M, AAPL, AMZN: Jim Cramer's Views
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Cramer: Sector Demolition Derby Becomes the Sport of the Day
Posted at 3:54 p.m. EDT on Thursday, May 12, 2016
On Day One of an onslaught, every stock in a sector gets slaughtered. On Day Two, the buyers look at the rubble and decide what should have been trashed and what's actually treasure.
We've seen this pattern before when the market makes snap judgments and then has to undo them. Usually, though, they take weeks, or at least days, to be undone.
Not anymore.
And I have a theory why. In the old days, a company -- say a retailer -- would report a disgusting number or give a horrendous forecast, and sellers would dump it and look askance at others similar to it, but would let those be that are part of the sector but in a much different zone within the cohort.
So, if Macy's (M) - Get Report blows up as it did Wednesday, everything retail goes down. It's a fact of life. And when I say everything, I mean everything. The reason? I think it is because of the commoditization by sector that's gone on in this market. Put simply, almost every big capitalization stock is part of an ETF, or exchange traded fund, and the "knee bone connected to the leg bone" process of the group effort overrides whatever else might be happening to the individual companies caught up in the selling dragnet.
So, let's take Macy's. Its disastrous shortfall and guidance cut reverberated throughout every part of the consumer spending cycle. Macy's sent down Home Depot (HD) - Get Report , even as Macy's problem has more to do with Amazon (AMZN) - Get Report than with consumer spend. The reverberations obliterated the stock of Ulta Salon, Cosmetics and Fragrances (ULTA) - Get Report , as if women can somehow get to the Amazon beauty parlor instead of Ulta's. Irrational? It doesn't matter one bit. At least on Day One.
Same thing with the restaurants. They were all crushed by the weight of the shortfall, including the stock of McDonald's (MCD) - Get Report . Remember, the market doesn't distinguish why things went wrong. It just punishes the whole category.
On Day Two, though? We get the second look. Buyers rushed into the stock of Ulta as investors collectively realized what a mistake it was to homogenize and then crush everything. Ralph Lauren (RL) - Get Report helped the cause by delivering a very good quarter when it comes to retail. Its wholesale division was just OK, but the fact that its mall stores fared OK was viewed a major positive that overrode the collateral damage of Macy's even as Kohl's (KSS) - Get Report really stunk up the joint with a terrible miss. The good number from Lauren inspired buying in the beaten-down PVH (PVH) - Get Report and Nike (NKE) - Get Report , both of which have been endlessly pummeled here.
Restaurants were helped by a shockingly better quarter from Jack in the Box (JACK) - Get Report , which had been pummeled for weeks after it gave terrible guidance last time around. It looks like the company had underpromised enough that when it finally reported a decent number buyers went nuts for the stock. How powerful was the pin action? Domino's (DPZ) - Get Report and Yum! Brands (YUM) - Get Report caught bids and Darden (DRI) - Get Report swung back into the black. Oh, and of course McDonald's roared back into the black after one day in the penalty box.
The group was aided, ironically, by the fact that oil, which had been down, reversed intraday and finished nicely higher. Remember, we can't relate higher oil to the consumer at all because the big portfolio managers regard higher oil prices as a sign that the consumer is spending more. The market makes you suspend your rationality several times a day when it comes to oil, and you have to take it as gospel that even though higher gasoline is bad for the consumer it is somehow good for consumer-related stocks. In fact, the midday reversal in oil moved up almost the entire market, as it has done repeatedly in 2016.
How broad was the retail rally? It didn't take in everything, but it tried. For example, the stock of Home Depot tried to snap back. I think people are worried because it reports next week. But I bet it works its way higher through until the quarter is announced. Remember, this is planting season, the equivalent of Home Depot's Christmas holiday period, and, again you don't buy tomato plants through Amazon -- at least not yet. I like it into the quarter.
We had the same thing happen in technology. Wednesday was a hideous day for tech across the board as worries about enterprise- and cloud-spending slowdowns rolled through the entire sector.
Thursday, the sellers bore down just on the beleaguered Apple (AAPL) - Get Report , and those companies that sell parts into it. I don't think Apple can stop going down until the research firms who claim to love it start the downgrading. There are too analysts who profess love for Apple who wanted the stock to bounce so they could get off the buy train. It didn't happen, and now they are each trying to deal with the pain.
(APPLE is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells AAPL? Learn more now.)
It is my experience that what will happen now is that some finally will break ranks and we will get the downgrades that accompany the bottom. It hasn't happened yet. If you don't own it, you might as well wait until they do.
Some stocks, though, just can't get out of their way and they can undo an entire sector. I can't believe how badly this Valeant (VRX) acts. We had incoming CEO Joe Papa on earlier this week, and he explained how there was much to Valeant that the bears didn't realize, including lots of good drugs in the pipeline.
It hasn't mattered. The stock of Valeant is back to its old bad ways as an extremely negative article in The New York Times said the drug price gouging that Valeant admitted to hasn't been rolled back yet -- something that Papa promised would happen. At the same time, we keep hearing that the health care system is going to be shaken up by either presidential candidate, and that means that all drug prices might need to come down. When that story makes the rounds then you know that the biotechs are going to be punished, and they were all day.
So, what really was able to provide leadership? As is often the case these days, it's stocks that are the subject of takeover rumors. News stories about a possible bid for Monsanto (MON) from two different German companies ignited the chemical companies. Stories about possible food combinations surfaced as a major firm predicted that Kellogg (K) - Get Report could be on the verge of a bid. When you consider how well the stock of Kraft Heinz (KHC) - Get Report has been acting since it reported, you can understand why other food companies may want to emulate that firm's tremendous appetite for takeovers.
(KRAFT HEINZ is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells KHC? Learn more now.)
Oh, and it wouldn't be a bright, shiny day without more buying in Amazon and Facebook (FB) - Get Report , the two stories in this market that are viewed as unassailably positive. Sadly, though, for the rest of tech, these two are disrupters, not uniters, and they have no ability to take up anything but themselves.
(FACEBOOK is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells FB? Learn more now.)
So, after a hideous day Wednesday where individual stocks managed to pull down whole groups in the equivalent of phantom multicar pile-ups, buyers -- aided by stronger oil prices -- returned to the scene of the accident and picked up the cars that weren't damaged and drove away with them. It's the pattern of 2016 writ large, and if you aren't used to it by now, then it's time you came to your senses as it, right now, is the only thing that makes any sense in a pretty irrational moment for the entire U.S. stock market.
Action Alerts PLUS, which Jim Cramer co-manages as a charitable trust, is long AAPL, KHC and FB.
Cramer: Retail Could Go the Way of Newspapers and Books
Posted at 7:02 a.m. EDT on Thursday, May 12, 2016
It's not spending. It's just where it is spent.
And it's not just millennials anymore, it's anyone with a smartphone.
That's what I kept thinking about Wednesday when I read through Macy's (M) - Get Report conference call. As the company went on and on about the various factors that impeded sales, it never once could do what most of you would have done, which is thrown up the white flag, the one that says "okay, we are in a real jam here, and the solution is not readily available to us."
That's because, in many ways, Macy's is like the newspaper industry and the bookstore industry. Both first saw the web coming and didn't think it could really impact them, because they thought they were something special. Then they thought they could beat the web by joining it. Then, ultimately, they were beaten by it.
That's pretty much what's happening at Macy's right now.
By this time it is hard to remember how little power Growth Seeker portfolio name Amazon.com (AMZN) - Get Report had, originally. I remember 10 years ago, literally 10 years ago, going to the headquarters of Borders in Ann Arbor. What a bunch of fabulous people worked there. Just fantastic. You know what they did? They loved books. When I met with their top executives for an off-the-record meeting, we talked about how much we adored books. We each talked about what we were reading and how much pleasure we were getting out of it.
Amazon came up in passing as pretty much an annoying fly, something that could be swatted at because, how the heck can you browse at Amazon? Who is not going to want to go to the secular temple of learning that is a bookstore and just look around?
They never knew what hit them. Right until the end, they thought what mattered was the experience of going to the store. What they didn't realize is that people are time-stretched and just want to buy books to read them, and that where they bought them meant nothing. They were indifferent, at best. And the best browsing ended up being on Amazon anyway.
Sure, it dawned on some of these folks. Two years ago, I was out to see the owners of Nordstrom (JWN) - Get Report , and they talked about how they always relied on their excellent customer service to bring people in the door, including their legendary return policy and sales people that help you find what you want.
But Amazon has an even more legendary return policy -- whatever the heck you want -- and it has algos that know what you want better than you do, let alone a salesperson.
Nordstrom has spent fortunes trying to beat Amazon, much more per sales than Macy's. Where did that get it? And what thrives? The Rack, which I now regard as Nordstrom with less expensive prices, ones that are almost as good as Amazon's.
Temple of secular dressing gone by.
Now you say, how about this omnichannel? You spend enough, whether it be Nordstrom or Macy's or whoever and, at last you can keep up with Amazon?
Good luck with that. We now know that Amazon has more free cash flow -- not funny money, but free cash flow -- than any of these companies will ever have, and it is funded by other retailers, who need the web services that Amazon provides and a make a bargain with the devil.
In that sense, Amazon is the web, and retailers are newspaper companies with websites.
When I started "The Street" 20 ago next month, I would go from newspaper company to newspaper company, looking for funding. I would demonstrate what I was doing and show how unlike newspapers you could come out in real time, updating constantly. I talked about dead trees and how the idea of printing, bundling, putting in a truck, taking it to a delivery person and having that person put it on the lawn of people was simply ridiculous vs. what I wanted to do.
But we were dealing with dial-up Internet connections and no real installed base of fast PCs and an inability to place an ad other than a banner ad, and virtually no sense that anybody would ever be willing to give a credit card number to a website.
I wasn't laughed at. Instead, I was told that if it were ever to become a big thing they would be all over it, but in the interim they were making too much money enjoying what was, at that time, newfound monopolies, because ever city was becoming a one paper town.
Needless to say, by the time they figured it all out it was way too late and all they ended up doing was creating suicidal versions of themselves online. The only ones that could survive were those with such proprietary content that people would actually pay extra for it, because the web revealed just how much of a commodity news really was.
Plus, the web came with the unfortunate rebellious baggage of being free. Charging for anything was considered to be impossible and antithetical. I remember holding the line on it and insisting that we charge for financial content, because we could help you make money.
That stuck out as a category. Still does.
But anything else? Turns out it didn't matter where you got it, you could get it for free somewhere, even the same paper that you paid for.
They, too, like the people who ran Borders, didn't know what hit them. In many ways, the newspaper people still don't -- witness those people at the Tribune (TRCO) - Get Report , who are still trying to make it a go and are now willing to say no to a savior who has figured out that with scale, meaning if you own every paper, you can have a business that can grow.
Now, must this necessarily be the fate of Macy's? Maybe it can be the New York Times or the Wall Street Journal, where people pay for content. Maybe it can be Barnes & Noble (BKS) - Get Report , which limps on.
But can it return to the vast glory days of old? Not if it thinks the problem is a lack of newness, or excitement or selection or the calendar or a slowing consumer or a strong dollar. Those are just variations of what I heard at Borders or the myriad newspaper chains I went to for help when I founded thestreet.com, most of which are no longer in existence.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.
, which Cramer co-manages as a charitable trust, is long KHC, FB and AAPL.
