After such a strong first quarter, it wouldn't be much of a surprise if the markets pulled back a little bit as investors take some profits, TheStreet's Jim Cramer said on his Mad Money show Monday. Aside from profit taking, it wouldn't be surprising to see investors sell some of their holdings to pay their tax bills, either.
The auto numbers for March weren't very good and it's looking like the economy might not have been that strong last month. Of course, a strong employment number on Friday would change that view.
No, Cramer's not bearish. He's just waiting patiently for stocks to come in a bit, allowing him and other long-term investors to buy stocks at a cheaper price.
So which stocks should investors be looking at? How about the "senior growth stocks" Cramer talked about on Friday, like Starbucks (SBUX) -- an Action Alerts PLUS portfolio holding -- Nike (NKE) , Disney (DIS) and Johnson & Johnson (JNJ) .
How about some of this year's top performers so far, like NRG Energy (NRG) ? Shares still seem to have upside as the company improves its operations, he reasoned.
Vertex Pharmaceuticals (VRTX) could also be a winner. It's up 46% so far, but with advances in its cystic fibrosis franchise, it could have more upside, too. Activision Blizzard (ATVI) looks like a stock investors could buy "right here, right now," and then add to on a pullback, Cramer said.
While it may not be time to be bearish, Cramer said investors can afford to be a bit more picky. Wait for a pullback to add to positions in order to lock in better long-term prices.
Over on on Real Money, Cramer says this pullback is exactly what the markets need to shake out the weak hands and get better owners in for the long haul. Check out his analysis with a free trial subscription to Real Money.
Picking Up Speed
Shares of Ferrari (RACE) have been hot, more than doubling over the past 14 months and hitting an all-time high of $74.99 just last week. But Cramer wants to know, is this race just getting started or is Ferrari running on fumes?
The company went public about 18 months ago at $52 and climbed to $60 on its first day of trading. Cramer predicted the stock was overvalued, and a few months later he was proven correct when the stock fell into the low $30s.
But since then it's been a different story and one Cramer wishes he'd taken notice of sooner. Ferrari produced 7,000 cars in 2013, but said it wanted to produce 9,000 by 2019. While there were skeptics, Ferrari has proven that it can do just that, scaling its way toward that level while maintaining its pricing power.
Operating margins are up and Europe, its top market, is rebounding as well. Engine sales have been strong too, as other automakers use Ferrari's engine, Cramer noted.
The company has been doing great. It's increased production, maintained its pricing power and boosted margins. So what's not to like? How about a doubled stock price, which now trades at 31 times next year's earnings? The bottom line: It's OK to admit that you've missed it. And even though Ferrari is a great company, it's time to stay on the sidelines, Cramer said.
If You're Long Chipotle, Stay Long
Chipotle (CMG) has struggled for quite some time following an E. coli breakout in fall 2015. Shares cascaded from the low-$700s to the mid-$300s, as investors dumped its stock.
For months, Cramer has reiterated that Chipotle would get its groove back, but it generally takes about 18 months for the recovery. Previous outbreaks at chains like Taco Bell and Jack in the Box (JACK) tell a similar story.
Shares are up almost 10% over the past five trading days and 20% so far in 2017. During its previous conference call, we found out the company's same-store sales growth is trending higher, climbing 24% in January, above December's 14.7% increase.
While those numbers are lapping easy comparable sales, they are trending in the right direction. Increasing same-store sales are usually an early indicator that things are working, even if earnings don't rebound quite as fast.
And that's really the concern. Investors are starting to buy into the rebounding sales thesis, but earnings will be a different story. With rising spending on advertising, labor, digital initiatives and food costs, it's unclear if Chipotle will hit its goal for $10 in EPS this year.
Still, it's important that customers are getting back in the door and it appears that they are, Cramer said. While Chipotle may not regain its super premium valuation from its pre-breakout days, it doesn't have to for the stock to rally further.
Here's the bottom line: Investors who are long Chipotle should stay long the stock. Investors looking to buy should wait for a pause and grab the stock on a pullback. When Chipotle really takes off, it will be hard to catch, Cramer said. The recovery is in its infancy, but all the pieces are there. Chipotle just needs to put them in place.
FMC Has Room To Grow
Last Friday, shares of FMC Corp. (FMC) roared higher, climbing 13% after it was announced that it would acquire DuPont's (DD) crop protection business. In exchange, FMC gave DuPont $1.2 billion and its FMC Health and Nutrition business.
Friday's rally wasn't the only big move though. Shares of FMC are now up 20% in the past month and 80% over the past year. Despite this, Cramer believes more gains could be on the way.
Because DuPont needs regulatory approval from the EU to complete its mega-merger with Dow Chemical (DOW) , it had to sell its crop protection business at an attractive price.
And FMC didn't get some middle-of-the-road asset, either. Practically overnight, it has been transformed into an agriculture powerhouse, just when the industry is heading into a strong cycle, Cramer said.
If investors liked FMC before the deal with DuPont, they should absolutely love it now, he reasoned. FMC also has a lithium business, which will see strong demand as electric vehicle sales continue to increase.
While a laptop may only need a few ounces of lithium for its battery, electric cars need 30 to 100 pounds. That's a good business for FMC, which said it plans to spin off its lithium unit, but not before 2019.
While its ag business saw revenues fall 6% last quarter, operating income climbed more than 25%. Its lithium business saw flat sales, but its operating income nearly doubled. Margins are expanding at FMC and that's very encouraging to see, he added.
Throw in DuPont's leading-edge crop protection business and research and development pipeline, and FMC looks even better.
While shares of FMC have moved up significantly, there's still plenty of gains left in this name over the long term, Cramer said.
He was bearish on Eagle Bulk Shipping (EGLE) .
On the show's "No-Huddle Offense" segment, Jim Cramer looked at two industries bearish investors thought the internet would destroy: Hotels and television.
Investors underestimated these properties and thought that the internet would kill them off, just like it did with radio and newspapers. But that didn't happen. Airbnb can't handle all the accommodation demand in the world, while too many TV events are live and therefore still draw big ad dollars.
Those hotel stays and TV ad budgets translate to big cash flows, which turn into stock buyback programs. These companies have aggressively bought back stock, shrinking their share count and boosting earnings per share.
While it's good to be skeptical, don't be too close-minded, Cramer reasoned. These are great stocks that many investors shorted or sold because they thought the best days were behind them. If we get the pullback Cramer is looking for, these could great go-to stocks, he concluded.
Cramer and the AAP team say they are currently restricted on Southwest (LUV) , but if they could, they would be adding to their position today on the broader market selloff. Read what they're telling their investment club members. Get a free trial subscription to Action Alerts PLUS.
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