Market Is Embracing Long-Term Vision - Cramer's Mad Money (8/1/16)

by: SA Editor Mohit Manghnani


Deluxe Corp. has transformed itself into a growth company.

Market is stuck in a gridlock.

Own Disney for the long term.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday, August 1.

Historically, August has not been a good month for stocks. "Some people might dismiss all of this bullishness as mere froth. But I think it signals that the vicious skepticism that has held down the longer-term growth stocks could be coming to an end," said Cramer. In his opinion, the market is getting ready to embrace long-term vision over short-term pain. He pointed this out with some trends going on in Wall Street.

First, it's about Tesla (NASDAQ:TSLA) CEO Elon Musk who's taking a long-term vision for the solar industry. His all-stock deal to buy SolarCity (NASDAQ:SCTY) showed that he is not playing for the next year or the year after that, but for the next decade. Musk's thinking that a giant solar powered plant built in one place could take care of the power needs.

Cramer believes that Musk can solve the problem of transmitting power over long distances with a Tesla-SolarCity combination. "You have to think big to understand his plan. Or, maybe we just can't understand it because Musk is such a visionary, something I hate to say because I haven't seen a lot of visionaries," added Cramer.

The next visionary example came from Uber (Private:UBER) which exited China by selling its Chinese business to rival Didi Chuxing (Private:DIDI). Uber and their Chinese shareholders will have 20% stake in the combined company. Cramer thinks that Uber CEO Travis Kalanic understands that it is important to earn a profit. "This is fabulous news if you own shares in the private Uber because it could pave the way for an IPO," he added.

Lastly, Verizon (NYSE:VZ) bought Fleetmatics (NYSE:FLTX) for $2.4B after it purchased Yahoo (NASDAQ:YHOO). This shows that Verizon is interested in long-term growth and not just as a phone company. "There is a path to faster growth. Verizon is on it," said Cramer.

These bullish actions mean that hatred for long-term growth stories is finally over and investors will be able to withstand the difficult month of August.

Deluxe Corp (NYSE:DLX)

Deluxe is a more-than-100-year-old company founded at a time when checks were considered technology. The company has transformed itself from a boring check printer to a small business and financial institutions solutions provider. The company's stock has gained more than 20% in 2016 which surprised Cramer. As he dug deeper to find out, he saw interesting facts.

"If you look under the hood and realize how this company is transforming itself into a provider of business services with strong growth prospects, it is clear that Deluxe's stock remains quite undervalued and there aren't that many obviously cheap stocks left in this market," said Cramer.

The company has been investing in small businesses but it got stuck in 2015 as the small business growth slowed. In January this year, they got their mojo back and they also expect business services to grow 15-19% and online business to grow in low single digits, which is enough to offset the slowing check sales.

The company is confident of its prospects and hence announced a $300M buyback program to buy shares that still trade at 13 times earnings. If you look at this company as a check printer, then the stock isn't worth it, but when you look at it from the business growth point of view, the picture is different as there are few cheap stocks left in the market.

Where is the economy headed?

The economy is in a gridlock as there are rallies in different groups of stocks. One group tends to rally when there is a slowdown, while the other rallies when there is growth. "Yet right now both groups are going higher. As someone who has studied the market for 36 years, I am telling you; it's a real conundrum," said Cramer.

The retail growth numbers and GDP growth signals that the economy might be slowing. This means that interest rates are unlikely to go higher which makes investors reach for utilities, REITs and consumer packaged goods stocks as they have good yields that thrive in a slow growth environment. The rallies in Kimberly-Clark (NYSE:KMB), Simon Property Group (NYSE:SPG) and Dominion (NYSE:D) signal just that as investors are flocking to such stocks.

When the economy is expanding, there would be growth in steel stocks, technology and even in housewares, three groups that have been rallying lately. Look at the stocks of AK Steel (NYSE:AKS), Nucor (NYSE:NUE) and US Steel (NYSE:X) that have rallied as the government has managed to control dumping of steel from China and Korea.

"You simply could not have the boom we are seeing in all sorts of tech stocks, particularly the semiconductors and the semi equipment makers, but also many of the tech services companies, if there weren't some sort of economic acceleration," said Cramer.

The housewares stocks are near or at all-time highs. Stocks like Fortune Brands Home and Security (NYSE:FBHS), Masco (NYSE:MAS), Stanley Black & Decker (NYSE:SWK) and Home Depot (NYSE:HD) have rallied to their highs. Even the industrial stocks are doing better than many anticipate. "I would argue that the two camps are both putting their money where their mouths are," added Cramer.

Who is right? Is the economy getting better without causing the Fed to raise rates? "Maybe the better answer is that this market is like Washington: there is gridlock right now as we wait for things to resolve themselves one way or another," concluded Cramer.

CEO interview - Kimco Realty (NYSE:KIM)

As investors flocked to REIT stocks with yields in the first half of 2016, Kimco Realty emerged as a winner as it's up 21% for the year. It is North America's largest publicly traded owner and operator of open-air shopping centers which just reported a good quarter with initiatives that will clean up its balance sheet and control costs. Cramer interviewed CEO Conor Flynn to hear more about the last quarter.

Flynn mentioned that retail is growing as off-price retailers like Ross Stores (NASDAQ:ROST) and TJX Companies (NYSE:TJX) are offering unique convenience to customers. He thinks this is also an exciting time for grocery stores as well, as many chains are trying new products like same day deliveries. Beauty and pet products are also performing well.

Flynn also thinks that bankruptcies like that of Sports Authority are not affecting them. "This last quarter, the new leases we signed were almost 30% higher than the previous rent that was being paid. So, you can see the supply and the demand that we have going in our favor right now," he added.

CEO interview - Ionis Pharmaceutical (NASDAQ:IONS)

Ionis rallied 30% after publishing positive phase 3 data for its spinal muscular atrophy drug also known as SMA drug Nusinersen on which it has partnered with Biogen (NASDAQ:BIIB). Cramer interviewed CEO Dr. Stanley Crooke to find out what this means for the future of the company.

Crooke explained to Cramer that more than 30,000 infants are born with SMA. In analysts' opinion this drug could be a more than $2B opportunity and Ionis could receive royalties in the mid-teens of its sales as well as $150M in milestone payments from Biogen in addition to the $75M license fees paid by them.

"You can easily come to the notion of a very large commercial opportunity. Obviously that's Biogen's area of responsibility, and so I won't be able to comment further, other than we believe this is an enormous commercial opportunity," Crooke said.

The aggressive results from the study point to an end to the study soon which will ensure that babies in the control arm can now receive Nusinersen. He said that Biogen's planned broad access program will allow babies to access Nusinersen earlier than if they would have to wait for the trial to end.

The company had made lots of missteps in the past year in Cramer's opinion, but their many drugs in the pipeline could potentially pay off.

Viewer calls taken by Cramer

Molson Coors (NYSE:TAP): It's good but Constellation Brands (NYSE:STZ) is better.

Disney (NYSE:DIS): Owning Disney over time will be good. There might be short-term pain due to ESPN.

JetBlue Airways (NASDAQ:JBLU): The airlines are being valued at a very low multiple that will not last in the long term. If you can beat short-term pain, then it's worth it.


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