NEW YORK (TheStreet) -- Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- why Seattle is a good bet, and
- how we're handling the Chinese credit collapse.
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Seattle Companies Are in the Beast Mode
Posted at 5:34 p.m. EST on Friday, Jan. 24
Bet the farm on Seattle.
No, not the Seahawks, although I like them very much to beat the Broncos.
I am talking about betting on the companies that are from Seattle because they, like running back Marshawn Lynch, are in beast mode even with a market that suddenly feels like it's getting the Orange Crush.
Just think about it. Which is the best performing Dow stock last year? Boeing (BA), which, while based in Chicago, has its biggest factories in the Seattle area. Which company is playing havoc with all of bricks and mortar retail? Amazon (AMZN), the Seattle-based online colossus. Which company delivered the best consistent growth of any retailer through this rough period? Costco (COST), the Seattle-based big box club store chain.
The former was a real shocker. For years we've been frustrated with Microsoft as there always seemed to be something that went awry, some line of their business that stalled or failed or missed expectations. We grew tired of the excuses and couldn't believe that the company could miss the social, the mobile and the cloud, the holy trinity of tech, that should have been so obvious to both Bill Gates and Steve Ballmer, but somehow passed them by.
That's one of the reasons why the biggest move this stock had in ages came on the heels of the resignation of Ballmer who simply failed to see many of the biggest trends in tech and Microsoft, as huge and powerful as it is, became an also-ran in the tech space.
But today, the last real quarter of the Ballmer regime before he steps down, the company put it all together with great numbers from Windows, from enterprise software, and most importantly from the Surface and the XBOX franchises. It was a truly terrific performance and I believe the stock would have been up maybe twice as much as it is if the day had been a less chaotic affair.
The real winner out of Seattle though, the one worth devoting some real time to, is Starbucks not just for what the company did, which was amazing, but from what its incredible CEO, Howard Schultz, one of my Bankable 21 CEOs from "Get Rich Carefully," said on his conference call.
First, I am always telling you that you have to listen to the conference calls to find out what's really going on and match that to the expectations that were expected of the company going in. The Starbucks quarter and its aftermath represented everything that's good and bad about the stock business and why I am always confident that people at home can trump the wise guys when it comes to long term wealth creation.
I was watching CNBC when Starbucks reported. There were some headlines on a bunch of services when the number hit that immediately pronounced the quarter a disappointing one. Instantly the stock sank from $73 to $71 in after-hours trading as the stories declared the quarter a big miss.
The sellers, however, got it totally wrong, in three different ways. First, they didn't understand that the stock had been going down for days ahead of the quarter as people expected the company to issue earnings short of the consensus. In fact, the numbers were basically in-line, which didn't fit the scenario of the decline that had already occurred before the report, let alone the foolish one occurring after.
Second, the headlines picked up that there was a slight disappointment in the U.S. this quarter but didn't acknowledge that the incredible turn in Europe, which was, frankly, monumental and much more important than any slight slip in the U.S.
Finally, because the headline writers and the Quick Draw McGraws didn't wait to hear the guidance for the future they didn't know that Starbucks had sold a huge number of gift cards, far more than anticipated and that will produce a huge shift of revenues into the first quarter, far more than what might have been missed in the quarter just reported.
Remember, we care more about a company's future, not its past and this gift card news was nothing short of fantastic for the earnings projections. You could not have learned about it from the headlines though, you needed to hear it on the call.
What else did the headlines miss? How about excellent sales in China even though right at the beginning of the quarter the Chinese government TV station did a half hour slam of Starbucks for gouging Chinese with ultra-high coffee prices?
How about the incredibly fast start in India that could produce some very meaningful numbers later this year? How about the success in remaking and remodeling Starbucks, including adding drive-through and offering more food that makes it so that the Starbucks experience is no longer as morning-centric.
But the real thrust of the call, something that couldn't be captured in the headlines at all, came at the very beginning of the call when Schultz traced out what he called a seismic shift in retailing that occurred this very quarter past: the twilight of the traditional bricks and mortar mall shopper vs. the rise of the device toting home shopper and what it means for retailers of the future.
Schultz pointed out that many commentators have blamed weak holiday sales on the weather, the shortened period between Thanksgiving and Christmas and the government shutdown. Schultz dismissed those almost entirely. Traffic, he said, went down because America's changing. This was the year where people decided that they like shopping online more than they like going to the mall and they aren't going to go back. It's a secular change and it is just starting.
But, he said, Starbucks saw this coming and has been able to embrace digital, embrace mobile and embrace social in ways that have made Starbucks not immune, but more immune than other retailers. The technology they have invested in has allowed lines to move faster, giving the company a chance to add more complex items, liked baked goods, carbonated drinks and special coffees to the menu without slowing down the through-put.
Most important, Starbucks, by virtue of its principal product, coffee, does not compete with cross town neighbor Amazon. Or to put it another way, Amazon's got the original beast mode on offense, Marshawn Lynch, but Schultz is the equivalent of Cramer uber fave Richard Sherman, a defensive playmaker that is capable of winning the Super Bowl of retailing just like I think he could win the actual Super Bowl for the Seahawks.
There was so much else that was fabulous on the call. I like the rollout of Teavana that's just beginning and I suspect that it will be a gigantic driver in the out-years. I thought that the analysis of how people like gift choicing -- meaning giving a gift card to people has now become engrained in the culture. I like that those who get gift cards for Starbucks are often people who have never been to one and not only will they buy some coffee but they might be swayed into some of the other new food offerings with high price points.
But here's the bottom line: on hideous days like today you have to remember that just like Pete Carrill might make you want to bet with the Seahawks Howard Schultz makes you want to invest in Starbucks because he is the very embodiment of the Bankable 21 that I salute in "Get Rich Carefully," the CEO coaches who win even when, on a day like today, all others around you are losing.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.
Getting Perspective on China's Crisis
Posted at 1:52 p.m. EST on Thursday, Jan. 23
We have our first crisis of the year, and we are handling it as terribly as can be expected, given that fact that it is unexpected.
I am talking about the Chinese credit collapse and how we have all collectively decided that this is one that can reverberate into every company that has any exposure to China, as far ranging as Ford (F) and Coach (COH) and Boeing (BA) and Goldman Sachs (GS).
All crises are pretty much the same in the post-Great Recession world. There's the initial shock -- holy cow, there are problems in the Chinese banks! -- which shouldn't be much of a shock at all. However, until the last 24 hours, no one was really focused on the Credit Equals Gold No. 1 Collective Trust and the aches and pains of the China Credit Trust. We have all had endless assurances not to worry about China because the government has it all under control.
But when we have some bank potentially being allowed to go under or a bond being allowed to default, there are implications that aren't instantly patched up, especially when you have a declining Baltic Freight Index and a flash merchandise index report that are definitive downticks.
Hand in hand with that initial shock is the broad panic. The panic is immediately translated into stocks via the S&P 500 futures, and therefore everything goes down with it. All 500, hence the red on your screen.
Now, there's no use fighting the initial tidal wave. Especially given the fact that the strongest areas of this market so far this year have been industrials, techs and banks, and all of these areas are suspect, because so many do have ties to China. Do you want to buy Caterpillar (CAT) now, knowing that it has moved up and there's a giant Chinese component? Do you want to be the first to come in on top of the big moves in 3M (MMM) and United Technologies (UTX) and call the bottom?
I sure don't.
But there's also no need to panic. In fact, you want others to panic to give you the prices you want, not the ones you have had to take for some time now. It's always so easy to say, "I am cutting and running because of China," when perhaps we should be thinking, you know what, there are some bargains being created here, because while China is important to the world's economy, it isn't the U.S., which remains strong and on course for growth this year. One look at the strong existing-home sales and the very good employment claims we got this morning will prove that claim. Neither should be hurt by the potential collapse -- not the collapse but the potential collapse -- of a Chinese bank that might still be saved by the Communists.
Nevertheless, that doesn't mean you need to be a hero and buy something on day one. That strategy can be as hurtful as panicking itself, and it's usually fraught, given the tidal wave of futures selling, almost assuredly making you have to take another bite of the apple lower and later. It's still early enough for the most nimble to sell, as we are barely down for the year, and we were up 32% last year.
But day two, tomorrow, that's when it will already be too late to sell some stocks, even as others will most surely fall.
Day two is when you figure out what shouldn't have been taken down with the futures, what isn't really affected but has gotten hammered as surely as if its chief earnings stream came directly from Beijing. I spend an immense amount of time in Get Rich Carefully addressing just this kind of broad-futures-led panic and how to handle it, so I feel that the perspective I have can really help here, as so many people presume it is "game over" exactly when it might be "game on."
My suggestion for today is that unless you have a specific company that just reported an amazing quarter, just sit on your hands and do some work on the stocks that are being brought low by the futures, particularly the drugs, the foods, the domestic banks and other healthcare names.
Ideas? How about Unilever (UL), which just reported a terrific quarter earlier in the week? How about Mondelez International (MDLZ), where activist Nelson Peltz just joined the board? How about a troika of companies that never seems to come down: McKesson (MCK), AmerisourceBergen (ABC) and Cardinal Health (CAH)? Or consider some of the charmed big pharmas here, such as Merck (MRK) or Bristol-Myers Squibb (BMY).
I would normally say domestic retailers, but the Achilles heel here is that there are earnings difficulties that can't yet be said to be discounted enough by this market. Same with restaurants, although the staying power of McDonald's (MCD) after still one more disappointing quarter is pretty amazing. Wendy's (WEN) did deliver better numbers, and it has no exposure to China. I would be more aggressive, but we need to see what Starbucks (SBUX), which has China exposure, has to say tonight. Notice, however, that Brinker International (EAT) is up nicely, owing to its excellent report.
You can also pick at your favorite bond-market-equivalent stocks -- the always out-of-favor by the analysts but in-favor by the regular guy stocks, such as Clorox (CLX) and Kimberly-Clark (KMB), come to mind. But so do the real estate investment trusts and master limited partnerships that are not connected to retail, such as Ventas (VTR), the nursing home company, or Linn Energy (LINE).
Some real gunslingers might be tempted to buy Netflix (NFLX) even up here, or Tesla Motors (TSLA) or Amazon.com (AMZN), the cult stocks that spring back first, although I still think they are better day-three material. And of course, the natural gas stocks should spring back quickly, too, owing to the cold weather.
I would normally recommend that you revert to some of the themes I trace out in Get Rich Carefully for tomorrow's purchasing, namely the holy trinity of tech, social mobile and the cloud, and the biotechs and health and wellness stocks. Unfortunately, they were all on a roll coming into this crisis, so they might be more of a day-three or day-four consideration.
But the biotech stocks, namely Gilead (GILD), Regeneron (REGN), Biogen Idec (BIIB) and Celgene (CELG) have been too hot, and holy trinity names like Salesforce.com (CRM) or Facebook (FB) or Twitter (TWTR) have also been too steaming to pick up today.
Day three will be the day to pick up the unaffected banks, the regionals, which have been terrific to date and which have nothing to do with China but have been brought down by the ETFs that handle the financials. I also like many of the special-situation plays, Dow Chemical (DOW) and perhaps eBay (EBAY), which are under activist pressure.
Only on day four will it be safe to buy industrials, because they are all guilty until proven innocent, and the terrifically performing techs, notably the telecom-equipment stocks. You could normally be more aggressive and shift those to day three, except that there's so much direct and indirect exposure. Not coincidentally, the day-four stocks are still going to be regarded as sales today and the beginning of tomorrow as longs and shorts anticipate further declines.
You might ask, why do anything? Why not let everything come down? Here's the issue: You are being given some entry points that would be wiped out if the Chinese suddenly ease to take care of the situation. Do you want to avoid picking at Alcoa (AA) if it comes down to $10 after this selloff? Don't you want to buy an already-vetted United Technologies (UTX) or a Union Pacific (UNP)? I know I do.
Again, no need to rush into anything. Today is the first day most have heard of the China Credit Trust or the Credit Equals Gold No. 1 Collective Trust, and obviously, it won't be the last. China is the second-largest economy in the world. It never pays to be too sanguine in the face of any crisis. I also want to keep one eye on the debt-ceiling negotiations that seem to be kicking off now. The pundits are reassuring us not to worry. That's precisely why you do need to be worried.
Just remember that things are better here than they have been in ages and that China has a habit of surprising us to the upside when you think that you are about to cliff-jump without a net.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long LINE.