Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- Four companies that would really synergize with Apple, if Tim Cook would just break out his checkbook.
- Five companies the market is ready to forgive.
- Why the new year brings hope and caution.
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4 Companies Apple Could Buy for Less Than $25 Billion
Posted on Dec. 22 at 5:09 a.m. ET
So what should Apple (AAPL) - Get Report do? If the company's stock really is stalled or going lower, if there is no chance for numbers next year to be higher than this year -- the prevailing wisdom -- what should CEO Tim Cook do about it?
First -- unlike so many people who own this Action Alerts PLUS portfolio holding's stock, which is down about 2% for the year -- he doesn't have to fret. The company's done incredibly well under his tutelage, and I think it will continue to do so. I am by no means as certain as "everyone else" that sales are going to be down or that the iPhone cycle is now complete. I believe Cook when he says that the share take from Samsung is a natural place for the company to win business from. I also believe that China is doing quite well, and that matters. I don't have my "channel checks," so I can't have boots on the ground, but what has Cook done to make you doubt him? Few executives are as focused and as strong as he is.
It is a fact of life that many professional investors think that the company can't maintain earnings momentum because it doesn't have enough large streams of recurring, higher revenue to offset what could be a slowing of the iPhone. It is also a fact of life that the stock is "over-owned" by the investing public. I get the tallies from my Mad Money staff on Wednesdays, when we play "Am I Diversified" and Apple is deeply embedded in the Mad Money account base. That's a brutal combination of too much retail and not enough institutional ownership.
I console myself, as the director of a trust that owns Apple, that it sells at about 10x earnings, but you usually don't get that kind of multiple shrinkage unless a company is going to miss the estimates.
So here's what I would do.
First, I would just swallow it and buy Harman (HAR) . The company's down to being $6 billion. It is the brains of pretty much every single major car company, particularly the expensive car companies, and its factories are located next to the factories of the auto companies, which makes it a hand-in-glove situation that Apple can't do right now. For less than $10 billion, you get to have the biggest recurring stream of revenue in tech, the internet of all things for cars. Think about how seamless it would be. You put your iPhone into a cradle and it activates everything that is Harman, which is a ton of the intellectual property. Plus, owning Beats didn't get Apple much. This gets much more.
Why Apple won't do this is pretty strange if you ask me, because Apple CarPlay needs to play ball with more car companies the way Harman is, and Harman's stock is no longer expensive.
Second, I would buy Pandora (P) . You want to own this music business, you buy the company that just got the copyright rule that gives you a steady revenue stream to augment the sub roles, which are booming; $4 billion gets you this one.
I would reach out to the venture capitalists that still own a lot of Fitbit (FIT) - Get Report and I would go to CEO James Park and say we are going to make you an offer you can't refuse. That way, Apple would own the high-end smart watch with its current offering and the lower end health and wellness brand, with Fitbit. I believe Fitbit will be the way that companies lower their insurance bills, and it will be a staple of the enterprise. This one you would have to overpay for, perhaps as much as $8 billion, but Apple needs to own this category as its current offering doesn't measure up yet.
Finally, I would spend $4 billion and buy VeriFone (PAY) , which is just sitting there waiting to be purchased after delivering an OK quarter. Apple needs to get an installed base of Apple Pay users, and the best way is to own the ubiquitous point of sale as VeriFone does.
Probably less than $25 billion gets you Harman, Pandora, Fitbit and VeriFone, all of which would give you a recurring reason to own Apple besides the Apple iPhone. It makes so much sense, I can't believe they haven't thought of it already!
Five Companies the Market Is Ready to Forgive
Posted on Dec. 23 at 6:17 a.m. ET
You never know whether it is just an era of good feelings at the dawn of 2016 or if there's just a sense that things aren't bad as we thought.
That's what forgiveness mode is about, and we are seeing forgiveness all over the place. Last week, CVS Health (CVS) - Get Report , which is being held in the Trifecta Stocks portfolio, came out at an analyst meeting and raised the low end of its estimate range, while giving you a 21% increase in the dividend. It was an outstanding day, but Goldman Sachs used the occasion to downgrade the stock -- it may have been coincidence, but it did have a huge impact, and the stock got rocked from $97 to $94. I came out swinging and said this was ridiculous and it was a terrific opportunity to buy, because the company is doing better than expected and it is one of the best retailers out there.
On Tuesday, it roared back above $97 to $98 on no real news. It probably isn't done either, as there is so much good news flow that is going to come out from its tie-up with Action Alerts PLUS portfolio name Target (TGT) - Get Report and its pharmacy benefit manager business.
It should never have been down to begin with.
Or, how about General Mills (GIS) - Get Report ? The company reported a miss on the top and bottom lines, and growth is continuing to slow despite the Annie's acquisition and the changeover to more natural and organic staples plus the sale of Green Giant. U.S. retail sales fell 4%. Now, that's not international, that's domestic. No strong dollar issues.
But the company continues to buy back a tremendous amount of stock -- about 30 million shares out of a total of 593 million outstanding. CEO Ken Powell is talking up some of the big changes in the line-up that could reverse some of the slowing trends. He gave a very vigorous presentation that made you feel you should own the stock, not sell it, and although it fell immediately from $59 to $56, I figured it would just be a matter of time before it is forgiven. It didn't even give you much time, as it is $0.80 under the level at which it was when it reported.
How about Celgene (CELG) - Get Report ? Can you believe how many people have written this company's stock off because of generic woes and patent challenges? In the meantime, it is expected to earn $7.20 in 2017, making the stock sell at a discount to the average stock on that number. Why not? If a patent challenge is going to win or a key drug like revlimid is going off patent, then the 2017 number is a stretch. But all of that's over, now that Celgene made a deal last night that gives it seven more years of exclusivity. Now the 2017 number is for real and the stock is free to soar.
What else could be next to rebound? I thought that Costco (COST) - Get Report got the short end of the stick when it reported not that long ago, and a close reading of the transcript of the call explained away any weakness. The stock fell from $168 to $158, but now it is starting to mount a comeback, and I suspect that it can clear the mid $160s from its $161 perch. Quality retailers like that don't stay down very long.
Finally, one more: Accenture (ACN) - Get Report . Here's a stock that went from $109 to $101 on what was supposed to be a bad "miss" when it reported last week. The company's got a huge overseas business that made the earnings come in weaker than what was expected. This is such a high quality company and all of the lines of business did quite well, but everyone is so used to seeing this company blow away the quarter that its double-digit overseas sales didn't count as much as it should have.
Now, both Costco and Accenture have hair on them, certainly more than CVS, but both the retailer and the consultant company are doing so much better than General Mills, it's silly to compare them.
I think that these two will be the next to be forgiven, and the market's already started the process of rehabilitation that is expected when you get terrific companies with one-off sales that happen only a few times a year.
It's a Time for Hope After All
Editor's Pick: Originally Published Wednesday, Dec. 23 at 1:40 p.m. ET
The redemptions are over. The hedge funds have raised the cash they needed to send back to angry investors. The tax loss selling's been taken.
And you are looking at what happens when that occurs, especially on a day when oil goes higher for a good reason -- a decline in inventories. Yep, when we got a signal that crude inventories were down 5.88 million barrels, we were off to the races. You have to wonder if that's the biggest drop since June, perhaps we've had some actual cutbacks, given that it is so warm very few people are burning the midnight heating oil.
So now the question becomes which stocks are up artificially and which have staying power. And which stocks that are down because they've been so fabulous in 2015 are simply candidates for pure profit-taking as opposed to redemptions and losses worth offsetting capital gains.
First, let's understand the setting. A new year is always, always, always greeted with optimism even if it is totally unwarranted.
I can recall going to Disneyworld with my kids and standing outside of It's a Small World the day after New Year's back in 1996 buying up shares in Reynolds Metals, Alcoa (AA) - Get Report , Alcan, International Paper (IP) - Get Report and U.S. Steel (X) - Get Report because everyone was so optimistic. New years begin with new numbers, and when we saw the estimates that analysts would put out, expecting a boom, you had to grab for the manufacturing and mining gusto.
Of course, the estimates invariably proved to be too high, the year much less robust. It didn't matter, though. It is how it was played. I know this because I stood outside at that payphone for three years in a row and not just because I got sick of the song "It's a Small World After All."
I think the same thing is happening here this time, but it is not the U.S. where hope is springing eternal. It's China. There's not a month gone by where we haven't heard that China's about to launch a furious stimulus plan. Because the country is full up with new apartments, the new themes are hilarious: gigantic factory and power plant building in northern China where the wages are cheaper; huge refineries to be built that enable China's bad, dirty gasoline to be refined to American standards as it is responsible for about a third of the big-city pollution; a huge redoing of the plumbing and underground urban infrastructure because it's old and decayed; and, invariably, a massive buildup in planes and ships, particularly labor-intensive aircraft carriers.
I don't believe it. I think the government is content with the explosion of consumer spending, witness the incredible numbers from Nike (NKE) - Get Report , as China is the hottest market in the world for sneakers right now. They like the consumption of Apple AAPL smartphones and coffee from Starbucks (SBUX) - Get Report . I write that because if there were really going to be a stimulus program that could move the needle, then we would see the Baltic Freight Index be soaring and not stuck under 500, one of the lowest readings of the year. China would have to be importing huge amounts of iron and coal and copper and so much else if it were for real. (Apple and Starbucks are part of TheStreet'sAction Alerts PLUS portfolio.)
So my first take is if you are buying stocks like Caterpillar (CAT) - Get Report or Cummins (CMI) - Get Report or Freeport (FCX) - Get Report and Joy (JOY) , for that matter, you have until a couple of days in the New Year where you can profit from the hope fumes. Yes, there has been that much tax loss selling in these names. Deservedly so, all you heard in 2016 was "cutting numbers CAT" or "downgrading Joy." You don't spring up as if by magic and stay up. Not without improving fundamentals, and I don't see any improvement.
I would extend that sell-on-the-hope thesis to anything coal or iron or even steel as they can all bounce here, but because I don't believe in the Chinese thesis, or at least am very skeptical, I know there's too much of all of these and when numbers are reported, these stocks invariably go up, not down.
I feel the same way about the bouncing retailers, the Kohl's (KSS) - Get Report , the J.C. Penney (JCP) - Get Report and the Macy's (M) - Get Report . These have all gotten oversold as a combination of too-warm weather coupled with the dreaded Amazon (AMZN) - Get Report competition and the direct-to-consumer curse. Almost all of the branded merchandise sold at these stores can either be bought more cheaply on line from Amazon, where Prime brings down the cost, or from the manufacturer itself. (Amazon is part of TheStreet'sGrowth Seeker portfolio.)
I think you get a double whammy for these: big markdowns because of excess inventories and an acknowledgment this quarter that Amazon's taking gigantic share. But these companies do not report for ages, and if we see a cold snap and gasoline stays low, again, you can own them for a couple of weeks.
I do like the action in the big industrials, like an Emerson (EMR) - Get Report or an Eaton (ETN) - Get Report or an International Paper or Dow (DOW) - Get Report . They've gotten ridiculously oversold, and while they are not necessarily doing well, they aren't doing this badly. You can root around and find some stocks that are more than just trades, and I would include Dow in that equation. That DuPont-Dow tie-up is just extraordinarily good for both companies.
Which brings us to oil and gas. Here's something very hard to fathom. I think the redemptions for hedge funds were particularly egregious here and that they are now over and the group can bounce. Last night, we explored the notion that if the euro goes higher, oil will go higher. Of course, that means the euro must continue its rally, something I think is impossible if we are going to have endless rate hikes. I believe the inventory number is an outlier and that the Saudis are able to pump more and do more damage to American industry than just about anyone thought possible except the hardcore bears.
I don't think the Saudis feel like they've done their job yet. They haven't seen many of the little companies here go under. With the exception of Marathon (MRO) - Get Report , they have not seen dividends be slashed on the oil side --pipelines are another issue. The Saudis want to wipe out our marginal producers, so the longer they keep oil under $45, the more successful they will be. At the same time, they make it so it's hard to want to drill in Iran -- too risky, not enough reward. And they know the way to really get at ISIS is to keep oil cheap, not to destroy all their trucks with $1 million missiles. Fifty thousand gallons of gasoline isn't worth the cost of that missile.
That means to me that oil can bounce closer to $40, but I don't think the Saudis will let it go any higher because they will fail in their mission. So you can enjoy the bounce, but if your oil company has a stretched balance sheet, hit the eject button if we get to $40 oil.
The master limited partnerships are a different story. They have all been ravaged by selling that stemmed from when non-MLP Kinder Morgan (KMI) - Get Report turned the world upside down with its 75% dividend slash. I say let these ride as the redemptions were insane here. You have a chance to pick up some real performance and I would take it.
Finally, take note of what's going down today. Those are the companies with the best fundamentals but have the biggest profits. Let those be taken and, on the second-to-last day of the year, do some buying. Why then? Because everyone will have that idea on the last day and you will beat them to the punch.
So, enjoy the redemption and tax loss selling completion and remember my frantic phone calls from It's a Small World and let 'em ride, but don't overstay your welcome. The fundamentals are awful for almost every resource company rallying, and I don't expect that to change any time soon.
At the time of publication, Jim Cramer's charitable trust Action Alerts PLUS was long AAPL, COST, DOW, SBUX and TST.