NEW YORK (Real Money) -- 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:
- Four groups with good buying ideas among them; and
- another four groups -- including some rate-hike winners ... at least until there is a rate hike.
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Stocks With Significant High Activity: First Four Groups
Posted on Aug. 10, at 5:40 a.m. EDT
You can find good ideas anywhere, as long as you know where to look for them. Right now I see two places that make a ton of sense to find them, and they are at polar ends of the spectrum: the new high list and the new low list.
First, let's deal with some first-class irony. If you take out the companies that are in the process of being taken over, you will find that last week we had an equal number of new highs and new lows, 60 apiece. Extraordinary.
Second, the breadth of the two lists is extraordinarily narrow, although the bears should take notice that there are a heck of a lot more sectors on the new high list than the new low, as the new low is almost entirely oil and gas.
Third, there are no classically "cheap" stocks on the new high list. Most of them are selling with price to earnings multiples in their mid 20s, even as they have single-digit growth. That's very expensive when the average S&P 500 stock, which grows as fast or faster than many of these stocks, sells at 18 times earnings.
The new low list has inconsistent PEs, in part because they are meaningless when it comes to the energy stocks and they are not, in general, all that revelatory as a sorting mechanism.
So how do we make money with these lists? Let's split them up.
First we look at the groupings in the new high list to see what's being favored and perhaps why they are being favored.
I see eight groups that have significant new high activity. I will break them down for you by preponderance and then suggest why they are winning and then give suggestions for the best of each, knowing that the situations are all relatively in flux but, for the most part, we have seen the earnings so the risk is a tad lower than otherwise.
1. The food and beverage portion of consumer packaged goods is the top performing group with the most participants on the list. Three reasons:
- They are huge takers of commodities and everything commodities is in free-fall, as we know from the prices of these commodities and the new low list.
- This group has the most mergers and acquisitions activity, with Mondelez (MDLZ - Get Report) being just the latest in a long line of activist-stirred food pots.
- This group's prominence suggests that the economy is much more weak than the employment numbers impute, and a few Fed hikes will throw us right back in the soup.
I am beginning to believe this is the predominant major chord of the market, which means all of these stocks, whether they be Kellogg (K - Get Report), General Mills (GIS - Get Report), Mondelez, Campbell Soup (CPB - Get Report), Hormel (HRL - Get Report), Dr Pepper Snapple (DPS), McCormick (MKC - Get Report), Brown Forman (BF.A - Get Report); (BF.B - Get Report) and Constellation Brands (STZ - Get Report) should be bought on any weakness, especially the higher yielding stocks. My suggestion here is to buy White Wave (WWAV), which isn't on the list and which I hold in the Action Alerts PLUS charity portfolio that I co-manage. White Wave reported a very strong quarter Friday, reminiscent of the last quarter of Constellation Brands, and it got hammered like Constellation. A few days later it started roaring again. White Wave, the natural and organic powerhouse, remains the most attractive company in its industry other than Hain Celestial (HAIN - Get Report). I also would buy General Mills right here because of a brilliant product line refresh to more natural and organic, as well as its more domestically based offerings. It is the Clorox (CLX - Get Report) of the food business, another I like but it has to pull back after last week's explosion higher.
2. Med-tech has been a popular theme for ages and ages, and it's always been led by Stericycle (SRCL - Get Report), Bard (BCR) and Becton Dickinson (BDX - Get Report). This group's tricky because there are always going to be some that are in the doghouse. That's when you want to load up the boat. For example, for ages Baxter (BAX - Get Report) had been right up there with Bard and Becton, but then it had a couple of years' rough patch. It took dramatic action and split itself up, with one part immediately getting a takeover bid and the other drawing an activist a few days later. My suggestion, a most consistent company that wasn't on last week's list: Henry Schein (HSIC - Get Report), which is a rare five points from its 52-week high. Vertex (VRTX - Get Report), Amgen (AMGN - Get Report) and Regeneron (REGN - Get Report) are all on the biotech portion of the list, but Celgene (CELG - Get Report) is not. That's a mistake; it's selling at 10x the 2020 projection. Call me a buyer off $12 from its high of $140. These stocks are, again, like the first group, rallying because a Fed tightening is expected to hurt the industrials and slow the economy, causing year-over-year earnings improvement that these companies will give you pretty consistently.
3. The home theme is alive and extraordinarily well, mostly furniture but also materials to build homes. The odd thing is there is only one home builder on the list: Horton (DHI - Get Report). I would prefer Lennar (LEN - Get Report) for its breadth and strength of management. Although it sells most of these goods, Lowe's (LOW - Get Report) is not on the list and has a lot of room to move. Stanley Black & Decker (SWK - Get Report) reported good numbers, but not good enough numbers versus the cohort and that's a buy down $7 from its $111 high. This group reflects the desire to invest in the increasing worth of your home -- scarcity value, higher rents and improving job growth -- and I don't think it will be knocked a kilter from the first rate hike. I don't think it can survive a quick second one, though.
4. Travel and leisure's strong, but only the bargain portion. It's a weird dichotomy going that makes the group tricky: Priceline (PCLN), Expedia (EXPE - Get Report), Royal Caribbean (RCL - Get Report) and Carnival (CCL - Get Report) are emblematic and they represent bargains, even up here, part of the new frugality theme I like so much. But there are no hotels, airlines or restaurants on it save Chipotle (CMG - Get Report), which is distinctly a special situation. How is that possible? It is hard to figure. I should add that the only retailer on the list of note is Ross Stores (ROST - Get Report), which is also a bargain basement outfit. Either investors collectively don't believe that oil is going to stay down -- something that the new low list, with its plethora of oils belies -- OR it's because those areas are now price competitive among each other and have lost their luster. The consumer remains suspect unless he or she is taking a bargain trip. The only way I can explain it.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long WWAV.
Stocks With Significant High Activity: Last Four Groups
Posted on Aug. 10, at 7:38 a.m. EDT
There are no classically "cheap" stocks on the new high list, but you could still find some good buying ideas.
I listed the first four groups in my first article (above); here are the remaining four:
5. Information technology outsourcing companies like Accenture (ACN - Get Report), Cognizant (CTSH - Get Report), Equifax (EFX - Get Report) and Fiserv (FISV - Get Report) are working. I think that's an indictment of the tech sector in general. Portfolio managers dedicated to having some tech are hiding in these stocks because they are so scared of actual tech, in part because of the strong dollar and in part because Apple (AAPL - Get Report) -- a holding in the Action Alerts PLUS charity portfolio that I co-manage -- has caused a panic in the world of what was once the strongest part of tech: cellphones, all because it failed to crack the bar of 50 million phones, coming in at 47 million. I never trust traditional tech until September, anyway. So chicken tech -- outsourcing -- remains a strong theme even if you, like me, aren't that crazy about these offerings. Remember Chinese weakness hurts all, but this secular growth tech subset, too.
6. The financials should be anticipating a Fed rate hike and banks should be roaring. But they aren't. That's another sign that investors fear the Fed will push up rates but the spreads will narrow, not widen, because demand for money will fall off and the recovery will collapse. Understandable, given how an already strong dollar will go nuts on tightening. What's working? The property casualty and life insurers and their brokers are doing well, but as we saw from Berkshire Hathaway's (BRK.A - Get Report) Geico this weekend and Allstate (ALL - Get Report) last week, the auto insurance business has been beset by rising claims because there's more driving and, I suspect, more texting. My only recommendation here is Chubb (CB), because I like that combination with ACE (ACE) that was just announced.
7. Huge strength? Try athletic apparel: there's something going on here that Nike (NKE - Get Report) and UnderArmour (UA - Get Report) -- which is held in the Growth Seeker portfolio -- keep showing up as well Skechers (SKX - Get Report) and Foot Locker (FL - Get Report), even as the rest of apparel doesn't rate. It's like the consumer's only willing to pay up for fitness -- no doubt a millennial behavior shift. Best to play it safe and wait for a pullback, as this group is way too extended.
8. Finally, there is the group I call special situations because they defy rubrics. Here I see Snap-on (SNA - Get Report), which has been a multi-year horse because it combines the theme of older cars and technology, as well as Advance Auto Parts (AAP - Get Report) and AutoZone (AZO). They are all buys. Netflix (NFLX - Get Report) is on the list, too, as a function of the new way worldwide to consumer entertainment. Video games, as represented by Electronic Arts (EA - Get Report), seem to be worth buying on any pullback no matter how small, as we have seen all of 2015.
It's a slim group, narrow and not for the faint of heart. But given that these are rate-hike winners, they make plenty of sense, that is, until we get one. Then we have to rethink everything.