How bad is this earnings season, really? We know that retail's been decimated. We've got numbers this week that could change that, but the big department store stocks, Macy's (M) - Get Report , Kohl's (KSS) - Get Report , Nordstrom (JWN) - Get Report and JC Penney (JCP) - Get Report , were all awful.
We know that tech's been disappointing, with only a handful of winners and many losers. We know the airlines numbers have gone from bad to worse with price-cutting, excess capacity and a decline in revenue per average seat mile that smacks of the old days. All numbers are too high for all airlines, they should be cut today just to get them in line, and you can't own any of these stocks until the estimates are remotely near the actual numbers.
Oh, and of course, we always seem to be one step away from the big downturn, one step from a Fed rate hike that will knock everything down. We are, if you ask me, as bearish as ever about the prospects of the economy, both domestically and internationally, and the companies that sell into it.
In other words, we are teetering again, which always draws me back to the individual companies so I don't lose sight of the main chance.
With that, let's go over the individual quarters of the stocks in the industrial average. Thumbnail, of course, as there are 30 of them, but it is quite constructive to recall how good, frankly, most of them are. It is ridiculously out of sync with what people say and talk about and do.
I am a throwback in insisting on how the companies are actually doing, because the ETF-ization makes it, short term at least, a ridiculous exercise. However, it is important to know how things are out there on a company level, because we don't trade presidential futures, or gloom options, or indices in the abstract.
If so, from the discourse, I would own nothing but puts and cash. Nothing.
The numerical/alphabetical nature of 3M (MMM) - Get Report allows everyone to start off with something positive about the Dow, because it just keeps delivering. With a 2.6% yield, a fabulous balance sheet, a monster buyback and $8.35 in earnings power for next year, 3M has room to fall; but it will have terrific adherents if it does, especially if the dollar stays weak. Less than 40% is domestic, with about 30% Asia Pacific.
As usual, though, the less than 20% that is Latin America is hurting it. Latin America is a major and not-flagged-enough reason why things are feeling so horrendous out there. Venezuela, Brazil and Argentina together are just a black hole of compares, although the latter is getting better. The Mexican peso refuses to get strong, which is fine for those who want to build factories there to import goods here, but the economy itself translates horrendously for American companies that do business there. I am surprised that some company just doesn't break ranks and move there entirely.
American Express (AXP) - Get Report . It is hard to imagine from where the stock is, but AXP had a very respectable quarter, much better than people thought. Remember it beat by 10 cents and even though it is losing the Costco (COST) - Get Report business to Visa (V) - Get Report , it re-affirmed the year.
Express pretty much typifies this moment. It is not an expensive stock: less than 12 times earnings. But it is in such a competitive spot vs. Visa, MasterCard (MA) - Get Report , Discover and PayPal (PYPL) - Get Report that it doesn't seem to matter it is doing better. It's deeply embedded in the malaise of the market, and even though current management seems to have gotten it together, alas, no one cares. Here's an oddity: it is only $60 billion in market cap now, vs. Visa at $180 billion, MasterCard at $104 billion and even PayPal at $47 billion. Perhaps the market has simply passed it by. You have to wonder if it has been obviated and it even belongs in the index anymore.
Boeing (BA) - Get Report : OK, so it didn't beat numbers, but it reaffirmed guidance and had terrific top-line results. Still, at 15 times earnings, the stock of Boeing can't get any traction because its customers are almost all doing badly vs. expectations, Bombardier (BDRBF) and Airbus (EADSY) are doing better and even though you have to buy planes in U.S. dollars, the makers of other planes can afford to lose far more money than we can.
I don't know what to say about Boeing, other than until our airline stocks stabilize, Boeing will just bounce around, buoyed by a 3.3% yield on the downside unless some wise-guy Fed official actually believes things are getting better in the country and the world. Needless to say, their optimism when coupled with what the market sees out there is a very toxic brew for a company like Boeing.
The stock of Caterpillar (CAT) - Get Report was a creature of the great April Chinese speculative commodity bubble, some sort of new insanity out of China, where individuals were wagering on commodity directions instead of stock directions. Of course, we know the truth, which is, there is too much of everything from the ground right now and not enough going on away from raw commodities to move this stock.
Still, it is the world's favorite big-cap short and if you say anything good about it, you are perceived to be a moron. When it gets to 5% down in the mid $60s, where it is universally considered to be going, let's re-think. Otherwise it is a consensus short and consensus shorts do work almost always, unless there is a restructuring and I don't see one coming here. This is a company that really should move to Mexico. It would crush the competition. But it is American through-and-through, for what that's worth these days.
Chevron (CVX) - Get Report as well as Exxon Mobil (XOM) - Get Report chose not to split themselves up and it turns out that a combination of an exploration and production and a refining, chemicals and marketing company is a pretty good one, tested in good and bad times. Chevron's got some giant projects that have come on in 2016 in the Gulf of Mexico so it can afford to cut back exploration and production for now and just pay the dividend. At 4% there isn't much cushion, but if you think, as I do, that $50 is the new $40 for oil -- meaning that's where we are going -- it's a winner until oil gets there and then it pauses and digests.
Action Alerts PLUS portfolio holding Cisco (CSCO) - Get Report is this week's business. Somehow, despite having nothing to do with personal computers or cellphones, and having much more to do with the internet of things, communications and the internet as a whole, this stock trades more like Intel (INTC) - Get Report , Apple (AAPL) - Get Report , Microsoft (MSFT) - Get Report and Western Digital (WDC) - Get Report than it does like the faster-growing cloud and telco equipment companies. Still, because of competition from Ciena (CIEN) - Get Report , Juniper (JNPR) - Get Report and Arista (ANET) - Get Report , the first two perceived to be doing badly and the second one considered red-hot even if it isn't, Cisco is just disliked by many portfolio managers. Its near 4% yield and its low valuation -- 11.5 times next year's earnings -- seems to cause yawns at best and concerns at worse that the business is slowing to less than GDP growth.
Boy, does this market love in-line earnings from a big consumer products company that is a beneficiary of lower commodity costs and a possible weakening of the dollar. That's the only explanation I can come up with for how Coca Cola (KO) - Get Report stays at 22 times next year's earnings. Incredible how loved this stock is because so many people think we are only one Fed hike away from a recession. But here's a question: If we get a hike, are we going to not love that 3% yield anymore?
I can't think of a good reason to own this stock, but no one can think of a good reason to sell it either, and the fact that the price wars for carbonated soft drinks are now over in this country makes the story very compelling for sleep-at-night portfolio managers.
Trifecta Stocks portfolio holding Disney (DIS) - Get Report : How bad was it? The company missed, and it missed all over the place according to the critics. So let me ask you, why is it at $100 and not in the low $90s? Is it because it is like Apple, just taking its good old time getting there? Or do people realize that it has good growth no matter what and that as "bad" as ESPN might be, it is not as bad as people think? If the company hadn't closed its video console business and if the dollar had been weaker and ABC a little stronger -- all possible -- then this stock would be higher not lower.
I am tired of the Disney haters who now make the story about Bob Iger's secession problems. I find the discourse embarrassing. Shanghai Disney and an endless number of new movies that have Captain America-like numbers without big box office risk make this an entertainment stock to own in a sector where you gotta own something.
DuPont's (DD) - Get Report stuck here, and I think that's because no one trusts the government anymore. Despite the assurances from management of both DuPont and its soon-to-be merged with Dow Chemical (DOW) - Get Report , I believe there is resistance from the street because the antitrust department seems to have gone berserk.
I believe in the combination and think it will be a great one. Just go check how much value Ed Breen has produced over his career; just go look at Tyco, for heaven's sake. Plus I believe the ag cycle is making a comeback. So I am all in DuPont and Action Alerts PLUS owns Dow. But this has become like Walgreen's (WBA) - Get Report . It would be better if the deal closed or the deal broke down. No man's land is a disaster these days. That's why this one can't get off the schneid.
Exxon? It's had such a move that it is almost impossible to see it to go up much more than it has. The fact that it has done as well as it has and only yields 3% is a testament to the fact that all anyone wanted out of an oil stock is for it not to be an oil stock, but a bank with conservative principles. In short, we found out what we like about Exxon: it doesn't fluctuate much with oil prices, which is a dream come true for closet-indexers who need oil exposure to make up their portion of the S&P energy exposures.
General Electric (GE) - Get Report stalled here, a victim of its own success. It has had a monster run and while I think it is ready for another, given its consistent revenue streams and its extrication from finance, it needs to lose the designation from the feds that keeps it from buying back as much stock as it can. We are buying for Action Alerts PLUS and I think we want to get more aggressive as oil moves higher, because what's keeping this company, with the best organic growth of the majors -- better than the more highly valued 3M and Honeywell -- is the oil portion of its business. I would buy this stock aggressively.
, which Cramer co-manages as a charitable trust, is long CSCO, AAPL, DOW, GE.