Jim Cramer: Oil Stocks Are Not Fossils
Is oil finished? Is crude done as an investible concept? Is crude now entering a fable death cross where it will fade away to the thirties from its $44 perch? Are we so into alternative energy that crude's days are gone and oil stocks will be on the endangered species list?
I did an Action Alerts Plus club call that addressed these very issues after spending an hour with my go-to energy call, Rusty Braziel of RBN Energy, who famously came on Mad Money a year and a half ago and said that those who thought oil was going back to the hundreds or even to the sixties or seventies were just going to be plain wrong.
When I consider that most oil guests did cling to that view, especially every time oil breached $50 on the way up, it was a bold call.
Now with oil breaking $44 it's a legitimate question to ask if crude's kaput and going down for the count. Neither Rusty nor I believe that. In fact we've been waiting for the speculators to be washed out and it looks like that is just what's happening.
Before I go into why I think that we are approaching my $43 buy point let me go over what's happening now in oil. First, you know how stocks sometimes trade down sharply in unison on some bit of information? Oil now does that, too. The futures now trade algorithmically, meaning that when the oil inventories that came out at 10:30 today showed a big build, the machines fired off sell orders that brought oil down almost two bucks in a nanosecond.
That kind of trading freaks people out and begets more selling in the oil complex, which happens to trade together, largely bound by oil ETFs.
Second, while it is true that the OPEC cuts have not done enough to stem the glut--in fact U.S. production, barrel for barrel, is making up for whatever's been taken out--the demand for oil is not declining as the bears would have you believe. In fact, while alternative energy sources are coming on, for example 27% of the power in Texas is now produced by wind, oil use is not declining in any noticeable way.
Third, the depletion of current wells is going on apace, which means that many of the nation states and large oil companies that have withheld drilling for big projects may have not been replacing production.
Against that, though, is that every time oil approaches $50 you do get our oil companies selling futures that do put a lid on it. Rusty points out that futures, out five years, show $50-a-barrel oil. I don't want to disagree with the futures market but I think if there isn't more drilling away from the U.S. soon, you will see the glut disappear by next year.
Which brings me to the stocks. If you look at a lot of the big ones and the oil service companies, they now reflect all of the fears I heard when we were going to the twenties. I am not saying these are the greatest value stories of all time. I am saying that the pessimism is too thick and I think that picking at the stocks as we get to $43 will make you money even as the long-term doubt is quietly surfacing as a real issue to watch, not for this decade, but certainly beyond.
Action Alerts PLUS, which Jim Cramer manages as a charitable trust, has no positions in the stocks mentioned.
Originally published June 14 at 2:23 p.m. EST
Jim Cramer: These Companies Find Strength in a Weak Dollar
When I see industrials moving up the way they are and have been for days, I think to myself, forget President Trump, forget U.S. infrastructure, we are going to see some pretty good growth overseas and the buyers are trying to get ahead of the darned good quarterly results that will be announced less than a month from now.
Take 3M (MMM) , a quintessential industrial. 3M's stock has quietly moved 13 points since it last reported, including a remarkable jaunt right through $200. This is not an idle move. This company's stock tends to track its business very closely, and all I can say is I bet it will have a good quarter because its end markets are all getting stronger. Remember that only 40% of 3M's business is in the U.S., and that means its industrial and electronics and graphics businesses will not be kept down by sluggish U.S. growth.
More important, when you look at the broad portfolio and countries where 3M's products are sold, you are going to see not only organic growth but also currency-aided growth as the U.S. dollar isn't as strong as it was last year.
Can you imagine seeing a combination of "better than expected earnings" and "raised forecast" coupled with a continued stock buyback? That's pretty much what you should expect when you see 3M's report. And the market won't care that the currency has added a tailwind. It will lap it up as if it's real earnings for certain.
3M's no anomaly. I think you might get the exact same kind of earnings news from Honeywell (HON) and United Technologies (UTX) , both with broad product portfolios and more than 40% weak-dollar exposure.
This is the theme that's got a lot of stocks going.
Where else should we be looking for some weak-dollar relief? How about the stock of Johnson & Johnson (JNJ) , which has been phenomenally strong here. It's been buffeted by currency for ages.
So, for that matter, has IBM (IBM) , which is trying like heck to put in a bottom with its new businesses outrunning the old ones. It's been savaged by Warren Buffett, but perhaps he soured on it right at the cusp of the turn?
It's clear that these stocks, with the exception of IBM, have already put on some serious points.
But here's a surprising non-industrial that I think might be worth considering: Procter & Gamble (PG) . Hear me out on this. I know Procter doesn't have that economic sensitivity that I so desire from so many of the big industrials.
However, it also hasn't moved that much, off four points from its high and yielding more than 3% in a yield-hungry environment. I mention P&G for two reasons. One is that almost no company has spent as much time as P&G explaining why it has been hit so hard by currency and how it can't even hedge a lot of the places it's been dinged.
Second is now that General Electric's (GE) Jeffrey Immelt has been replaced by John Flannery as CEO, I believe Nelson Peltz and his Trian Fund will turn their attention to Procter & Gamble. Like with GE, I expect a Trian white paper soon detailing how P&G could take costs out. I also expect the company's stock will jump when this process begins, as was the case with GE, which moved from the mid-$20s to $30 when Peltz got on board. (General Electric is part of TheStreet's Action Alerts PLUS portfolio.)
Time to get involved yourself with a great company where you can win in so many ways, but especially with Peltz in there fighting for you.