Be careful what you wish for, Jim Cramer warned his Mad Money viewers Monday. A stock that goes up every day and rallies just before reporting earnings is often a toxic combination. But a dip in the company's share price ahead of earnings may be a blessing in disguise.
Earnings season is a game of expectations, Cramer reminded viewers. When a stock like Apple (AAPL) - Get Report rallies from $184 a share to $204 a share in advance of reporting, it doesn't matter how good of a quarter the company has, there simply won't be enough bears left to propel the stock higher.
Why didn't shares of Walt Disney Co. (DIS) - Get Report rally on the biggest opening weekend for a movie in the history of movies? It's because the stock had already been rallying for a month ahead of the premiere.
The opposite is also true. Shares of Facebook (FB) - Get Report and Amazon (AMZN) - Get Report both dipped ahead of earnings, allowing shares to rally on the news. Wall Street had given up on Hasbro (HAS) - Get Report ahead of earnings, which allowed that stock to soar after it beat expectations.
Perhaps the biggest example of expectations gone awry was Alphabet (GOOGL) - Get Report , which had rallied 10% in the month leading up to earnings. But this strong showing also set up the stock for today's 7.1% decline after the company posted a slight revenue miss.
Cramer and the AAP team are analyzing the impact of Disney's (DIS) - Get Report "Avengers" hit. 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.
On Real Money, Cramer says he doesn't want a stock to run ahead of earnings. Get more of his insights with a free trial subscription to Real Money.
Executive Decision: 3M
Roman said that no one at 3M is happy with their results, everyone is disappointed with their execution. He said the company faced rapidly declining end markets in autos, electronics and in China, but failed to act quickly enough to changing conditions. These declines aren't something 3M hasn't seen before, Roman added. He said typically they are able to keep pace with their end markets, but conditions remain challenging in the near term.
It's not all bad news for 3M, however. The company has a strong pipeline of new product innovations to help drive growth, and the company is an active product portfolio manager. 3M is always on the hunt for new acquisitions as well as divestitures if needed.
Finally, Roman responded to the environmental litigation 3M is facing regarding groundwater contamination. He said the $235 million reserve is for potential litigation for a handful of facilities that worked with certain chemicals that were phased out over a decade ago. This reserve does not account for any potential product litigation.
Don't Forget Your Homework
Just because you've found a great long-term theme, it doesn't mean the need to do homework stops, Cramer told viewers. Homework must be a continual process, because the situation can change quickly. That's why Cramer took a few moments to check in with the 5G wireless stocks for an update.
When he last looked at the 5G space, which should see years of growth ahead, he recommended Nokia (NOK) - Get Report over rival Ericsson (ERIC) - Get Report . Since then, shares of Nokia have fallen 12%, while Ericsson has rallied 13%. Cramer said he got this one wrong. Ericsson is clearly best of breed, he said, but Nokia is now the cheaper stock with a 4.2% dividend yield.
As for the 5G semiconductor players, Qualcomm (QCOM) - Get Report is now attractive after the company reached a settlement with Apple. Cramer also recommended Skyworks Solutions (SWKS) - Get Report , trading at 12 times earnings, and Broadcom (AVGO) - Get Report , which has a strong track record.
Off the Charts: VIX
In the "Off The Charts" segment, Cramer checked in with colleague Mark Sebastian to find out what's really going on with hedge funds shorting the CBOE Volatility Index, known as the VIX.
Last February, the markets were sent into a tailspin after hedge funds made big bets on the VIX using highly leveraged ETFs that proved to be wrong. So when headlines began surfacing this week that once again fund managers were shorting the VIX, Cramer become concerned.
But Sebastian noted that while the S&P 500 and the VIX have begun trading in the same direction, a signal that a market decline is coming, he felt the decline will be normal and not catastrophic. That's because unlike last year, fund managers are buying futures and not using highly leveraged products that are prone to collapse. He said the most likely scenario is that the gap between the VIX and their futures slowly meet somewhere in the middle over the next few weeks.
Bottom in Sight for Healthcare
In his "No-Huddle Offense" segment, Cramer told viewers to stop panicking over the managed care stocks, because they might be closer to the bottom than you might think. Case in point, UnitedHealth Group (UNH) - Get Report , which has plunged from $270 a share to just $231 a share as a host of Democratic presidential candidates have begun calling for Medicare for all.
Cramer explained that if the healthcare companies follow the 2008 playbook, when Obamacare was first introduced, a stock like UnitedHealth might plunge to just $145 a share. But that scenario isn't likely, as it would require a Democratic landslide that would have to include both the House and Senate. Even then, by the time any law would be enacted, it would surely have been influenced by the healthcare lobbies, as was Obamacare. That's why Cramer felt the bottom may soon be at hand for the healthcare group, as investors realize the unlikelihood of such a radical proposal coming to pass.
In the Lightning Round, Cramer was bullish on Entergy (ETR) - Get Report , NovoCure (NVCR) - Get Report , Marathon Petroleum (MPC) - Get Report , Zix (ZIXI) - Get Report , Twilio (TWLO) - Get Report , Canopy Growth (CGC) - Get Report and Levi's (LEVI) - Get Report .
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At the time of publication, Cramer's Action Alerts PLUS had a position in DIS, AAPL, FB, AMZN, GOOGL, UNH.