Jim Cramer shares his views every day on RealMoney. Click here for a real-time look at his insights and musings.
Cramer: To Win, Stay With Staying Power
Posted at 3:03 p.m. EDT on Wednesday, May 11, 2016
Staying power is a remarkable thing. Some companies have it. Others don't.
Staying power is dramatically underrated by traders even as it is the lifeblood of long-term shareholders. Increasingly, if you want to make money in a market that's not certain, you have to go with companies that have the wherewithal and the talent to go the distance in a world where trends no longer are adopted glacially. They are adopted with the speed of light.
There's only one problem. On a given day we don't know who is really stuck in a downward spiral or who is just pausing while gathering strength, who is overrun by new forces and who is adapting to them or has the franchises and the balance sheets to withstand them over time.
Let's just use some of Wednesday's action to highlight the differences between those who get it or can at least fathom it and those who don't.
Why don't we start with Disney (DIS - Get Report) ? Right now, Disney is in the grips of a discussion about the possible falloff of ESPN, a most crucial earnings stream, because of a change in the way people watch television. There are cord cutters, there are people who won't pay up anymore for ESPN, and there are those who simply feel they don't need SportsCenter and other marque programming because they can call up anything on their handheld devices.
At the same time Disney's broadcast numbers weren't strong -- certainly not as strong as its competition, the likes of CBS (CBS - Get Report) -- and it also closed its Infinity console games business and took a $147 million charge on the unit.
These are all subpar. I am not excusing them.
However, I think they mask a much bigger longer-term picture. First, the company did grow 11% on an earnings-per-share basis even if it missed consensus numbers.
Second, management is running the company for the long term, not the short term. Disney has bought enough studio intellectual property to produce a blockbuster every quarter from now until kingdom come. I know I have been tabbed at times as Rev. Jim Bob, the preacher of the Church of Whatever's Working Now. I have always loved the title because it was bestowed upon me from my now-deceased old friend Mark Haines, the anchorman who brought me to CNBC.
But sometimes the church is wrong because there's so much in the pipe at Disney that you just can't grade it on revenue lost by a broadcast network that can get hot or from subs at ESPN that will, in the end, continue to generate fortunes for years to come. I care about Shanghai Disney, which is about to open, but I care about Mickey Mouse. I care about "Captain America," which I believe will have a huge weekend again, but I care about "Snow White." I care about "Frozen" 2, 3 and 4 and "Star Wars" 8, 9 and 10, but also I care about "Pirates of the Caribbean" and the Jungle Cruise and so many other rides at Disney World and Disneyland that my children's kids will love as much as they did.
I guess it's Rev. Jim Bob from the Church of the Future.
But I can't feel the same about Macy's (M - Get Report) , the department store that reported horrendous earnings this morning and then guided down severely, leaving people to wonder what the future really holds.
I can't think about the Church of the Future here because I can buy pretty much anything I want at Macy's through Amazon (AMZN - Get Report) , often for cheaper. When I moved to Summit, N.J., more than 20 years ago, I prided myself that I was less than two miles from the Mall at Short Hills and could pick up what I needed at the blink of an eye.
That's now way too far to shop at Macy's. I know it seems like an institution. But so did Gimbel's when my father sold gabardines, which is a form of pants by the way, and my mom hawked women's lingerie at Lit's. If you were to tell me that either stalwart of downtown Philadelphia would go away, let along Wanamaker's and Strawbridge's, I would have told you that you were out of your mind.
Now you can only Google them to learn who they were.
And that was before Amazon. As pop would always say, there's no God-given right for a store to stay open, and more than 90% of my father's retail clients were wiped out by Wal-Mart (WMT - Get Report) , for heaven's sakes. I remember when one of my father's shirt-store customers -- he sold boxes and bags to retailers -- closed up shop, and it really crushed our year. Why did it happen? Because he realized that Wal-Mart was offering the shirts at prices that were below the price he paid the manufacturer. He had no ability to mark-up. Now, Macy's has no ability to mark-up because of Amazon, and marking up is the essence of retail.
And I am not even talking about the Staples (SPLS) -Office Depot (ODP - Get Report) tie-up that got unknotted by a judge last night. The two were trying to combine to fight Amazon. Now, they are left to their own devices. One look at either stock tells you exactly what happens in the future. Doomsday.
But now let's compare that to Apple (AAPL - Get Report) . (APPLE is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells AAPL? Learn more now.)
Here's a company that has changed a billion lives. That's about how many people have Apple devices, and given Apple's customer satisfaction numbers, it's safe to say the change is for the positive. We've all altered our behavior because of Apple's cellphones, whether it be because of the need to wear make-up when you go outside because of that high-resolution screen that brings out the unmasked blemishes, the ability to watch Netflix (NFLX - Get Report) on a iPad Pro because it looks better than TV, the way we pay at the register or how we back-up our myriad photos.
Right now, though, Apple missed a quarter. And like Apple board member Bob Iger, the CEO of Disney, we've decided that Apple CEO Tim Cook has lost his way, and there's no innovation. It doesn't matter what's been accomplished or what's in the works -- it's over.
I can't go there. I see the loyalty, the revenue streams including the bountiful service revenue. I also know when I can't see things, namely the products I will kill for but only after I know they exist.
Apple, again like Disney, has got an amazing balance sheet -- best in the world -- and a fantastic buyback and a roadmap for the future. But it's not hot, so it's regarded as a false idol.
Here's a news flash: There's no idol. Just CEOs and businesses, and both Disney and Apple are well-run fabulous businesses.
The analysis can extend to any industry. It wasn't so long ago that the market just couldn't get enough of the oil companies that had the vision to split into exploration and production companies, such as Marathon (MRO - Get Report) and Conoco (COP - Get Report) , and it shunned the integrates that kept the downstream refining and marketing.
Now the managements at those two companies wonder what the heck they were thinking. Every day they have to pray that the oil glut goes away.
But Exxon Mobil (XOM - Get Report) and Chevron (CVX - Get Report) ? They are just sitting pretty, printing money downstream as their exploration and production businesses cause problems, but nothing life-threatening. There will come a moment when both companies can buy any assets they want from those companies that are just E&Ps. Not yet. But it will happen.
So blast away at Disney and blow out of Apple. Take profits -- and you might actually have profits -- in Exxon and Chevron. All I know is that they are resting. The others?
If things go extremely well, they might get you back to a better level than now. And if things go awry?
Let's just call them terminated.
Action Alerts PLUS, which Jim Cramer co-manages as a charitable trust, is long AAPL.
Cramer: FANG Stocks Are Staying Sharp
Posted at 11:34 a.m. EDT on Tuesday, May 10, 2016
Boy, this FANG is hard to kill. Here we are on a day where the market's ramping and the money's flowing right back to the once-loved growth names including good old FANG -- Facebook (FB - Get Report) , Amazon (AMZN - Get Report) , Netflix (NFLX - Get Report) and Google (GOOGL - Get Report) , now Alphabet.
(FACEBOOK and GOOGLE are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells FB or GOOGL? Learn more now. Amazon is part of TheStreet's Growth Seeker portfolio.)
The F and A are the standouts. Facebook's still digesting what was one of the best quarters of 2016, a top- and bottom-line beat that was so huge you could see how it's become the ultimate growth stock. The sales are growing faster than ever and the costs are totally under control and actually going down vs. the speed of the sales growth. That's called leverage, the good leverage, not the bad indebted kind. Facebook's become a necessity for some, with the Instagram division every bit as important. The mobile platform seems made for the company and the advertisers are flocking to it like no other medium.
I know there's some chatter out there that Facebook suppressed some conservative viewpoints on its site. I find that farfetched, although I will say Facebook is a friendly place, and I think that if someone was scatological or gratuitously personal, I would hope it would be blocked, from any ideology. Either way, it's a nonstory when it comes to earnings, which are what matter.
Today a prominent research firm slapped a $1,000 price on Amazon's stock, taking it to an all-time high of $700. The reasoning behind the Bernstein report? The company's buildout is so far along that it will have a much higher profit than anyone thinks possible. The analyst admits his estimates are "massively" above Street consensus and that when others move up to his level, the stock will power much higher. Part of the reason for the aggressive price tag? Amazon Web Services, the backbone of its cloud-based business that it lets other merchants use, a division that Bob Peck over at SunTrust (STI - Get Report) values at over $100 billion, a little less than one-third of the entire valuation.
I question the rationale here. I think Amazon's Jeff Bezos will always find something, some growth opportunity worth spending on. For example, just today it introduced a competitive product to Google's YouTube. Maybe there's room for both, but it shows you Amazon never rests on its laurels or its cash.
Netflix is a real quandary here. Its most recent quarter was universally panned. Sign-ups seem to have slowed. But the costs have gone higher. The stock's down 20% for the year. Has it been overly punished? I think the risk/reward is good here for this $38 billion company. If numbers pick up, the stock can take off. If the numbers stay softer, I don't know if it matters that much.
Google's the one that's most intriguing. I know the company's stock seems vulnerable, as it missed on both the top and bottom lines. I still think there's so much low-hanging fruit here, though, and a weaker dollar and a gigantic cash position could mean the company's numbers could go higher, being augmented by a buyback or a purchase of something that gives them faster growth. In the meantime, we wait for its moonshots to deliver. It's tough to value a stock with a company that failed to make estimates like Netflix, but does anyone doubt that this one could come roaring back with a dose of spending discipline and an acceleration of advertising? Both could be in store for shareholders when the next quarter's reported.
It's amazing that ever since I came up with the term FANG, not much has been able to grow faster or have a bigger moat around their businesses than these four companies. Only Google is classically cheap on near-term numbers. Netflix's stock is very expensive. Amazon? Depends on if the Bernstein analyst is right. And Facebook? The estimates may turn out to be so low that the stock ends up being much cheaper than it looks.
FANG. What an amazing phenomenon.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long FB and GOOGL.