Here are Jim Cramer's top thoughts on some of the biggest stories of the week.
Jim Cramer: We Seem to Be in a Period Free of Amazon Fear
We are seeing some things now that indicate that the age of Amazon as the destroyer of all things retail may be receding, at least for now.
Consider, first, the action in Ulta Beauty (ULTA - Get Report) . The stock of this once-beloved cosmetic retailer opened down five yesterday on a downgrade from a major firm and very negative comments from the CEO of Ulta partner L'Oreal, that there is some real pricing pressure in the mid-market cosmetics, including those sold to Ulta. (You can take a look at technical analysis on ULTA from Bruce Kamich in this article.)
My jaw dropped when it mentioned Ulta by name. But given that Ulta's stock peaked at $314, it couldn't have been all that shocking at $243, and the stock held. Then buyers came in and brought the stock back to even, and then pushed into the black by a point.
To me, that's the case of the long-awaited downgrade that finally happens, which allows the intrepid to start buying this terrific retailer. For me, the problem is the multiple: 30 times earnings makes it vulnerable the next time you hear Amazon's deciding to make a big push into cosmetics. On Monday, the stocks of Home Depot (HD - Get Report) and Costco (COST - Get Report) made noteworthy stands. These are both one-two punched stocks, meaning people may be less worried about Amazon, but these stocks weren't brought low just by the on-line giant. (Kamich thinks HD's rebound is on shaky ground, you can read why in this article).
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If you recall, we got weakness out of Sherwin-Williams (SHW - Get Report) and PPG Industries (PPG - Get Report) in the do-it-yourself paint market in their last quarters, which would have dinged Home Depot on its own, even as Stanley Black and Decker (SWK - Get Report) gave you nothing negative about the channel.
But then you got the Sears Holdings (SHLD) /Kenmore-Amazon tie-up and everyone went nuts and got all bulled up about Sears and put the hurt on Home Depot.
I think the comeback in Home Depot will be hampered by its relatively high, but not exorbitant 20 multiple, as well as the lingering paint woes. But Sears-Amazon? I think that's another one that seems to be mind- back-burner-ed.
Costco's problematic. It has to compete with Amazon with its own, very second-rate website. Still, at least it isn't third-rate anymore. But it still sells at 27 times earnings. We could look the other way at that if it weren't for the giant expansion of two different German grocery chains into this country, Lidl and Aldi, as well as the more obvious Whole Foods (WFC - Get Report) buy. So, I don't know how high Costco's stock can go. But it does feel like there is a floor until Amazon pushes into food and the Germans have more of a land grab.
Walmart (WMT - Get Report) is so close to making fresh highs that you have to think that its Jet.com must be showing some results. It, too, will be faced with Aldi/Lidl, but it sports only an 18 pe multiple, so it might be a bit more immunized.
On Monday the trust, Action Alerts PLUS, bought some TJX Cos. (TJX - Get Report) , because we are now at the moment when its stores will be filled with back-to-school clothes and other items that should have been bought from the big chains that closed stores. There's no food competition, so it does seem safer, and its 18 pe makes for a decent risk reward after a pretty ugly descent into maddening levels.
Even the stock of Walgreen's (WBA - Get Report) , which has been hit by regulatory sloth and concerns that both its food and prescription drug aisles could be hurt by Amazon's efforts, finally has a decent chart. We exited the remnant position for Action Alerts PLUS, though, to put money in TJX, where I think that the non-Amazon-able case can far more easily be made.
We see what looks to be a bottom forming in Macy's M, where the dividend does have cash flow support and Kohl's (KSS - Get Report) has already moved well above where it was when Amazon-mania was in full force.
Finally, even one of the real estate investment trusts connected with an Amazon smack-down, Federal Realty (FRT - Get Report) , has come back ever since the company's CEO Don Wood came on Mad Money and explained a definitive lack of overlap with Amazon-able properties.
Now, much of this move has occurred during the swoon of Amazon's stock itself. But we are now past day three of the selloff, the one when historically we've seen a bottom in the stocks that led the selloff -- notably FANG -- so let's see if the fear returns.
Right now, though, we seem to be in an Amazon-free zone. Don't know how long it lasts, but it does feel like when the cat's away, the mice will play.Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long TJX, WFC.
Jim Cramer: Can the Pummeled Transports Get Back on Track?
Can the transports bruise the bull? I am a huge believer that you need the stocks of the transports to go higher to verify the bona fides of any rally. One of my long-held principles is that rallies that are led by the financials and backed by the transports -- as opposed to the healthcare stocks or the techs -- are rallies that have genuine staying power.
The financials stopped going up after they reported their quarters but they have somewhat held in.
But the transports, as represented by the Dow Jones Transportation Index, have been a disaster, peaking at the beginning of earnings season, July 14, at 9740 and then plunging to 9212 today.
The group can be fairly emotional, meaning that its components, the truckers, the airlines, the rails, the freight forwarders and a barge company, can really jump around.
Right now they are jumping into an abyss. This weekend I read the conference calls of every single transport in the index that reported and all I can say is that while there are reasons for the declines, they don't necessarily signal a dire forecast, something like a recession or even a slowdown.
Let's break it down.
First, the rails. CSX (CSX - Get Report) , Kansas City Southern (KSU - Get Report) , Norfolk Southern (NSC - Get Report) and Union Pacific (UNP - Get Report) all had pretty good earnings, with KSU being the standout. CSX had run huge, because of the potential prowess of Hunter Harrison, the new CEO and a noted railroad turnaround artist. I don't think there was much he could do to keep the stock going higher. In fact, while the quarter was fine service issues caused him to lose some business to Norfolk Southern, which reported an excellent quarter, as did Union Pacific. Export coal starred because of U.S. competitive advantage.
So why has the group been pummeled so badly? Simple: autos were weak and they are a very big and important cargo. Given the downbeat nature of both General Motors' (GM - Get Report) and Ford's (F - Get Report) quarters, no one could be surprised by this. I regard the rails as a push.
The freight forwarders, notably FedEx (FDX - Get Report) and United Parcel Service (UPS - Get Report) , also appeared to be victims of bullish circumstances. They ran as ancillary plays to e-commerce but there simply wasn't enough upside to keep the stocks in the air. Again, a push.
The truckers were all over the map, but the market perceived weakness in the group. I found myself thinking if only XPO Logistics (XPO - Get Report) was in the group, which makes sense give its size after the run it has, then it would have ameliorated the declines.
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We've got some flotsam in there, like Kirby (KEX - Get Report) , the barge company. Wow, management called the period the worst in 30 years. Avis Budget Group (CAR - Get Report) , the rental company, has started to come back up, but perhaps something else is at work because I didn't think much of the quarter.
And then there are the airlines. They've been truly horrendous because the market, collectively, has decided the halcyon days are over. We've seen pretty strong domestic numbers this year tempered by price competition from no frills international carriers. This quarter, though, there was a ton of domestic competition affecting the group, including the always reliable Southwest Airlines (LUV - Get Report) , which cascaded, in part because of some bad jet-fuel hedges that came back to bite them. As Spirit (SAVE - Get Report) , not in the index, but a real bruiser with a terrible stock, said on its call "it is surprising to see our competition resort to the unusual level of discounting we currently see."
Still these are totally self-inflicted wounds. It sure wasn't for lack of filled seats, just a lack of discipline. They are generating a lot of cash but they've been a huge bust.
Taken in total, while many of the stocks have been awful I believe expectations simply got too high going into the reporting period. My conclusion, still, is a positive one: they all have their reasons for being weak. But the only real concern is the decline in autos, so important to the U.S. economy.
You have to watch that group. If they do layoffs, which seems right from this analysis, there will be another wave of pain to come. In the interim, while we can't be thrilled at the performances of this key group, it's hard to claim that it's finished or that it can't come back hard from these now less-than-lofty levels.
Originally published July 31 at 12:11 p.m. EST.
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 the decline in Pizza Hut sales is affecting Yum! Brands
- How Teva Pharmaceuticals is probably the weakest of its group
Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's--and reader comments--in real time.