Amazon, Merck, Freshpet: Jim Cramer's Views

Jim Cramer shares his views every day on RealMoney. Click here for a real-time look at his insights and musings.


Cramer: What Happened to the Pajama Traders?

Posted at 6:39 a.m. EDT on Wednesday, Jan. 11, 2017

Where did the pajama traders go? Where did those traders who used to control the opening based on extraneous data and news events from overseas disappear to?

Ever since the election of Trump, we have lost a great deal of the ridiculous volatility that plagued our markets for years--the kind of volatility that led to giant distortions each morning as we tried to calculate the impact of an Italian bank's failed restructuring or a raid on the Cyprus financial system. How much was a collapse of the Brazilian real worth? How do you factor in weak Chinese numbers?

Brexit? Has to be terrible, right?

The impact on our market was always suspect, but that didn't keep them from trying to control things. When you add in that some Fed speakers would talk after the market about raising rates, sparking the possibility of a tape tantrum and then a selloff in the stocks that need rates to stay low to be competitive, you had a lot of action every morning that was, alas, full of sound and fury but signifying absolutely nothing.

I would call these traders out regularly, giving you that pajama image just as a gratuitous slap, because I think I have earned the right for gratuitous slaps, given my role as a Dr. Denton trader in a previous life.

In the '80s I would trade Japan aggressively and be set up for America out of Tokyo. It worked before the 1987 crash because the Japanese controlled our openings, since they were so powerful back then. They strode the Earth like colossus--something that's hard to believe now but was the case for certain.

I have some theories about what happened. First, someone got wise to these clowns--hey, if President Elect Trump can call Sen. Schumer a clown, that's a real opening for further less-than-ambassadorial descriptions--and took their money away. How long can investors stick with managers who are wrong by 9:34 a.m.?

Second, the rest of the world, despite the stories in the press, just got better. Britain's been up for a dozen days because Brexit has created a better business environment because of the weaker pound. The numbers out of most of Europe are quite strong. Hate 'em or like 'em, the data out of China's pretty darned good. Latin America's no longer a disaster. The real and the ruble rock.

Third, the news flow out of the U.S. is better. Monday night, Merck (MRK) got some good news about Keytruda and its importance in fighting lung cancer. Forget that this was in the cards; this market likes to go up on the same positive data all of the time. United Continental (UAL) issued numbers that were better than expected for December. That wasn't supposed to happen. In front ran Delta's (DAL) numbers.

Notice none of this has to do with Trump. We are possessed by Trump in the news business. How can you not be? But the simple fact is, the reason why we don't care about the morning futures fluctuation is that there is none, exaggerated or not. The terror that the futures struck, rightly or wrongly, has disappeared.

We are all for the better of this artificial, silly infantile, immature trading by people who have either learned the errors of their ways or have moved on to honest employs.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.


Cramer: Barking Up the Right Tree With Pet Health Stocks

Posted at 1:59 p.m. EDT on Monday, Jan. 9, 2017

We've been pounding the table on the humanization of pets as one of the great secular growth themes for so long that we had pretty much taken it for granted that everyone knew it.

What we didn't take for granted, however was that Mars, the privately held food giant that also happens to be one of the most sophisticated companies in the pet industry, would pay a gigantic premium for (WOOF) , WOOF being the symbol for VCA, better known as Veterinary Centers of America. Shareholders of VCA have to be thrilled with the 41% gain they walked into Monday morning, as Mars will put VCA alongside its own Banfield pet hospital chain, creating a dominant health care company for companion animals.

Mars isn't new to the space. Besides health care, it offers two of the best premium food brands, Iams and Sheeba, both of which are respected as among the healthiest of offerings.

Why is this deal happening? A couple of reasons. First, the spending on companion animals has been compounding, and is among the highest rates of any consumer outlays as pets have moved from the basement to the bedroom and finally the bed. The numbers here are incredible: Americans' spending on pets has exploded in the 21st century, more than doubling since 2001--to $60.3 billion from $28.5 billion, according to the American Pets Products Association.

How can it not? Americans own 77.8 million dogs, representing 54.4 million households--and 85.8 million cats, or 42.9 million households.

Second, pet care is often a cash business, no worries about reimbursement from the government. Third, there aren't that many large scale companies with big exposure to this group. I love equity scarcity, it bodes well for the other companies in the industry.

And who are the other companies? Let's start with Idexx Labs (IDXX) , the leader in pet health care innovation which, like Mars, does diagnostics for vets. CEO Jonathan Ayers first put the humanization of pets thesis in front of us, and this company has stellar 10% organic growth, with huge gross margins. Idexx is a tech company, which constantly comes up with new products for vets. The latest, a urine sample diagnostics machine, has Ayers crowing about liquid gold.

We like Zoetis (ZTS) , the Pfizer spinoff that is largely focused on livestock animal health. It is a terrific business. And then there's Henry Schein (HSIC) , which is primarily a dental supply company that has moved aggressively into vet supplies.

We aren't as high on the pet food companies, in part because of pricing competition and in part because of Amazon (AMZN) , which has taken the margins out of a lot of these companies. We are lukewarm on both Blue Buffalo (BUFF) --even as my dogs, Everest and Bug, go nuts for the stuff--and Freshpet (FRPT) , which is the high-end refrigerated food business that we've found is too easily confused with the various human meats we keep in the fridge.

That's another reason why the Mars bid for VCA makes so much sense. Anything that makes any company less dependent on pet food and more dependent on animal health is a winner.

I don't think the other companies are takeover targets. But I do think that Idexx can work its way higher over time. We'll miss VCA as part of the cohort, nevertheless it reminds us of how much more Idexx is worth than it currently sells for.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

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