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Here Are 4 Companies That Got It Right

Posted at 7:16 a.m. EDT on Thursday, Dec. 17, 2015

When you see outsized gains on any given stock, you can draw a conclusion about what that company might be doing right. But when you see huge outperformance from four stocks on a given day, you can discern what the market loves, not just what the companies might be doing right.

That's the takeaway from comments made by Dividend Stock Advisor portfolio holding General Electric (GE) - Get ReportHoneywell(HON) - Get Report and CVS Health(CVS) - Get Report, as well as the quarterly report of FederalExpress(FDX) - Get Report, all of which saw their stocks fly because of these statements, and not just the crutch of a smarter-than-the-average bear Federal Reserve.

First, make no mistake about it, despite the rosy nature of the Fed's comments about good growth in the economy, GE, Honeywell and FedEx all pointed out how the world's growth is intermittent at best and downright disconcerting on a day-to-day basis. Only CVS, totally domestic, obviously didn't need to focus on international weakness, and its stock rallied in part because its business is very anti-cyclical, a huge win in this environment.

Second, you aren't getting gigantic upside surprises from these companies vs. expectations. GE, Honeywell and CVS simply affirmed what people were looking for in 2016, raising range midpoints or hammering home that despite worldwide weakness, unlike so many other companies, they saw no need to guide down. FedEx, the only one of the four that actually reported, beat the quarter, but it didn't increase next year's estimates.

The chief reason why FedEx went up, I believe, was because it was somewhat downbeat in comments at the end of October. It under-promised on pricing and then over-delivered with some excellent cost controls and very strong on-the-ground business, with a 9% increase in volume and a 10% increase in pricing. Again, though, FedEx was simply affirming its overall earnings, despite a challenged economy, while acknowledging that it's been a huge beneficiary of e-commerce.

I regard GE's move to multi-year highs after its analyst day as more of a coronation than a revelation. You are now seeing the real GE sans finance, and it is a beautiful thing to behold, with organic growth of 2-4% despite many mentions of slow worldwide growth. The company is returning a huge amount of capital to shareholders because, again, of excellent cost controls and gigantic free cash flow. Lots of people are skeptical when GE talks about being the "digital industrial," but you don't get that kind of growth without hardcore manufacturing innovation. I think that people were generally thrilled to hear that despite the step down in the U.S. economy in the last quarter, GE's affirming what it said it could do when it reported last. That's a win in this environment.

Finally, Honeywell's stock performance is the most quizzical of all four of these companies. The comments from CEO Dave Cote at its analyst day were very cautious about the economy. But the fact that Honeywell reiterated that it saw organic growth of 1-2% was greeted with a spectacular response, the biggest one-day gain in three years.

Why quizzical? First, the organic growth rate is about half of GE's, although that is somewhat reflected in the 23x price to earnings multiple of GE versus 17x for Honeywell. Who would have believed that switch could happen so fast? GE carried a lower multiple for years vs. Honeywell.

Second, Honeywell simply raised the midpoint, and didn't tell you to take the overall earnings up for 2016. However, once again, amazing cost controls and some incredibly additive acquisitions gave you total confidence that Honeywell's in charge of its own destiny, which is all you could ask for in this environment.

And that brings me to the real conclusion of what people want to hear from companies: they want some autonomy from the world's slowdown and a sense that they can triumph over a strong dollar and overall weakness in China -- although Honeywell reiterated that it's a great growth market for its automated controls division -- and over a level of gloom that doesn't match the Fed's actions.

All in all, CVS, FedEx, GE and Honeywell are applauded simply for doing what they've been doing: putting out good numbers, which, in this day in age, makes them part of an elite company that's delivering no matter what. Now I wish that even a few more companies could say that. But I don't believe many that can or will as we go as we go into this new and, by all accounts, tough, 2016.

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

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It's Not the End of the World ... Not Yet, Anyway

Posted at 3:46 p.m. EDT on Tuesday, Dec. 15, 2015

Sometimes all that's required is a belief that it's not the end of the world to get a rally going. When the end-of-the-world thesis gets rebutted in full, you get an across-the-board advance even if we don't know what the Federal Reserve is going to say tomorrow.

We all know that we are about to head into the most monumental Federal Reserve meeting in nine years, one where we are going to start on a course of federal funds raising that could be gradual or severe. At this point the Fed better raise rates or we would have to conclude that they know something very bad that we haven't heard about yet. That's right -- no rate hike would most likely make us feel we've been too complacent and there's real trouble brewing despite strong growth in employment.

But if we get a rate hike where the Fed says we are going to do this one quarter-point and then wait a considerable time, then I imagine we could see a continuation of what we got today.

So what was supposed to cause the world to end? What concerns were eased in the last 24 hours? I have a bunch of them.

First, the junk bond market pressure seems to have gotten a reprieve. We know there are plenty of junk bond funds that own very distressed debt that may be mismarked -- a term of art that could imply that the firms' holdings are overstated in value. We know that many of these distressed mutual funds were sold to individuals who may not have been sophisticated enough to know that they could lose boatloads of money if they tried to pull out of these investments. We understand that hedge funds are illiquid themselves, and if they are filled with similarly illiquid investments that may not be marked correctly, then so be it. These funds aren't meant to provide investors with a chance for an easy exit. They are for wealthy, sophisticated investors who understand the riskiness of the bonds and loans, which often entail a collection of distressed merchandise.

Not so smaller investors who just wanted to get a little extra yield and didn't know that things were all that bad until the managers got hit with hefty withdrawals, as was the case with the Third Avenue Focused Credit Fund, which was filled with unfocused bad credit investments. When the fund barred further redemptions, it both caused a panic and furthered some ongoing runs on other, similarly horrendous mutual funds that really had no business offering these kinds of products to unsuitable, less- wealthy individuals.

We feared coming in today and discovering a raft of other firms banning redemptions. We feared that these mutual funds may be lurking everywhere and the junk bond market could bring the entire market down.

Now there are strong correlations between the collapse of this kind of junk paper and a sell-off in the entire market. However, when there was no run at the next bank or the next or the next today, we breathed a sigh of relief, one that brought buyers into the market. Now make no mistake about my outrage about unscrupulous managers jamming unsophisticated investors into the highest-risk, least- liquid investments possible and never revealing that there could be a jam-up at the exits or the inability to properly price the merchandise to begin with. But the outrage has to be distinguished from the potential of this kind of investment's ability to bring down the entire market.

There's just not that much of it around and there aren't as many knuckleheaded managers out there who committed the sin of creating totally unsuitable investments for those who invested in them.

So, when the world didn't end, we could rally. The world got plenty of help, though, from the price of oil, which went up a dollar to $37.  Given that much of the worst of the worst of this kind of junk debt is energy-related, any upward move in crude is a godsend for these markets even as it might not be so hot for the consumer. We are so worried these days about the indebtedness of these oil-and-gas companies that their woes spilled out into the banks yesterday. Bank stock sellers figured that bank earnings would begin to get hurt by defaulted loans. So, when crude rallied today, the worries receded.

Plus, we have some monumental moves up in the biggest oils, such as Chevron(CVX) - Get Report and Exxon Mobil(XOM) - Get Report, that make one believe that perhaps the worst for oil is over. The pain continues for the smaller companies with stressed balance sheets. It's acute for companies reliant more on natural gas than oil, as natural gas hit a 17-year low.

But the big oil stocks? They bottomed back in the last week in August when oil hit $39 and they failed to take out their lows when oil hit $35 earlier this week. Indeed, they are nowhere near their lows now. Exxon was at $68; now it is at $79. Chevron was at $69; now it's $92. These stocks have led the price of crude before. If they are doing it now, perhaps we have seen the bottom. Given that we haven't seen much of the gains from lower oil and gas -- at least not yet -- it's reassuring to the market that the oil-and-gas credit losses may not be so awful; that's good for the banks and the discredited junk funds.

We had a couple of other contrary-to-the-end-of-the-world calls today, too.

Disney(DIS) - Get Report, for example, had been weighing on the market of late -- a combination of ESPN subscriber losses and worries that "Star Wars" might not be as big as we thought. Stories of lagging sales of a Star Wars video game had created that impression. But last night's premiere is breeding some spectacular press and "The Force Awakens" will awake on 11,000 screens in 4,000 movie theatres, far exceeding anything else from Hollywood. That's a gloom-buster for a real bellwether stock that had been under the weather.

Same with Valeant (VRX) . Here's a company that has received a lot of bad press for its pressured drug- selling tactics and price increases. Today it announced a huge deal with Walgreens(WBA) - Get Report, which is part of the Action Alerts PLUS portfolio, to provide medicines. How huge? How about 17 points huge, or 18% as investors figured that if Walgreens blesses Valeant's business,  then they should bless the stock. 

We have had a lot of buybacks and dividend boosts that didn't boost stocks of late, causing some to wonder whether stocks had become hopelessly overvalued. So it was a pleasant surprise to see another big capitalization stock, namely Boeing (BA), rally substantially on its $14 billion buyback and a 20% dividend boost.

Finally, we were beginning to believe that whenever a company made a big acquisition the market yawned or sent both the acquirer and the acquired down. Yesterday, for example, the stock of Newell-Rubbermaid(NWL) - Get Report was annihilated when the company announced it was buying Jarden (JAH)  for $15 billion. Today's remarkable rebound gave hope that all is not lost in the once-red-hot but now-not merger-and-acquisition world. Given that low interest rates and mergers and acquisitions have been behind a great deal of what's gone right in this market in the last few years, you don't want to see the M&A world end along with the beginning of the end of a low federal funds rate.

We know not all is well. One of my favorite stocks -- that of 3M (MMM) - Get Report, another part of the Action Alerts Plus portfolio -- got crushed on a slight guide down at an analyst meeting.  My advice: wait three days and buy some, which my charitable trust intends to do after selling a bunch of it higher waiting for this moment to rebuild the position from small to large for the duration.

We know that everything's ephemeral in this market if the Fed when it speaks tomorrow says whatever the high-frequency traders view as negative, even if it isn't. Remember: Any market that exhibits crudeness -- my own term meaning it goes higher when fuel costs more -- is one that's crazy enough to go down on even a benign Fed statement.

That said, when the whistle blows that says junk funds aren't big enough to bring down the whole shebang, you can get still get a rally and a strong one when a couple of lagging companies say something good at the same time.

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