Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Wednesday, April 13.
Is Jim Cramer's "rolling bear market" evolving?
On his show Wednesday, the Mad Money host pointed out to viewers that Wall Street is witnessing a rally, with the markets up since the bottom put in Feb. 10. Cramer called it a "revolving bull market," and he offered some observations from Wednesday's trading for investors to consider.
First, JPMorgan Chase (NYSE:JPM) reported first quarter results. The market was expecting the worst. Instead "JPM knocks it out of the ballpark," Cramer said, with strong revenue growth, a robust loan book and no bad energy loans impacting numbers. Other banks reporting this week - Goldman Sachs (NYSE:GS), Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC) - are not expected to do as well as JPMorgan, Cramer said. Nonetheless, investors should take note of JPMorgan's surprise.
There are complex reasons for what's happening in the market, Cramer said.
First, there's "tremendous negativity" in the market. "Hardly a day goes by without someone calling a top," Cramer said. There are analyst downgrades of "good stocks." Hedge funds are shorting the market as negativity abounds.
Why all the bad vibes? Cramer cited JPMorgan's Jamie Dimon when he said "it's a fool's game to short the U.S. market."
Second, there's the Federal Reserve. The Fed was poised to launch interest rate hikes at the start of the year. However, parts of the economy are softening, so "there's no hurry for the Fed to tighten," Cramer said.
Finally, international markets are making an impact. China reported Wednesday an 11% increase in imports. There are signs Europe is getting better.
Bottom line for Cramer: Patterns suggest "rolling bear markets have been replaced by revolving bull markets - and that pattern is in its infancy. It's not on its last legs."
Illinois Tool Works (NYSE:ITW) was crushed at the start of 2016. But the stock has roared back, reaching an all-time high and achieving a "monster 30% gain in a very short time," Cramer said.
How did that happen?
Cramer pointed to a company-wide comprehensive strategic review started in 2012 that identified next steps for Illinois Tool Works. Two takeaways surfaced from that effort.
First, management concluded the company needed to shift from an acquisition-based model to one emphasizing organic growth. The second takeaway was the company needed to leverage its scale to deliver better margins and improve shareholder returns.
From there, Illinois Tool Works shut down or sold businesses to generate strong organic growth from its core units. The company also simplified its structure and used its scale to cut costs.
Illinois Tool Works also created an "80/20 Excellence" program in which it aimed to generate 80% of its sales from 20% of its customers. That put a focus on more profitable customers.
Those efforts have helped Illinois Tool Works deliver for investors.
Does the stock have more room to run?
Cramer said investors "can't argue with the numbers here." And he suggested that while the stock has "a superior valuation" and slight premium to other industrials, "I think it should have a higher valuation."
Illinois Tool Works reports next week. Cramer said investors could buy into any earnings-related weakness.
Expedia Going "Home"
In late 2015 Expedia (NASDAQ:EXPE) announced its intention to acquire vacation rental site HomeAway for $3.9 billion. Cramer said the deal "can be transformative" for Expedia, but "no one is talking about" the acquisition despite suggestions the move will eventually become beneficial for the online travel giant.
Expedia forged the deal because it "doesn't want to become a dinosaur in a market where Airbnb (Private:AIRB) is growing." HomeAway has 1.2 million listed properties. Cramer said Expedia can make the combined companies "work better," and Expedia can better compete with Airbnb as well as Priceline (NASDAQ:PCLN) and its move into the home rentals market.
What can investors expect?
Cramer pointed out the HomeAway deal will be dilutive to Expedia earnings in the first year. After that HomeAway is expected to boost earnings. "Integrating (HomeAway) will result in more revenue growth and earnings growth," he said.
Expedia is trading at 15 times next year's earnings estimates. And the stock just crossed its 50-DMA. These are positive signs for the shares, Cramer said.
Presidential candidates (mostly Democrat Bernie Sanders and Republican Donald Trump) have been talking trade on the campaign trail. That has put a spotlight on U.S. trading policies and partners, particularly China, and what some deem unfair trade practices initiated by other countries.
Cramer reiterated his complaints about U.S. trade policy, saying "our trading partners, particularly China, simply don't play by the same rules we do."
To offer additional insight, Cramer invited former Nucor (NYSE:NUE) CEO Dan DiMicco to the show. The once top executive for the steelmaker has been "one of the few executives to speak out on foolish trade policies," Cramer said.
DiMicco called current trade policy "a complete failure, not in concept but in reality." He said "government-owned companies and economies have trumped free trade," and that has made it difficult for the U.S. to compete globally.
DiMicco said the current administration "has been very helpful in supporting trade claims, but we wish they'd been more proactive."
All Aboard CSX?
Why do stocks go up on bad news?
That's what happened with CSX Wednesday. The rail giant reported earnings "and the message was loud and clear and downbeat," Cramer said. "Business is going south."
First quarter earnings were down from the same period last year. CSX warned that volumes will slip in the second quarter. And the company is competing with excess truck capacity "giving rails a run for their money."
CSX, along with other railroad stocks, continues to be impacted by the troubled coal industry. "Coal is going away," Cramer said. There's "tremendous oversupply domestically," a strong dollar is impacting coal exports, and utilities continue to shift from coal to natural gas.
CSX lost $1.4 billion in coal business in four years, and it expects to lose $500 million in coal revenue this year, Cramer said.
Given the glum news, why are investors positive on the stock?
Cramer pointed to management efforts to control expenses, driving productivity and making money with fewer sales. "They are doing so much more with less," he said.
The Mad Money host also said railroads are good businesses in good times and bad since they are the most efficient way to transport goods.
Can things get even better for CSX?
Cramer said if the global economy gets stronger, that will drive volumes. The company can keep costs down. And CSX won't lose all of its business to trucking.
"Companies see these declines coming and they took action," Cramer said.
Calls Taken By Cramer
Integrated Device Technology (NASDAQ:IDTI) - Cramer said it was "not a good quarter" for the company, and the stock is down significantly. "I say it's OK to buy, but only half (a position)."
Chipotle (NYSE:CMG) - While the stock is down, Cramer said it's OK for a buy.
Valero (NYSE:VLO) - Cramer said he's still not a big fan of commodity players. He did point out that the stock yields almost 4%. "I think it's fine - but I'm not crazy for it." He added, "refiners are played out."
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