If the market is going to keep climbing higher, we need to see more mergers and acquisitions, Jim Cramer told his Mad Money viewers Tuesday. That's because the stock market follows the laws of supply and demand, Cramer explained, and with so many new IPOs on the horizon, we simply have too many stocks for investors to choose from.
Which sectors need the most consolidation? Cramer said the oil and oil pipeline groups could certainly benefit. He said Apache (APA - Get Report) , Anadarko Petroleum (APC - Get Report) and Occidental Petroleum (OXY - Get Report) would all make attractive targets. Meanwhile, in the pipeline space, Kinder Morgan (KMI - Get Report) could snap up some smaller rivals.
Cramer noted there are also too many cloud stocks and healthcare providers for Wall Street to digest. He said Cardinal Health (CAH - Get Report) could easily be acquired. The same holds true for payment companies. He suggested Facebook (FB - Get Report) could by PayPal (PYPL - Get Report) and American Express (AXP - Get Report) could snap up Square (SQ - Get Report) .
The list of over-supplied sectors also includes transportation, Cramer said. He'd look for someone to acquire XPO Logistics (XPO - Get Report) to bolster their offerings. Consolidation is also needed in packaged food and in entertainment, where Cramer suggested Apple (AAPL - Get Report) , an Action Alerts PLUS holding, could buy both Viacom (VIAB - Get Report) and CBS (CBS - Get Report) .
Cramer explained mergers are desperately needed if the market has any hope of digesting the coming onslaught of IPOs. Without them, money managers will need to sell to make room in their portfolios. Nothing ruins demand like too much supply, Cramer concluded.
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Off the Charts: Market Moves
In the "Off The Charts" segment, Cramer checked in with colleague Carolyn Boroden for a better read on the direction of the market. Regular readers may recall Boroden predicted a bullish move in the semiconductor group at the end of January. Since that call, the Vaneck Vectors Semiconductor ETF (SMH - Get Report) has rallied 13%.
Looking at a weekly chart of the S&P 500, Boroden first looked for symmetry, where patterns repeat themselves. She noted that the market pullbacks in 2015 and 2016 both lasted 14 weeks, as did the decline this past December. She now saw several timing cycles lining up, signaling another short-term pullback is likely between now and April 5. Most short-term declines last less than five days. More than five days would signal a problem, and the S&P needs to hold above 2,722.
Boroden also noted the correlation between the five-day and 13-day exponential moving averages. When the 5-day crossed below the 13-day in October, it predicted the beginning of the decline.
Both Cramer and Boroden felt that caution was in order, especially over the next few days.
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Battle of the Video Game Stocks
The video game stocks have been among the biggest winners in recent years, that was until 2017 when the game Fortnite took the industry by storm and left the likes of Activision Blizzard (ATVI - Get Report) , Electronic Arts (EA - Get Report) and Take-Two Interactive (TTWO - Get Report) in the dust.
At the beginning of the year, it seemed like Wall Street had all but given up on traditional gaming, as massive, multiplayer Battle Royale games seemed to be all that mattered. Fortnite has racked up over 250 million registered players, making it among the most popular games ever created.
But then last month, Electronic Arts shocked everyone with the surprise release of Apex Legends, its own Battle Royale game that racked up 10 million players in just the first 72 hours. Almost overnight, EA was on track to see $1 billion in revenues that no one saw coming. Shares of EA are now up 29% for the year, while the rest of the industry struggles to break even.
Cramer explained that EA was able to adapt quickly to the Fortnite threat and change its entire business model. Apex Legends is free to buy, and instead makes its money from in-game micro-transactions. The company also relied heavily on social media influencers to drive as much traffic to the game as quickly as possible, turning the game into an overnight success.
Cramer said he's bullish on the gaming stocks, including Electronic Arts.
Executive Decision: Five9
Trollope explained that many call centers are still using legacy hardware-based phone systems that don't offer a great customer experience. Five9's software creates more successful customer outcomes while also increasing productivity and lowering costs.
One of the keys to Five9's success, Trollope said, is its ability to scale up to meet peak demand and absorb higher-than-average loads. They're able to integrate calls and texts for a seamless experience.
Trollope recalled how he began his career in a call center, quickly learning to anticipate what customers needed and getting really good at handling problems. Five9's software now does those functions in the cloud, having learned from listening to millions of actual interactions with customers.
When asked why many investors have not heard of Five9, v said that his company often works behind the scenes and is not visible to the public, but they're busy getting the word out about their tremendous growth story.
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Spring Rebound for Housing?
In his "No-Huddle Offense" segment, Cramer dove into today's weak housing start numbers to find out if investors are right to be worried about an inverted yield curve.
Today's housing number for February came in at just 1.16 million housing starts, down from 1.27 million in January. But Cramer said there were a lot of reasons for the weakness, including bad weather, rising home prices, tax-law changes and the continued trend of rising student debt keeping millennials living with mom and dad for longer.
Perhaps most important however was that the housing slowdown was spurred by the Federal Reserve and now that the Fed's self-imposed slowdown is behind us, the housing sector should be able to mount a comeback. Cramer recommended Lennar (LEN - Get Report) and D.R. Horton (DHI - Get Report) , but said investors should also look into Home Depot (HD - Get Report) and Lowes (LOW - Get Report) going into the spring gardening season.
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