Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Tuesday, February 9.
While lower oil prices might be good for the larger market, there is an issue that is deep and worrisome. "The longer crude keeps collapsing, the more stress there really is in the system, and the worse the fundamentals get for the financials that lent these oil companies money. That is why we are so glued to every tick up or down in the price of oil," said Cramer.
When oil started going down, smaller energy companies went bust. Now, the real problem lies with giant energy companies that are debt ridden and do not have enough cash flow to either pay the banks or the people since the oil price won't go up. Chesapeake Energy (NYSE:CHK) was one of the largest natural gas companies in the world at one point. Currently, it has taken on a lot of debt to acquire other companies and oil assets when oil was on the rise.
The company has debt of $500M due next month and it doesn't know what to do. Its market cap has shrunk from $18B at the peak to under $1.3B. People cannot afford big company defaults right now and that is what is playing on the minds of investors. "The chief thing you need to know is that this $1.95 stock has become incredibly significant to this market," said Cramer.
Another worry is the bank's exposure to energy related loans. Bank of America (NYSE:BAC), which has not yet recovered from the 2008 housing crisis fully, has about $17B in energy related loans. If Chesapeake Energy goes bust, then many others will be waiting in line as there are a lot of Chesapeakes out there.
"If we can get enough Chesapeakes to stop drilling, oil will indeed find a bottom," said Cramer. As long as oil falls, there will be more selling in the market.
Off the charts
Cramer went back to look at the charts of the high-growth FANG stocks with the help of technician Bob Lang. Over the long term FANG stocks have outperformed the averages tremendously; however they have been struggling in the current bear market. Is there more pain ahead?
Lang said that the FANG stocks are more vulnerable to selling since they made a lot of money last year for hedge funds. Now, the troubled hedge funds can sell them and raise cash which makes Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) the most common sell targets.
The liquidation by hedge funds is only temporary and the FANG stocks are already seeing a pullback and a long-term uptrend. Facebook's (NASDAQ:FB) chart shows a good picture as the stock has stayed above its 20- and 30-month moving averages. Chaikin money flow oscillator is also in positive territory and there is not much worry in the long term.
In the short term, Facebook and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) showed good charts, while Amazon and Netflix show more trouble. Amazon's chart shows a poor picture but there are signs that the pain could be over soon. Netflix is in the oversold territory and could be due for a bounce and there is a floor of support near $80.
Once the sell-off is done, FANG stocks will rise again.
Extreme valuations of stocks
When groups of stocks have extreme valuations, it signals trouble. "Take, for example, some of the extreme valuations of the market. And when I say extreme, I am talking about genuinely out of control valuations," said Cramer.
Stocks like American Airlines (NASDAQ:AAL), United Continental (NYSE:UAL), General Motors (NYSE:GM) and Ford (NYSE:F) sell at a PE multiple of 5 times 2016 earnings, which is extremely low for such high-quality companies. All these stocks are near their yearly lows.
On the other hand, some consumer stocks are trading near 52-week highs. Campbell Soup (NYSE:CPB) trades at 20 times earnings, Kimberly-Clark (NYSE:KMB) at 21, Procter & Gamble (NYSE:PG) at 22 and Clorox (NYSE:CLX) at 25 times earnings.
The low valuations of airlines and automakers suggest that either the earnings of the companies will come down substantially or the earnings estimates are aggressive. "In other words, the market is saying that these seemingly cheap stocks like the airlines and the automakers are actually very expensive. You just don't know it yet," said Cramer.
Investors are not considering Ford and General Motors as bond market equivalents even though they offer nice dividends. Investors are buying consumer packaged stocks even when their dividend yield is low because they have high energy costs and commodity costs are going down. They also think the dollar must have peaked.
"Both groups of stocks are forecasting a recession with less travel, less spending money and tighter credit. In other words, they are simply saying the same thing, but in very different ways," said Cramer.
CEO interview - Under Armour (NYSE:UA)
Cramer had interviewed Under Armour CEO Kevin Plank last week. He discussed more details of the interview and shared Plank's vision. The company reported a good quarter but their stock got crushed. Cramer said that, "The sellers don't seem to care about everything this company has going for it, but eventually I think it will become too cheap to ignore."
Plank discussed the power of the Under Armour brand and how it appeals to the new generation. "You don't walk in and see our company, you walk in and you feel our company. You feel our brand."
The company chose Baltimore because Plank feels that it is home. The city is under-appreciated and the companies over there can offer much more.
CEO interview - Agco (NYSE:AGCO)
There has been weakness in the agricultural market for a few months. The agricultural equipment maker and distributor Agco reported a weak quarter and its stock went down. In the past few days the stock has been making its way up. Cramer interviewed chairman and CEO, Martin Richenhagen to hear his view on the agricultural sector.
Richenhagen said that Europe is improving better than the US and South America. He expects sales to decline 5% in 2016. They have four established brands in Europe which helps them retain the market share. The company is competing well in the US and is launching a high-tech tractor that will offer farmers 500 HP in a fuel efficient package.
Viewer calls taken by Cramer
Chevron (NYSE:CVX): Cramer is not recommending fossil fuels but the stock might be worth looking at when it's $76-78.
WhiteWave (NYSE:WWAV): The stock is acting horribly and Cramer thinks it can go lower.
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