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NEW YORK (TheStreet) -- With tomorrow's labor report just around the corner, Jim Cramer told his "Mad Money" viewers Thursday they need to be ready for more market weakness. The threat of rising interest rates will most certainly mean declines for the markets, said Cramer, but that doesn't mean that all stocks will follow suit.
Cramer said the competition from rising interest rates will continue to hit the real estate investment trusts and the master limited partnerships hardest. That will be followed by other high-yielding stocks such as health care and consumer packaged goods, he continued. The bears always take the easy way out, choosing to short S&P 500 index funds. That will, in turn, take a toll on the market overall.
But does that mean everything deserves to go down? Cramer's motto is, "There's always a bull market somewhere," and that means tomorrow, too. He said the banks are the biggest beneficiary from rising interest rates as they'll make more on the lending they do. But most investors don't consider companies with large pension obligations, he noted, as companies including General Motors (GM), General Electric (GE) and Boeing (BA) will all see savings to their bottom lines with higher rates.
Payroll processors like Paychex (PAYX) also love rising rates because they make some of their revenue on the float, the money that's deposited by companies but not yet withdrawn by employees. Companies such as Apple (AAPL), a stock Cramer owns for his charitable trust, Action Alerts PLUS , also make out with higher rates as Apple has a ton of cash on its books.
With all of these rising rate names, Cramer said the key will be to get in before the crowd.
A Closer Look at CONN
When a retailer posts blowout earnings in a generally weak retail market, it's sometimes worth taking a look, said Cramer, referring to the spectacular quarter posted by the Texas-based hard goods retailer Conn's (CONN). Shares of Conn's soared 19% in today's trading after the company reported exceptionally strong numbers.
Cramer said when you look at Conn's footprint one thing is clear -- this company operates in the heart of our nation's oil and gas oil boom. This is exactly the kind of "pin action" Cramer said he's been expecting from our oil market because all of the growth and activity has to spill over into the rest of that local economy eventually.
That notion was confirmed by last night's interview with the CEO of Chart Industries (GTLS), who noted that wages are on the rise at the company's Louisiana plant because there's a shortage of skilled labor, including welders and engineers.
Cramer said it's only natural to think that everything in Texas and Louisiana will be heating up, from oil and oil service stocks, to railroads and pipeline players to companies like Cummins (CMI), which is benefiting from new generations of natural gas engines. Cramer said he'll be looking for more stories like Conn's that confirm just how much the American economy benefits from producing its own energy.
Know Your IPO
In his "Know Your IPO" segment, Cramer looked into the upcoming offering for Hilton Hotels, which will be coming public next week under the ticker "HLT."
Hilton expects shares to price between $18 and $20, which gives the company a valuation of $19.3 billion. That's expensive by most metrics, said Cramer, but that doesn't mean that shares won't pop on its open. In fact, of the 210 IPOs so far in 2013, the average return on the open is 20%. Not too shabby.
Recent hotel IPOs have performed well, Cramer noted, and he expects Hilton to be no different. He told viewers to consider the chain's enterprise multiple, which is its enterprise value divided by its earnings. At the middle of its expected IPO price, Cramer said Hilton has an enterprise multiple of 18, which only puts it at a 30% premium to chains like Hyatt Hotels (H) and Marriott (MAR), which is deserved given Hilton's superior growth.
When it comes to hotels, scale matters, and Hilton has it. The company is also pushing hard into overseas markets with over 80% of its rooms under construction currently outside of the U.S. Hilton also has the advantage of only owning 156 of its own hotels and licensing its name to another 3,883 for which it collects management fees. Cramer said the management fee model is a winner and one where Hilton excels.
Cramer said given the valuation, he would not be a buyer of Hilton in the aftermarket and would only try to get in on the IPO itself.
Executive Decision: George Jones Jr.
In the "Executive Decision" segment, Cramer sat down with George Jones Jr., CEO of Texas Capital Bancshares (TCBI), another Texas company that's thriving as a result of America's oil and gas renaissance.
Jones said that a large part of his bank's success stems from great execution. He said finding the right people and having those people execute a great plan helped the bank grow to where it is today. Jones had kind words for his home state of Texas, saying it is very business-friendly, with no income tax and the cost of living is very reasonable. That's why the housing market is doing well and even commercial real estate is on the mend in Texas.
When asked about the effects of the oil and gas market, Jones said oil and gas remain very important to the Texas economy but not as much as in years past. He said the state has learned not to rely on a commodity whose price is set elsewhere, which is why so many other businesses have grown over the past 20 years to help diversify and stabilize the region.
Turning to the issue of interest rates, Jones said 80% to 90% of his banks asset float along with interest rates, which helps preserve their margins and pricing.
Cramer called Texas Capital a simple, good story that investors should consider for their portfolios.
No Huddle Offense
In his "No Huddle Offense" segment, Cramer put on his trading hat and discussed what he would've done back at his old hedge fund with tomorrow's looming employment numbers. He said that with interest rates likely to rise, we could easily see a 4% to 5% decline in the drug and health care stocks because those companies' yields will become less competitive.
Health care will likely be hit even more than the REITs and MLPs as those two groups are already down big from their highs. Consumer packaged goods stocks will be the next sector to get hit, he said -- investors won't want to own a stock like Colgate-Palmolive (CL) in a high-growth market.
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-- Written by Scott Rutt in Washington, D.C.
To email Scott about this article, click here: Scott Rutt