Jim Cramer shares his views every day on RealMoney. Click here for a real-time look at his insights and musings.
Cramer: Travel Is Flying High on Stellar Earnings
Travel had the makings of the greatest short. With airline reservations having precipitous declines after President Trump announced his travel ban from certain Muslim-majority countries, you had to figure that anything tourism would have plummeted in the first quarter.
We knew for a fact that bookings for everyone in the industry fell after the Jan. 27 and Mar. 6 executive orders, so why not bet against this $250 billion industry, especially when the experts were predicting declines of as much as $18 billion if the bans stayed in place for the next couple of years.
In a market starved for short selling ideas, here at last was a terrific one that had saying power and would take you right through into April and May.
It only got better after the United Continental (UAL) drag-a-thon occurred, where you had to figure there would still be another leg down in the revenue per passenger mile of the airlines and the hotel reservations numbers, especially the ones in the big cities where the tourism decline had to be crushing.
Turns out though, it wasn't--and the upshot is that those who did bet against travel and leisure are truly on the ropes after some sharply better-than-expected numbers.
Take just last night. First Marriott International (MAR) reported extremely robust numbers--simply incredible, talking about how strong the U.S. and Europe are. It revealed that it had a pipeline of more than 400,000 rooms that it intends on building. That's hardly what you would do if you really thought that travel was going to be crimped by the ban.
Then United reported astonishingly strong revenue numbers, with traffic up 7% and lots of positive chatter about on-time planes--which was a major factor behind the choice of Oscar Munoz as CEO not that long ago. The dragging incident didn't come into play, and the stock is up almost 10% since the aftermath. No, the conclusion shouldn't be more passengers should be pulled off the plane by their feet. The takeaway is that travel is so strong that even that most-watched incident meant nothing for the biggest villain of the era.
Some of this could have been predicted if you had paid close attention. I had the CEO of Expedia (EXPE) on last week in San Francisco, and he indicated that business was robust in the previous month. Wyndham Worldwide (WYN) reported extraordinarily good numbers and a robust forecast a few weeks ago. Marriott VacationWorldwide, the timeshare spinoff of Marriott, had similar comments.
Any one of these companies could have tipped you off to the notion that travel and leisure is robust. So could the numbers from MGM (MGM) for America, where business is amazingly strong both in Vegas and in National Harbor outside of D.C.
And of course, the cruise lines have all been delivering fantastic quarters, big beats and raises--every one of them.
Now you could argue that all of this is just pent-up demand--as travel did indeed drop after the bans. But what I think is happening is that people are spending on trips more than they are on goods. The money may just be coming out of retail. Remember travel is experiential, and experiential is something that can be put on your Facebook page. Retail? It's just a chore made easier by Amazon (AMZN) .
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.
Cocktails & Cramer
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Cramer: Goldman Sachs' Downgrade of Micron Is Perfectly Reasonable
But that's what Goldman Sachs did yesterday to Micron (MU) , and I have to tell you that as much as I do like the company, I agree that the downgrade from buy to hold is a rational, reasonable move.
Micron makes flash memory, but more important to the downgrade, it makes Dynamic Random Access Memory (DRAM), which is the ultimate commodity product that has been in short supply of late.
The problem? There's been a 46% increase in the amount of capital the companies that make DRAMs are spending in order to take advantage of the skyrocketing prices. That's a dramatic amount, and because DRAMs are relatively easy to manufacture, this step up might mean that new DRAMs could come online as soon as the end of 2017.
If that's the case, then the gross margin increase that Micron has seen for four straight quarters will come to an end and the stock could come crashing down.
Now, many people do not understand the boom/bust nature of commodities, of which Micron is perhaps the most glaring example. But I have been living with the tipping point -- the moment when there has been too much supply for about 30 years -- and it is always bound to happen. Some companies simply can't resist and want to take advantage of the price increases, no matter what.
How bad can it get?
OK, one year ago there was a surfeit of DRAMs and Micron's stock traded at $9 a share. Nine bucks!
The Goldman analyst is well aware of that pattern and is simply trying to get ahead of it, rather than wait until the decline begins in earnest, even if it means missing a few points up.
I don't blame the analyst. In March, when the company reported a very large earnings surprise, the stock gapped up from $26 to $28 and change and then the next day it moved up a few pennies more. Ultimately it traded up to $29 and it's been dripping lower ever since. The fact that it couldn't break out higher and that it is lower now than when it reported the upside surprise is telltale for a top.
Sure, pricing can keep going up. Absolutely, the new plants might not come on as fast as we think. Yes, the customers might be wishful that their own gross margins will start rising because Micron's are going down.
Ultimately, though, if you follow this stock, you have seen what it is like when you downgrade it on the way down. It is farcical. Best to take it off now, before the rollover, even if you miss some points on the upside.
That's why I described the downgrade as rational.
That's why it just might turn out to be right.Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.