Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- Where consumers are actually spending their money now.
- How to profit from robust home improvement sales beyond buying Lowe's and Home Depot.
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There Are Many Pieces to the Consumer Puzzle
Posted on Nov. 17 at 1:47 p.m. EST
We just have to assume the consumer's not shopping for the same kinds of things, notably apparel, and it involves a big shift in attitude and direction.
First, it is totally understandable that no one has any idea what people are spending on. The clues are so various and hard to read that I can't blame anyone for confusion.
Consider the panoply of bizarre inputs that we've gotten. Macy's, for example, says it's been hurt by extremely warm weather and by a strong dollar. Nordstrom says it's been hurt by traffic declines but doesn't indicate why it is having traffic declines.
The natural inclination in both cases is to presume they are being hurt by Amazon (AMZN) - Get Report , and they have become showrooms for the online giant. Or one can assume that perhaps people aren't going to the mall as much as they used to, which would also explain the decline that we have seen in Gap stores as well as J Crew. (Amazon is part of TheStreet's Growth Seeker portfolio.)
Then we come in today and we learn Home Depot (HD) - Get Report , TJX (TJX) - Get Report and Walmart (WMT) - Get Report all reported excellent quarters. Let's see, they all have one thing in common: They aren't at the mall. We have to presume, then, that Starbucks (SBUX) - Get Report CEO Howard Schultz was dead right when he said the mall is going out of style, that people just don't like it as much as they used to and are increasingly shopping with their hand-held devices.
All three of the winners from today have a very good online presence, although not as strong as Amazon's. But each offers a different piece to the American consumer puzzle. We learned from Home Depot that appliances, tools, plumbing, décor, lighting, hardware, building materials and indoor garden all outperformed. That's a list of items that says people are fixing up their houses, either by themselves or by hiring contractors. Given that the company reported 7% same-store sales, a very strong number, we can only assume people are feeling better about spending on their homes than they feel about spending on apparel. That's a change, one we haven't been able to explain, but one that's certainly occurring. Home Depot's unbelievably brilliant CFO, Carol Tome, talks about an increase in household formation and the need to fix up older homes that one must presume might have been neglected during the great downturn.
Now, how about TJX? The company has excellent apparel and houseware sales. Here are still two more pieces of the puzzle: If the consumer is going to spend on apparel, she's going for the cheapest name-brand apparel she can find, which is from TJX. Plus, HomeGoods, where so many of us go for housewares, put up terrific numbers. The treasure-hunt and highly seasonal feel of HomeGoods is clearly winning people over. It's worth noting that Costco (COST) - Get Report , which was the first retailer to report, had strong sales in many of the overlapping areas of Home Depot and HomeGoods, another confirmation that the money's going into the home. (Starbucks and Costco are part of TheStreet's Action Alerts PLUS portfolio.)
So how do we factor in what's happening at Walmart, where numbers didn't come down and the company talked about a robust back-to-school and Halloween season and seemed quite pumped for the upcoming holiday season? I think Walmart may very well be signaling that many of the changes it has made in terms of personnel and online initiatives, as well as much more creative merchandising, particularly for the home, are working. In other words, Walmart's better-than-expected earnings belong to management's efforts to fix the biggest retailer in the world. I know it's early, but you have to think there's a positive story brewing here, admittedly against lowered expectations, and that the fruits of CEO Doug McMillon's earnest efforts may have begun to pay off.
4 Home Improvement Stocks to Buy and How to Do It
Posted on Nov. 19 at 7:01 a.m. EST
We all know Home Depot (HD) - Get Report and Lowe's (LOW) - Get Report are doing fabulously. It's a given. We know which aisles are selling out and which categories are literally blowing the doors off.
But what we haven't been able to figure out is how to profit from these robust sales beyond these two companies. We haven't been able to do so, because we have been so worried about the darned Fed, so scared of our shadows, that we have allowed stocks to creep up that now seem certain to bust out despite the Fed and despite what some would regard as tepid demand for new homes.
Now, some of the difficulties of the read-through from these two home improvement giants come from the far-flung nature of the companies that sell into the companies themselves. If you had to ask me what the strongest categories were for both of these two institutions, I would come back and say appliances. But, look out, trying to make money in that category is almost impossible. Whirlpool (WHR) - Get Report , you would think, is so obvious that it's painful.
However, if you ask the Whirlpool shareholders, they would say that the only thing that's been obvious about owning this stock is the pain it has caused. That's because Whirlpool remains a huge presence in Brazil and other than Venezuela, Brazil is the worst civilized, Western nation on Earth to do business in right now. The country has done incalculable damage to every company it touches.
You could be in Electrolux (ELUXY) , which is trying to buy Dividend Stock Advisor holding General Electric's (GE) - Get Report appliance division, but then you would be butting heads with the Justice Department, to which I say, no thank you.
So what's second best? I would say anything that involves remodel and reconstruction, and that's where you have to go if you want to play the derivative investments from Lowe's and Home Depot.
Now, you will blanch when I tell you the four names that I think are worth investing in, because with one exception they are so high that you will say you have missed the move, especially in light of the Fed's rate lift-off.
I am urging you, however, to rethink that harsh judgment. You need to do so because the four that are most investible -- Stanley Black & Decker (SWK) - Get Report , Fortune Brands Home & Security (FBHS) - Get Report , Masco (MAS) - Get Report , and the rarely thought-of Masonite (DOOR) - Get Report -- are surfing a high single digit-low double digit wave of growth that is actually accelerating as we head into 2016. And, given what Carol Tome, the excellent CFO from Home Depot, had to say about the longer-term trends -- household formation and the need to reinvest in neglected housing stock -- I can't say you are too late to this party.
Notice, I didn't say early. That's not possible. These stocks have had big moves, but not so big that you can't buy them. In fact, only Masco, up 34%, is truly in world beater status. Masonite, plus 2%, (the aptly-tickered DOOR, if you are looking), Stanley, plus 11% and Fortune Brands, positive for 19%, simply don't capture the gains that these companies are having.
Together, these four have only 36% market cap, which, I would argue, is way too small for the organic growth these companies are experiencing.
Now, with the exception of Masco, which is the purest play -- hence its outsized performance based on superior kitchen and bath products -- each has flaws that have held it back. Stanley Works has a ton of international business and can't be viewed as a pure tools play, even as that's probably the second-hottest aisle in these stores. It has a huge forex problem that has obscured much of the good. So does Masonite, which is EBITDA-positive but few seem even willing to attempt to understand the company, and those that do think it is wildly expensive on earnings. I disagree, but it does sell at 66x actual earnings, so the 42% EBITDA growth seems to have been discounted. And I can't say Fortune Brands is cheap, either, at 26x earnings.
Nevertheless, I think that judging by the trends that Home Depot's Tome highlights, trends that are far more secular than cyclical, all four are buys. That's right; I would buy any of these. Here's how I would do it. We are still stuck in the wake of HD and LOW's reports. A week from now, when we are fretting about the upcoming employment number and we have forgotten about the great quarters of Home Depot and Lowe's, these stocks will have slipped back. That's when you have to pounce, because their scarcity value trumps their stretched earnings multiples, and that means you've got a wind at your back that's not going away any time soon.
At the time of publication, Jim Cramer's charitable trust Action Alerts PLUS was long SBUX and COST.