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Where to Invest to Shelter From the Market Rotation Crossfire

Posted at 5:03 AM EDT on Friday, May 15, 2015

Maybe I have just been through too many, but sometimes I find these rotations fairly hilarious. Take yesterday's movement. We tend to view it as a strong dollar/weak dollar foreign/domestic sales issue.

But if you boil it down that way, you miss a lot of the fun. For instance, some of my more rotational- oriented friends are always quick to point out the companies with stocks that are so strong that they buck the rotation.

For example, yesterday there were two sectors that shined despite the rotation: the banks and the biotechs. These are both conundrums.

First, the banks are a conundrum because there is no reason whatsoever for them to be rallying unless you think that rates are headed higher. The comparisons will not be easy. This quarter will not be special. There is no catalyst unless you count no new prosecutions as a catalyst. Sure, they are cheap. But so what?

Therefore let's take the higher rates issue head on. There is no way that the rest of what is working would be working if, indeed, rates are headed higher. It is antithetical to the industrial thesis and at cross purposes with the strength in the higher-yielding foods and drugs. Those have been far more tethered to rates than the dollar.

In other words, if the banks are going higher, everything else should be going lower. I therefore continue to discount this move as anything other than a relative move, meaning that the banks are just too cheap and have too much fee income and can start buying back gobs of stock and offering better dividends so they might be a buy versus the average S&P 500 name.

I simply don't think that the net interest margin handcuff has been broken, and even as rates are up slightly from where they were, I can't buy them off expanding margins. Just not happening; at least, not yet.

The biotechs have some good news but, frankly, nothing special. The American Society of Clinical Oncology meetings -- so well covered by Adam Feuerstein -- had some positives for some of the bigger companies, like Celgene (CELG) - Get Report, but not enough to explain this move. Regeneron (REGN) - Get Report, for example, went down when it reported last week, as stupid as that was given the $0.20 earnings beat, and has been rallying furiously ever since, closing at an all time high yesterday.

That's pure "group," though, as nothing new has happened. Gilead (GILD) - Get Report keeps going up slowly but surely after that massive quarter. We keep hearing about patent challenges to Celgene, but it all seems pretty "business as usual." Nothing breakout at ASCO and nothing new since that last quarter that no one seemed to like. And what does it do? Go higher.

These are all wind-at-your-back moves where we can't see the wind.

Nevertheless, those who scrutinize rotations have to be drawn to these two groups simply because, on the value side, there's nothing like the 10x earnings that we get for JP Morgan (JPM) - Get Report at its all-time high and on the momentum/growth side, how can you not embrace the biotechs given all of the oncoming approvals from their bountiful pipes?

Two groups NOT caught in a cross fire. Two groups for two different kinds of investors, both of which suit them all just fine.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.

Netflix and Other Unbeatable Bargains

Posted at 11:34 a.m. EDT on Friday, May 15, 2015

The world loves a bargain. And I like companies that offer bargains because it often turns out that their stocks are bargains, too.

Which is why I wasn't surprised at all to see Netflix (NFLX) - Get Report run on reports that it is about to move into China, with no less than a Jack Ma company, Wasu Media, as a partner. The darned thing sliced through $600 like a knife through butter and I think it's not done going up.

Netflix is a subscriber story. The more subscribers it has, the higher its stock goes. The subscriber numbers have been growing by leaps and bounds, with more than 61 million globally right now. China, as research house Stifel says in a squib today, has 400 million households, so any entry into China would be huge, especially given that the most popular show in China, according to the company, is House of Cards.

Which brings me to the bargain portion of the equation. Netflix costs pennies per day and I think remains one of the greatest bargains out there simply because I would pay that just for the service. But if you throw in the original programming, I would be willing to pay double for it because I, like the Chinese, am riveted by House of Cards and I love Orange Is the New Black. Most of the kids of my friends use Netflix as a more important form of entertainment than the TV, and this notoriously frugal group watches the programs right on their handheld or their tablet.

I think China will go nuts for Netflix, as has the rest of the world. Netflix is, in many ways, one of our most important exports and the success of its programming is a testament to the brilliance of the people who run the place.

My view on Netflix is that the market capitalization, at $37 billion, is too small given the worldwide opportunity. I had always hoped when it was much smaller that Apple (AAPL) - Get Report would buy it. It didn't happen. But it isn't too late for some deep-pocketed player to step in before this thing doubles, which could happen if the Chinese reports are true. I don't like to buy a stock when it is running, but I am standing by my long-running recommendation. Sure, on earnings, it's expensive, but you can't let traditional earnings analysis constrain the opportunity here. It's been a sucker short precisely because the intelligentsia can't get their heads around the price-to-earnings multiple. Remember, though, some stocks should be viewed as a function of the total addressable market vs. the cost of the product, and this one's still dirt cheap on those two bases.

Who else offers a bargain out there? I can think of two others that offer customers a service that I would pay more for without a second thought: Amazon Prime and Costco (COST) - Get Report. Amazon Prime is a ridiculously cheap service that I use several times a week. Call me addicted. I am often shocked when I heard people aren't members. What the heck are they thinking? The stock's hard to value but a bargain's a bargain, so I get that the stock can go much higher still.

Costco remains my go-to store for all my staples, and I find it joyful whenever I go into one, despite the lines. The prices are unbeatable and the service is miraculous. They could double the price of my membership and I wouldn't blanch given the money I save. When they raised prices a few years ago, they didn't skip a beat, almost 100% acceptance of the increase.

Which is why both the stocks of Amazon (AMZN) - Get Report and Costco remain bargains just like the stock of Netflix, even after these incredible runs.

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