Posted at 5:54 a.m. EDT on Friday, Nov. 20, 2015
No upside to commodity deflation. That's pretty much what we are all feeling these days. When we read that zinc, iron, copper, aluminum and steel are hitting multi-year lows and we see that the Baltic Freight Index is unfathomably low at about 500, we only know how to say "woe is me." It's as if no one benefits and everyone loses from these metals being cheaper.
Same thing goes for oil as we now know. In fact I can think of only eight stocks that people believe benefit from oil these days: Delta (DAL - Get Report), Spirit (SAVE - Get Report), United (UAL - Get Report), Southwest (LUV - Get Report) and American (AAL), Royal Caribbean (RCL - Get Report), Norwegian Cruise Lines (NCLH - Get Report) and Carnival (CCL - Get Report). Everyone else seems to be a casualty in some form or another.
It's worse: the commodities that everyone needs lower, the food complex, aren't really going down anything like these others. The Fed doesn't take into account commodity deflation when it discusses lift-off. So you don't get any benefit.
In the meantime, if you look at the debt of some of these energy companies, like SandRidge (SD - Get Report) or Chesapeake (CHK - Get Report), you know that there's more pain ahead. Debt doesn't trade this badly if it doesn't need restructuring.
Yep, it's all bad. Amazing, because some companies in this country have to be significant beneficiaries.
Yet, it's as if the only places that commodities are used are in China. Now, in truth there are tremendous benefits, particularly to consumers who feast on lower gasoline and heating bills. But even there, we have made cars so anti-guzzling that the pennies aren't adding up the way we theorize.
Instead, when we are on conference calls involving nationwide retailers, we spend a tremendous time talking about how poorly Texas is doing -- which, by the way, isn't all that bad.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.
Posted at 1:55 p.m. EDT on Thursday, Nov. 19, 2015
This market lives and dies by surprises. Earnings surprises. News surprises. Takeover surprises. Political surprises. And they keep happening and happening and happening and they are defining this market.
Take Keurig Green Mountain (GMCR), the maker of the eponymous Keurig, which so many of us use every day. One year ago today, Keurig's stock traded at $157. Yesterday, before Keurig reported, the stock had been poleaxed to $39 -- $157 to $39 in one year's time.
Keurig had become one of the greatest serial disappointers of all time, a fool's errand to own as it put out new products no one wanted, missed the whole holiday season, spent fortunes on nothing and struggled mightily to come up with a new, expensive product that sells carbonated beverages, called Kold. It isn't even spelled right.
So when it reported a better-than-expected profit last night, superior cash flow, a 13% dividend boost and a continued sizable buyback, the stock flew 25%. Why not? Here's a quarter from a gang that couldn't shoot straight that really did deliver the piping-hot goods. And it comes at a time when we know people are going gaga for coffee, something that Starbucks (SBUX - Get Report) has been telling us for months on end.
You should have been on the conference call. There was genuine disbelief that the company could really get its act together, with skeptical and burned analyst after skeptical and burned analyst trying to figure out how it could be that Keurig's executive team got its act together. And we even heard some enthusiasm for the Kold, which, while it will miss the holiday season, actually sounds like it has a degree of promise. I know I was blown away and so were the myriad bears on the stock.
But then let's go to the other end of the spectrum: United Health (UNH - Get Report), perhaps the most consistent health care company in the last quarter-decade. Here's a health care insurance and maintenance company that simply beats and raises as if it is in the DNA of its soul. But not today. Today it issued a three page pre-release of its earnings where the first paragraph says it all: "United Health Group today reported revised expectations for 2015 reflecting continuing deterioration in individual exchange compliant product performance and provided an initial outlook for 2016." Mind you, the last time this company gave you an outlook, just a few short weeks ago, it boosted its outlook and told a very rosy picture. Surprise, surprise, get this next line: "In recent weeks, growth expectations for individual exchange participation have tempered industrywide, cooperatives have failed and market data has signaled higher risks and more difficulties while our own claims experience has deteriorated."
Translated? Obamacare's killing us and we are not going to stand for it and we are going to dial our involvement back because the whole thing is uneconomic and quite frankly a disaster for all but those who were uninsured or uninsurable. The rates that these kinds of companies have to charge are just way too high and the healthy clients are just walking away from them. Mind you, United Health is the best of the best, so it wasn't like this was a one-off, and you can see from the collapse of the entire complex, from Aetna (AET), Cigna (CI - Get Report), Anthem (ANTM - Get Report) and Humana (HUM - Get Report) to HCA (HCA - Get Report) and Tenet (THC - Get Report), that the system isn't working. With the possibility of congressional revisions to the Affordable Care Act practically nil, this is going to be a house of pain for years for those who aren't nimble and it is shocking given the role these companies played in actually pushing this darned thing along.
Nasty downside surprise.
Some surprises are hidden, like the dramatic fall in the bonds of Chesapeake (CHK - Get Report), the sagging oil and gas producer that's become one of the biggest canines of the era. Sure, the stock's down another 8% off a cool 72% for the year, but some of the company's bonds fell an even bigger percentage, which is truly shocking. Now I have to tell you, when that occurs don't even think of bottom-fishing as the bonds are telling the truth. This company needs natural gas to double in price before it gets out of the woods, a fear that I can tell you is downright inconceivable. But Chesapeake's structure seems surprisingly strong vs. the worst performer of the so-called hedge fund stable, SunEdison (SUNE), which has seen its debt balloon from a couple of billion to $11 billion almost overnight. SunEdison is a one-time darling renewable energy company that doesn't just need more electricity, it needs paddles -- as in clear!
But then you have a monster upside move in the incredibly prosaic JM Smucker (SJM - Get Report), an 8% rally because the company has taken a couple of acquisitions in coffee and pet food and put them through the mill that is this fine company and come up with shockingly good earnings. That's a credit to a terrific management that many seemed to be angry at when it priced a big secondary of 8.3 million shares by Blue Holdings at $113. It, of course, wasn't up to management, as it had bought Big Heart Pet Foods from the selling shareholders. What can I say, it was a surprisingly great buy, as you would be up 10 bucks if you participated.
Then there's Salesforce.com (CRM - Get Report), which delivered what shouldn't be a surprising quarter, at least by now, with a company that has an astounding level of consistency ever since I had Marc Benioff on during the dark days of the Great Recession when the company had just crossed the $1 billion revenue mark and was the fastest-growing enterprise software company on Earth. Well, guess what, it still is and it's going over $8 billion this time.
Still, there are those like the analysts at Jefferies -- it takes two of them -- who called it a solid quarter and even raised their price target of their sell rating from $51 to $54. The only problem: The stock's at $81. Thanks for nothing. How could you not enjoy the always rigorous albeit entertaining conference call where Benioff declared chief competitors SAP (SAP - Get Report) and Oracle (ORCL - Get Report) "cloud deniers" who are paying a horrible price in single-digit and negative growth, instead of racking up big customer wins like General Motors (GM - Get Report), Intel (INTC - Get Report) and AECom (ACM - Get Report).
Which brings me to the biggest surprise of the day: Square (SQ). Earlier this week on Mad Money, I postulated that even though this online payment processor has ample competition, has lost Starbucks as a key customer and is losing boatloads of money, it could still be right to participate in if the company were simply to give shareholders -- the new shareholders, not the ones who paid top dollar for it -- a bargain. The price talk had been consistently lowered as the deal went through the pipe, and when it hit $11 to $13, I said be all in on the deal because it would be priced to pop no matter what.
Square, run by Jack Dorsey, who also runs Twitter (TWTR - Get Report) -- he's got his hands full for certain -- did you one better, pricing its deal at a real surprise: $9. That discount allowed all of those who were willing to be opportunistic and willing to recognize that, at a price, even some questionable merchandise has value, to make a fortune as the stock rocketed instantly to a premium. (Starbucks, United Health and Twitter are part of TheStreet's Action Alerts PLUS portfolio.)
I told you it was a surprising day. All in all, though, most of the surprises were of the good kind, even as the ones that are bad are very bad. I'll take that ratio as long as you recognize that the downside, at least in the energy-relateds, is a big unfathomable, while the upside is, often, if you give it time, unlimited, or at least, surprisingly unlimited, to say the least.