If you want to be in the business of picking great stocks, look for companies that have scale, Jim Cramer told his Mad Money viewers Thursday. Scale has always mattered, Cramer said, but some companies have made leveraging their scale an art form.
Cramer unveiled a new acronym for his favorite retail stocks with scale. He called it "WATCH," which stands for Walmart (WMT - Get Report) , Amazon (AMZN - Get Report) , Target (TGT - Get Report) , Costco (COST - Get Report) and Home Depot (HD - Get Report) .
Walmart was following in the footsteps of Sears not too long ago, but the company quickly invested in its online business, paid its employees more and now is a force to be reckoned with. Amazon is, of course, the king of scale, and not just in retail. Meanwhile, Target has also reinvented itself with a new smaller, urban format that shoppers love.
Costco has been a long-time Cramer favorite and he called the company magicians for how it's able to sell products for less than other companies buy them. Finally, there's Home Depot, the king of home and garden supplies. Cramer said Home Depot can make or break a brand thanks to its vast footprint and high product turnover.
Investors looking for a solid retailer to add to their portfolios can consider any of these great stocks, Cramer concluded, because they all have the scale to innovate and win.
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When a stock is able to rally on bad news, that's typically a sign that the bottom is near, Cramer reminded viewers, as he highlighted FedEx (FDX - Get Report) , which now trades at just 11 times earnings.
The transportation stocks are off 11% from their highs earlier this year as signs of a global trade-induced slowdown began to materialize. Shares of FedEx are off 29% over the past year. The stock had a brutal May, as trade talks broke down and tariffs escalated, but since then, things seem to have stabilized.
When FedEx reported two weeks ago, the company admitted that the global environment remains challenging and 2019 will be another year of change and transition for many companies around the globe. But since those remarks, shares have rallied from $156 to $162, Cramer noted, and that's a sign of strength.
Shares of FedEx have historically traded for 16.4 times earnings, Cramer said, which makes their current level of 11 times earnings even more attractive as all of the bad news is already baked into the stock, but none of the positives.
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Reviewing Cannabis Stocks
Just a few months ago, CEOs in the cannabis sector were making some pretty bold claims. But in the prevailing months, the pot stocks have cooled, forcing Cramer to reevaluate the entire group.
Last year, the cannabis stocks caught fire after Canada legalized recreational use. But this week we learned that the leader in the industry, Canopy Growth (CGC - Get Report) has seen pricing decline and production slow as costs began to skyrocket. These changes led to CEO Bruce Linton's firing at the hands of its biggest investor, Constellation Brands (STZ - Get Report) .
Here in the U.S., investors also overestimated the importance of cannabis-derived CBD products, which now face regulations by the FDA. It turns out food and spirits companies are reluctant to add CBD to their products in an uncertain regulatory environment.
What do all of these changes mean for investors? Cramer said he still sees Canopy as the leader in the sector. He also still recommended Cronos Group (CRON - Get Report) , which received an investment from Altria (MO - Get Report) , as well as GW Pharmaceuticals (GWPH) . Cramer said to avoid the rest of the cannabis stocks until we start seeing some hard facts, like same-store sales growth and earnings per share. He would even avoid cannabis ETFs, as they lump all of these bad names into one security.
Executive Decision: Tellurian
For his "Executive Decision" segment, Cramer again sat down with Charif Souki, co-founder and chairman of Tellurian (TELL - Get Report) , the liquified natural gas exporter that's building a new export terminal in Louisiana.
Souki explained that oil giant Total has agreed to a $900 million investment in Tellurian. Total will be investing $500 million directly into the Louisiana facility and have agreed to buy 1.5 million tons of gas, among other investments.
Souki said the Permian Basin in the U.S. have now become the swing oil producer in the world and what happens in the U.S. matters more than what happens with OPEC. The Permian is projected to increase oil output from 4 million to 8 million barrels a day. Souki said all of that natural gas can be on the water and ready to sell for a price so low it has no competition. "We just need to build the infrastructure," he added.
This increased oil production has created a crisis for natural gas, Souki continued. The U.S. is now the fourth largest country for burning, or flaring, our excess gas into the atmosphere and in another two years, we will be the largest. "This is simply not acceptable," Souki said. The U.S. must capture and do something with our natural gas.
Bed Bath & Beyond
On the company's conference call, Winston admitted that Bed Bath & Beyond must upgrade their stores to give customers a reason to shop there, but Cramer said he remains skeptical given the chain must compete with likes of Target and Amazon, both of which are also investing to woo customers.
Bed Bath still has $1 billion in cash, but Cramer said that may not be enough to upgrade over 1,000 locations. The company has already squandered millions repurchasing 40% of its shares, a move that did absolutely nothing for the share price.
With same-store sales declining rapidly, Cramer said there simply may not be enough time or money to turn this retailer around and give it a reason to exist.
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