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:
- What a Democratic sweep would mean for the market
- How M&A is just the beginning of the story
Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
Cramer: Has Airline Finished Its Descent?
Posted on Oct. 19 at 6:12 a.m. EDT
Anniversarying is one of the things that always seems so silly yet it does work like a charm.
While the airlines went up yesterday on the back of United Continental's call, the company's management truly didn't say anything all that positive. In fact, it talked about some expenses moving up -- namely jet fuel, but we all know by now that UAL, along with the rest of the group, are stocks that the futures send up when oil goes higher.
It doesn't make sense, I know, but when I saw the API numbers after the close last night showing a big drawdown and then a subsequent oil spike, I shook my head saying "the airlines will again go higher on that bad news." It's a nutty correlation, it doesn't make sense, but we have all had to accept this linkage as gospel.
But there was one line on the UAL call, uttered by President Scott Kirby -- formerly president of American -- that made it so the airline story could continue to fly: "We think the revenue environment has bottomed and we're starting to see recovery in all regions with the possible exception of the Atlantic."
That and Kirby's comments that said the airline is "lapping many of the headwinds we've experienced over the last few quarters."
Given that Kirby just left American, I don't think we are going to hear anything too contradictory about the industry when American reports tomorrow, so these comments could hold up for more than one day -- quite an achievement in this market.
Why does it matter so much that things might have bottomed in an industry where there's no real, meaningful, sign of improvement?
Because when you have an anniversary of the worst numbers with more bad numbers that are ever so slightly better than the previous decline and your stock doesn't go down anymore, that's the signal that investors will soon indeed pay more than 6x for next year's earnings, the current PE for United, which is the lowest in the group.
Multiples that low can only sustain themselves if there's going to be further deterioration in earnings, which does not seem to be the case if the company says things have stopped going down and it is anniversarying the same bad news.
Consider it the flipside of a high price-to-earnings multiple stock where you have to continue to beat and raise earnings to maintain that premium.
Now, the analysts aren't unwise to this, which is why there are more buys than holds now for the company. Plus, United under Oscar Munoz, late of CSX Corporation (CSX - Get Report) , the railroad, and of Kirby, who was a well-respected exec at American, is much better than it used to be in terms of the on-time performances and customer satisfaction reviews.But even with that recognition and those upgrades, I suspect that UAL will now be a "go-to" name on any market weakness, because portfolio managers who are "hung up" about high valuations know that UAL is the antidote to owning expensive stocks that have had a remarkable run.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.
Cramer: What a Democratic Sweep Would Mean for Stocks
Posted on Oct. 19 at 12:35 p.m. EDT
You knew it had to happen. As we get more and more signs that Hillary Clinton is pulling away from Donald Trump in the polls, we are hearing rumblings that not one but both houses of Congress could go to the Democrats. I am starting to think that's a major reason why stocks aren't acting well in the face of what's turning into a pretty decent earnings season.
Maybe the debate tonight reverses the course of things, but I think it's important to, for the first time in ages, put stocks in the context of a potential landslide, and what that would mean.
First, it would elevate the more radical base of the Democratic Party, think Bernie Sanders and Elizabeth Warren, and you know what I mean.
The government intervenes in so many different ways in the private sector, but the most visible ones, at least to me, are banking, health care and environment, where rules are made that can make or break earnings per share.
Let's start with banking. Until the landslide talk, the rap on Clinton was that she would be more reasonable toward the banks than President Obama because she's been a big beneficiary of their giving and because she's spoken to many financial interests, not the least of which is Goldman Sachs (GS - Get Report) . Anyone willing to sit down and talk with bankers about their issues means the banks might be more insulated than they have been under Obama.
But if Congress goes Democratic? I think you would see an environment in which banks might be right back into the crosshairs of Congress. What that would mean is more regulation, and that means more people who don't generate revenue will have to be hired to monitor and make sure these regulations are followed. You would see that there would be multiple discussions about whether the big banks are too big and too powerful. You could even see suggestions that larger returns from banks might mean they are taking too much risk and need to be clamped down on again.
Why do I say all of these topics are in the air? Because take a look at how the stocks of the banks have done in what can only be described as the best quarters in years, quarters where divisions that have been drags, like fixed income, turned into roaring profit centers, and where commercial and consumer lending have become unmitigated bright spots.
But right now there is a seething debate in the Democratic Party about concentration in banking. We used to separate actual banking from investment banking, meaning that we had banks that did lending and banks that were allowed to do the larger portions of corporate finance that can and have been so profitable to these enterprises. The Glass-Steagall Act, as it was known, didn't want depositors' money to be mingled and put at risk by these non-traditional lending portions of the business.
But 17 years ago it was repealed, and banks could mingle these two different kinds of businesses under one roof. Now in the aftermath of the destruction of value that the banks were very much involved in because of risky practices, Congress passed the Volcker rule, which eliminated a lot of risky practices.
But if Glass-Steagall were to come back to life, you would see companies like Bank of America (BAC - Get Report) , JPMorgan (JPM - Get Report) and Citigroup (C - Get Report) torn asunder. They would be dismantled. You have to ask yourself, is that why these companies have had such muted reaction to tremendous numbers?
You also have to ask yourself whether the whole notion of banks being too big to run efficiently or honestly would come back to life. We may think the cross-selling scandals of Wells Fargo (WFC - Get Report) are one-off. But believe me, a populist Congress could pass rules that block cross-selling or severely limit it altogether. That's the price the industry might have to pay for the injustices Wells committed.
Or maybe the president and Congress revert to the ways of the Founding Fathers, who didn't want banks to be so powerful and limited any one of them to having no more than 10% of the country's business. Because of the exigencies of the Great Recession, we saw Bank of America, Wells Fargo and JPMorgan put together powerhouses that far exceed those percentages, even as many of the deals were done on behest of the government. They could just as easily be undone. That would crater the group. And let's be sure, I bet a really aggressive Congress could put fee limits and even interest-rate caps on a whole host of products.
In short, it could be a nightmare for the group. I think the stocks are saying don't rule out that nightmare.
How about the drug stocks? Yesterday, Johnson & Johnson (JNJ - Get Report) reported what I thought was a tremendous quarter. But during the Q&A, California's Proposition 61 came up, which is an appeal on the ballot in California that would allow the state, which spends billions on drugs a year, to demand Veterans' Administration prices for drugs it buys. The VA gets a special break because it provides health care to servicepeople. Given how incredible it is that people serve in harm's way to protect that makes sense. But if this proposition passes, and it was thought to be pretty much doomed for defeat a couple of months ago, you are going to see a groundswell by states and even the feds to limit how much they will pay for drugs. That could crush profitability for these companies.
Plus, we know that pharma is Public Enemy No. 1, whether it be the outrageous price increases that some miscreants have put through or the tussle over the EpiPen, or the desire of the federal government to crack down on even orphan drug pricing. An energized Congress teamed with a left-leaning president and armed with a victory in Proposition 61 would just annihilate this group. That's the reason, I believe, why biotechs act so badly in addition to the funky way the street viewed JNJ's results. This group, which is so sensitive to random tweets by Sanders or Clinton, has become persona non grata ahead of the election and I don't think that will change until we see how much of Congress goes Democratic.
Then there are the rules for the environment. We have had a bit of a coal comeback of late, but you can forget that if the Democrats sweep. You can even begin the countdown to the end of fossil fuels in the country, starting with the so-called bridge fuel of natural gas. The oil stocks have been rallying on the move past $50 for crude after we have seen tighter inventories, but this is a group we will most certainly pay less for if Congress changes hands.
Oh, and forget about mergers. I would expect an antitrust department that would try to block anything that would create any concentration, whether it be the Bayer-Monsanto (MON) deal or Dow (DOW) and DuPont (DD - Get Report) or even Walgreens (WBA - Get Report) and Rite Aid (RAD - Get Report) . Just ain't gonna happen. (Citigroup, Dow, Wells Fargo and Walgreens are part of TheStreet's Action Alerts PLUS portfolio.)
Now, I do hear that there could be some positives for business. For example, we get lots of chatter that there will finally, at last, be more spending on infrastructure, which would be a boon to Caterpillar (CAT - Get Report) as well as the aggregate makers, Martin Marietta Materials (MLM - Get Report) and Vulcan (VMC - Get Report) . But all I can say is, really? You think that can make up for all these issues?
So, no, don't be fooled into thinking the tepid action in the winners so far in the earnings season indicates that the results are subpar. Instead, focus on the fact that Clinton's strength might mean money managers are exiting anything that the government can reach into and squelch. If that's the case, then this market will have a bias down despite those excellent numbers as government interference is a sure killer of any expansion of valuation for stocks, even if the current earnings vastly exceed expectations.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long C, DOW, WFC and WBA.
Cramer: M&A Is Just the Beginning of the Story
Posted on Oct. 21 at 11:31 a.m. EDT
It's been ages since there's been this much news in a given day, so we almost have to group it to get it and figure out what's really happening.
In order of importance, first there is M&A. British American Tobacco's (BTI) bid for Reynolds (RAI) shows you that more money could have been and has been made in tobacco than just about any other group out there, and it keeps happening. I bet BTI has to pay more to get it, but I wouldn't chase and would rather say, "I missed it."
My CNBC colleague David Faber, always breaking new ground, made it clear that Qualcomm (QCOM - Get Report) and NXP Semiconductors (NXPI - Get Report) have come to a deal at $110 a share, which seems disappointing for NXP shareholders unless you look at the bigger picture, as we are doing for Action Alerts PLUS: The stock was at $80 not that long ago. Huge win. Then, incredibly, the consolidation in media may continue, as David made it clear that where there is deal smoke with AT&T (T - Get Report) and Time Warner (TWX) , there could be fire. (Qualcomm and AT&T are part of TheStreet's Dividend Stock Advisor portfolio.)
So, just think, Reynolds, NXP, Time Warner -- the deal "bid" underneath the market still makes a ton of sense.
Then there's the upside and downside of earnings, and the two standouts today are Microsoft (MSFT - Get Report) , which delivered a quarter that showed incredible cloud growth, and the possibility that Amazon (AMZN - Get Report) has a real competitor, maybe even a superior one, to its Web Services business. I remember when Microsoft CEO Satya Nadella came in, he was talking about doing $18 billion in cloud in a couple of years' time. I thought that to be way too aggressive. Yet he's raised the bar to $20 billion by 2018 and I think he will pull it off. (Amazon is part of TheStreet's Growth Seeker portfolio.)
The man is continually underestimated.
Speaking of underestimated, though, have you seen the stock of McDonald's (MCD - Get Report) roaring? That's as it should be as CEO Steve Easterbrook delivered an astounding 3.5% comparable store growth vs. the 1.5% the naysayers were looking for. Easterbrook has re-energized his most important constituency, the franchises, and while people keep thinking his breakfast all day is all he has up his sleeve, I can safely say you ain't seen nothin' yet. There's much more technology and innovation to come. Don't ring the register.
So many people have doubted PayPal (PYPL - Get Report) forever that it's intriguing to see still one more good quarter -- it has had many -- and the stock finally reacts positively because the bearish cabal of analysts just couldn't fight the tide anymore. I wouldn't pay up for it as I am sure there will be some recidivism, but congratulations are in order to Dan Schulman and company.
You know where else you don't want to ring the register? Alkermes (ALKS - Get Report) . Last night, the company announced a breakthrough anti-depressant that works when the others don't and doesn't produce a weight gain. This is the holy grail of one of the biggest markets out there and major props to CEO Richard Pops for pressing forward relentlessly on this drug when others had given up on it. Amazingly the stock, up $13, probably isn't done going higher, although profit-takers will no doubt swarm in eventually.
Twilio (TWLO - Get Report) , which reported an astounding quarter, has seen its stock pummeled by the announcement of a follow-on offering. The bankers priced it in the hole, down four at $40, and I think the deal holds.
Ahh, but it wasn't all done in fair weather. The charitable trust may own NXPI, but it also owns GE (GE - Get Report) and here the orders were down 6% and the revenues disappointed. Not disastrous, but certainly nothing to cheer about. I remain committed to it, but if it didn't have a yield to protect it I do believe it would go lower.
Three other disappointers this week? Verizon (VZ - Get Report) , Union Pacific (UNP - Get Report) and Travelers (TRV - Get Report) . The first? Blame more aggressive companies like Sprint (S - Get Report) and T-Mobile (TMUS - Get Report) , they are winning with the hearts and minds and pocketbooks of the millennials with their radical advertisements. Union Pacific? People got too excited about a turn, oops, too early. And Travelers? Shelled mercilessly because of the reason we need driverless cars: distracted drivers. For years we've had a decline in fatalities. That is until texting came along. It's the scourge of the highways, and the insurers, including Travelers, simply weren't and aren't ready for it.
I know, what a couple of days, and I bet this counts as calm vs. next week when the earnings season kicks into even higher gear.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long GE and NXPI.