The stock market can still go higher, Jim Cramer assured his Mad Money viewers Monday, as long as we're not overwhelmed with too many new IPOs. As Friday's debut of Lyft (LYFT) proved, investors' appetite for new issues can be stymied if prices get too high.
Cramer told viewers he remains optimistic on the market primarily because of aggressive stock buybacks from companies like Apple (AAPL - Get Report) , an Action Alerts PLUS holding, among many others, all of which combined retire far more shares than are being issued by these freshly-minted IPOs.
Cramer said he's also optimistic because of what's happened with the the best performers in the Dow Jones Industrial Average from the first quarter. That list included ExxonMobil (XOM - Get Report) , which rose 18.5% as crude oil rose. Apple was also on the list of biggest gainers last quarter, as the stock was pummeled last year, but is now benefiting from new service revenue streams.
The third-best performer in the Dow last quarter was United Technologies (UTX - Get Report) , up 21%. Cramer said this company remains vulnerable to the outcome of the trade war. In the second and first spots, however, were two old-line tech names, IBM (IBM - Get Report) and Cisco Systems (CSCO - Get Report) . Cramer said IBM can continue to rally on its 4.4% dividend yield, while Cisco benefits from plummeting DRAM prices, 5G wireless and, like Apple, increasing service revenue streams.
As long as companies like these continue to thrive, and stock buybacks continue to retire shares, Cramer said he thinks the market can still head higher.
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IPO Risks and Rewards
Investors looking to play the market's IPO boom don't have to roll the dice on the IPOs themselves, Cramer told viewers. There are three side-door options that can be just as lucrative.
There have been 18 IPOs so far this year, but for individual investors buying shares in the open market, those deals are up less than 2%. Case in point: Friday's much-anticipated IPO of Lyft, which is now trading below its offering price. This trend calls into question the 73 other deals slated for this year, Cramer said. Fortunately, there are other options.
The second option for playing the IPO boom is with the investment banks themselves. Cramer said that Goldman Sachs (GS - Get Report) and Morgan Stanley (MS - Get Report) are his favorites in the group.
Finally, there's Amazon (AMZN - Get Report) , an unlikely winner in the IPO game, but Cramer noted that every one of these new companies use Amazon's Web Services to power their business, making the cloud and retail giant a big winner over the long-term.
China Trade Talks Require Patience
Investors hoping for a quick handshake and photo op to end the ongoing trade war shouldn't count on a speedy resolution, Cramer cautioned viewers. We're still a long way off from any possible deal, he said, and it's still far too early to be picking stocks based on that outcome.
Despite positive comments made by a handful of government agencies, Cramer said there are still serious issues between our two countries. One of those being fentanyl, the drug at the heart of the opioid epidemic and one that China floods our country with on a daily basis. It might seem encouraging to learn that China has agreement to put the drug on their controlled substances list as of May 1, but in reality, China has a long history of empty promises. Every time a new law is enacted, manufacturers simply alter their formula to make their drugs legal again and carry on as usual.
Then there's the issue of the robust Chinese PMI number we just received, which is evidence that the Chinese economy isn't as hard pressed for a deal as many had hoped.
That's why Cramer said it's still too early to pick stocks based on a trade resolution. The U.S. and China are still a long way away from that photo op.
On Real Money, Cramer says digs into the outlook for auto sales and car sharing companies. Get more of his insights with a free trial subscription to Real Money.
Chemistry for Dow Shares
At long last, DowDuPont (DWDP) is beginning to break itself up, with the new Dow Chemical set to start trading tomorrow. Cramer said he remains a fan of the company, even if it has been very hard to own over the past 15 months.
Longtime readers will remember that DowDuPont combined forces in 2017 with the hopes of splitting into three entities: Corteva for agriculture and biosciences, Dow Chemical for materials sciences and DuPont for specialty products. Tomorrow, the new Dow will debut, instantly being added to the Dow Jones Industrial Average and S&P 500 with an estimated 5.2% dividend yield.
Cramer said he thinks the new Dow is worth buying, although he'd only consider snapping up shares into weakness as some shareholders will sell their shares in the new company, opting to invest in the faster growing parts of the remaining company.
Cramer and the AAP team are taking a closer look at DowDuPont's one-for-three spinoff. Find out what they're telling their investment club members and get in on the conversation with a free trial subscription to Action Alerts Plus.
Cramer was bearish on Goodyear Tire & Rubber (GT - Get Report) , Western Digital (WDC - Get Report) , Celgene (CELG - Get Report) , Welltower (WELL - Get Report) , Box (BOX - Get Report) and Twitter (TWTR - Get Report) .
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