Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Monday, April 4.
Presidential candidate Donald Trump told the Washington Post last week that the economy is in a bubble. "It's worth pondering Mr. Trump's views because, whatever your political orientation, they make sense on many different levels and the conclusions are arguably right, at least for a certain group of people living in certain places, namely rich people living in expensive places," said Cramer.
Is there really a bubble after seven years of run-up since the bottom? Cramer is of the opinion that there is a bubble if one looks at the New York City real estate prices, especially Manhattan, where properties sell for 4-5 times more than the ones outside the city.
Interest rates are also at their historical lows. Trump mentioned that these rates are available only for the rich. The Fed is also concerned about the bubble mentioned by Trump. Cramer thinks Trump is right. Bank deposits pay next to nothing and corporate bonds are too risky for small investors.
Cramer remembered a quote from earlier days, that "you need to get rich only once." After that, investors can buy bonds to protect their money. They need not invest in stocks and take risks unnecessarily.
The vast majority of Americans are not rich and their jobs are not going to make them rich in most cases. Investing in bank deposits or bonds will not pay them much and real estate requires huge capital investment. This leaves the stock market that can make gains by taking calculated risks. "That is why I believe that, as long as you take a long-term view, put money away in an index fund, and then set some savings aside for smart, homework-derived investment ideas based on companies you know and love, it's worth braving all the bubble talk to invest in the stock market," said Cramer.
"There will always be a bubble and some stocks will always seem stretched, but the stock market still represents better value for the average person. Don't let bubble-heads scare you away."
Thanks to the bidding war for Starwood (HOT), the entire hotel group looks cheap and needs to be revalued. "We need to revalue the whole hotel cohort, and despite the recent rallies in these stocks, they are still depressed after last year's under-performance," said Cramer. In his opinion, if the entire hotel group is revalued based on how Marriott (NYSE:MAR) valued Starwood, then there are lot of opportunities in the space.
April 2015 marked the high for hotel stocks when Starwood announced that it was spinning off its timeshare division. There were talks of Hyatt (NYSE:H) buying Starwood in October 2015, till Marriott announced its bid for $72 per share. This bid was very low in Cramer's opinion.
In March, Chinese company Anbang bid for Starwood at $78 which prompted Marriott to raise their bid to $85 per share. "It seems that Starwood is, in reality, worth a lot more than even the people running Starwood itself thought it was. And if that is true for them, it ought to be true for the rest of the group," said Cramer.
If hotels are valued based on what Marriott is willing to pay, then the picture becomes interesting. Starwood is supposed to earn about $2.81 per share. This translates to 30.4 times this year's earnings and 28 times next year's earnings. Hilton (NYSE:HLT) is trading at 20 times earnings which makes it the cheapest. However, it has lot of debt on its balance sheet and Blackstone (NYSE:BX) owns 45% stake in it which could be sold.
InterContinental Hotels (NYSE:IHG) trades at 18.4 times next year's estimates. There are also rumors about Chinese suitors looking to acquire it. Based on Marriott-style valuation, this stock could have 52% upside.
Wyndham Worldwide (NYSE:WYN) is the cheapest as it trades at 12 times earnings. "I wouldn't be surprised if Wyndham can work its way back to its old highs of $92 and then over $100," said Cramer.
In the bidding war for Starwood, the entire hotel group is being reassessed.
Chipotle (NYSE:CMG) (CMG.B)
Chipotle has fallen 47% off its highs since the E.coli virus breakout. That issue dented the stock seriously. Since Chipotle is not the first restaurant to be involved in the E.coli chaos, history suggests that the stock will be volatile for some time but will recover eventually. Is it time to buy the stock again?
Based on what happened with Taco Bell and Jack in the Box (NASDAQ:JACK), one can realize that good companies never fail to come back. In Cramer's opinion, Chipotle is one such company.
They have a great brand, fan following and same-store sales that signals they are moving in the right direction. The stock is half of what it was before the breakout and the expectations from the company are lower. Cramer believes Chipotle will recover.
There were lot of downgrades on Monday. Is it time to sell the stocks again? "I know that seems contrary today, but not if everything falls into place, and I think that it just very well might do so," said Cramer. The notable downgrade was for Facebook (NASDAQ:FB) by Deutsche Bank as they believe that unfavorable quarters are coming and the channels checks does not justify the recent run up in the stock.
General Electric (NYSE:GE) was downgraded by Sanford Bernstein to hold as all the good news was baked in. Goldman Sachs downgraded JM Smucker (NYSE:SJM) to sell as the fundamentals suggest that valuation is stretched. Longbow downgraded Eaton (NYSE:ETN) as the stock had run up too fast. Air Products (NYSE:APD) was downgraded by Deutsche Bank for the same reason.
"Here is what I say. If the dollar starts soaring again, if the European recovery somehow fails a year into its comeback, and if Janet Yellen goes back on her promise to be data dependent, then I think that all of these downgrades make a ton of sense," said Cramer.
When stock run up too much, they deserve to rest and shed a little on profit taking. Cramer said that if interest rates stay low, then General Electric and Eaton provide good income. If consolidation in food business keeps continuing, then selling Smucker is not a good idea.
It is fair to say that one cannot stay bullish on General Electric considering the huge run in the stock. But if CEO Jeff Immelt follows shareholder Trian's plan to unlock value, then the stock has an upside till $40 if the dollar stays low. Regarding Facebook, it may be expensive based on this year's earnings, but considering it can earn $6 per share in three years, it represents good value. There is more risk in not owning just like it happened with Apple (NASDAQ:AAPL) in the 90s.
Many investors sell on downgrades, but Cramer thinks these are opportunities to buy if everything falls into place.
Viewer calls taken by Cramer
Virgin America (NASDAQ:VA): That was a good deal. Take the money and run.
Tesla (NASDAQ:TSLA): The stock has run up a lot in the last week. Wait for it to pull back before buying.
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