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:
- How Lululemon made him luluwaver
- How the rally is earning some trust
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Last quarter, if you remember, Lulu botched the numbers and it fell from $66 to $50 in one session. I like Lulu and I had liked it for years, but I have been trying to pull back from stories I like, if that kind of reaction is possible. There are simply very few watchers and followers who can take that level of pain to get to some level of distant gain.
The reasons given for what amounted to a two-month shortfall had much more to deal with the wrong style and execution than I prefer. I would like to think a stock of a company that briefly slips up couldn't have that kind of negative move.
More important, I lost conviction thinking that there was something else at work, that the competitors had finally caught up and the real issue's something deeper. The ethos I liked so much, the idea that LULU was more than just four walls with merchandise, may have been fanciful, given the intense competition in the space.
Well, last night we discovered a couple of things. First, it was just execution. The company said the last month of the disappointing quarter was a good one, and there was strength coming into this quarter reported last night.
That turned out to be totally true.
Second, that strength accelerated as new styles, including a new bra, drove sales.
Third, the expansion worldwide continues apace, with supply chain issues that had also dogged the company under control and Chinese demand accelerating. The $1600 per square foot numbers out of Shanghai were breathtaking, and a further testimony to my initial belief that there's more to this company than just bricks and mortar.
You don't get more than 200 basis points expansion in margin, a need for more stores quickly because of worldwide demand, and 39% comps in some items of clothes, if things aren't smoking.
Which brings me back to my initial thought, my wavering on a story that I had stuck with through thick and thin. These numbers justified sticking with LULU.
But the violence of the stock seems wholly separate of the company. It's almost as if the stock acts like the company's a fad, something like fidget spinners, the faddish toy that drove a lot of Five Below's (FIVE - Get Report) numbers last night.
But the business itself isn't a fad, and while it is not immune to fashion mistakes or competition, it's not going to make that many fashion errors, and the competition seems to have made inroads and then fallen behind as the year began.
Which begs the question: what do you pay for a $2.28 to $2.38 earnings stream from Lulu, given the volatility and the ferocity of the short sellers who don't believe? What kind of multiple can you put on a faster growing apparel company with fashion risk that is loved beyond most apparel businesses and has more control over its destiny, because it is not a wholesaler trapped in the body of the mall department store?
Do you pay 20x because of a repeat risk of failure? 30x because of the loved and transcendent nature of the company? 25x because it is better than most, but not immune?
Or do you just say "I ain't playing."?
At my old hedge fund, I would waffle over this one, for certain. If demanded, I would say 25x earnings, for the reasons above. Sure enough, that gets you to $57, pretty much where it is in pre-market trading, showing that others embrace this analysis.
But on the trading desk? I am tempted to say, I ain't playing. You see the risk of being wrong turned out to be better than the reward of being right.
So, a lightning round query: $57. A demand that I own it for, say, Action Alerts PLUS, my charitable trust? No can do. Too crazy!
This market, today, is earning some trust.
First, the other day I cited the miserable performance of the transports signaling them out as a bellwether of weakness and a worrisome sign of a market running on fumes.
Today the call was answered. First, Federal Express (FDX - Get Report) and United Parcel (UPS - Get Report) , stalled so badly of late, came out of the blocks hot. Now we heard a lot of activist chatter when it came to the long-faltering UPS. But either way, the dramatic move in Federal Express made me feel don't give up on commerce just yet. The other rails, Union Pacific (UNP - Get Report) and Norfolk Southern (NS - Get Report) , joined the endless winner that is CSX (CSX - Get Report) . Even the miserable truckers and freight forwarders had a good day. That's a terrific way to break the stalemate about whether the transports are signaling advance or retreat.
We've been bemoaning the lack of support for retailers all during this narrowing move. Suddenly, though, there's something to talk about. Dollar General (DG - Get Report) , which had languished for so long near its 52-week-low after being such a darling for ages, reported a sharply better than expected quarter and it's been on fire all day, rallying 5%. It's taking up its brethren Dollar Tree (DLTR - Get Report) even as that company reported a subpar quarter, a sign of total forgiveness.
Remember when Home Depot (HD - Get Report) gave you that terrific quarter only to see its stock fall a quick five bucks. Well, that decline now seems to have run its course and it's carrying up Lowe's (LOW - Get Report) . I would be a buyer of Home Depot. In fact I could argue it should never have been down.
Kohl's (KSS - Get Report) stock, one of the most undervalued department stores, lit it up today, jumping a buck. I simply don't think this company deserves to be in the bargain bin. It's just not doing that badly and that 5.5% yield is very enticing.
Oh and it's always good to see a real bargain go higher, Ollie's Bargain Outlet (OLLI - Get Report) , which hit an all-time high on some fantastic numbers and encouragement that the company's got a gigantic runway for growth aided by the collapse of so many also ran bricks and mortar stores as well as better rent rates and the continuing advance of Ollie's army.
We know there's been a host of tech names that have been generating some excellent stock performance. But many of those, particularly the highest growth stocks, are stepping aside and letting others participate.
One of my favorite unsung growth companies, Box (BOX - Get Report) , run by the redoubtable Aaron Levie, put up still one more strong number, with a promised positive cash flow, and the stock vaulted ten percent. That's deserving for this cloud content management platform, although that rubric really sells the company short. Still, I like the delicious irony of the short selling analogy because there have been bears circling this stock from the day it came public and I can safely say I think they have been routed by the 30% growth that Levie delivered.'
You may not recall, but a company called Tech Data (TECD - Get Report) appeared on Mad Money a quarter ago with a number that some thought was a dud. I pushed it hard because the global supermarket of tech had just completed the acquisition of an underachieving portion of rival Avnet's business. The company promised you'd see big growth this quarter and that's exactly what you saw this morning, and the market lapped it up, with the stock rocketing almost 4%. Thank you, Bob, Dutkowsky, for delivering everything you did, and more so.
I duly noted the remarkable ramp in Ciena (CIEN - Get Report) today, a networking equipment stock that signaled a huge spending cycle, especially in Asia, is now in front of us. How joyous and what a break from the endless leadership of the high flying Nvidia (NVDA - Get Report) , which at last saw its stock do nothing.
Boy its wings must be tired. Nice to see others take up the slack in the sector including Palo Alto (PANW - Get Report) which had been a simply dismal performer for ages. Not today, it took off more than 15% on a return to form quarter with some excellent growth. All is forgiven after some real time spent in the penalty box for some hiccup quarters for this once cyber-security darling.
Many have given up on the food group and I can't blame you given the meager growth. But sometimes self-help is a beautiful thing and the rumored acquisition of Pinnacle Foods (PF) by Conagra (CAG - Get Report) sent both stocks screaming. Talk about a positive sign for a group at death's door. I like that.
Speaking of self-help, I have marveled at the stock of John Deere (DE - Get Report) , after reporting a fantastic quarter. But after leaping from $112 to $120 in the wake of that fabulous news, it had stalled for seven days causing concern that the whole move may be unsustainable. Then today it spends $5.3 billion to buy a German company roadbuilding construction company, Wirtgen, and it's off to the races again. Why not? In one fell swoop this acquisition takes Deere from 21% construction to 30% in an accretive fashion. That makes the company no longer as hostage as it has been to the agricultural cycle. Plenty of people have been postulating that the construction stocks had cooled. But this deal ignited Cummins (CMI - Get Report) and Caterpillar (CAT - Get Report) , the two big bellwethers. Illinois Tool Works (ITW - Get Report) jumped a couple of bucks, too, although I would attribute that advance to the capitulation of an ill-advised bear at Goldman Sachs (GS - Get Report) who did a huge about face and went from sell to buy on the stock citing management's incredible acumen, among other things, for the double upgrade. Note to Goldman, Scott Santi's, been among the great managers of our era. Perhaps they should spend some time with that visionary CEO and really get to know the story.
It's also a pleasure to see the stock of Danaher (DHR - Get Report) put on some points. It's been suffering under the weight of one underperforming dental division. But there's a lot more to this splendid company that one ne'er-do-well performing business line as we have been telling members of the actionalertsplus.com club and finally the market seems to be agreeing.
The move in the casino stocks in the last few weeks had seemed tentative and halting. Not today as Wynn (WYNN - Get Report) , Las Vegas Sands (LVS - Get Report) and MGM (MGM - Get Report) screamed higher on the release of the best numbers out of Macau in three years. Now that the Peoples Republic of China is starting to bless high rolling again I guess it was just a matter of time before these stocks returned to form. I like them all, but you know I like Steve Wynn's wealthy gaming mecca and think that MGM's got a lower-risk nice reward thing going with some excellent numbers in Las Vegas.
Remember when biotech stocks used to go higher? Did you see Celgene (CELG - Get Report) today? It got unstuck ramping two bucks to the upside. Regeneron (REGN - Get Report) tacked on six and Biogen (BIIB - Get Report) ran four. Nice to see those respond to the market's wake up call.
Oh and I know it is only one day. But it did take my breath away to see Wells Fargo's (WFC - Get Report) stock up a dollar at one point. The big national banks that do a ton of trading had been weak because of a lack of volatility of late that's needed to generate trading revenues. Wells Fargo's been the lone large bank that never relied on that revenue stream. Perhaps that's how it could pop today even as CEO Tim Sloan said that loan growth's not as robust as it was not that long ago.
My suggestion if you own it, as my charitable trust does? It takes 18 months for the American republic to truly forgive or forget. Don't get too excited there's a about a year more in purgatory. But patient people can take that dividend and reinvest while you wait. Still, it is nice to see that stock can go up not just down.
So, the rap against this market was that it was all FANG all of the time with a smattering of cloud winners and Tesla. Today the rally got broader, much broader, and it took with it some serious objections to the any further advances.At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long WFC and DHR .