Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Wednesday, February 17.
There are some hidden bullish signs that are driving stocks higher behind the scenes. Cramer gave his view and explained what led to the 3-day winning streak. Firstly, there was relief from the two visible black holes, Freeport-McMoRan (NYSE:FCX) and Chesapeake Energy (NYSE:CHK). Chesapeake is committed to pay the $500M debt due next month with its credit line. It is also committed to pay $1B due next year. Freeport, on the other hand, sold a 13% stake in Morenci copper mine for $1B in cash which gives the company enough flexibility to reduce some of its huge $19B debt. The high-yield debt market faced a tough time by Sprint's (NYSE:S) declining bonds. When its owner Softbank announced a $4.4B stock buyback, this means they have enough to stop the decline in Sprint.
The second sign was that Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) bought 26.5M shares of Kinder Morgan (NYSE:KMI) in the open market. The stock has come back to the level it fell from after slashing its dividend by 75%.
Next positive sign was the mergers and acquisitions activity as ADT Corp (NYSE:ADT) and Ingram Micro (NYSE:IM) received takeover bids. Important positive news came when Credit Agricole (OTCPK:CRARF) (OTCPK:CRARY) said it will sell stakes in subsidiaries to liquefy its balance sheet and pay cash dividends. This is important since European banks were hammered due to negative interest rates.
Lastly, Apple (NASDAQ:AAPL) came back to the market by issuing $12B in bonds to buy back its stock after Carl Icahn reduced his stake. The last two times when Apple came to buy back its stock, it rallied. "Maybe this time it is no different, especially as we get closer and closer to the launch of the iPhone 7," said Cramer.
All these are positive signs, but do not solve major problems. These are positive signs in stressed-out situations, so one still has to be cautious.
Where is gold headed?
Cramer has always been a believer in owning some gold in the portfolio either in the form of bullion, gold ETF SPDR Gold Trust (NYSEARCA:GLD), or stock of Randgold Resources (NASDAQ:GOLD). "The precious metal is a terrific insurance policy against worldwide economic chaos," said Cramer. Gold is up 14% for the year while the S&P500 is down by 5.7%. Can gold keep climbing? Cramer turned to technician Carley Garner, to find out.
Gold has been directionless since 2013 and hence all the money managers gave up on it. The Commodity Futures Trading Commission's report points out that since December 2015, speculators were long gold by net 20,000 futures contracts. That has increased to 100,000 now, but the sign will not be bullish till the net position is long 250,000 contracts in her opinion. If the big money managers want to bet on gold, there is a lot of cash waiting on the sidelines which means there is enough fire power to send gold up.
"Now, before we get into more charts, I think it worth pointing out that the fundamentals have absolutely gotten more positive for gold," said Cramer. Japan, Europe and many other nations have cut rates below zero, which means that one loses money by keeping it in the bank and that makes gold an attractive choice of investment. The current Fed's stance on rate hikes is also good for gold.
Garner thinks that the precious metal is about to go higher, but the seasonal pressures in the late winter and spring months are bearish for gold. The market needs time to digest the current gains and there can be a pullback to $1,150 or even $1,080 before gold continues to go high.
Garner suggested waiting for a pullback and investors should buy it for the long term which can ultimately go to $1,500. "I think this could be a terrific story, and if you don't already have some gold exposure, you might want to get ready to build a position," said Cramer.
Sustainability of the current market rally
The market rallied for three days and investors are wondering if a bottom has been attained. Cramer is happy to see all the groups of stocks except utilities go higher. "Which is fine with me because any strength in the utilities is a sign of both desperation and recession," he said. In this segment, Cramer took a look at each group to find out if the rally is for real.
Shares of CSX (NYSE:CSX) participated in the rally, which was surprising since the CEO expects Q1 to decline significantly and is also negative on coal for 2016. Union Pacific (NYSE:UNP) also went up after reporting a terrible quarter which is an encouraging sign.
Stocks of retails group rallied and Nordstrom (NYSE:JWN) finally saw some gains after it had fallen last quarter. Either investors think that the worst is over or it won't matter. Nordstrom reports on Thursday and it will be interesting to watch what it does after reporting. Wal-Mart (NYSE:WMT) rallying 10% after the last quarter is also an encouraging sign.
Industrial stocks like Honeywell (NYSE:HON) went up after earnings. The travel and leisure group went higher, especially after Priceline (NASDAQ:PCLN) reporting strong earnings. Although big data group stocks were hammered, Adobe (NASDAQ:ADBE) and Salesforce (NYSE:CRM) were able to see 10% gains. There is lot of action in the consumer packaged foods group as Hormel (NYSE:HRL) and Campbell Soup (NYSE:CPB) have rallied.
Investors think all these stocks bounced since they were highly oversold. "What I say is that we were in free-fall and that is no longer the case. Now we are basing with broad sector appeal," said Cramer. Whether or not these are bounces, this is certainly a base that the rally can build on. This is a change from the pain in 2016.
Off the tape
Cramer went off the tape and interviewed Dr David Agus, an oncologist and professor at the USC Keck School of Medicine, the head of USC's Westside Cancer Center and author of the new book, 'The Lucky Years'. The healthcare industry is undergoing a major revolution and Cramer wanted to find out where it is headed.
"I watch two to three people a week who die of disease, and I don't want to do that anymore. So it's about bringing new technologies and new ways of thinking, and changing healthcare," said Agus. "Healthcare and food are 30% of the US economy and yet we don't talk about it," he added.
Organic food is not necessarily better. It is just a label in Agus's opinion. Locally grown foods are higher in quality even if they don't qualify as organic. Eating real food is the key. Commenting on GMO foods, he said that the world needs to use science for good. There has to be more calories per acre of farmland but some companies have forgotten about health altogether.
Cramer asked if products like Fitbit (NYSE:FIT) can make a difference. Dr Agus said that the notion of people quantifying their own data and going to doctors to interpret it rather than gather it is going to be huge. He also said that big data unlocks a lot of secrets. For instance, people who stay near the airport tend to live shorter lives. Such studies could never have been done without data.
CEO interview - Luxoft (NYSE:LXFT)
Luxoft is an enterprise software development company that helps create custom software programs at banks, big data, connected cars etc. Their stock has fallen more than 35% since the beginning of the year. Cramer interviewed CEO Dmitry Loschinin to hear what lies ahead.
"I believe Luxoft today is one of the most misunderstood stocks. I still really don't understand for that stock performance. Our business is as strong as ever. The momentum is there, our key verticals keep growing, our key accounts keep growing. So, an interesting development," said Loschinin. The company is buying back stocks to take advantage of the lower price.
Luxoft has a lot of clients in the financial industry which is undergoing a lot of transformation since improvement is coming from upgrading the core IT infrastructure and software. That's where Luxoft steps in which serves as a huge advantage of the company.
They also support the auto industry by creating under the hood products for cars, driver assistance features, cloud service for connected cars etc.
Viewer calls taken by Cramer
Enbridge Energy Partners (NYSE:EEP): Cramer is not recommending fossil fuels. 14% yield on the stock is a red flag.
Skechers (NYSE:SKX): People have given up on the stock since it ran up too much. Cramer likes the stock longer term as the company knows how to make money.
Pandora (NYSE:P): Their fundamentals are just okay.
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Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.