Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Wednesday, March 23.
The market was down on Wednesday, but the truth is that many companies underneath have solid pricing power. "Sometimes, it just comes down to figuring out who has pricing power, who can raise prices and who can't," said Cramer.
Pricing power of a company is its ability to raise prices without resistance. In a market sell-off, companies with pricing power will never stay down for long. The weak ones will stay down, as their EPS is affected due to lack of pricing power. Consider Apple (NASDAQ:AAPL), which has one of the best pricing powers in the industry. Hence, Cramer always advises to own the stock and not trade it.
Earlier this week, Apple unveiled the smaller iPhone SE, with features that were not necessarily innovative, but had what people were looking for. "I think that those who sold Apple on this announcement didn't understand the signature positive of this new phone is that even though it is smaller, Apple can still command a high price for its wares," said Cramer. Due to its products being the finest, Apple commands pricing power, and it generates $30B in revenue.
Alphabet (GOOG, GOOGL) and Facebook (NASDAQ:FB) are not far behind either. Both these companies have pricing power, as people know that Facebook and Google are the best places to search in the digital world. There can be a ceiling to what they charge, but their pricing pressure does not affect the companies.
On the other side, oil companies and restaurants do not have pricing power. Oil companies succumb to supply pressures that directly affect price. Restaurants, on the other hand, have competition from low-cost producers. It was clear that McDonald's (NYSE:MCD) low-cost menu affected sales of Krispy Kreme (KKD), Jack In The Box (NASDAQ:JACK), Popeyes Louisiana Kitchen (NASDAQ:PLKI) and Dunkin' Donuts (NASDAQ:DNKN). "You can't compete with the lowest-cost producer on price and not expect your stock to get clobbered," said Cramer.
Airlines do not command pricing power either. The race to gain market share directly affects the price they charge. Drug companies have also started facing pricing pressure due to government and patent wars. Stocks that have pricing power bounce back quickly after a sell-off versus the ones that don't.
Don't blink, else you will miss the move
Cramer mentioned that it used to take weeks for investors to unwind their decision and change their minds on Wall Street in the olden days. In the current times, investors are making decisions at lightning-fast speeds, in his opinion.
When the Brussels tragedy occurred on Tuesday, the market went lower. Through the day, sectors that had nothing to with the attack started bouncing back. "That is remarkable. In the old days, I could see those sell decisions undone maybe a week later as the coast had cleared. Now, it just takes hours," said Cramer. He wondered if there was a computer algorithm that can calculate average decline after an event in sectors and indicate when it's time to buy.
Then, there was Five Below (NASDAQ:FIVE), which had rallied 20% going into the quarter. When the company reported earnings, it showed improvement in gross margins and its distribution system. Since same-store sales were not what the street was expecting, the stock was crushed. However, the stock closed up 6% on Wednesday. In the earlier days, it would have taken couple of upgrades and four trading sessions for that to happen.
"These re-evaluations on the fly are something new to watch for, because you may take the bait of the first down move rather than waiting around a few days for a turn," said Cramer. The turnaround will be faster than you think.
Cramer started a segment in March, where he talks about the elite list of top 8 CEOs in the market for the day. A good leader is what drives a company. In part I of the segment, he gave a list of the top 4 CEOs.
First on the list is CEO Dave Cote of Honeywell (NYSE:HON). He took over as CEO in 2002, and since then, the stock has doubled. Cramer is particularly impressed by Cote's ability to steer the company out of tough situations. The company has been repositioning itself with breakups, acquisitions, divestitures, restructuring and by entering more lucrative markets. This allows Honeywell to always be current in a rapidly changing environment. The company publishes five-year plans that it consistently exceeds. "Honestly, I think Dave Cote is the example that all industrial CEOs should aspire towards," said Cramer.
Second in the elite list is the new CEO Steve Easterbrook of McDonald's. Easterbrook took over the reins of the company one year ago. He may be a rookie, but shareholders have gained 25% since he came in. Before that, the stock was stuck between $85 and $110 for four years. Easterbrook has turned around the world's biggest fast food chain in a short time by reinvigorating the franchisees and transforming the menu. McDonald's is seeing accelerating same-store sales for the first time after long. Cramer thinks the stock has more room to run.
CEO Jeff Immelt of General Electric (NYSE:GE) is another veteran who got a well-deserved place in the elite list. GE stock was lagging in 2001. After Immelt took over as CEO, he has steered the company through ups and downs. Seeing the company move through the September 11 crisis and the great recession, he has done a tremendous job. "But Immelt is not just a crisis manager. Since the Great Recession, Jeff Immelt has transformed General Electric," said Cramer. He is still transforming the company and ensuring its financial business is divested smoothly. This stock has more room to run.
Fourth on the elite list is CEO Satya Nadella of Microsoft (NASDAQ:MSFT). He took over as CEO in February 2014, and since then, the stock is up 49%, beating the S&P 500's 17% gain during the same period. He has transformed Microsoft from being a boring tech giant to a growth-focused company and still being shareholder-friendly. Cramer thinks Nadella has made Microsoft cool again. The company is at the center of the cloud business, which is growing at a rapid pace.
"Just like in the NCAA, where it takes a great coach to get your team into the elite eight, many public companies have truly phenomenal chief executives," said Cramer.
CEO interview - PVH Corp. (NYSE:PVH)
Apparel is seeing some tough times. PVH Corp., the company behind great brands such as Calvin Klein and Tommy Hilfiger, has seen its stock go down to $64 from high of $120 seen last summer. Cramer interviewed CEO Manny Chirico to know what lies ahead for the company.
The strong dollar has peaked, which is beneficial for the company. Chirico also commented on the strength of Calvin Klein, saying, "the brand is performing exceedingly well, we have some tremendous marketing campaigns around the brand, and the product is just living up to it," he said. Underwear and intimate apparel has been driving growth in the last few quarters.
The apparel space in the US is challenging, but international business is doing well. Calvin Klein is a $275M business in China, and Tommy Hilfiger is half of that. Chirico said they have an opportunity to be a $500M business each in 5 years.
Commodity costs are low, which makes the return on investment from company-owned stores high. The payback from them is about 2 years. Cramer thinks PVH has more room to run.
Viewer calls taken by Cramer
Smith & Wesson (NASDAQ:SWHC): The stock is not cheap, and goes up on terrorist actions.
FireEye (NASDAQ:FEYE): This is the stock people want to own due to takeover chances. Cramer does not want to recommend stocks on a takeover basis, hence he suggested being in best of breed Palo Alto (NYSE:PANW).
Twitter (NYSE:TWTR): It's not growing, and hence, the stock is stuck.
Planet Fitness (NYSE:PLNT): The fundamentals are good, and Cramer is surprised the stock has not run up.
Cracker Barrel (NASDAQ:CBRL): The stock is cheap, and it's worth holding.
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