Thursday's rally on Wall Street was all about momentum, Jim Cramer told his Mad Money viewers Thursday. But not all momentum is good momentum, he said. Investors should only be buying stocks that are headed higher for good reasons, and not just because an analyst said so.
Most momentum trades are not rooted in the fundamentals of the company, they are decisions made purely on emotion. Emotion has no business on in your portfolio, however, because emotions lead to froth and froth is always bad.
The "greater fool" theory is alive and well in a frothy market.
What does a good momentum trade look like? It looks like Apple (AAPL) - Get Report, which told us recently that their retail and app stores did exceptionally well this holiday season. Apple is also seeing strong sales in China. It's almost hard to believe that just a year ago Apple cut its estimates on weaker-than-expected sales, but 12 months later is firing on all cylinders.
Compare that to the frivolous analyst upgrades of the bank stocks. Cramer said there's no news driving the financials higher, but the analysts' estimates have gotten too low and they're now forced to boost price targets or seem completely out of touch with reality.
So the next time you're chasing a momentum stock higher, ask yourself, Is the stock rallying for the right reasons or are you chasing it just because it looks like it's going to just keep rallying?
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Trade War, Round 1
Who's the biggest winner from the first phase of a trade deal with China? It's probably not who you think.
It's Tyson Foods (TSN) - Get Report. That's because China is reeling from an African swine flu epidemic that has decimated its hog population, and the U.S. is the only country that can meet the demand for pork.
By some estimates, up to 50% of China's hogs had to be destroyed because of swine flu, leaving the nation with dwindling supplies of frozen pork that will soon be depleted. The lost livestock can't easily be replaced as much of China's pork comes from backyard farms that are largely unregulated and prone to be re-affected by the disease.
Enter Tyson Foods, our country's leading pork producer and an Action Alerts PLUS holding. Tyson reported a weaker-than-expected quarter in November, yet the stock rallied 7%, as investors were already optimistic on the company's outlook for 2020. Add to this the promise of huge pork sales to China and and Cramer said Tyson has a catalyst for growth.
On Real Money, Cramer keys in on the companies and CEOs he knows best. Get more of his insights with a free trial subscription to Real Money.
Bed Bath and Beyond
Thursday, shares of Bed Bath & Beyond imploded, falling 19.2% after the company reported a 38-cent-a-share loss that seemingly stunned investors. But Cramer said you can't work magic overnight, and he's still betting on former Target (TGT) - Get Report executive Mark Triton to turn this beleaguered retailer around.
Bed Bath & Beyond's former management relied solely on endless coupons to drive shoppers into their stores, but after hearing the company reset expectations on the conference call, Cramer said he heard a lot that he liked.
For starters, the company is using new promotional strategies, relying less on coupons. They're improving their digital presence and clearing out inventory to become leaner. And more importantly, they're utilizing their strong balance sheet and curtailing their buyback to keep the cash they need to really make a difference.
Cramer said he's confident the new management team under Triton will ultimately be able to deliver, but as they noted on the call, their progress won't be immediate or linear.
Am I Diversified?
In the "Am I Diversified" segment, Cramer spoke with callers and responded to tweets sent via Twitter to @JimCramer to see if investors' portfolios have what it takes for today's markets.
The first portfolio included Twitter (TWTR) - Get Report, Apple, Home Depot (HD) - Get Report, JPMorgan Chase (JPM) - Get Report and Walt Disney (DIS) - Get Report. Cramer said this portfolio was perfectly diversified and he liked it a lot.
The second portfolio's top holdings included Bed Bath & Beyond, BristolMyers Squibb (BMY) - Get Report, Zuora (ZUO) - Get Report, Barrick Gold (GOLD) - Get Report and Marvell Technology (MRVL) - Get Report. Cramer recommended selling Marvell and adding a beverage stock like PepsiCo (PEP) - Get Report.
The fourth portfolio's top stocks were Bank of America, Trinity (TRN) - Get Report, Applied Materials (AMAT) - Get Report, Coca-Cola (KO) - Get Report and BristolMyers Squibb. Cramer was not a fan of Trinity, recommending Union Pacific (UNP) - Get Report instead, but otherwise felt this portfolio was diversified.
Building on Home Builders
In his "No-Huddle Offense" segment, Cramer said sometimes simple questions have simple answers. So when investors ask why stock prices are roaring to new highs, the answer could just be that companies are doing a lot better than they used to.
Case in point: Home builder Lennar (LEN) - Get Report, which this week posted a textbook better-than-expected quarter. Most home builders would be making big bets in a roaring bull market like ours, either building too many homes or not having enough land. But Lennar learned its lesson in 2008 and is not taking such risks. The company is keeping its balance sheet clean and is making prudent decisions for the long term.
Here's what Jim Cramer had to say about some of the stocks that callers offered up during the Mad Money Lightning Round Thursday evening:
Teva Pharmaceuticals (TEVA ADR) : "No. We have Bristol-Myers Squibb, why do we need Teva?"
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At the time of publication, Cramer's Action Alerts PLUS had a position in AAPL. FB, TSN, HD, JPM, DIS, BMY, MRVL, PEP.