Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday January 25.
5 Investment Ideas for the New Bernanke Era: SPDR GoldShares (NYSEARCA:GLD), Apple (NASDAQ:AAPL), ArcSight (ARST), FLIR Systems (NASDAQ:FLIR), Schlumberger (NYSE:SLB)
It seems that Wall Street's anxiety over the future of Fed Chairman Ben Bernanke has been replaced with relief; the Dow rose 24 points after falling last week on worries over Bernanke's departure. Cramer thinks it is unlikely the Fed Chairman will be replaced after he received a significant amount of support in the Senate. It doesn't pay to panic on headlines, Cramer reminded viewers, but Bernanke's departure could have led to a huge decline in stocks.
Even though the danger seems to have passed, the fact that America's premier central banker seemed vulnerable is not a good sign for the economy. Cramer outlined 5 investing tips for the New Bernanke Era
1. 25% of a portfolio should be invested in foreign stocks. This is an increase from Cramer's former level of 20% given the growing fragility of the domestic economy. He would look for plays on Brazil, Canada, Chile and Australia.
2. Every portfolio should have gold. Cramer's favorite gold pick is SPDR GoldShares (GLD), especially since it is down to $107 from $119.
3. The mobile internet tsunami keeps raging, and the most secure stock in that space is Apple (OTC:APPL) which is unlikely to be affected by an economic slowdown.
5. Oil is a good investment, but Cramer would beware of companies too dependent on the U.S. Schlumberger (SLB) reported a good quarter and has a strong overseas presence.
The Wrath of Obama: McDonald's (NYSE:MCD), Kimberly Clark (NYSE:KMB), Exxon Mobil (NYSE:XOM), XTO Energy (XTO), Goldman Sachs (NYSE:GS), JP Morgan Chase (NYSE:JPM), Covidien (NYSE:COV), Johnson Controls (NYSE:JCI), Apple (AAPL)
Cramer discussed ways to "Obama proof" a portfolio given the effect the President's statements have had on stock prices and the tension and uncertainty leading up to Wednesday night's State of the Union address. Since a good portion of a stock's price is determined by future earnings. concern over the future can dramatically affect the stock's up or downward motion; “Make no mistake, this President has the power to wreck the earnings of companies, or at least the expectations about those earnings," Cramer said, "making investors want to pay less for many sectors that are now in the administration’s crosshairs.”
Cramer believes 50% of a stock's price is affected by what sector it is in. He would therefore avoid buying any stocks in sectors Obama currently dislikes, such as the financial sector, or in any group that is likely to be punished by the President's rhetoric or reforms. "Remember, it isn't just what he will do but what he might do," Cramer reminded viewers. When choosing stocks, it is important to get priorities straight; "It's Obama onus first, earnings second."
Cramer gave viewers advice on how to approach each sector. Discretionary goods make up 9.55% of the S&P 500 and two-thirds of the economy is driven by consumer spending. However, with Obama's threat of a tax hike, Cramer thinks these stocks will lose 5% of their value.
The sector that will perform the best under Obama is consumer staples, which comprise 11% of the S&P 500. Cramer thinks these stocks will gain 5% in value. Regardless of the sector, the stocks that may have the best chance are those that have already reported good earnings. McDonald's (MCD) is one stock that may be safe, although there is the threat the President may tax junk food. Kimberly Clark (KMB) also had strong earnings and offers a 4% dividend it may increase in the near future.
Energy, which makes up 11.52% of the S&P 500 should be the President's next target after financials. Exxon (XOM) which bought XTO Energy (XTO) might be particularly vulnerable if Obama bans hydraulic fracking, an advanced form of technology used for natural gas drilling. The President may also place huge restrictions on domestic drilling for oil.
Financials, which comprise 14.4% of the S&P 500 are Obama's enemy #1. Although the government gave Goldman Sachs (GS) a pounding already, there might be more pain ahead for the investment bank and Cramer expects JP Morgan (JPM) to get pummeled. Healthcare, which makes up 13% of the S&P 500, has been Cramer's target for awhile, but Cramer thinks the decline for the sector will be 10% rather than 15% given the fact that healthcare reform appears to be a shadow of its former self, especially after the victory of Senator Scott. One stock Cramer would buy in the sector is medical equipment supplier Covidien (COV) which already reported a strong quarter and whose business is not controversial.
Industrials, which make up 10.51% of the S&P 500, may get hit by China as well as the U.S. The Chinese are deliberately slowing down their economy to avoid a damaging burst of the economic bubble. Cramer thinks this sector will lose 10% of its value, but likes Johnson Controls (JCI) because of its connection with the steadily recovering auto industry.
While the President is not anti-tech, his anti-capital stance could cause technical stocks to lose 10% of their value. However, Cramer thinks Apple (OTC:APPL) will continue to be strong. Materials stocks, 3.51% of the S&P 500 will suffer from China's slowdown and telecom, comprising nearly 3% of the S&P 500, may fall 5%. Cap and trade reform will strip utilities, which comprise 3.65% of the S&P 500, of 5% of their value.
The bottom line: it appears that consumer staples are likely to be the only stocks that may thrive in the new political climate.
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