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:
- How looking at German companies was better than looking at German data
- How the demand for commodities in China is real
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Don't Look at German Data, Look at Companies Instead
Posted on April 25 at 6:18 a.m. EDT
I know it looks like a rough morning ahead, but the messages from the companies are far different from the one being delivered from your screen.
Yep, the overnight, pajama-wearing futures traders may want you to trade off of some German data. I say, go with the companies, and if you had to stack up two themes of earnings season so, far they would be: First, the world is getting better. China has bottomed and Europe is getting a head of steam. Second, oil has bottomed because of both increasing demand and declining supply.
These two threads are important to consider as we go through the week, because they are very contrary to most of the thinking I hear and see.
But it is unmistakable. Let me just go through some calls. On the Caterpillar (CAT - Get Report) report, management said three times that China was getting better for them. Asia was actually up in the quarter year-over-year. Caterpillar is already seeing a gain from the recent improvement in commodity prices, and that will only get stronger. CAT was generally positive about the rest of the world, too, noting that Europe is much more positive, even in France. And U.S. roadbuilding is picking up because of state budgets being more flush, and stronger homebuilding in the Southeast and the Southwest. But it's China that's most encouraging.
We know that China's increasing spending more on internal demand. One way they are doing it, clearly, is increased spending on health care. The Chinese increased spending on health care for Action Alerts PLUS portfolio holding GE (GE - Get Report) , chiefly big machines, by 14%. It was one of the big standouts.
On the Honeywell (HON - Get Report) call, CEO Dave Cote called out some very strong Chinese orders for automated controls. Chinese Aircraft sales and service increased double digits, because of strong flight hours. But this gem took my breath away: "If there were any region that surprised me in the past quarter it was Europe, which did a lot better than expected." He acknowledged that he was "quite encouraged" by the strength in the continent.
How about oil? Schlumberger (SLB - Get Report) was adamant this quarter would be a weak one. As the CEO said, "We expect market conditions to worsen further in the second quarter." It's "the deepest financial crisis on record" the company noted on the call. "The industry displayed clear signs of facing a full-scale cash crisis." North America has had an 80% drop in service from peak to trough. Activity in Brazil and Colombia continues to be "in free fall," the first being down 50% and the second off 75%. Russia and China have been drilling less, and SLB's Venezuelan business has been scaled back dramatically because many firms can't pay their bills.
At the same time, though, Schlumberger points out that demand growth remains solid, and there is very little excess supply other than from Saudi Arabia.
But here's the good news: "The magnitude of the exploration and production cuts is so severe that it can only accelerate production decline and the consequent upward movement in oil price." We have reached unsustainable levels and Schlumberger's predicting balance this year, because we will be pumping a million barrels a day less in the world while demand is up 1.2 million barrels. Only the Saudis can make up for the shortfall and while Schlumberger doesn't make a prediction if the Saudis will, oil, it is safe to say, is pretty much done gone down.
Now that doesn't mean it is good for all oil producers. Core Labs, the true scientists of the oil patch, predicts that you need $65 to $70 oil for the U.S. to start drilling again. Core Labs thinks equilibrium is almost here right now, but it doesn't speculate if we could get to the key level for American producers. However, the company also noted that depletion rates are accelerating in the U.S., which will hasten the process that Schlumberger talks about.
In many ways, these are the signs that explain so many of the moves in the industrial and oil stocks and the banks, which are now held to be proxies of oil.
My takeaway? Things are getting better globally, so the shift into industrials from consumer product stocks probably has yet to run its course. The rest of the world is strengthening, with commodity prices being the ultimate tell that it is accelerating and has been accelerating as the year goes on.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long GE and SLB.
When Oil Slips, Market Slides Back to Growth
Posted on April 25 at 6:18 a.m. EDT
New pattern: When oil is down, the market gravitates back to growth. The biotechs, which have been in favor for the past few days, remain that way. However, some of the companies that reported good numbers in the past two weeks are finding footing, with PepsiCo (PEP - Get Report) , which is part of the Action Alerts PLUS portfolio, serving as the best example. That was such a fabulous quarter, but as long as commodities are running nobody cares. Commodities stop running and the money comes right back.
Some of this mini-sea change is pretty profound: Tesla (TSLA - Get Report) and Alphabet (GOOGL - Get Report) , which also is part of Action Alerts PLUS, are on the move. Some of it is mundane: There goes Ulta (ULTA - Get Report) . But when we see the bids come back to Smucker (SJM - Get Report) , Hershey (HSY - Get Report) and Constellation Brands (STZ - Get Report) , that's an important signal that the market can have a rotation into the tried and true and isn't a one-trick industrial pony.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long PEP and GOOGL.
Papa's Got a Brand New Bag, and Leaves Perrigo Holding the Old One
Posted on April 26 at 7:20 a.m. EDT
Perrigo (PRGO - Get Report) is heartbreaking. How could Joe Papa, the man who was so intertwined with Perrigo for so long, the man who came on Mad Money and argued there was so much more value to the company than the price Mylan put on it -- some 80 points higher than where it went out -- just leave for Valeant (VRX) ? How could he leave with a huge shortfall and some weird impairment charge about an acquisition that Papa crowed about, Omega, as a way to get international exposure?
There wasn't a single thing that was kosher about what I heard from this company today, even as the papers are filled this morning, with how Papa is going to be an able CEO for Valeant establishing order. You mean order like the way he left Perrigo? How about disorder? How about disarray?
It made me so angry because I thought I knew Papa as a stand-up guy from his years of going on Mad Money. I thought that Papa had a good case for why Perrigo should have been valued much higher than where Mylan wanted to get it and that Perrigo was temporarily down on its luck.
I am indeed aghast that he fought against what would have been a great bid for shareholders. There's so many questions here. What is this potentially material charge? What happened with Omega? Why did the board withdraw Omega founder Marc Coucke's nomination for re-election to the board?
This is nothing less than a wholesale implosion of a company. Honestly, if you cut numbers from $9.52 to $8.20 to $8.60 but leave charges up in the air, why would anyone pay more than 10x earnings for this largely non-proprietary knock-off drugmaker? Mylan's at 9x earnings, and that's a better company.
But you know what? As is the case with Valeant, everything that happened at Perrigo smacks of just a private company's whims even as both are very much public companies.
But I guess it doesn't matter. That's just the way the Perrigo crumbles.
As far as a read-through to other generic companies, that seems fanciful to me. The "old" Perrigo, before the mysterious "impairment" was largely a knock off company that thrived in cold and flu season and on vitamins that were made in America, as opposed to dumped Chinese competition.
Mylan was hit, but that might be a story of the company coming back with a stock-for-stock deal.
Ultimately, the real story about the earnings shortfall might be the relentless, inexorable share take by Johnson & Johnson (JNJ - Get Report) against Perrigo. Remember, Perrigo was the real winner in the big McNeil labs recall. Their store brand competition to JNJ's once-pristine product line took a lot of share. But on the last quarterly conference call you saw a very robust JNJ taking back the shelves, with still a lot more to come.
I guess it was a pretty opportune time for Papa to jump ship, opportune for all but the shareholders of this once very good growth company that is now in tatters.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long AGN.
The Demand for Commodities in China Is Real
Posted on April 26 at 10:52 a.m. EDT
Oil is so in control that it's almost comical, but underneath remains the great thesis that China's getting better and that oil is one for one with the turn. Now what you don't see is that all commodities are on a run.
But I want to introduce you to the torrid commodity debate of which you must be aware.
Right now, there are two schools of thought about the commodity rally. There's the one that looks at the Baltic Freight rates that are now well over 700 up from 300 not that long ago and that's a sign of real demand.
And then there's those that say it is all pure speculation and that goods like iron ore or even lumber, which was limit up yesterday, are being manipulated higher.
Here's where I come out. I think that the Chinese demand is real, I think that there was a very long period where China took a real hiatus from building, but now that period is over and we are seeing genuine demand.
That's why I reiterate that I like those two stocks. It's why I think there is demand for the basics: the plastics and the papers.
And it is why I think that oil's really going higher. The tankers going to China that carry oil have had real activity with real rates rising, and I don't think Chinese speculators are taking down gigantic ships of oil and then sitting on them in docks.
Call me a believer. Or I could say, apropos of my colleague Doug Kass: NOT peak commodities.