Stocks Hitting New Highs Show Good Signs - Cramer's Mad Money (4/11/16)

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Includes: ACN, ADP, CAG, CHD, CRM, DEO, DOW, DRI, EL, F, GIS, HD, JAH, KMB, KO, MDLZ, MKC, MO, MSFT, NWL, PEP, SHW, STZ, STZ.B, SYY, TSN, VMC
by: SA Editor Mohit Manghnani

Summary

All about Accenture.

Newell-Jarden merger is good.

Own Alcoa for the breakup.

Cramer does not want investors to buy either Ford or General Motors.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Monday, April 11.

Cramer can sense the negativity surrounding the upcoming earnings season. He is positive though. "The action is dictating my attitude, the action that has so many stocks hitting new highs in the last week alone, something that tends not to happen right before you fall off a cliff," he said.

There is a common pattern seen in the stocks that made a new high last week. Estee Lauder (NYSE:EL), Kimberly-Clark (NYSE:KMB), Coca-Cola (NYSE:KO), Church & Dwight (NYSE:CHD), Altria (NYSE:MO), PepsiCo (NYSE:PEP), Tyson (NYSE:TSN), ConAgra (NYSE:CAG), Constellation Brands (NYSE:STZ) (NYSE:STZ.B), General Mills (NYSE:GIS) and McCormick (NYSE:MKC) were a part of the list. All these companies take raw commodities and refine, package and sell them.

What does so many consumer packaged stocks making a new high signify? First, raw costs have come down. Second, packaging must be going down in price. Third, distribution costs are falling since oil and gas are down. Lastly, most of these companies have international business which shows that the dollar must have peaked.

Many might look at consumer stocks rising as a sign of a slowdown. Cramer thinks that's an old-fashioned way of looking at things since these companies have battled inflation and have raised prices consistently. "I think what it says is these companies are about to have an explosion in gross margins and earnings that will be far better than people believe is possible. That is what this concentration of consumer packaged goods stocks on the new-high list is really saying," said Cramer.

There are other companies in the new-high list too. Automatic Data Processing (NASDAQ:ADP) being in the list shows employment is getting better. Home Depot (NYSE:HD), Vulcan Materials (NYSE:VMC) and Sherwin-Williams (NYSE:SHW) signal that housing market is getting better. Darden (NYSE:DRI) and Sysco (NYSE:SYY) show that the consumer is going out and spending.

The transports and industrial stocks were missing from the list. Cramer thinks that the positive effect of a weaker dollar will show in the industrial stocks in this season. "When everyone dislikes the market, as so many people do, you can't expect all the goods stocks you like to be on the new-high list. But when you see this kind of distribution, you know that the leadership is there. Others will follow," said Cramer.

Accenture (NYSE:ACN)

The basic rule of investing is to know what are you buying. Sometimes it is difficult to understand what a company does. Accenture is one such company that is defined as a consulting play or an outsourcing of technology. They help companies upgrade to the cloud, mobile technology and data analytics.

The stock of the company is up 21% from the February lows. What has prompted this kind of growth? "I consider Accenture to be a fabulous company with a stock that is absolutely worth owning, but you absolutely cannot own it if you don't understand it," said Cramer. When investors buy stocks that are going up without knowing what they do, they will not know what to do on pullback. Cramer dug deeper to explain what Accenture does.

Accenture uses its expertise to help companies use and respond to technological change. It provides outsourcing to help and manage technology. IBM (NYSE:IBM) does a lot of similar things and yet Accenture has been a better long-term performer. "I think a big part of the secret sauce here is that Accenture offers its customers a fairly unique value proposition," said Cramer.

Companies are interested in innovating and selling their products. They do not want to bother about technology and clerical jobs. That's where Accenture comes in. It is a one-stop shop for a company to become more efficient and grow business. On the consulting side, Accenture tells companies what to do and on the outsourcing side, Accenture does it. Accenture worries about changing technology so that companies don't have to.

More than half of the company's sales come from outside the US. A weaker dollar will only boost the company's earnings. Cramer cited the example of Mondelez (NASDAQ:MDLZ) which realized that its operating margins are lagging compared to its peers although its revenues were growing. When they consulted Accenture, it implemented a modern budgeting system that has saved Mondelez more than $350M and is expected to save them $1B during next 3 years. That is the power of technology.

"I think the stock has more room to run, although, ideally, I think you wait for a pullback from these levels before you start buying," said Cramer. The stock trades at 19 times and it deserves a premium.

Newell Rubbermaid (NYSE:NWL) - Jarden (NYSE:JAH) merger

In December, Newell-Rubbermaid announced it would acquire Jarden for $15.4B in stock and cash. The shareholders of both the companies will vote on the deal on Friday and Cramer thinks the deal will go through. If that happens, the new company will be a consumer products giant that will have $16B sales.

Both these companies have terrific portfolio of brands and the combined company will have $500M cost savings over four years. Some analysts think that the combined company will not get a conglomerate discount and a bigger company will be harder to manage and understand.

Cramer thinks otherwise. He said that the new company will have the scale to strike deals with retailers for pricing and aisle space, combining with a chance to take market share from weaker brands.

Cramer remains a buyer of the new company which will be called Newell Brands.

CEO interview - Alcoa (NYSE:AA)

Alcoa kicked off the earnings season by reporting Monday night. Cramer interviewed chairman and CEO Klaus Kleinfeld, to find out more about the earnings and the upcoming split.

Alcoa will split into two companies later this year. "One as a commodity metals play, and the other as a high value-added maker of engineered products for light weighting, which will be called Arconic," said Cramer. If the US government puts duty on imported aluminum as they did with steel, then the commodity business will get a boost. The company reported an earnings beat on lighter than expected revenue.

Kleinfeld mentioned that the separation is going to happen in the second half of the year. Commenting on aluminum, he said that the demand for aluminum continues to grow and is expected to be up 5% in the year compared to 2% increase in supply.

He added that things are not as bad as they had predicted in January. Aerospace remains low but autos and trucks are stable. Europe is weaker than expected but is growing slowly. Kleinfeld was also glad that the investigation on dumping aluminum has started but it could be a long time before the results can be seen.

The company's aerospace division is now producing 90% of the jet engine components. The new Alcoa is even better. "In the end, I personally believe that a sentiment has an impact on the investment profile, and if we talk about things that are headwinds, then in the end, in every boardroom people are saying, 'Hey, let's rather hold back with the investment and slow it down a little bit'," he concluded.

Cramer thinks investors should own Alcoa for the breakup that will unlock value.

Viewer calls taken by Cramer

Ford (NYSE:F): Looking at Tesla (NASDAQ:TSLA) pre-orders and Uber's (Private:UBER) growth, there is clearly a disruption in the auto sector. Cramer does not want to recommend Ford or General Motors (NYSE:GM).

Microsoft (NASDAQ:MSFT) or Salesforce (NYSE:CRM): Microsoft is for the conservative and Salesforce is for the risk takers. Cramer likes both the stocks.

Dow Chemical (NYSE:DOW): Cramer thinks the combined company will do well and he is positive about the deal being approved. The stock is a buy.

Diageo (NYSE:DEO): Constellation Brands is a better buy.

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