It's Been the Year of the Haves and Have-Nots
Posted at 3:02 p.m. EDT on Monday, Dec. 21, 2015
As 2016 draws to a close, I believe we will look back at the last 12 months and declare it the year of the haves and the have-nots.
The disparity within groups is extraordinary this year, the gulf between the winners deep and wide and pretty much unfathomable.
Let me give you some incredible samples of the haves and have-nots that I think will rip your eyes open.
Why don't we start with the Web? First, we have three winners: Alphabet (GOOGL) - Get Report, Expedia (EXPE) - Get Report and Facebook (FB) - Get Report. Alphabet, formerly known as Google, got new life breathed into it with the hiring of Ruth Porat as chief financial officer, after her amazing CFO work at Morgan Stanley (MS) - Get Report. I think 2016 will be the year where they really monetize YouTube. Facebook remains a money machine and a virtual monopolist of, well, yourself. Only Instagram can beat them now, and they own that, too. Expedia has become the modern way to travel.
How about the other side of the ledger? Yahoo!'s (YHOO) hideous, minus-34% as it is widely perceived as falling behind its peers even as it has a huge asset on its hands, a gigantic stake in the Alibaba (BABA) - Get Report. You back out that chunk of the Chinese online company and subtract Yahoo! Japan and you get, well, nothing. The stock's trading as if it is worthless. Twitter (TWTR) - Get Report is down 37% for the year as it seems that whatever initiatives are tried, they can't grow the darned thing. It's a good core business, but maybe for someone else? (Google, Facebook and Twitter are part of TheStreet's Action Alerts PLUSportfolio.)
The individual slices and dices of the Web were downright awful. Yelp's (YELP) - Get Report down 51% as it has stopped growing at the old pace and seems as if it has lost out to others. As is the case with Groupon (GRPN) - Get Report, down 61% and it could still be too early to buy the latter. TrueCar (TRUE) - Get Report, a Web abettor of car sales, is off 61%. Zillow (Z) - Get Report changed its stock configuration, but the online real estate company's stock has been sinking like a stone from $33 down to $24 in just three months.
The industrials are a remarkable have/have-not situation. Two years ago, I don't know if you would consider GE (GE) - Get Report an industrial. You might have said it is an industrial and finance company. Now that it has shed almost the entire financial business, with the rest happening in January, it's up 20% as it has sector-best 2%-4% organic growth. It's a remarkable transformation. (GE is part of TheStreet's Dividend Stock Advisor portfolio.)
Consider the other side, though. Eaton's (ETN) - Get Report off 25%, Parker Hannifin (PH) - Get Report and Emerson (EMR) - Get Report down 26% and Caterpillar (CAT) - Get Report minus 28%. Those last three seem like real winners, though, vs. machinery makers Terex (TEX) - Get Report, off 34%, Manitowoc (MTW) - Get Report, minus 35%, Cummins (CMI) - Get Report down 40% and Joy (JOY) off an astounding 73%. The crowd down 25% is rather inexplicable given that they are pretty much in the same businesses as GE. They just failed to execute, although Caterpillar has more to do with the latter group. Joy makes coal equipment, so there's not much they can do. Cummins is the real outlier here. It is a truly fantastic company but truck engines just aren't selling. Well, at least it's not doing as poorly as Navistar (NAV) - Get Report, which has plunged 75%.
Retail's all about Amazon (AMZN) - Get Report, which is up an outstanding 114%. You have to imagine that it is taking huge share from Macy's (M) - Get Report, down 46%, Dillards (DDS) - Get Report, off 47%, Bed Bath & Beyond (BBBY) - Get Report, which has dropped 33%, Dick's (DKS) - Get Report, which has lost 28%, Best Buy (BBY) - Get Report, which has shed 24% and, finally, Ascena (ASNA) - Get Report down 23%.
Then there is the real casualty, at least market capitalization wise -- Wal-Mart (WMT) - Get Report, which has lost 30% for the year. Yes, I truly do believe Amazon's the culprit, but the mall does also seem dead as a doornail. (Amazon is part of TheStreet's Growth Seekerportfolio.)
These retail losses seem tame vs. the apparel and accessory categories, where you have Fossil (FOSL) - Get Report down 66%, Deckers (DECK) - Get Report off 47%, Kate Spade (KATE) and Michael Kors (KORS) minus 46%, PVH (PVH) - Get Report losing 42% and Ralph Lauren (RL) - Get Report off 40%. Boy, one thing's for sure, people aren't buying apparel. The only accessories that seem to be flying off the shelves are tools; witness Home Depot (HD) - Get Report rallying 24%, an extraordinary move, and sneaks, with Nike (NKE) - Get Report rallying 34%. Those are amazing disparities.
Supermarkets are another amazing dichotomy. The everyday grocer, Kroger (KR) - Get Report, has roared ahead 27% vs. Supervalu (SVU) , off 33%, Whole Foods (WFM) has lost 34%, and The Fresh Market (TFM) has gone down 42%. When you consider that these all sell pretty much the same foods, that's an incredible disparity.
Restaurants used to pretty much trade together. That's a thing of the past. The winner here is McDonald's (MCD) - Get Report, which is amazing, up 25%. Darden's (DRI) - Get Report not too shabby either, up 21% including an outstanding quarter just reported last week.
One of the losers -- and there are many -- is Chipotle (CMG) - Get Report, which has given up 21% because of both the illness outbreaks and slowing same-store sales. Chipotle's not alone: Brinker's (EAT) - Get Report off 21%, Habit (HABT) - Get Report is down 27%, El Pollo Loco (LOCO) - Get Report is minus 35% and Noodles (NDLS) - Get Report is down a horrendous 59%. Ouch! Shake Shack (SHAK) - Get Report was a big winner, but its plummet from $96 to $37 has really cost people a fortune. Can new management really mean that much to McDonald's? You bet it can.
You have to go back in time to the dentist where you would read Highlights to find the analogue to entertainment. Goofus loves CBS (CBS) - Get Report, down 17%, Discovery (DISCA) - Get Report, off 23%, Time Warner (TWC) , which has declined 27%, and Viacom (VIA) - Get Report, which has been pulverized for a 47% loss. Gallant's binging on Netflix (NFLX) - Get Report, which has soared 138%. Only Disney's (DIS) - Get Report in the middle on this one, having rallied 13%, and it would have been much more, no doubt, considering the success of Star Wars, but it's being bashed left and right by an analyst who is saying over and over that cable losses will stunt anything that the movies can do for the company.
Enterprise software's got a have, Salesforce (CRM) - Get Report, which has gained 29%, and a have-not, Oracle (ORCL) - Get Report, off 19%. One's growing like a weed and is very expensive, but the other isn't growing fast at all and is very cheap. You can see which the market prefers.
What do we make of all this? What conclusions can we draw? I think the first and most important one is that industry-sector ETFs are totally repudiated by these numbers. You homogenize everything when you do that, and the haves are lost within the have-nots. Second, the Web has truly destroyed the pricing for a whole bunch of industries and within sectors it's created its own winners and losers. The gulf between an Alphabet or a Facebook or a Yahoo! is stunning given that Yahoo! had a head start on all these companies and has fallen back so badly.
Third, when you look at what Kroger has done to the natural and organic industry, basically co-opting it for its own, you have to shudder if you are going against these guys. They have most certainly cracked the code. That's just awesome management.
Finally, you have to recognize that some models may simply not be working anymore. Is the traditional television and cable market under siege? Most definitely. Is it all Netflix? No, it is also all the alternative content, time shifting to unmeasured viewers and a healthy sense of different uses of time, whether it be Facebook or maybe even video games as Activision (ATVI) - Get Report, Electronic Arts (EA) - Get Report and Take Two (TTWO) - Get Report are up 91%, 44% and 23%, respectively.
For me, I always want to ask, now, when my charitable trust buys something, who is coming in, who has a toehold, who is taking it to a company with a stock under pressure? It's very rare that a have-not becomes a have -- witness the outlying nature of McDonald's, or vice versa, Chipotle. But when it happens, you better take notice, or else you might find yourself on the wrong side of not the trade, but the actual investment.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long GOOGL, FB and TWTR.
The Wrong Type of Debt Is Killing These Stocks
Posted at 6:12 a.m. EDT on Monday, Dec. 21, 2015
It's not just the fact that there are so many bad stocks out there that makes this market so nauseating.
It's that the bad stocks trade as if there is no price they are worth owning. When I looked at the charts last night I was shocked at how many stocks like Encana (ECA) - Get Report and Genworth (GNW) - Get Report and U.S. Steel (X) - Get Report there are, stocks that, if you didn't know any better, can't make it in their current forms.
Now, I know Encana has made some gutsy moves, slashing its payout by 79% and selling a lot of non-core assets. But the simple fact is that while it has been able to raise and save cash and keep drilling going, it has a mountain of debt, including $7 billion in long-term borrowings, and that's just too much for this company to endure. Most stocks do not recover from going down to $5. I think this one can't, either. Sure, natural gas can spike, but it hasn't. Certainly not enough to save this one.
Genworth has a long-term care problem, which it has continued to minimize, instead trying to get you to focus on its mortgage insurance business, which is back being terrific after a long period in the wilderness. Many of the long-term care policies were written before life expectancy took a great leap forward, and medical care for these people and their assisted home living were budgeted incorrectly. So Genworth's stock repeatedly goes down, even though some of its other businesses have real value. Still, the losses from long-term care are, quite simply, unfathomable and I think Genworth's still in big-time denial mode.
U.S. Steel is amazing to me. It's been in some tough jams before, but always escaped and became a decent buy. But these days one pretty much has to presume from the action that there's no real bottom there. We have big imports, lots of dumping and a still-high cost structure.
The problem with this kind of thing is that we can't figure out if the stocks have fallen too much because of an overabundance of fear, or the stocks' declines are saying "don't you dare touch me, these are going to zero."
The really hard part of this market is that there are countless numbers of companies like U.S. Steel and Encana and Genworth, all over the place. They are, in some ways, emblematic of the moment. Southwestern Energy (SWN) - Get Report, for instance, is a very good company with very good natural gas assets, but it sells at $5 because people think it can't make it. That's most likely because a little more than a year ago Southwestern bought some natural gas assets in the Marcellus and the Utica for $5.8 billion and while they are very good assets with inexpensive sources of natural gas, they killed Southwestern's very good balance sheet.
U.S. Steel isn't alone. I don't know how AK Steel (AKS) - Get Report can fight these trends. And Genworth is not the only company that wrote or bought long-term care businesses. Canada's Manulife (MFC) - Get Report has just that kind of business.
As each of these companies is examined, we come back with the same answer each time: debt taken down at the wrong moment in the cycle that will not be able to be crunched without wrecking the equity first; that's what faces all of these kinds of weakened situations in many different industries.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.