Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Thursday, January 28.
There was a massive rotation in stocks on Thursday into safe stocks. People are getting extremely fearful and there is panic. Lot of groups are being thrown away: for instance, few weeks back, investors gave up on industrials; financials and apparel are being thrown away; even a chunk is taken out of Apple since people see Apple (NASDAQ:AAPL) as all about the iPhone. When the crude hit $26, energy stocks were thrown away only to miss a $7 rally.
The most recent group to be slaughtered is biotech. After the political issues and missed quarters by some companies, investors are fleeing away from the otherwise defensive group. "Just throwing all of them away and instead deciding to hide in the consumer packaged goods stocks like Campbell Soup (NYSE:CPB), Kellogg (NYSE:K), Procter (NYSE:PG) and even the left-for-dead Kimberly-Clark (NYSE:KMB)," said Cramer.
The healthcare group has come under immense pressure due to the upcoming presidential elections where Trump, Hillary Clinton and Bernie Sanders agree on government negotiating with the drug companies. Cramer thinks the Presidents might not be able to pull this off easily as big pharma have many friends in Congress. However, this uncertainty is bad for pharma stocks. "So, you can understand why these stocks are in such weak hands. The fear is that they might remain weak until the election, so don't bother owning them," said Cramer.
"I'm not trying to call a bottom in health care, but I think it makes a ton of sense to take a longer-term view, like you might have done in other areas where the fundamentals are fabulous but the sentiment is terrible," adds Cramer. He concludes by saying that buy the best of breed stocks being thrown away in stages, but the rotation could end soon.
Wake up Fed
Cramer is not happy with the Fed as they have not been listening to corporate conference calls and what the American CEOs are saying. They have not ruled out a March rate hike which keeps them on the path to 4 rate hikes in 2016. "All the Fed has done is sacrifice American jobs; they don't know it, yet, because after yesterday's announcement it is clear they haven't been listening to many corporate conference calls," said Cramer.
When the Fed raised rates last time, it led to a spike in the US Dollar which puts the companies doing business overseas at a shocking disadvantage. The strong dollar matters currently as the rest of the world is in disarray too. Other countries debasing their currencies are causing more problems for American companies.
There is a big currency disconnect in currencies over the world and American worked is the biggest loser in this. Companies will have no choice but to slash costs in the US. The companies need currencies to calm down for the uncertainty to end.
If an investor questions how can a 0.25% rate hike damage the economy, Cramer advised listening to the earnings conference calls. The world is in a crisis in Cramer's opinion and the US is in a position to make things right, but it is doing the opposite.
"One question for the Federal Reserve, you're doing this in the name of what exactly? Let me know if you can even articulate a reason. I know I sure can't find any," said Cramer.
The 'F' in FANG is Facebook, which reported a terrific quarter. Cramer joked that Mark Zuckerberg should take more paternity leave. The earnings report from the last quarter just crushed it. Facebook is growing so fast that the strong dollar is not impacting it, it has no economic sensitivity, and it can charge more for mobile ads than desktop.
More than 80% of the company's 148M active users are on mobile and the advertisers are yet to monetize the consumer adoption of video. The management said in its conference call that Facebook is an under-appreciated advertising medium and it yields instant results for shareholders.
The increased expenses are actually investments in business that gives great results. Investment in WhatsApp and Instagram are prime examples. Messenger has 800M users that can be as big as Facebook someday. Another investment that could monetize soon is Oculus Rift. This could be a significant revenue stream in the near future.
This works for Facebook since Mark Zuckerberg's vision for his product teams is all about mobile. "That is how you get the best new story of the year, if not the decade, which is why Facebook is now the cheapest of the high-growth FANG cohort," said Cramer. He remains a buyer if the stock goes lower.
CEO interview - Avnet (NYSE:AVT)
Cramer calls Avnet the largest tech supermarket on earth. They are the no. 1 distributor of electronic components that include semiconductors, hardware and software. The company missed its earnings last quarter with weaker than expected revenue. Cramer interviewed CEO Rick Hamada to know more about the quarter/
"A miss is a miss, but we show up rain or shine, by the way, there were some silver linings in there, but hey, a miss is a miss," said Hamada. The fall was attributed to a slowdown in Avnet's components and computer businesses in the US.
He remains bullish on the transition to internet of things, third-party platforms for enterprise IT systems, all of which are powered by components sold by Avnet. He mentioned that last quarter was a hiccup and things are looking good for Avnet.
CEO interview - American Electric Power (NYSE:AEP)
With an economic slowdown, one should look at the utility group which is least sensitive to economics of the world. American Electric Power is the largest power transmission network in the US serving 5M customers in 11 states. Both sales and earnings were lighter than expected and the company has a "juicy yield". Cramer interviewed Chairman, President and CEO Rick Akins to know what lies ahead.
"We raised guidance twice during 2015 and rounded up the year firmly within that guidance range even with the $0.11 bogey that we had relative together," said Akins. This was the warmest winter in the last 30 years and the company was still able to meet its full year guidance.
Akins agreed the new oil and gas activity is beginning to slow along with industrial space. Despite that, the company has the capital to optimize the electric grid and they are least interested in buying a natural gas company as that would increase the risk.
Cramer said that American Electric is a consistent company.
Viewer calls taken by Cramer
Ford (NYSE:F): It's fine as it yields 5%. The auto sector peaking news is overdone.
Alibaba (NYSE:BABA): Cramer does not want to recommend Chinese stocks.
PayPal (NASDAQ:PYPL): PayPal is cheap.
Zillow Group (NASDAQ:ZG): Last quarter was not good and the company can take a while to get back its momentum. Don't buy.
Palo Alto Networks (NYSE:PANW): They are a high-multiple speculative stock. The stock needs to find a bottom before it goes up.
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