazing how the market always gives you a chance and you almost never have to chase?

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long BAC, COST, EOG, FB and GOOGL.

Loading ...