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:
- The beauty of cheap stocks.
- The Fed's lack of insight.
- Short-sellers overstaying their welcome in the market.
Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
What's So Bad About Cheap Stocks?
Posted on Feb. 18 at 5:13 p.m. ET
Does value matter all of a sudden? This is a market that has disdained low-valued stocks. Its mantra has been, "Sure, it is cheap, but so what?"
It's not saying that anymore. Take, for example, the airlines. These companies' stocks have been selling at levels that are the equivalent of roughly half the value of the average stock. Now each has issues. Southwest (LUV - Get Report) , the best-run, might be hurt by weakness in Texas. Remember that Steve Holmes, the CEO of Wyndham (WYN) , just told us his Texas business is in severe decline. But it's currently doing fabulously.
Delta (DAL - Get Report) and American (AAL - Get Report) are going against the Zika virus and the strong dollar. Again, though, people seem willing to overlook these negatives now that it seems possible that oil will stay lower longer even with a Russia-Saudi promise not to pump more oil if Iran and Iraq agree. I don't think the latter two will play ball, which makes the airlines a pretty good bet. I like them.
Cummins (CMI - Get Report) and Emerson (EMR - Get Report) are two industrials that seem to have caught a bottom in orders, but both are starting to talk about a return to growth and each yields around 4%. Yes, Cummins has rallied from $79, where things looked pretty darned dire, to $97, but if I am right about a pullback, it's a real value play as it traded at $146 a little more than a year ago.
I would call Emerson deep value because it has been beaten down for ages. I look at monthly orders and they seem to have been weak forever. But January orders, down 5% to 10% -- up from a 10% to 15% decline in December -- are a harbinger of a good spring for a stock that's gone from $41 to $48. Keep in mind, it's down from $62, though, so it's not like you could be stumbling into a top.
Oh, and let me give you one other value play that's front and center on my radar screen: Apple (AAPL - Get Report) at $97, where it trades at just 10 times earnings. The company just announced a $12 billion bond deal that it can use to buy back stock. At the same time, its Apple Pay feature just went live in China, where electronic payments are far more prevalent than here. I know people have been focused on the rock and a hard place that CEO Tim Cook finds himself in over the encryption issue. Does he betray his clients to help stop potential terrorist acts? Or does he stick by his guns having promised privacy as a hallmark of the company's basic existence? I think the courts will decide. (Apple is part of TheStreet's Action Alerts PLUS portfolio.)
But you don't need a court to remember that Apple is now getting $30 billion in service sales a year. That's the revenue stream that so many want Apple to have. They have it! Why mention Apple now? Because its value doppelganger, IBM (IBM - Get Report) , caught an upgrade from Morgan Stanley and it soared more than 5%. IBM's stock is now valued much more highly than Apple's because everyone is so worried about the current quarter's cellphone sales.
How about the iPhone 7 that both Lowell McAdam from Verizon (VZ - Get Report) and John Legere from T-Mobile (TMUS - Get Report) are so excited about? How about the incredible gains Apple could have if the dollar really has peaked? Go back and listen to its call. Other than IBM, no company I follow has been so winged by the super-freakin' greenback. If IBM can rally that big on an upgrade, what would happen if one of the newfound bears on Apple changes his mind?
Yep, value's making a return in this market. There's finally some urgency here with stocks that had been qualified by "yeah, cheap, but so what?" How about if that's replaced by "yeah, cheap, but get it before it's hot."
That's what may be happening in this market that suddenly craves what it hated just a few short weeks ago.
Position: Long AAPL
No Apologies for Protecting Prosperity From the Fed's Foibles
Posted on Feb. 17 at 2:44 p.m. ET
I have an interpretation of the Fed meeting notes: "We are trying to assess the damage we did with our first rate hike, and while it didn't hurt employment, it sure did rock the rest of the world, so we have to spend some time to see if the rest of the world bounces back before we move again. Further, you could easily argue we shouldn't have done what we did given the fallout, but what's done is done and now we just have to wait."
If the Fed were to really own its actions -- the way, for example, an National Football League coach might -- we could really make sense of what it says.
But because the governors lack self-examination or humility, we have to accept that they are simply looking at the data and adjusting course without any sense that they are the ones charting the course.
When you look at the inflation data and industrial production and housing starts and the utilization numbers, they are all pretty pathetic.
Now, when I criticize the Fed, I am often blasted as a stock cheerleader.
Here's what I am: a prosperity cheerleader. I like prosperity. The super hawks, those who said it's time to move again, obviously don't care about prosperity. Not after what happened after the first rate hike.
I will always defend the need for prosperity. If there were real inflation in the system, which will ultimately hurt prosperity, then I say rate hike on.
I don't see it.
So I remain optimistic that the Fed will do the right thing.
Nevertheless, it's pretty clear, at least from these minutes, that self-reflection is not on the docket with these unelected proud folk.
No matter. They are in charge, not me.
13 Signs Short-Sellers Have Overstayed Their Welcome
Posted on Feb. 17 at 7:35 a.m. ET
Good things can happen, too. That pretty much sums up what this rally's about, and it's worth pulling apart each bit of good news, because most of the news is behind the scenes and can't be spotted by just looking at the common stocks.
First and foremost, we have to recognize that there were a couple of stressed out stocks in this country that have been the most visible black holes out there: Freeport-McMoRan (FCX - Get Report) and Chesapeake (CHK - Get Report) .
Chesapeake has $500 million in debt that comes due next month. The chatter had been that the company had hired advisers to potentially file for reorganization and perhaps default on that bond. Instead, the company committed to paying it out of cash on hand and its credit line. It also committed to paying the $1 billion in debt due for next year, perhaps out of asset sales. It does have some high-quality assets, so anything's possible.
Second, Freeport-McMoRan sold a relatively small part of its high-quality Morenci copper mine to Sumitomo Metal Mining, for $1 billion in cash. The 13% stake buys Freeport to unload other assets to reduce its gigantic $19 billion-plus debt load.
Third, the high yield market's been plagued by the decline in Sprint (S - Get Report) bonds. But Softbank, Sprint's owner, announced a gigantic buyback of $4.4 billion, or 14.2% of the company. If Softbank has the money to buy back stock, then certainly it has money to throw at Sprint to help save the deepening decline in that company's fortunes and ability to stay competitive with Verizon (VZ - Get Report) , AT&T (T - Get Report) and T-Mobile (TMUS - Get Report) . I know the common stock jumped on the news, but it's really all about the credit side of the ledger.
Fourth, the oil and gas pipeline business has been sucking capital out of this market left and right. That's why when you read that Warren Buffett, whose company Berkshire Hathaway (BRK.A - Get Report) (BRK.B - Get Report) knows pipelines, bought 26.53 million shares of Kinder Morgan (KMI - Get Report) in the open market, you have to be heartened. Kinder, which slashed its dividend by 75%, is now the first company that has cut its dividend that has seen its share price increase above the cut.
Fifth, speaking of boosts in shares caused by hedge fund buying, the news that Dave Tepper's Appaloosa fund picked up 5.1 million shares of Action Alerts PLUS charity portfolio holding Energy Transfer Partners (ETP) last quarter after its critical breakdown because of its affiliate's dangerous buy of Williams Cos was encouraging.
The latter deal's one of the blackest of holes out there because many feel Energy Transfer Equity can't afford to close the transaction and will therefore hurt ETP, its drop-down master limited partnership which has a 15% yield. Tepper, with whom I worked in the 1980s at Goldman Sachs, knows a thing or two about distressed securities. I think he's the best at them.
Sixth, we had been worried that the takeover game is over. But Apollo Group (APO - Get Report) , sensing some real value, launched a $7 billion bid for beleaguered ADT (ADT - Get Report) , which had been declining for months now on sagging sales for its home security products. It had become a perma-short. Obviously, that's no longer the case.
This deal comes on the heels of Apollo's management-led buyout of the bedraggled Apollo Education Group, which had been another perma-short, for $1.1 billion. The deal for the owner of University of Phoenix Online is being contested by other holders, so maybe there is a higher bid coming.
Seventh, everyone's been worried about Glencore (GLNCY) , the giant copper producer and commodity trader with $30 billion in debt. But a consortium of 37 bankers isn't all that worried. Why else extend a gigantic $8.45 billion credit line to the company? Maybe the banks think that copper has bottomed, or maybe they are just throwing good money after bad, but it sure helps buy time. Oh, meanwhile Carl Icahn keeps buying more stock, picking up four million shares at year's end.
Eighth, speaking of Icahn, many shorts had been pressing down on Cheniere Energy (LNG - Get Report) . But not Icahn, who bought more than 4.0 million shares of the company that is soon to be exporting gigantic amounts of liquefied natural gas at prices that seem very excessive, given today's weak market. There are contracts that Cheniere will do its best to enforce to get paid, but right now the price is certainly not right for any of the takers.
Nine, the iron ore market's been rivaling the oil market for the worst commodity pricing decline in the world, down from $200 per ton to $40 per ton in five years' time as Vale (VALE - Get Report) , BHP (BHP) and Rio Tinto (RIO) go nuts in producing the stuff while China, the natural buyer, seems to be taking less and less of it by the month.
These three seemed to be engaged in some sort of bizarre suicide pact. But maybe they aren't so stupid as Anglo American (NGLOY) , which having recently spent $14 billion on a Brazilian iron ore project, is leaving the market. That will cause an immediate boost to the price of this ore, which had threatened the solvency of Vale and brought all of the metals companies down.
Ten, I cannot tell you how many people I talked to over the last week who thought that when China opened for trading there would be a huge decline. But the Chinese government has opened the convertible market as a way to raise money and cash starved companies are tapping the market aggressively. It seems a short-term solution to an overwhelming issue. However, it was a sign of a pulse.
Eleven, there are so many lowly stocks that seem to have no hope out there, including Groupon (GRPN - Get Report) , the flotsam and jetsam internet company that it's been too early to buy for ages. Suddenly, we get a one-two punch of an earnings surprise and a 5.6% stake taken by Alibaba (BABA - Get Report) . What's Alibaba's design? Who cares. The stock's now up more than 32% for the year. Another perma-short spoiled. Who knows, maybe Zynga's (ZNGA - Get Report) next!
Twelve, we have been watching Apple's (AAPL - Get Report) stock fall for months. It turns out one of Apple's largest shareholders, Carl Icahn, had sold seven million shares of the "No-Brainer" story, still leaving him with 45 million shares, but certainly sending a chill to the brokers that handled the orders. Another owner though, Apple itself, seems to have an insatiable appetite and just issued $12 billion in bonds to buy back stock. The last two times Apple came to the market, the stock sailed. Maybe this time it's no different, especially as we get closer and closer to the iPhone 7 launch, something that Lowell McAdam, the CEO of Verizon, told me recently would be a gigantic deal.
Finally, lucky 13: Amid all the hubbub of potential bank failures in Europe, can you imagine Credit Agricole announcing that it is selling stakes in some of its subsidiaries that will enable it to pay an all-cash dividend? Coming right after the news about Deutsche Bank (DB - Get Report) willing to buy back its bonds in the open market, let's just say that's mighty assuring, especially when the European Central Bank seems to know all and is ready to bailout any institution needing the capital.
Now, to be sure, all of these changes, every single one of them, is just a time buyer. There are no real trends here, except that good things can and do happen to stressed out situations. When they happen this close together, though, the impact is mighty because the shorts, who have had a field day in 2016, suddenly feel that maybe they have overstayed their welcome.
That's what happens when you get too greedy. Remember, bulls make money, bears make money but pigs get slaughtered.
Position: Long AAPL, ETP