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The stocks we thought would be the strongest in 2016 are now losing their footing, Jim Cramer told his Mad Money viewers Wednesday, referring to the banks, restaurants and retailers, all of which he deemed the "third rail of investing" that should be avoided at all costs.
Cramer said the banks started their downward spiral after the Federal Reserve's plan to raise interest rates multiple times in 2016 has evaporated amid global worries, crippling banks' earnings potential. But after the recent Wells Fargo(WFC) - Get Reportscandal involving cross-selling multiple services to existing customers materialize, this sector has now become downright toxic.
Two other sectors are also faltering, namely the restaurants and retailers, both of which were supposed to be thriving in a cheap gasoline environment. But today both Sonic (SONC) and Cracker Barrel(CBRL) - Get Report reported dreadful quarters, the latest in a long string of disappointments.
That leaves tech stocks as perhaps the only sector that is working, Cramer concluded, which is why the group saw more strength again today.
Cramer Loves Newell Brands
Newell was already a great company even before the merger, Cramer said, and Jarden was a powerhouse of niche brands with excellent management. The combined company is 2.2 times bigger than before, giving it excellent leverage with both suppliers and retailers.
The combined Newell has a lot of other things going for it, too, Cramer noted, including an estimated $700 million in cost synergies. When Newell reported its first quarter as a combined company, earnings grew by 22%. Cramer said that's likely only just the beginning.
When the deal was first announced, some analysts scoffed at Newell's debt load, something the company has already begun addressing, paying down hundreds of millions in debt right out of the gate. Trading at 17 times earnings with a 14.5% long term growth rate, Cramer said he likes Newell Brands so much, it's now an Action Alerts PLUS holding.
The Problem With Nike
When Nike(NKE) - Get Report reported a paltry 1% gain in future orders, the stock was immediately crushed, falling more than $2 a share. Cramer admitted that when he listened to the company's conference call he was puzzled by what he heard.
Nike, he said, seems to be in uncharted territory. After growing revenue from $16 billion in 2007 to over $32 billion today, Nike execs seemed to have no explanation for the recent slowdown in sales. Even worse, they never acknowledged there WAS a slowdown.
Nike has always been about performance and innovation, but perhaps younger customers just aren't that into performance, instead preferring the fashion of Adidas or the mindfulness of Lululemon Athletica(LULU) - Get Report .
Until Nike admits there's a problem, Cramer concluded, it cannot solve the problem. And that's a problem for both the company and its shareholders.
Executive Decision: Marty Mucci
For his "Executive Decision" segment, Cramer spoke with Marty Mucci, president and CEO of Paychex(PAYX) - Get Report , the payroll processor that just delivered a 3-cents-a-share earnings beat on 8.6% rise in revenues, but with lowered 2017 guidance.
Mucci characterized the change in guidance as merely "fine tuning" earlier estimates to account for one fewer payroll cycle this year and some accounting changes. He reiterated there were no surprises in the quarter and sales remain strong. He called the sharp decline in Paychex shares an overreaction.
Mucci said he feels good about his company's growing portfolio of products and their ability to compete with those products. He said the new federal overtime rules are one important driver this quarter and its more important than ever for businesses to be keeping track of time and attendance.
When asked about the economy as a whole, Mucci noted that the East Coast region, especially the Southeast, is getting stronger, while the West Coast, which saw growth earlier, is flattening a bit. In the mid-section of the country, Mucci said things are still negative due to the slowdown in energy and a strong dollar hampering manufacturing.
In the Lightning Round, Cramer was bullish on AAR Corp(AIR) - Get Report , BE Aerospace (BEAV) , Atara Biotherapeutics(ATRA) - Get Report , SunCoke Energy(SXC) - Get Report and Cisco Systems(CSCO) - Get Report .
Executive Decision: Bob Ward
In his second "Executive Decision" segment, Cramer sat down with Bob Ward, president and CEO of Radius Health(RDUS) - Get Report , the biotech that's up 130% from its February lows but still down 5% in 2016.
Ward commented on the positive clinical trial data Radius received for the path from of its injectable osteoporosis drug that is currently waiting on Food and Drug Administration approval. He explained the patch has the potential to be just as effective as the injectable and only needs to be worn for as little as five minutes a day.
When asked about the market potential for better osteoporosis treatments, Ward said bone fractures put more patients in the hospital than heart attacks and strokes combined. He also commented on the competitive landscape with Eli Lilly(LLY) - Get Report , the current leader in the space. Ward said clinical trial data is what's most important. If Radius has the better product, that's what doctors will prescribe.
Radius Health has two potential, but so far promising, treatments for breast cancer in its pipeline, too.
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At the time of publication, Cramer's Action Alerts PLUS had a position in CSCO, NWL and WFC.