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NEW YORK ( TheStreet) -- On a day where the S&P 500 slid 0.02% and the Dow Jones Industrial Average fell 0.3%, Tuesday’s decline made sense, Jim Cramer told his Mad Money viewers Tuesday.
The markets opened lower, down over 1%, as the Shanghai Composite dropped 5.2% and the Greece stock market declined 12.8%. It only makes sense that U.S. stocks got hit near the open, too, he explained. But the markets were able to rally despite the poor performance from some individual stocks.
Take Verizon (VZ - Get Report) , which declined 4% after pre-announcing worse-than-expected earnings results. The stock may get hammered with downgrades over the next few trading sessions so it’s still too early to take advantage of the weakness, Cramer said.
Then there were the bank stocks including Bank of America (BAC - Get Report) and Citigroup (C - Get Report) , which announced the fourth quarter is likely to be “not so hot,” Cramer explained. McDonald’s (MCD - Get Report) , Conn’s (CONN - Get Report) , Spirit Airlines (SAVE - Get Report) and Merck (MRK - Get Report) , a holding in Cramer's charitable trust, Action Alerts PLUS, also had their share of unimpressive reports, earnings and news.
However, today’s late rally gives hope to the bulls. Had today’s session lasted a little longer, the market would have likely closed in the green. Cramer is sticking with the bulls from now until year’s end.
Where Activists Should Go Now
Activist investors seem to be veering away from their typical investment candidates, Cramer said. Generally, activists seek out struggling companies, helping to fix the business and reaping the rewards of a flourishing stock price. Now activists are buying into companies that are already well run, looking to squeeze just a bit more performance from them.
United Technologies, which is in the aerospace, heating and cooling, elevator, and helicopter businesses, has lagged the broader market, up just 1% on the year. The CEO suddenly stepped down and now reports are surfacing that it’s because of his apparent fascination with his yacht. This situation needs a big investor to right the ship, Cramer explained.
Then there’s McDonald’s. Some say it can’t be fixed because consumers simply don’t want the food. But it seems hard to believe that with its large network of restaurants and strong balance sheet the company can’t be fixed, Cramer said.
GameStop Is a Value Trap
There's a time for games and a time for investing. That's why Cramer wanted viewers not to rely on pastime successes as a recipe for future gains. To prove his point, he looked at GameStop (GME - Get Report) , which has historically performed well when a new video game system is released.
The company typically benefits from the upgrade cycle that millions of consumers go through when new platforms come to the market every few years, Cramer said. So why is that GameStop missed on EPS and revenue estimates and provided poor guidance after the release of Microsoft’s (MSFT - Get Report) Xbox One and Sony’s (SNE - Get Report) Playstation 4?
Simply put, digital downloads are eating into its business, Cramer said, with 75% of the company’s sales generated from new and used video game sales, while 95% of its total sales are done in stores and not online.
This reminded Cramer of Best Buy (BBY - Get Report) , which also struggled from what looked like a dying business. However, the company was able to cut costs, boost its online presence and reaccelerate sales. It now saves over $1 billion annually in costs. But that’s because management acknowledged the problem and attacked it.
The bottom line: GameStop’s management refuses to acknowledge the digital downfall. While the company's valuation and 3.7% dividend yield may seem attractive, the stock is simply a “value trap” with a business caught in a secular decline, he said.
Executive Decision: David Crane
The company is in transition, Crane explained. It previously relied solely on fossil fuels. Now it relies on both fossil fuels and clean energy and it’s looking to make the latter a larger part of its portfolio. NRG plans to become a big player in the residential solar market in the next six months. With 120 million homes in the U.S., 30 million to 50 million are fit for solar, he said. That creates a potential $1.5 trillion market.
And while coal can’t be ruled out as a form of energy yet, the company is working on the world’s largest carbon capture project in the world, in an attempt to reduce its pollution output. Perhaps the company can turn its carbon from a liability, into an asset, creating even more value for shareholders, he said.
Cramer said NRG's stock could be as much as 40% higher had the summer weather cooperated and required Americans to use more electricity. The stock’s weakness could be investors’ chance to buy this “visionary business,” he said.
In the Lightning Round, Cramer was bullish on Energy Transfer Partners (ETP) , Berkshire Hathaway (BRK.B - Get Report) , Williams Companies (WMB - Get Report) , Union Pacific (UNP - Get Report) , Honeywell (HON - Get Report) and Magnum Hunter Resources (MHR) .
Executive Decision: Ron Wainshal
The company has 140 aircrafts in its portfolio and has purchased them from 70 different vendors over the past decade. We go to where the deals are, whether that’s aircraft manufacturers, investors, or airlines, Wainshal explained.
There’s a lot of growth in the global airlines business, but each region can be unpredictably rocky. For that reason, Wainshal says the company diversifies across each region to account for a potential downturn. Falling oil prices doesn’t just benefit the airline companies, he said, it benefits Aircastle, too. Since oil is the biggest expense for an airline, their profits increase as costs go down.
Naturally, this drives higher demand for aircraft, which benefits Aircastle. The company has a utilization rate of 98% to 99%, as it continues to buy new planes and sell older ones, Wainshal added.
Cramer says Aircastle's 4.3% dividend yield is sustainable because of the company’s stable business and consistent cash flows.
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-- Written by Bret Kenwell