There is nothing worse for business than competition, Jim Cramer announced to his Mad Money viewers Tuesday, and when it comes to stock prices, it gets even worse.
We all know what classic competition looks like. There's Coca-Cola (KO - Get Report) versus Pepsico (PEP - Get Report) , Home Depot (HD - Get Report) versus Lowes (LOW - Get Report) . But then there's the other type of competition, the one you never see coming. "Blind side" competition, he called it.
That was certainly the case with Snap (SNAP - Get Report) , the disaster of an IPO that has seen its shares slide 37% since March, including an 8.9% slide today. Cramer said that Snap is in the unfortunate position of competing with Facebook (FB - Get Report) , a company that just will not be challenged by a young upstart. Given that Snap's shares are largely non-voting, Cramer said there are few options other than to sell.
Likewise with another ill-fated IPO, Blue Apron (APRN - Get Report) , which couldn't have foreseen Amazon (AMZN - Get Report) acquiring Whole Foods Market (WFM) . Shares of Blue Apron plunged another 12% today.
But then there's Ulta Beauty (ULTA - Get Report) , the company with a loyal following that is now competing against department stores willing to slash prices just to get shoppers to remember they exist. Can Ulta survive? Cramer said certainly, but the company's valuation, currently 30 times earnings, will need to be adjusted to reflect he new reality.
The same applies with telcos, where AT&T (T - Get Report) and Verizon (VZ - Get Report) are now competing hard against Sprint (S - Get Report) and T-Mobile US (TMUS - Get Report) . It's no surprise Verizon shares are at 52-week lows.
Once the damage gets factored in, the pain goes away, Cramer concluded, but don't hold your breath that it will happen quickly.
Cramer and the AAP team think PepsiCo Inc.'s (PEP - Get Report) earnings beat is good news. Find out what they're telling their investment club members about the company's role in a diversified portfolio and get in on the conversation with a free trial subscription to Action Alerts PLUS.
Where's the Merger Madness?
Mergers and acquisitions are beginning to slow given the uncertainty in Washington, Cramer told viewers, and that could spell bad news for the three sectors that need mergers the most.
Cramer explained that the latest estimates peg the price of producing oil in the Permian Basin has slid to the low-$30s. That would make oil companies attractive targets given their low valuations.
Then there are the consumer packaged goods companies. With Amazon and Kroger consolidating the grocery business, these food companies are going to continue to get squeezed unless they can partner up and gain some clout.
Finally, there's retail. Abercrombie & Fitch (ANF - Get Report) shares fell 3.6% on the news it won't be merging anytime soon. Cramer said if JC Penney (JCP - Get Report) were to merge, they could use the tie up to take a huge writeoff and close hundreds of stores. Without a merger, it's hard to see how Penney can compete.
On Real Money, Cramer says that without robust M&A action, some of these sectors are at the mercy of short sellers -- who have no mercy. Get more of his insights and a free trial subscription to Real Money.
Off the Charts
In the "Off The Charts" segment, Cramer checked in with colleague Bob Lang over the charts of the cloud stocks, which have all pulled back from their highs.
Lang first looked at a daily chart of Salesforce.com (CRM - Get Report) , noting that after a strong start to the year, the stock found a floor of support at its 50-day moving average. Both the MACD and the Chaikin Money Flow are positive.
Finally, Lang looked at Red Hat (RHT) , which made new all-time highs last month. Here again, the pullback was on weaker volume, and both the MACD and relative strength indicators are pointing towards a recovery.
Executive Decision: Constellation Brands
For his "Executive Decision" segment, Cramer again sat down with Rob Sands, president and CEO of Constellation Brands Inc. (STZ - Get Report) , the spirits maker which just posted a monster 36-cents-a-share earnings beat with strong guidance. Shares of Constellation are up 26% for the year.
Beer has clearly been a growth driver for Constellation and Sands said that they're simply at the right place at the right time, Mexican beers in particular are red hot and Constellation has Corona, Modello and now Pacifico as well as demographics pulling in their favor.
Sands also reiterated that Constellation paid just $30 million for Casa Noble a few years ago, far less than the $1 billion paid by Diageo (DEO) for rival Casa Amigo.
When asked what makes a beer a big seller, Sands explained that no one really knows, but consumers vote with their feet (and their tastebuds) and if the taste, image and countless other metrics all line up, you've got a winner.
Finally, when asked about affairs in Washington, Sands said the tone seems to be mellowing and talk has stopped about creating a border tax, and renegotiating NAFTA seems to be less of an issue.
Oil and Trouble
Everyone needs to chill out about oil prices and get used to the new normal, Cramer told viewers. Every time oil rallies, analysts expect a breakout, and every time it falls, they expect Armageddon. Cramer said the $40-to-$50-a-barrel range is likely where oil is going to be for the next few years, which means people are getting way too emotional over these minor moves.
What's important to note is that the oil industry is in a lot better shape than it was 18 months ago, when crude traded into the $20s. So why then do 25% of oil producers have stocks with prices that are lower than 18 months ago?
Cramer said it makes sense that the offshore names are lower. Everyone expected a quick snapback in oil prices and that simply didn't occur. But for the onshore names, like Occidental Petroleum (OXY - Get Report) , Southwest Energy (SWN - Get Report) and Carrizo Oil & Gos (GAS) , these prices are puzzling.
Carrizo in particular saw its shares roar into the $40s, only to fall back into the teens. Earnings don't seem to matter, as investors instead focus on the company's strategy. But at 8.4 times earnings, Cramer said Carrizo's valuation is simply absurd.
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