Brussels Did Not Scare Markets - Cramer's Mad Money (3/22/16)

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Includes: AAL, CCL, CELG, DAL, DPZ, LMT, PCLN, PLKI, PNRA, RCL, REGN, RIG, SLB, UAL, YUM
by: SA Editor Mohit Manghnani

Summary

Which travel stocks to buy?

It's not late to buy Yum! Brands.

Commodity rally is real.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Tuesday, March 22.

Stocks opened down on Tuesday on the news of terrorist attacks in Brussels but pulled back only to close slightly lower. "We call it the underlying bid. That is a term that means buyers are lurking underneath current prices and when those prices drop, people start buying," said Cramer. Only travel and leisure stocks closed lower as their business will be most affected. Most of the remaining stocks bounced back as investors have been buying since the bottom in February.

In Cramer's opinion, the terrorist attack did not have a lasting impact on the market; such attacks have sadly become a thing that people expect to happen. "They are tragic and gut-wrenching, but are now accepted as part of the firmament," he added.

Stocks carry risk. Cash and treasuries do not. Investors should know their risk appetite and manage money accordingly. Cramer tried to assess the risk by looking at what happened in similar situations in London, Madrid and New York. When tragedies occurred in those places, a roving bear market appeared where money shifted from one sector to another.

The last bear market in 2016 was in the healthcare group. The pressure seems to have decreased in the group but it is not all-clear. Big pharma and biotech stocks have reached a level where sellers have left. Another sign of stocks being undervalued is that negative commentary from Transocean (NYSE:RIG) and Schlumberger (NYSE:SLB) did not move them lower. The Tech sector also went up on no news.

"When you have groups that rally on no news that is a sign of money flowing in and a belief that the world is getting stronger, not weaker," concluded Cramer.

Travel stocks

Every time a terrorist attacks happen, the travel and leisure space goes lower. "That is just a fact, and an understandable one at that," said Cramer.

After the attacks on Tuesday, Delta (NYSE:DAL), United Continental (NYSE:UAL) and American (NASDAQ:AAL) were all up compared to where they traded prior to the Paris attacks in November. After the London attacks in 2005, Priceline (NASDAQ:PCLN) went down by 4.5%, only to make back all losses a week later. "On a day when this whole group went down, let me tell you why it could be smart to own an airline stock or a company like Priceline, but it could be foolish to bet on a cruise company like Carnival (NYSE:CCL) or Royal Caribbean (NYSE:RCL)," said Cramer.

The scare of the Zika virus affects travel stocks. In Cramer's opinion, stocks that were immune to Zika were airlines and online travel agents that are trading at cheaper levels. Airlines are profitable currently as fuel costs are low. Cramer expects the price of oil to be lower for longer which will benefit the airlines which already have good balance sheets. "I think the whole group is a steal, even as we know that the two airlines most impacted by the tragedy, Delta and American, could see some near-term earnings pressure from cancelled bookings because of their substantial overseas business," added Cramer.

The Zika virus began in Latin America and has been moving its way north slowly with chances of spreading to the Caribbean. The Caribbean is a major source of revenue for Carnival Cruise (CCL) and Royal Caribbean (RCL). "As the Zika virus spreads, I worry that people who are young enough to have kids will try to avoid it, and that will likely mean they avoid cruising the Caribbean Sea, which could represent a major hit for these companies," said Cramer.

Although Carnival Cruise and Royal Caribbean are also cheap, Cramer is not willing to buy them.

Yum! Brands (NYSE:YUM)

Yum! Brands is up by 20% since February lows. This happened as the company reported a strong quarter in February and they announced the spinoff of the Chinese operations into a separate company. It's not too late to buy Yum! Brands since the value of the two separate companies will be greater than the sum of it together.

Cramer likes both the parts of the company; the dividend-paying U.S. operations and the fast-growing Chinese operations. Yum! is expected to earn $3.54 per share with nearly two-thirds from the U.S. Considering the counterpart Domino's (NYSE:DPZ) trades at a PE of 31, Cramer thinks Yum! can trade at a PE of 27 easily. This makes the U.S. operation worth $63 a share.

The Chinese operations are expected to earn $3 per share. This is expected to be valued at $40 per share. The total combination is worth $103 per share which is 30% higher than current levels. Moreover, Yum! has a yield of 2.3% and plans to pay $4.2B to shareholders before the split.

It's not too late to buy into the Yum! rally.

Off the charts

Commodities have risen from their lows in February. Cramer went to the charts with the help of technician Carley Garner to find out if the commodity rally is real or a trap.

Dow Jones Commodity Index is a basket of 23 commodities, the weekly chart of which is showing a breakout. The RSI is in bull territory and MACD indicator is making a bullish crossover. If the index goes above $15, it can go over $20, a level not seen since 2014. "Yes, despite all of the naysayers, commodities have finally caught a bid, after bleeding value for ages," said Cramer.

The Goldman Sachs Commodity Index broke its downtrend three weeks ago. The RSI and MACD in the weekly charts show that the move is real. There could be a larger rally in the index soon. Gold and copper have risen as institutional money managers are buying. Agricultural commodities have also moved higher.

Most commodities are priced in dollars and with the greenback peaking, commodities should rise. "While I personally believe that the price of oil is likely to stay lower for longer, that doesn't mean that metals or grains or pork bellies can't go higher from here. Wherever you come down on this argument, the idea that this commodity rally could have another leg up is not to be dismissed," said Cramer.

Viewer calls taken by Cramer

Lockheed Martin (NYSE:LMT): They are the best company in the defense space.

Celgene (NASDAQ:CELG) and Regeneron (NASDAQ:REGN): The stocks have come down so much that it is too late to sell. Cramer would be a buyer at these levels.

Popeyes Louisiana (NASDAQ:PLKI): There is pressure on the chicken industry. Cramer suggested buying Panera Bread (NASDAQ:PNRA) or Yum! Brands.

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