As long as our economy doesn't go back into lockdown, you should be buying your favorite stocks into weakness, Jim Cramer told his Mad Money viewers Friday, as he laid out his gameplan for next week's trading.
The week starts on Monday, when we'll get the latest Empire State Manufacturing numbers. Cramer said he expects them to be bad and set a negative tone for stocks.
Tuesday will see earnings from homebuilder Lennar (LEN) - Get Lennar Corporation Class A Report and Oracle (ORCL) - Get Oracle Corporation Report. Cramer said housing has been roaring and everyone knows it, which means there won't be any surprises from Lennar. On Wednesday, we hear from the Federal Reserve and will get another read on housing with the latest housing start numbers that will likely confirm Lennar's positive comments.
Thursday brings earnings from Kroger (KR) - Get Kroger Company (The) Report. Cramer said Wall Street fell in love with Kroger after Warren Buffett took a stake in the company, but with increased competition, that love isn't likely to last.
Finally, on Friday, we get earnings from a pair of stocks Cramer likes, CarMax (KMX) - Get CarMax Inc Report and Jabil (JBL) - Get Jabil Inc. Report. He was also a fan of AutoZone (AZO) - Get AutoZone Inc. Report and Tesla (TSLA) - Get Tesla Inc. Report.
Not Out of the Woods
We're not out of the woods yet when it comes to COVID-19, Cramer told viewers. While new cases have been falling in some hard-hit places like New York, 19 states are seeing new cases trending higher, some dramatically.
But Cramer said this time is not the same as February and March. This time we have a better understanding of the disease and how to treat it. We also know that wearing masks and extreme social distancing is the way to keep it under control.
Cramer said he believes in America's pharmaceutical companies, like Regeneron (REGN) - Get Regeneron Pharmaceuticals Inc. Report and Johnson & Johnson undefined, which are working with hundreds of others to find effective treatments and eventually a vaccine, which is the only way to truly beat COVID-19. But until then, he urged everyone, "wear masks."
With COVID-19 making a comeback, is it time to start buying the cloud stocks again? Not so fast, Cramer cautioned. Back in March, the cloud stocks were cheap. Now, they've been roaring higher for weeks.
As a group, the cloud stocks are now trading at 11.6 times sales, and while they facilitate our work-from-home economy, Cramer said it's time to thin the herd. He used the "Rule of 40," which adds a company's revenue growth rate to its earnings margin. But of the 50 cloud stocks, 17 passed this test, forcing Cramer to modify the rule.
Cramer's new criteria said that a company's growth rate added to its earnings margin must be at least five times its price-to-sales multiple. Using this formula, Cramer was left with just four names worth buying. The included Adobe Systems (ADBE) - Get Adobe Inc. Report, who appeared on last night's show, along with frequent guest Salesforce.com (CRM) - Get Salesforce Inc. Report. The other two, also long-time Cramer favs, were VMware (VMW) - Get VMware, Inc. Report and the online learning company Chegg (CHGG) - Get Chegg Inc. Report.
Tzuo said the end of ownership is coming and more and more companies are discovering the benefits of using subscriptions to expand their offerings and engage with their customers in all new ways. Everyone knows Fender guitars, for example, but you might not know the Fender Play service, which will teach you to play guitar for a low monthly fee. Fender has grown their subscription base 10 times during the pandemic as people dusted off their guitars and sharpened their skills.
Tzuo said that many industries are seeing the physical sides of their business shrink, while online components, often powered by subscriptions, expand and flourish.
Zuora helps companies win in this new economy by returning and focusing on the customer relationship, Tzuo said. When you have a direct relationship with your customers, you can adapt better to their changing needs.
In the Lightning Round, Cramer was bullish on Sony (SNE) - Get Sony Corp. Report, Alibaba (BABA) - Get Alibaba Group Holding Limited American Depositary Shares each representing eight Report, Chevron (CVX) - Get Chevron Corporation Report, Parsley Energy (PE) - Get Parsley Energy, Inc. Class A Report, EOG Resources (EOG) - Get EOG Resources Inc. Report, AstraZeneca (AZN) - Get AstraZeneca PLC Report and American States Water (AWR) - Get American States Water Company Report.
Executive Decision II
For his final "Executive Decision" segment, Cramer checked in with Michael Neidorff, chairman, president and CEO of Centene (CNC) - Get Centene Corporation Report, the health plan provider that just concluded a virtual investor day.
Neidorff said Centene is making decisions based on the facts as they are and are adapting quickly to changing conditions. The company raised their full-year earnings per share guidance by 20 cents, from $4.76 to $4.96 a share.
Neidorff said they've seen a decrease in ER visits and other claims as people avoid hospitals and defer elective procedures, but this under utilization will not last forever. Centene expects by the third and fourth quarters, demand will increase as patients start using more healthcare services again.
When asked what Americans can do to prevent a second wave of infections and lockdowns, Neidorff said until we have a vaccine, masks are the answer. He said Asian counties that have a mask culture have seen dramatically lower death rates than we have here in the U.S., where over 100,000 people have lost their lives.
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At the time of publication, Cramer's Action Alerts PLUS was long CRM.