Jim Cramer shares his views every day on RealMoney. Click here for a real-time look at his insights and musings.
Cramer: Chew on These Points About Diamondback's Permian Buy
Posted at 7:10 a.m. EDT on Thursday, Dec. 15, 2016
Too much FANG? Or just too much of Diamondback Energy. Thursday, Diamondback (FANG) - Get Report sold 10.5 million shares of its red-hot stock for $97 to help pay for a gigantic acquisition of Permian acreage. It's yet one more stock-for-oil deal, of which all have worked so far, after an initial hiccup.
Still, you have to wonder whether this is a FANG too far. Sure it is buying into the most fecund acreage in the U.S. Yes, Diamondback is shrewdly pricing the deal down 13 from where it's high and off four from yesterday's close.
But this is $2.4 billion all-in deal, to buy 76,000 acres from Brigham Resources, comes after an OPEC deal that people are already beginning to see chinks in.
What' s the worry here? Let me give you a bunch of them. First, while oil spiked like a demon--running almost to $55 after we got the second agreement limiting non-OPEC, chiefly Russian, energy production--the price of energy out two years didn't budge. Neither has the price out five years had much movement. They are both in the mid-$50s price range.
To me, that says that as much as you might want to believe that OPEC has discipline, the longer-term, and in many ways more important, markets are signaling that what you see is what you will get--and no more than that.
Second, we know that the Permian is fabulous acreage, where you can get oil out of the ground for as little as $35--that's right potentially making $15 a barrel, as we have heard from Pioneer Natural Resources (PXD) - Get Report and Cimarex Energy (XEC) - Get Report of late--at a certain point all of this drilling could be sowing the seeds of the market's own destruction.
Think about it like this. One of the main reasons why oil is stuck at these levels and no higher is that outfits like Pioneer are selling as much oil forward as they can, meaning that they are drilling and locking in gains right now. If really smart people like Scott Sheffield, the outgoing CEO of Pioneer, are selling into these futures markets, should you be buying?
Third, have you seen the U.S. rig count lately? It's almost back to where it started this year. That's right, after falling from 664 down to 404 last May, it's now up to 624.
The spigot's turned back on. While this country can't make up for the 1.8 million estimated barrels that we think OPEC and non-OPEC countries will be cutting, at this pace, we will be a factor in balancing supply and demand.
Finally, our new president hates OPEC. He's putting into place a cabinet that truly does favor drilling pretty much everywhere, and while no place is as cheap as the Permian in this country, with the way technology is lowering the price of exploration and production, who knows how much we can pull out of the ground. Again, if you recall at the beginning of the week, Rusty Braziel, my go-to energy source from RBNenergy.com speculated on Mad Money that we could overproduce here to the point that we could tip the balance into oversupply.
So, just be careful here. This FANG is up 50% for the year. It's buying into terrific acreage. But be aware that the stuff it is pulling out of the ground has to keep climbing before you get too excited about participating in still one more equity deal.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.
Cramer: Semiconductors Have Been Playing Leapfrog; Airlines Could Be Next
Posted at 6:36 a.m. EDT on Wednesday, Dec. 14, 2016
Sometimes you can just sense what they are going to come for. Classic example: Ever since Western Digital (WDC) - Get Report told analysts that demand had picked up back on Dec. 6, including the personal computer business, the semiconductors have taken their turns going up pretty much each day.
Yesterday was Seagate Technology's (STX) - Get Report turn--and it rallied 4%. You could say it moved up on nothing. But I think the reason is clear: If business is that good for Western Digital, and that includes disk drives, then it has to be good for Seagate, which makes similar products.
So people just bid up Seagate too, with an understanding that its dividend, which people had thought to be in jeopardy, turns out to be safe. That gives you a 6% yield in addition to any capital appreciation.
We've seen this play out with all of the component companies that are similarly situated to Western Digital, including Intel (INTC) - Get Report , Advanced Micro (AMD) - Get Report and Micron Technology (MU) - Get Report . They just play leapfrog as the multiple incessantly expands.
Now that we have seen some of the traffic numbers balloon for the airlines, I believe the same thing will play out with that group. Alaska Air (ALK) - Get Report and Southwest (LUV) - Get Report , the premium companies, get a 12x multiple now, up a multiple point from a month ago. American Airlines (AAL) - Get Report , United Continental (UAL) - Get Report and Delta Airlines (DAL) - Get Report are around 8x to 9x times earnings, also up about one-to-two multiple points.
I think you could see the same progression for those laggards. Another game of leapfrog.
Now this game works only as long as you have stocks that are valued so appreciably lower than any others in the market that actually have a chance to do well in 2017.
Most of the industrials are incredibly highly valued now, given the Trump tripod of deregulation, lower taxes and repatriation. There are other areas that could be revalued though. The autos, for example, are still selling at ridiculously low multiples, but there are secular-decline concerns involving both self-driving cars and younger people not buying cars as they used to.
So I wouldn't play leapfrog too deep. But it does seem as if the components and the airlines are still ripe for more revaluation. And who knows? After some catch-up by the laggards, I bet people go right back to buying Western Digital and Southwest again.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.
Cramer: Is Dow 20,000 the Market's Kryptonite?
Posted at 4:06 p.m. EDT on Tuesday, Dec. 13, 2016
Look at these breakouts! There are so many of them they are hard to count. You see Qualcomm (QCOM) - Get Report making its big move, having just fallen to $64 last week on worries about China. (Qualcomm is part of TheStreet's Dividend Stock Advisor portfolio.)
And the growth oils are trying to take out their best levels.
All in one day. Yet as I said in one of Tuesday's videos, every time the Dow gets near 20,000, we are going to sell off.
It's just the kind of program selling you have to get used to.
Don't think anything of it. Pick the right stocks and you will be fine. Sell the extended ones if you have to.
But remember, Dow 20,000, as unimportant as it should be, will matter and many people will want to sell each time we get near it because it does scream "top" to so many.
Don't be that narrow. Just think about what's worth owning and forget about it even as others certainly won't let you do so because it is a historic marker--whether we care or like it or not.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long WBA.
Cramer: Rate-Hike Silver Linings Playbook Gets Dusted Off
Posted at 1:14 p.m. EDT on Tueday, Dec. 13, 2016
Don't look now, but guess who's back. None other than FANG. In fact, FANG's leading the charge higher after spending some time in the penalty box. Yep, as the Trump rally continues to unfold and Dow 20,000 beckons, we have to marvel that there's still one more rotation going on, this time back into the Nasdaq, most particularly Facebook (FB) - Get Report , Amazon (AMZN) - Get Report , Netflix (NFLX) - Get Report and Google (GOOGL) - Get Report , now Alphabet.
What gives? How does this happen?
First, as we pointed out last week, tech never really goes out of style. If it's really good, it just seethes and simmers and waits and then pounces.
This is an age-old pattern, and the reason why we urged you last week not to abandon the group but to buy them on the way down. Why does it always work?
A couple of reasons.
First, these stories truly have no flies on them. They each have a very good story to tell, and when we get a major move into the industrials and they begin to get stretched in valuation, we naturally decide, hey, these uber-growth stocks are no longer so expensive vs. the rest of the market.
Take Facebook. We know that we look at this company in what is known as the out years. By some counts, Facebook's stock is selling at only slightly more than the average stock now that it has moved up a lot. That's absurd, the company's got faster growth than just about any current large-capitalization company.
Amazon? We haven't heard much lately about it, but think about the interview yesterday with Philip Hawkins, CEO of DCT Industrial Trust, talking about the great demand for distribution centers for Amazon and the rest of e-commerce. That's the strongest part of the economy. How can you not own Amazon? (Amazon is part of TheStreet's Growth Seeker portfolio.)
Netflix. The company's still living off that last great quarter. Still five points off its high.
Alphabet? Here's another stock that sells at 20x next year's earnings. That's insane given its growth.
Oh, and how big is repatriation for Alphabet? It's got billions and billions overseas.
But it's not just FANG. The semiconductors and the disk drives are scorching.
And guess what else is moving? Apple (AAPL) - Get Report . I have been waiting for analysts to come out and make the case for 2017, and sure enough, right on schedule we have research from Citigroup (C) - Get Report giving us five reasons to buy the stock:
A new iPhone 8 super-cycle with a new form factor for the phone with wireless charging and bigger memory.
Tax reform will give it a big earnings boost, perhaps as much as 6%.
Sticky user base, which will help the service revenue stream. It could really ramp here from mobile gaming and streaming entertainment.
Enterprise partnerships including a deep one in India.
An attractive valuation that is at a slight discount to its own four-year median multiple. Oh, and now the ear buds are finally shipping. The market's lapping up any news now. (Facebook, Alphabet, Apple and Citigroup are part of TheStreet's Action Alerts PLUS portfolio.)
What the heck is happening here?
What triggers this kind of move right now? Is it totally random? Hardly. These high-growth stocks go up when inflation is tame. What tames inflation? Rate hikes. What are we going to get tomorrow? A rate hike. Historically, when we get a rate hike, buyers gravitate to the companies that won't be hurt by a rate hike.
What's more immune to a rate hike than tech and biotech? Will Amazon's growth be slowed by a quarter-point increase in fed funds? Apple? I can argue that Apple actually gains because it can earn more on its American cash. Celgene and Gilead?
Yep, these are the rate-hike stocks and they are taking off just when they should. It's the rate-hike playbook and it gets dusted off every time. This time is no different, giving these stocks the wind they need given that they have definitely not been Trump stocks.
The only thing that can really knock them? Tomorrow's summit between President Trump and the technology stock chieftains. Oops, I meant President-elect Trump. I wasn't sure which way this one could go, but Microsoft (MSFT) - Get Report founder Bill Gates softened the beach by saying Trump can lead through innovation.
Who knows, maybe tomorrow these become Trump stocks?
Stranger things have happened.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long FB, AAPL, C and GOOGL.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long WBA, FB, GOOGL, AAPL and C.