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Panic About a Nuclear Threat Is Not an Investment Strategy

Posted at 6:19 a.m. EDT on Wednesday, Jan. 6, 2016

Markets, like the people who trade them, have always had a hard time factoring in potential nuclear catastrophes. That's why, when the futures cratered last night on seismic tremors that were later confirmed to be related to North Korea's first H-Bomb test, it didn't feel great to rush in and take the other side of the trade.

The combination of the unknown and inherently irrational North Korean government and thermo-nuclear weaponry isn't reassuring, except in the cold calculating way that the North Koreans have successfully used these existential nuclear threats to blackmail the West into feeding the people of that wretched nation.

It isn't like our nation's able to deal in any serious diplomatic way with the furtive, secret North Koreans. Dispatching Dennis Rodman to smooth things over isn't as dramatic or as effective as sending Henry Kissinger shuttling between Egypt and Israel to work out a definitive peace agreement.

Still, though, we have to ask, why are we freaking out about it even more than usual, when the South Korean market seems to be taking it in stride, dropping about 1% on the news or at least the tremors, before rallying hard to finish almost unchanged? The likelihood that Samsung's earnings prospects will be more likely crimped by the launch of North Korean missiles, than, say, Action Alerts PLUS charity portfolio name Apple's  (AAPL) estimates, is pretty high -- although in this market an underground North Korean H-bomb test is as good as any reason to sell Apple. Maybe better. What's our model using for South Korean Apple sales this year anyway? Slash that!

Now, of course, the media doesn't want to fall too hard for this H-Bomb story and instead suggests the real overnight weakness stems from China, not from big doings just north of the 38th parallel. That would be a terrific theory if the Chinese stock market had been obliterated by the test, but the fallout -- can't resist -- seems nil, as the Shanghai index tacked on a cool 74 points for pretty strong plus 2% showing. Hmm, I can hear some managing editor somewhere saying, "rats; let's just blame it on currency weakness."

Whatever.

In truth though, nukes scare people. We live in an age when we are binging on a television show where the Nazis nuked Washington D.C. with an H-bomb and took over the whole eastern portion of the country. Fiction can resonate pretty loudly. Not that fact should have anything to do with it. I still remember being jealous of the families on our block rich enough to have fallout shelters in their basements. We didn't even have a basement. No matter, it isn't like sticking our heads in our cubby holes in kindergarten would have done that good a job shielding us from the blast of Soviet nukes, but we did it anyway at Hartwell Lane Elementary. Elementary is right.

But how about some cold, hard nuclear facts? We had an out-of-control nuclear event in Japan five years ago, the Fukushima disaster, and that knocked off 3.6% from the averages before that situation got in hand in about four days' time -- not that we knew it was, but it did.

We came back fast.

Oh, and how about those inglorious days in the aftermath of the Chernobyl nuclear disaster, 30 years ago? Is anyone else still around who tried to borrow shares of McDonald's  (MCD) that morning of Aug. 26, 1986, when you had to figure the Kiev bread basket would be tainted beyond all recognition? Hamburger bun shortage! I remember trying to get a location on any European milk company I could find. The Dow did get dinged for about 4% off that accident, before quickly recovering.

Of course, this launch would be a premeditated one. Then you have to ask about the timetable. We have to presume that the North Koreans won't go testing again tonight. But how about the real deal? North Korea is perpetually at war with the South, right? We successfully tested our first atomic weapon in Alamogordo, New Mexico on July 16, 1945 and then dropped it on Hiroshima on Aug. 6 of that same year. Are the sellers today motivated by that timetable?

Or is this all about something bigger, something about doom and gloom and actual boom, not unlike that advocated for three decades from a particularly saturnine seer that sits, preening, in front of Skype at the ready for any reporter or anchor to book? If that's the case, then good luck. That guy's kept you out of buying every dip since 1400 on the Dow post the 1987 crash.

Yeah, I know, it feels terrible. It felt terrible down 476 intraday Dow points on Monday. It felt terrible down 1% midday yesterday. It's our lot in life.

Just remember, though, in every one of these nuclear instances with Dr. Strangelove-like consequences more imagined than real, you had to buy not sell, the market. It just sure felt like the wrong thing to do.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long AAPL. 


Cellphone Connection Dials Up Pain

Posted at 1:37 p.m. EDT on Tuesday, Jan. 5, 2016

There are two kinds of semiconductors. The ones that go into cellphones and the ones that go into everything else.

Today's still one more beat-down for the former and it is all because of another story about how Apple  (AAPL) is going to cut iPhone production pretty drastically, as much as 30%. (Apple is part of TheStreet's Action Alerts PLUS portfolio.)

Ouch.

I have favored every other semi except those that go into cellphones because, like the "peak auto" theory that is making the rounds, the "peak cellphone" theory is also now etched in stone.

I wish I could have a thesis for making a stand on Avago  (AVGO), Qorvo  (QRVO), Skyworks  (SWKS) and NXP Semiconductor  (NXPI), but they are so inextricably linked to the fortunes of Apple that I can't risk it. (Qorvo is part of TheStreet's Trifecta Stocksportfolio. Skyworks is part of the Growth Seeker portfolio.)

That said, Apple itself is far cheaper even as it is regarded as the ultimate "peak" play.

At this point, as I have said many times, Apple is hated but still overowned. I can't countenance selling it, but I recognize that until the actual cuts are made by the company, if they are to be made, there will be more pain.

My fave semis? Intel  (INTC) and Nvidia  (NVDA): linked to entirely different parts of the food chain and not susceptible to the "peak" cellphone story.

It's unfortunate: Avago, NXPI, Qorvo and Skyworks are great companies. But, again, they have not yet built in the estimate cuts that everyone expects, and until we get them, or they are denied by the companies themselves, it seems that the only forecast I can offer is pain.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long AAPL.

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