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Cramer: Nike Is a Victim of Price Wars; There Will Be Others
Posted at 11:56 a.m. EDT on Monday, Oct. 31, 2016
Nike! Say it ain't so! Nike (NKE) gets taken to a sell at Bank of America Merrill Lynch; this, one of the greatest innovators, the dominant athletic apparel company of our time. What the heck? What's going on?
For years, Nike had the run of the table. Ever since Phil Knight blew away the competition, all laid out beautifully in his autobiography, Shoe Dog, and then taken to the next level by Mark Parker, Nike has had no peer in the business. Periodically, there'd be a challenger. I remember when we heard about Fila as a competitor. Or Reebok. Or Saucony. All pretenders.
And yes, Adidas (ADDYY) did have a good run for certain.
But they all died on the vine as Nike ran away with the business worldwide.
Suddenly, though, out of nowhere, Nike has not one powerful competitor, but two of them. Adidas has made a powerful return with its retro Stan Smith shoes. Most of you probably don't know who Stan Smith is. He was the great tennis player of my formative years -- the guy we all wanted to be in the seventies. His shoe has made a remarkable comeback.
They are, as my parents would say, all the rage.
If it were just Adidas, I think Nike could handle it, though. But Kevin Plank's Under Armour (UA) is suddenly in the mix and he's not afraid to hurt his own stock short term. In fact, as his release said last week: "We need to continue to invest in the business in order to capture the massive opportunity in front of us."
Them's fighting words.
And they are words that say "look out below" when it comes to gross margins. No wonder Bank of America Merrill Lynch took Nike to a sell. Sneakers have gotten way overpriced worldwide. Plank's ending that, in order to take share.
Can there be a winner in all of this carnage? I am still a believer in Foot Locker (FL) , which can benefit almost like an arms dealer in this war among the shoe makers. Dick's Sporting Goods (DKS) can, win, too. But we have to be careful in retail, because we know that the consumer's regarded as soft even as the Commerce Department's aggregate numbers show otherwise.
This share-take moment isn't contained to just shoes. This morning we heard about price competition in artificial joints from Zimmer Biomet (ZBH) , which, while it blamed most of its disappointment on shocking supply chain issues, did mention softness in the American market.
Last week we got a dramatic shortfall from NovoNordisk (NVO) because of price competition in the insulin and human growth hormone markets. They've been incredibly lucrative for years. And then, there's the stunning market share battle in the pharmacy benefit management business led by AmerisourceBergen (ABC) , which has decided to slash prices to take away business from McKesson (MCK) and Cardinal (CAH) . McKesson's stock lost almost 25% of its value last week when we learned about the price war. Cardinal reported this morning and the numbers weren't disastrous, so we've gotten a knee-jerk bounce but the war's been searing and the losses palpable.
We're used to price wars in some areas of the economy. We've seen them at the phone companies. We've known them in retail. We are used to them in restaurants. But sneakers, drugs and joints? It's all new. And all bad. Hence the flight, one that's not done, and might not be done until tax loss selling finishes at the end of 2016.Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.
Cramer: Investors Look at Merck, Wondering Why They Did Not Buy Qualcomm
Posted at 6:47 a.m. EDT on Monday, Oct. 31, 2016
At times like these I find myself reading over the conference calls of the health care stocks, trying to figure out whether there is anything worth owning, anything that can hold up, anything worth hanging your hat on; maybe some yield, a wonder drug, a possible breakthrough somewhere.
Take Merck (MRK) . Here, in the last three months, is a company that has seen its stock increase in value by $16 billion off of promising lung cancer results for its Keytruda drug in head-to-head results against Opdivo from Action Alerts PLUS charity portfolio holding Bristol-Myers (BMY) .
The hopes for Opdivo were high, some factored in the same amount of sales that Merck gained in market cap, $16 billion. As the timeline went along, things grew worse for Bristol as it appears that it may not, at least alone, be nearly as effective as Keytruda for the unfortunately giant lung cancer market.
That's how Bristol has now dropped $38 billion in market capitalization.
I think at this point both are an overreaction, Bristol because it does have other franchises and is now worth only $85 billion with about a 3% yield and Merck, because the marketwide anti-healthcare move has shaved off almost the entire Keytruda gain and it, too, has a 3% yield.
That's right. You are getting Merck at pretty much the same price before we figured out how much better Keytruda is than Opdivo.
I think that's absurd. But if you think that Hillary Clinton and the Democrats are going to sweep Washington and you think that Proposition 61 in California is going to win -- an initiative meant to restrict pricing -- then I can see where you don't want to trust these stocks.
There's no secret there is pricing pressure everywhere in health care. The decision by AmerisourceBergen (ABC) to go after market share in the oligopoly that is Cardinal (CAH) , McKesson (MCK) and ABC, mitigates all sorts of good assets that McKesson has and makes it so you can't value them.
Or take Allergan (AGN) . Here's a company that has a ton of cash, has been deploying it correctly buying niche products and purchasing stock while beating numbers and--keeping in mind we own this stock for Action Alerts PLUS--we have told people it simply can't be touched yet. It is toxic until after the election.
Did you get a chance to listen to the Novo Nordisk (NVO) call on Friday, the one where management talked about U.S. insulin and human growth hormone pricing pressure? You need to listen to this call. The analysts on this call were as dumbfounded as they were on the McKesson call. They just didn't see it coming at all. They all seemed to think that business was doing pretty good and there could be good growth.
There's going to be negative growth, if there can be such a thing.
What makes this such a tough moment, though, isn't just that the health care stocks in unison are so terrible. It's that so many other groups have stocks within them that are looking up. There are industrials that hang in like champs, even after so-so earnings. Aerospace stocks held up well. Tech stocks that continue to break out. Bank stocks, particularly the regionals, that look good on both rate hikes and the potential lack of a push back from the Elisabeth Warren contingent because regionals are historically sainted.
We are all so used to seeing the hiding trade of health care winning and the aggressive trades losing, that the idea of hiding in a loser is pretty darned unpalatable.So, in a "take no pain, take no prisoners" market, these stocks languish. Somehow, I think we will look back at Merck and say "why didn't we buy"? But right now, I think we will we look at Merck and say "why didn't we buy Qualcomm ( QCOM) "?
Cramer: The Gloom on Home Depot and Lowe's Is a Blip
Posted at 1:52 p.m. EDT on Tuesday, Nov. 1, 2016
TIs it a blip or is there something really wrong?
Tuesday, I was reading a very fine piece of research out of Oppenheimer about how Home Depot (HD) and Lowe's (LOW) have been experiencing a downturn in sales, judging by what we have seen from companies like Whirlpool (WHR) , Masco (MAS) and Sherwin-Williams (SHW) . We do know that appliances, paints, kitchen and bath have been soft--and their formerly strong sales were integral to the booming "home improvement" thesis that has been the mainstay during a period of tremendous retail turmoil. This slowdown dovetails with what we heard last night from the CEO of Brunswick (BC) , who noted that sales of the top-of-the-line Cybex home-exercise machines have softened, too--another discretionary item that dovetails with this new slowdown narrative.
So, why did I like this OPCO research note about Home Depot and Lowe's? Because the analyst presented the downturn as a blip, not the start of something bigger, some return to the bad old days where sales just plummeted because of job loss and declining home values.
It is true that in some regions, homes have stopped going up in value--or have even begun to decline. But that's not the experience across the country. Home spend is a function of several different variables: job growth, which we have; household formation, which is increasing ever so slowly; and, perhaps most important, perceived value of your home.
As Carol Tomé, the fabulous CFO of Home Depot, has explained on her conference calls, the moment that individuals believe that their homes are increasing in value, they view spending on their homes as investments not expenses, and homeowners understand that investments increase home values--while expenses do nothing but maintain values. People don't mind investing and they hate having to spend.
Now, there is another function that can depress sales: a paucity of homes for sale. Lately, we've had under five month of supply--a somewhat unusually low number that could hinder turnover, which can therefore inhibit sales. But homebuilders can make up for that supply.
I think it's a blip, because I think that the country's entered into a period of gloom that's politically derived. There simply isn't a moment that you aren't on edge about politics, and the edge of uncertainty pauses everything except staying at home doing nothing--or perhaps, cooking at home, watching Netflix (NFLX) and ordering from Growth Seeker holding Amazon (AMZN) .
Unfortunately, this is a very hard thesis to prove. It always reminds me of when Jimmy Carter was president and he detected a period of national malaise and gave a speech about how the country better buck up because it's really the people's fault that they had lost confidence.
I don't think it's the people's fault at all. I think the election season has been the most brutal and negative I can ever recall, and that backdrop simply does not create a mood that says go to Lowe's and Home Depot and start working on big projects.
Reluctantly, I am in a trust-me mode when I offer this thesis. I am presuming that the gloom's busted by some resolution--and we know election day may not produce it. But one thing's certain: The stocks have been hammered. It wouldn't take much to bring them back to life.
My thinking is this. No need to hurry. Why jump the gun? But at a certain point, we are going to see this gloom busted. And when we do, the demographics and historic prompts will kick back in. When they do, these stocks will go higher, not lower. Just not yet.
We have time, especially at this ferocious pace of decline for Home Depot. But it won't be forever before a bottom occurs. As these stocks go down they do, alas, get cheaper, even as the numbers are too high and the charts are among the ugliest in the entire book.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.