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:
- how this earnings season is excellent despite the haters, and
- why utilities and oil stocks are top performers now.
Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
Excellent Earnings, Tough Audience
Posted at 4:29 P.M. EST on Wednesday, April 16, 2014
Don't blame the companies! Sometimes I get so doggone frustrated that I have to let some of the aggression out, and when the averages scorched higher, I am going to blow off some steam.
Let's get right to my beef: I am sick and tired of hearing that earnings for companies are tepid and that sales aren't so hot. This earnings season got started with Alcoa (AA), which told you that things are improving for trucks, cars, aerospace and non-residential housing.
Think back to when it reported. What was the commentary? I heard people say, "The revenues were weak." Actually, that's a joke, revenue was very strong. The company just shut down a lot of excess capacity that was actually losing money. If you wanted Alcoa to garner more sales with unprofitable foundries, pardon me, but you are an idiot, and you have never run a business. That's why the stock hasn't skipped a beat and is now up 70% from its low of nine months ago. It does bug me that no one even seems to recognize that this was the best Alcoa quarter in years, on the top and bottom lines.
Yes, we did get a particularly horrible quarter from JPMorgan (JPM). Actually, mind-bogglingly terrible. I can't help but think that business got away from the company because of the regulatory pressure. There's really no other way to say it, and I am deeply disappointed in the company.
But Wells Fargo (WFC) reported what can only be described as a fantastic quarter with amazing growth, superb and eye-opening. The largest bank in the country and the best run, it had double-digit everything, and that says, frankly, that domestically we are doing so well in this country. Remember that Wells Fargo is truly America's bank, given that it doesn't even pretend to be an investment and trading bank. It's a lender, and lending is going gangbusters.
Citigroup (C) is taking a day off from rallying, but can we stipulate that this is one of those breakout quarters that shows you that if Citi were to get its regulatory house in order, you would see its stock back in the $50s. It has a ton of capital, it has slimmed down nicely, and all of the black holes are disappearing. I know it's not there yet, but this quarter was sharply better than expected on both the bottom and top lines.
Tuesday, we saw two of the most picture-perfect quarters that I have come across from two big Dow Jones industrials: Coca-Coca (KO) and Johnson & Johnson (JNJ). The former was supposed to do poorly, because everyone knows that carbonated sodas have gone out of fashion in this country, both diet and regular. But Coca-Cola management knows that the emerging markets still are keen on soda, and it put its considerable marketing muscle behind those markets. It worked. Made me feel that the pipsqueak activist who has been harassing the company for paying its execs too much owes management an apology. That won't happen. But it's nice to think that when the complainer gets older, he will look back and be happy that I was the only one who criticized him, even as he knows he was wrong.
As with Coca-Cola, people were betting that Johnson & Johnson would screw it up. On the previous quarter's conference call, the company intimated that things might be slowing. But when we saw the quarter Tuesday morning, it was pretty breathtaking. And it wasn't all bottom line. The company gave you 10% pharmaceutical growth, 12% if you back out the currency, and that's a terrific performance. No wonder the stock took off, and I don't think it's done either. Yes, that's how strong the business is. I would use this profit-taking wave to buy the stock.
Then last night we got two quarters that were shockingly good, again bottom and top line -- Intel (INTC) and Yahoo! (YHOO). First, Intel, after disappointing over and over again, spending way too much with so little to show for it, actually delivered a quarter that showed the leverage of the investments. With just a little bit of revenue gain, you saw a very positive return compared with expectations.
Sometimes I think people just don't listen to the conference calls, because if they did, they would have heard that Intel is now the low-cost producer and is giving you chips that use much less battery power and chips that are ideal for big data storage. What's not to like? And the gross margins were guided higher, because the company no longer needs to spend as much, as the next-gen build-out is complete. Why didn't the stock jump? I think that's in part because people simply don't believe, as with Alcoa, that it was all that good or sustainable. I think it's the opposite, and the stock, with a 3.3% yield, is now in the classic growth camp. Yahoo! is bugging me, because people think the only thing going right is Alibaba. I have to admit, this minority stake that Yahoo! holds in Alibaba is probably going to be worth the whole of the company, maybe more. I say maybe more because I believe that people are valuing Yahoo! by valuing the company away from Alibaba as worth less than zero. I am not kidding, especially if Alibaba comes public with a valuation of $250 billion, certainly a possibility, because with 66% revenue growth, an unanticipated acceleration in revenue from the previous quarter, it's the fastest-growing large-capitalization company on earth.
That 24% stake in a $250 billion company is worth a heck of a lot more than the $36 billion market cap of Yahoo!, even after taxes, and that is why I say that people are valuing the company as a dead-weight negative. But that's ridiculous, as this was a quarter that showed stabilization and even growth across many metrics, and I think it was obvious from this quarter that Marissa Mayer has given you a unique opportunity here. If Yahoo! monetizes its stake in Alibaba, it can shrink its float dramatically so that even a little bit of revenue growth will cause a gigantic amount of earnings per share to flow to the bottom line. I believe the stock is headed to the mid-$40s.
Now I know that seems problematic, in that both Bank of America and CSX (CSX) are reacting poorly to earnings. But I believe those reactions are short-sighted. Bank of America had a very positive acceleration in lending, one that would be much bigger for the bottom line if stubbornly low interest rates would just go higher. On the CSX call, we heard that 83% of its markets have favorable conditions and that the other markets are stable, including the all-important coal market. Pricing is weaker, and that's a true negative, but far be it from me to say that a company with heavy coal traffic shouldn't do better next quarter, given that coal was, in the words heard on the call, "a lot stronger" than the company anticipated. The CFO pointed out that he feels good about the top line, and added, "I would think that based on what you've seen here over the last few weeks where volumes are up double digits" that the next quarter is going to be better.
You can say that the sample is too small. You could conclude that we haven't even heard from whole sectors of the economy. But can we also stipulate that by this time last quarter, we were crying in our beer because both revenue and earnings were less than we anticipated? If the only stinker was JPMorgan, and I reiterate that that was the only one that truly delivered subpar top and bottom lines, then perhaps we need to recognize and even celebrate a positive change when we see one.
Surprises Among the Leaders
Posted at 1:12 P.M. EST on Thursday, April 17, 2014
Oils, utilities and a smattering of special situations. That's what has managed to climb the wall of worry to get to the S&P 500's 52-week high list.
I find this list pretty shocking. Consider that of the 28 new highs, 13 are utilities in some fashion. That's directly related to both the collapse in bond yields but also a belief that Federal Reserve Chair Janet Yellen is right and that this economy is not going anywhere soon.
You can't possibly make an earnings case for Wisconsin Energy (WEC) or Northeast Utilities (NU) or American Electric Power (AEP) or any of the others for that matter. You can make a consistent dividend case, though. These are all time-tested bond-market equivalents that reflect people reaching for yield.
When I say reach, I mean reach, because people are willing to buy Frontier Communications (FTR) and Windstream Holdings (WIN), two stuttering telecoms that are often talked about as problematic when it comes to those payouts.
Spectra Energy (SP) has become popular, too. This is a natural gas distribution play with a fine yield that doesn't need to do massive equity financings. It's a quiet winner like so many others on the list.
Oh, and there's Vornado (VNO), a growth real estate investment trust that yields almost 3%. This one has been left for dead at various times, and that is ridiculous, because the canny Steve Roth runs it. I would buy it on any weakness, because it has a solid combination of office and retail properties, especially in the rent-rising areas of New York City.
Some of the others are eye-opening, however. Let's take Allergan (AGN). The story of Allergan is a cautionary one -- for all of those who are dumping Gilead (GILD) and Celgene (CELG), that is. In the tumultuous decline from the $120s to the $80s, one after another analyst turned on the Allergan, saying that it had around-the-corner generic competition for a key eye drug, Latisse. It was incredible; no matter what the company did, it couldn't stop the rumor-mongering about the generic competition. It got so ugly that the CEO, David Pyott, whom I have come to know and like very much, came on "Mad Money" when the stock was in the $80s and said that the patent challenge simply wouldn't hold up and that we would soon be hearing from Allergan about new formulations that couldn't be replicated anyway.
When it finally filtered out that the challenge would fail, the stock simply never looked back. But boy, was it painful while it was happening.
How about Snap-On (SNA), which is on tonight? This is a company that has a remarkable, unique franchise that provides the best tools to professional mechanics. It is always inventing new tools -- I call it a "stealth technologist" in Get Rich Carefully. There's no competition.
Southwestern (SWN) and Range Resources (RRC) are pure-play natural gas companies that keep finding more gas and are low-cost producers. They are part and parcel with the energy revolution, but they are also rallying under the false hope that they will provide natural gas to nat-gas-starved places. They are strictly local, and Cheniere (LNG), the first plant to export, won't be ready for several years. I know from my colleague Matt Horween that Chesapeake Energy (CHK) is breaking out, too. The group can't be kept down.
After utilities. it is the oil-service business that predominates notably: Schlumberger (SLB), Baker Hughes (BHI), Helmerich & Payne (HP) and Halliburton. (If my fave, Core Laboratories (CLB), were in the S&P 500 you'd see that, too.) Now when you go listen to the commentary of, say, Baker Hughes, it's pretty obvious what is happening: the North American energy revolution. Baker Hughes on its conference call called out the Permian as one of the fastest-growing areas around the world, verifying, again, that Pioneer Natural Resources (PXD) and EOG Resources (EOG) need to be owned.The rest are pretty darned eclectic, like Allergan and Snap-On. For example, in a real irony, AutoNation ( AN) is on the list. Lots of people credit the beginning of the selloff that we've experienced with comments CEO Michael Jackson gave to Squawk Box about how business has fallen off a cliff and that the car companies were dreaming if they thought they could make their numbers.
Well, guess what? The weather got good, and those inventories cleaned up real fast, and now it's on the 52-week high list, no doubt on the backs of short-sellers who listened to Jackson on television. Oh well, at least he told you on the call that things had gotten better.
One of my absolute favorite companies is and always has been Kimberly-Clark (KMB). The company is never satisfied, always trying to boost the dividend or restructure, and it is willing to sacrifice sales on the altar of profit margins as it did when it ceded the Western Europe diaper market to Procter & Gamble (PG) not that long ago. This company is spinning off its healthcare division, and that has caused me to re-recommend it with a fervor to fill the void of analysts who don't care for it. I think it can inch up to $120 over time, but the dividend protection up there will be meager. No matter, the pieces of the company are worth more than the whole.
I have always like Ball (BLL) ever since it got rid of the Ball jar business and became much more of a high-tech company, particularly in aerospace. It maintains a can business that I think, if spun off, would send the stock much higher. Perhaps that's why it is running?
Boy, here's a wild one. Archer Daniels Midland (ADM), the grain processor that hasn't done anything in years. It seems to have finally figured out how to make a lot of money off the U.S. industrial agricultural machine.
Then there's Alcoa. You know that I have championed this one for ages, and this last quarter, despite how it was characterized by the media, was indeed the breakout on the top and bottom lines. The tough actions have been taken, the expensive plants closed, and the value-added portion of the business is doing incredibly well, led by aerospace, trucking and autos, the latter all about light-weighting, something CEO Klaus Kleinfeld told you about when the stock was in the single digits not that long ago. I see this one going to $18 over time.
Best for last: Remember that article a couple of weeks ago that talked about how Warren Buffett's stock-picking has become subpar? Funny thing, but there's Berkshire Hathaway (BRK.B) standing tall on the list, and while that may not necessarily relate to his portfolio, it doesn't hurt that he has huge positions in Wells Fargo and Coca-Cola , two stars of the reporting period. I think he will be patient on IBM (IBM), as he has been for others, and you need to buy it ahead of the new product introductions.
Think about it: no financials and no real tech. Just yielders and oil and gas and a smattering of special situations.
No wonder this market's so tough. I don't see a favorite among them. In fact, it is a list that's been scorned, not loved.
Love can't buy you money, that's for certain at least when it comes to stocks.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long CELG, JNJ, JPM and PG.