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The Dow Jones Industrial Average inched closer to 20,000 on Tuesday, as investors continue to view the markets through a "positive prism," TheStreet's Jim Cramer told his "Mad Money" viewers.
Despite the dramatic rally since the election, it hasn't been enough to change the way investors think. For starters, they believe President-elect Trump will be very good for stocks.
Trump's pro-business stance has investors warmed up the idea that corporations can do well in the years ahead. A lower tax rate and a tax holiday for cash repatriation will drive earnings per share higher, while giving companies more financial flexibility.
In years past, talk of higher interest rates or the continued rally in the U.S. dollar would punish stocks, Cramer reasoned. But not in this market. In fact, stocks continue to rally despite the advances in interest rates and the dollar.
Investors' animal spirits have been awoken, he added. Meaning that despite bad news or the appearance of an overvalued market, more investors are opting to buy. They don't want to miss out on the upside so they are staying long the market.
Consider the results from Carnival (CCL) - Get Report , Carmax (KMX) - Get Report and Darden (DRI) - Get Report . None of them were overwhelmingly good, and in some cases, they were bad. But that didn't stop each one of them from trading higher on the day, Cramer noted.
Cramer says you may find the current rally to be irrational, and historically speaking, it is. But all that really matters right now is that for each investor opting to sell, there's a buyer right there to keep taking stocks higher.
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Making Up Is Hard to do
Cramer is looking at the market's M&A potential. Specifically, he's looking at a set of companies to get back together after having previously broken up.
Kraft spun off Mondelez so investors could have a growth company in the latter, and solid, dividend-paying company in the former. However, now that Kraft has merged with Heinz, there is serious chatter about now reacquiring Mondelez, Cramer said.
This move would make a ton of sense, he reasoned. Mondelez would be the growth that the company needs, even though it has done a great job cutting costs and paying a nice dividend.
As for Philip Morris, a Wells Fargo analysts recently said there's a 70% chance it will acquire Altria in the next 6 to 12 months. This is a play that Cramer hadn't considered, but he acknowledged it would make a lot of sense.
The analysts said Philip Morris may justify spending $77 per share on Altria and the deal would be accretive in the first year. Plus, Philip Morris -- which handles international sales -- would need Altria's domestic business to really make its new smokeless cigarette, iQOS, a big success.
These companies may very well be the next big leaders in M&A, Cramer said. If the deals happen, the companies doing the buying are set to benefit as a result.
Read what Cramer and Jack Mohr are telling their investment club members about divestiture news and the merger deal between Walgreens (WBA) - Get Report and Rite Aid (RAD) - Get Report . Get a free subscription to Action Alerts PLUS.
Coming up in this episode of Mad Money: Can semiconductor stocks keep roaring? Cramer's interviews David Zinsner, CFO of Analog Devices (ADI) - Get Report . Plus, don't miss the Lightning Round. Which stocks is Cramer bullish about?
Watching for Trump Stocks
Cramer is constantly on the lookout for more Trump stocks: companies that will benefit under the president-elect's business-first mindset.
While most stocks have already been uncovered either by Cramer or the market and have rallied, there's two on his list that still have upside potential: Automatic Data Processing (ADP) - Get Report and Paychex (PAYX) - Get Report .
These two companies are the largest payroll processing companies in the U.S. and both provide businesses with additional outsourcing and employee management services.
There's a few reasons that Trump would be good for these companies, starting with jobs. As the economy gains steam and companies continue to hire, that translates to a direct gain for ADP and Paychex, as they will now have a larger payroll.
Second, these companies benefit from higher interest rates. Between the time it takes companies to pay ADP and Paychex, and the time the companies issue checks to employees, the payroll companies collect interest on the float, Cramer explained.
While interest on a day or two's worth of capital may not seem like much, it's a different story when you're talking about millions of dollars each week. With rates primed to go higher, this is a direct boost.
Finally, lower corporate taxes would boost the bottom line. According to one analyst, ADP and Paychex could see their earnings per share go up 21% and 25%, respectively, from a lower tax rate alone.
Both of these stocks are set to benefit not only from President-elect Trump, but also the Federal Reserve. Paychex reports earnings on Wednesday and given the stock's rally, it could pull back even on good results. That would be a perfect opportunity to buy the stock, Cramer said. Each could be a great core holding for years to come.
Executive Decision: Analog Devices
Zinsner said, "the Internet of Things is really about taking information from the real world, bringing it up to the cloud, analyzing it, and making decisions based on it." That applies to maintenance and health care, for example.
The IoT industry has plenty of growth, but self-driving cars are quickly becoming a hot growth trend for semiconductor stocks. Analog Devices is taking advantage of the trend with its Lidar product.
Most self-driving cars depend on radar, Zinsner explained, but Lidar is the next game-changing technology that will allow autonomous vehicles to get to the next level.
As for the financials, Analog Devices is a strong cash-flow generator, which will allow it to pay down debt quickly. The company's $14.8 billion deal to buy Linear Technology (LLTC) hasn't closed yet, but that will allow for strong revenue growth.
Analog Devices doesn't have more than 10% of its revenue come from any one customer and it's spread out over thousands of products, so its portfolio has solid diversification, Zinsner said.
Cramer said: This is a great stock to own before or after the deal to buy Linear closes. The company's recent earnings results "blew out" the estimates and despite the recent rally, it looks like there could still be more room, he reasoned.
Off the Charts
On the show's "Off the Charts" segment, Cramer was looking to separate this year's best performers into naughty stocks and nice. He collaborated with Real Money's Timothy Collins to pick two hot stocks that have different outlooks.
To start, Cramer wants to know what can continue to outperform. According to Collins, it's Broadcom (AVGO) - Get Report , which he says can hit $200 by mid-February. The stock has strong momentum and a bevy of buyers helping to push it higher. Shares have done well this year, but had spent the past few months consolidating in a sideways manner.
However, a few weeks ago the stock broke out and is trading really well, according to Collins' work. Should the breakout fail, support is relatively close by, which should help protect investors looking to ride the wave higher, Cramer added.
Now for a naughty stock, which Collins says is Teck Resources (TECK) - Get Report . Shares are up a whopping 450% on the year, but have pulled back rather dramatically over the past few weeks. Collins' work suggests a further breakdown could be coming and the stock could be headed to its next line of support near $18.50. If that level fails -- and he believes that's likely -- it could ultimately be headed to $16, a big decline from today's price of $21.50.
The stock has lost its strong level of trend support and momentum has waned considerably. However, should a selloff not materialize, Teck Resources will first have to get above $23 to per share to have a shot at retesting its highs near $26.
Cramer said he's on the fence. If the economy really accelerates the way many expect, Teck Resources should be in for more upside. But with the stock up so much, Cramer suggested investors take some winnings off the table and play for more upside with the house's money.
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At the time of publication, Cramer's Action Alerts PLUS had positions in WBA and KHC.