Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Monday, February 8.
Monday did not show positive signs and the stocks lost yet again. No matter how cheap, the selling isn't over. The market is not near a bottom yet. How do we know? Cramer went back to his checklist which showed that most of the things have not been resolved. There is a lot of uncertainty in the market which scares investors away.
Be it the Fed's stance on rate hikes, uncertain political situation, strong dollar, geo-political situation or employment, no checklist item has been resolved as such.
Until more boxes are checked off the list, one should be around stocks of high-quality companies only. "If we rally, you need to sell something, raise cash, and get ready for lower prices," concluded Cramer.
All things internet - LinkedIn (NYSE:LNKD)
Last Friday was terrible for high-growth stocks due to cuts in guidance by LinkedIn and Tableau (NYSE:DATA), citing global concerns. This led to all things mobile, social and cloud coming under the sell hammer. "The pin action from these two quarters was so alarming that I think it is very important for us to understand what went wrong here," said Cramer. LinkedIn went down by 44% and Tableau by 49%.
So what went wrong here? LinkedIn is the social network for professionals that makes its money by selling premium subscriptions to users and helps companies find suitable candidates. Their last quarter earnings were solid, but weak 2016 sales forecast took almost $11B in market cap in the blink of an eye.
The lower forecast was due to weakness in APAC, and EMEA. The company gets its 40% sales outside the US and investors realized how vulnerable LinkedIn is to macro-economic factors. "There is real worth here, but the firm's credibility is most likely shot until we see a good quarter, and we know that is not going to happen for another three months because they just reported," said Cramer.
Tableau gave poor guidance for next quarter and fiscal 2016. The management acknowledged that competition from low-end analytics products led to the company's slow growth as the market has become crowded. Moreover, the company saw slow growth in its core licensing revenue.
The problem caused by these two companies is causing pin action for other stocks in their group. "These other companies may be doing just fine, but until we are sure the forced selling by troubled hedge funds is over, I think you need to avoid both groups. Just too risky," said Cramer.
Stock picks in the current environment
The stocks might be in grip of the bear, but there are high-quality companies that can be bought on weakness. Once the pain is over, these serve as good bargains. Cramer gave his favorite picks:
- Verizon (NYSE:VZ) is worth buying because it not only provides capital appreciation but also capital preservation. They have a good dividend too. The possible acquisition of Yahoo (NASDAQ:YHOO) assets is an added advantage.
- YUM! Brands (NYSE:YUM) is worth watching due to the upcoming spin-off of the Chinese assets. The company's prospects look good.
- Clorox (NYSE:CLX) is a great stock with consistent growth and stable dividend. They are innovative.
- PayPal (NASDAQ:PYPL) as a financial company is cheaper than Visa (NYSE:V) and MasterCard (NYSE:MA) and also has more growth.
- Other stocks to watch for are Ford (NYSE:F) since it's cheap and has a good dividend yield, and Wells Fargo (NYSE:WFC) which is growing well. When the Fed tightens it will rally.
Don't ignore these stocks
Cramer gave a list of stocks that the market has ignored, but investors should take note of.
- One of the most obvious stocks to watch is Under Armour (NYSE:UA) as they reported a strong quarter when they were not expected to.
- Adobe (NASDAQ:ADBE) and Salesforce (NYSE:CRM) are doing very well, have reported good last quarters but the market has ignored them.
- Intel (NASDAQ:INTC) is in a transition phase, trades at 12 times earnings and 3.6% yield. At 4% yield the stock is worth owning.
- Palo Alto Networks (NYSE:PANW) though expensive are the best in their space. Fitbit (NYSE:FIT) with its ecosystem of connected devices is the best in its group, but has been free falling.
The markets have lost faith in these stocks, but when it calms down, investors will be running to buy them.
Whatever the case and issues in the market are, as long as the Fed doesn't clear its stance on rate hikes, the market will not find a bottom. "When you drill down, the proximate cause of much of these problems comes back to the Federal Reserve and its compulsion to raise interest rates into a tumultuous environment," said Cramer.
Fed chair Janet Yellen is due to speak on Wednesday and Wall Street will be watching what she says. The Fed is in a fix since it analyzes the employment rate and not from the perspective of an under-30 looking for a job or a 50+ being thrown out of a job. A lot of people have been out of the workforce so unemployment rate is not the only number to watch.
"Not only that, but this endless fixation on rising wages, without caveating the numbers by considering that so many states and cities have raised the minimum wage because it's a digitized economy, is ridiculous," said Cramer.
The Fed should not only worry about the stock market, but there are signs of a slowdown everywhere. If the Fed might signal a rate hike, it can crush the economy. "There is so much that needs to go right for us to get a bottom in stocks, but I still think it starts with the Fed," concluded Cramer. Watch for what Yellen says.
Viewer calls taken by Cramer
Chipotle (NYSE:CMG): Cramer is confident they will come back. He thinks the stock can be bought.
Gilead Sciences (NASDAQ:GILD): The political headwinds are nightmares for pharma stocks, but Gilead is a good company and can be bought.
Yahoo: Their operations ex the spin-off is valued at 0, which is a good price to pay for a company that can be acquired.
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