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 is going on with capital spending
- What big themes stay intact during turbulent times
Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
Cramer: These Are Uncertain Times, When Major Decisions Are on Hold
Posted on Nov. 2 at 7:17 a.m. EDT
We play a lot of video games, we eat a lot of pizza and we drink a lot of beer. We order the first two online and the third we actually venture out of our hovels to buy.
But executives don't order a lot of capital goods, and the indecision is driving people making major decisions up a wall -- as opposed to trying to figure out whether to play NBA 2K or Madden football or order from Pizza Hut or Domino's (DPZ - Get Report) --literally freezing them in their tracks about projects that they otherwise would be spending hundreds of millions of dollars on.
Last night's Electronic Arts (EA - Get Report) conference call literally was electric, with a ton of talk about increased hours of playing time and a sense that the new line-up including Star Wars Galaxies, Battlefield 1 and the much-fretted about Titanfall 2 are all going to have great holiday seasons.
I heard good things about a potential turn in Pizza Hut from Greg Creed, the CEO of Yum! Brands (YUM - Get Report) , which announced the Chinese spinoff Tuesday--which the market lapped up, by the way.
And while Molson Coors (TAP - Get Report) may not have shot the lights out in terms of volume, one, it made tons of money on the consolidation--these beer companies are incredible even if they don't grow--and, two, the industry itself is still very strong, the growth just happens to be in craft and in Constellation Brands' (STZ - Get Report) Modelo and Corona.
But when it comes to capital spending? Holy cow. You got terrible numbers Tuesday.
Other than some sunshine from China, it was almost all disappointment. What a tough call to listen to from Cummins (CMI - Get Report) , a great company that talked about trucking woes in North America that were pretty dramatic. I know Emerson (EMR - Get Report) looked like it did a good number, and I did like the data center and, again, Chinese numbers, there was nothing to excite.
But the starkest in terms of just the tale of the tape was Eaton (ETN - Get Report) . Almost all traditional business lines were suffering and as new chairman and CEO Craig Arnold walked us through them I was staggered to think how much of a step back the industrials have taken in the last few months. Staggered, until I read this wisdom at the end of the call and I am just going to quote it in full because I think it is the best explanation of what is happening that I have heard:
"We're struggling with the data feeds very much like others but we do think the thematic message that cuts through all through all of these conversations is uncertainty and if you think about any person running a business today and making a long-term capital commitment in the face of an economic environment and a presidential election that has been as noisy as this one, with as much uncertainty around the environment that were going to be dealing in, it's, while disappointing, a little bit understandable that companies are basically pausing and waiting to see how things play out before they make a decision around major capital multi-year commitments."
He continues: "and so we think that's probably what's going on. But once again we're not 100% certain either. What we do hear pretty consistently is that it's a pretty uncertain period of time that we're dealing in and most companies or many companies are cutting their capital budgets and putting decisions on hold with respect to multi-year commitments."
Well, doesn't that just sum it up? The CEO of a major American company--from Cleveland no less!--is unsure why people are unsure, but he thinks executives are unsure because the election and the times are unsure, and if they are unsure they are not going to commit big capital.
But young people will commit small capital to beer, pizza and video games while they stay in their apartments which, at least according to the recent data, they are no longer fixing up. And, let's just throw in one more for good measure: they are wearing the same clothes and sneakers, while they are playing that they have for the last year! Silver Lining? At least, according to Procter & Gamble's (PG - Get Report) Tide division, they are watching them!
Cramer: These Themes Stand the Test of Turbulent Times
Posted on Nov. 2 at 11:43 a.m. EDT
What are people still doing? They are still going to the dentist. That's what the soaring stock of Henry Schein (HSIC - Get Report) is saying. They are still taking care of their pets. That's what the incredibly strong stock of Zoetis (ZTS - Get Report) is saying. They are still playing video games, that's what the rocketing stock of Electronic Arts (EA - Get Report) is saying. They are still going to the supermarket to buy food to cook at home, and that's reflected in the boost of the stock of supermarket giant Kroger (KR - Get Report) .
We've hit these big themes before and it's always terrific to see them stay intact during these turbulent times. We've learned early on in life to take care of our teeth, and that's been something that doesn't ever go away whether it's with solid and growing toothpaste sales from Colgate (CL - Get Report) and Procter & Gamble (PG - Get Report) or the dental equipment sales from Henry Schein, which forecast an astounding 17% to 19% earnings per share growth for next year, preposterously good in this environment. It's not all done with smoke and mirrors, as sales growth increased by 5.1% with 3.9% organic growth. Remember, the latter is the kind of growth we like.
We shower our pets with love. It's called the "humanization of pets" theme and few companies have taken advantage of it like Zoetis, the animal health care spinoff of Pfizer (PFE - Get Report) that introduced the revolutionary Apoquel this quarter, which stops dogs from itching almost immediately. For those of us with dogs, and we have two rescue dogs, this is a godsend. Right now we have to put the fabled Elizabethan collar on their necks--kind of like jamming a lampshade on their heads -- so we'd pay anything from Apoquel. Judging from early sales, we're not alone.
By the way, Henry Schein sells equipment to vets and that business grew by 10% in North America, furthering the thesis.
Electronic Arts delivered a terrific number last night, much to the chagrin of those who sold the stock down 5% when the headlines printed. They didn't wait to hear that the company's quite certain that Star Wars Galaxy, Battlefield 1 and Titanfall 2--which analysts are concerned about flagging--are going to have a strong holiday season. These video game companies are immensely profitable and they are all part of the stay-at-home thesis we keep articulating. It's important to note that these games are all digital downloads, they aren't being bought at GameStop (GME - Get Report) . In fact, GameStop reported a horrendous same-store forecast this morning, down 6.5% to 9.5% when we were expecting down 1.5% to 4.5%. Abysmal.
Finally, Kroger confirmed its annual earnings guidance today and shaded up--not down--next year's numbers. I have been waiting for this moment because it confirms something we talked about recently when it comes to McCormick (MKC - Get Report) , the spice company. Whether it be because of cost, or because of fear, or because of a desire to nest, people just aren't going out to dinner as much as they used to. We know that from the restaurants, almost all of which have reported disappointing numbers.
Now we know it from the other side, from Kroger, and the stock is dirt cheap after being hammered relentlessly forever because of a not-so-hot acquisition and a lot of food deflation. Maybe that's past. One thing that's certain, though, the stay-at-home thesis is one they are, at last, capitalizing on.
Going to the dentist, the humanization of pets, the addiction to video games, the stay-at-home for dinner theses, all, in turbulent times, theses that have held up during this earnings season.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.
Cramer: Credibility Is a Precious Market Commodity
Posted on Nov. 3 at 1:58 p.m. EDT
Credibility. It's awfully hard to come by. It can be lost easily. But when you have it, then you can keep the valuation of your stock and dips are made for buying.
In a market like this, you are getting a lot of dips, so this might be a good opportunity to go over who has credibility and who doesn't so you can make some adjustments yourself in what you own both with these companies and with those of so many others.
Let's start with someone who has credibility in spades: Rick Clemmer. Don't know Rick? He's the man who last year merged his semiconductor company, known largely as a supplier to cellphones, especially Apple (AAPL - Get Report) , with Freescale, a thought-to-be-beleaguered Internet of Things and auto semiconductor company, for $11.8 billion.
Four private equity firms had led a leveraged buyout of Freescale back in 2006, paying $17.6 billion for this monstrosity, and it had always been one step from death's door. But Rick saw it another way and coveted the diversification of its footprint, especially how it would make the company much less reliant on the cellphone.
The result? This stock of this company, NXP Semiconductor (NXPI - Get Report) , which started at $80 at the beginning of the year, will go out at $110, the price that Qualcomm (QCOM - Get Report) paid to buy it last month, a monster return vs. an S&P 500 up 3%. He's the definition of bankable. Fitting that Qualcomm's trying to do the exact same strategy, diversifying away from cellphones by buying Rick's and our company--I say "our" because my charitable trust has ridden this one all the way up.
Speaking of fitting, you know who has no credibility? James Park of Fitbit (FIT - Get Report) . You may like the product. You may or may not think it helps you lose weight. But one thing you know about the stock, it loses you fortunes. Thursday night, Park came out with numbers that were horrendous and a forecast that was even worse. This is astounding to me because last month, mind you, I interviewed Park and when I asked him about channel checks that were showing dramatic weakness for his products, he dismissed them out of hand, referring to how well his products were doing on Amazon (AMZN - Get Report) . (Amazon is part of TheStreet's Growth Seeker portfolio.)
I don't think he was dissembling. They were the top sellers on Amazon. But if he was operating his company at a higher level or if his company was run better, he wouldn't have to wait to find out how stupendously terrible his company was really doing. I don't know what to say about this stock except I am glad I said don't buy the day before it reported because this company's credibility and the respect for its CEO's ability to manage the company are now nil.
Jeff Bewkes has credibility in spades. The CEO of Time Warner (TWX) has created a huge amount of wealth for individuals by getting rid of a lot of extraneous properties and becoming a pure media company. However, once he was finally done cleaning things up, on July 14, 2014, along comes Twenty-First Century Fox (FOXA) with an $85-per-share bid in cash and stock, a $14 premium at the time. Bewkes just point-blank refused to negotiate, saying the price was a non-starter because he wanted an offer "well over $100 a share." Fox walked away.
But then there is Vicki Hollub, CEO of Occidental (OXY - Get Report) , who this week reported a devastating, undisciplined and completely inconsistent quarter with a frightening forecast and foolhardy spending to boot. Hollub followed Stephen Chazen as CEO and apparently they couldn't be more different. Chazen was rigorous and tightfisted, always concerned that his balance sheet not be stretched and his dividend never be in doubt. In an analyst meeting back in May, incoming CEO Hollub traced a very similar vision and my charitable trust, which has a position in OXY, committed more capital to it.
Then when this quarter was announced, we learned that Occidental, which had a fabulous position in the Permian, has spent $2 billion buying more Permian assets, except this time at absolute top dollar. Just when we thought the Permian was getting too frothy, Hollub steps up to the plate and does buying? Not only that, but after listening to the call I began to get chills about the dividend. This is no longer Chazen's company. It's gone from one I have coveted to one I wish the trust didn't own, and if oil bounces it's out the door for certain. No wonder the stock dropped from $72 to $67 in a straight line. It deserved to.
I am tired of Tim Cook not receiving the benefit of the doubt. When he took over as Apple CEO in August 2011, the stock as at $53. It is now at $110. That's 105%. The S&P is up 78% and the Dow is up 59% during that period. This is a huge capitalization stock and for it to trump the market by that much is quite a statement.
But Cook has been doubted continuously. He was doubted when his stock was at $93 before what was supposed to be a notoriously panned recent quarter and he was pilloried when the company reported when the stock was at $115. We keep hearing that under Cook no real innovation has occurred. Then why is customer satisfaction so high? Why is switching at a high? Because the phones have massive innovation, that's why.
Plus he's getting almost no credit for the high-margin service stream the company is building, one that will be the size of a Fortune 100 company with a gross margin of more than 50%. Even here the doubters, who almost universally say the best days are behind the company, can't bring themselves to talk about it, and when they do they say it's accidental and Cook just backed into it.
I wish more of the companies I follow would back into a $28 billion business like that, $28 billion being the smallest-revenue company in that esteemed list.
How about another no-credibility fellow? Nick Woodman, the man who developed the GoPro (GPRO - Get Report) toy and fashioned an ecosystem that really never took off. Like the Fitbit, once you had one, you didn't need another even as they keep coming up with iterations. It simply isn't special and the company's managed in a way that always makes you think it's doing incredibly well. It's not.
There are two others that are in question at this very moment that I want to weigh in on. First is the executive team at Facebook (FB - Get Report) . The stock got shelled Thursday, and I think it is simply a victim of its own success. I have been saying don't trust stocks that run up into quarters, and this, as great as it is, is still one of them. I think the company was simply managing down conservatively and will show you that its caution was simply a desire not to get expectations ahead of itself as it does the impossible, tries to recruit another billion people to its properties while simultaneously push enough ads to them that don't make the user experience unfulfilling. It's not a lack of demand and it's not competition from Snapchat. The comments about having a meaningful slowdown in the rate of growth of ad load were factored in by many and I think it's a buy.
Finally, there's CEO Brent Saunders and Allergan (AGN - Get Report) . Saunders has made a ton of money for you wherever he has been, but this run with Allergan, which was the result of the merger of Actavis with Allergan, has become a loser. Actavis paid the equivalent of $219 a share for Allergan, which then survived as the name of the new company. At one point last year, Pfizer (PFE - Get Report) was going to merge with Allergan at a price that took the latter as high as $340 a share until the Treasury Department changed tax rules on inversions--something it said it would not do when the deal was put together. It's been all downhill since, a brutal comeuppance. (Apple, Facebook and Allergan are part of TheStreet's Action Alerts PLUS portfolio.)
Yesterday, Saunders announced a big buyback and a dividend but also missed estimates and the stock's been crushed, falling from $209 to $190, almost half of where it was in the summer of 2015.
We've been telling members of our Action Alerts PLUS club over at TheStreet that Saunders isn't getting enough credit in this vicious environment for pharma companies, especially ones that miss numbers and that, when it hits $180, you should buy some because Saunders will create value again and because at that price it sells at a lower price to earnings multiple than Johnson & Johnson (JNJ - Get Report) , Pfizer, Merck (MRK - Get Report) , Bristol-Myers (BMY - Get Report) , GlaxoSmithKline (GSK - Get Report) and Eli Lilly (LLY - Get Report) , even as it is a faster grower than all of them. That's insane. But it's what happens when the market takes away your credibility prematurely.
So, remember track records. Remember what's been said. Remember what's been done. Make a judgment on words and deeds and performance and character and rigor and stick by it. Or else be prepared to accept the consequences.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long APPL, FB, AGN, NXPI and OXY.