Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday, May 20.
The transports group was hammered on Wednesday which is good news for travelers as it means cheaper fares, but bad news for investors. The source of the problem was airlines. "Sometimes though, this kind of action is a sign not of weakening trade, but of potentially ruinous, cutthroat competition. And that's what is driving the group down at this very moment," said Cramer. On Tuesday, Cramer spoke to American Airlines (NASDAQ:AAL) CEO Parker who confirmed that competitors are adding capacity and taking advantage of the travel market growth. He also said that American Airlines will not add capacity, but respond to competition by reducing fares. This means less revenue per flier.
Cramer was taken aback when he heard Parker. This means that earnings estimates are probably too high and need to be cut, which means that American Airlines' stock is not a cheap stock with a PE multiple of 5. With a cut in estimates, stock prices will go down, and that is what happened on Wednesday. Cramer however reiterated that American Airlines is still in good shape with lots of cash which can be used to pay off debt or give dividends.
However, this is not about American Airlines, but the whole group in general. Cramer was bullish on the group due to low oil prices and consolidation. "Apparently those days are now over. I am not saying that you can't buy the airlines when they reach a certain level. I am just saying, flying may be safer than ever, but those earnings estimates sure aren't."
More capacity means more dogfights for customers. It is therefore better to move to groups with stable growth. "If you are engaged in a dogfight for customers, the customers will win but your shareholders might lose. Much better to find companies that you don't have to compete or are protected from competition, or have laid waste to their competitors on the way to industry dominance," said Cramer.
CEO interview - Take-Two Interactive (NASDAQ:TTWO)
Take-Two Interactive Software is often underestimated and never gets the credit for being the best in the video game world. The bestselling video game Grand Theft Auto falls under its franchise. Cramer finds it hard to believe as it is a well-run company with strong franchises such as Red Dead, Max Payne, Borderlands, Evolve and Civilization. The company reported a strong quarter and increased its buyback to 10M shares. Cramer interviewed CEO Strauss Zelnick to discuss the last quarter.
"I think we are beginning to demonstrate with the year that we just guided to, that we are a solidly profitable company with a diverse lineup. Not every year will be gently upward sloping, but we do have great releases," said Zelnick. He added that the company wants to build permanent franchises.
He told Cramer that his face can be scanned and he will be playing the NBA game. This technology is improving and Zelnick is bullish on it.
Don't overlook Fiat Chrysler (NYSE:FCAU)
Cramer said that the market is missing how amazing Fiat Chrysler is. The stock is up 55% since it went public again in October 2014. Ford (NYSE:F) and General Motors (NYSE:GM) often overshadow Fiat Chrysler. "How has this car company silently become the best in the business, with hardly anyone seeming to notice? How can we treat Chrysler, one of the big three for heaven's sake, as though it doesn't even exist?" said Cramer.
Fiat bought the entire company after bankruptcy in 2014. "The new Fiat Chrysler is back and better than ever. It's not some punch line, and it's certainly not the loser that the old pre-financial crisis Chrysler used to be," said Cramer. Now it not only has the older brands like Chrysler, Dodge, Jeep and Ram, but newer sexy brands Ferrari, Maserati, Alfa Romeo and Abarth which covers everything from a downscale dodge to an upscale sports car.
The company gets two-thirds of its sales from the U.S. while it's based in Europe, which gives it the currency advantage. Even though the dollar has peaked, it is still strong and the Euro is still weak. Apart from currency, they have grown market share by 120 basis points since 2012, while many others have been losing share. The company also plans to spin off Ferrari in the second half which will unlock more value for both companies.
The company has a hearing in July on the defects it failed to fix, that led to 20 recalls. Cramer said he is not worried about that. "The stock has been on fire lately, but with everything this company's got going for it, I wouldn't be surprised if it's got more room to run," he added.
CEO interview - Salesforce.com (NYSE:CRM)
There has been a lot of takeover news surrounding Salesforce, which pulled the stock back to the $70s. People have started valuing the company based on earnings. The company reported higher than expected revenues on Wednesday and a $0.02 earnings beat. Cramer spoke with CEO Marc Benioff to find out about the takeover bids.
"Today I am saying we are the fastest to $6B, but for me that's the past and I am all about the future, and all I am focused on right now is my dream and my dream is to be the fastest software company to $10B. That is what I am working on every single day," said Benioff. He said he reads the news just like everyone else and he is more focused on meeting customers and giving them good products.
In Cramer's opinion, the only way to grow retails is to grow as a country. There are 2 ways to grow as a country; new families or immigration, that's it. "Nothing else can really help us long term, including by the way, the Federal Reserve. That's right, over a long enough time horizon, population growth leads to economic growth," said Cramer.
The population growth from both the standpoints has been a problem since the great recession. More young people are staying with their families and getting in the country has been way more difficult than deportation. However, things seem to be back on track as Home Depot (NYSE:HD) confirmed household formation figure of more than 1M homes. "If it happened now, though, it could really make a difference to sales for the whole retail cohort," said Cramer.
Apart from household formation, employment, growing salaries and credit also matter for retail sales. If more people are confident in their houses rising in value, they will buy goods for their houses as an investment. That is why Home Depot is seeing better than expected numbers as people are starting to spend more on their homes. "Watch this household number. This is the rising tide. Ultimately this trend will pull up all household spending, and then the real, long-awaited recovery will finally begin," said Cramer.
Viewer calls taken by Cramer
Skechers (NYSE:SKX): "These guys have created immense wealth and it's ok if they cash some of it as they are charitable. It's the second largest footwear company and finally getting its due. If you got big gains, you can take some profits, but this remains a good company."
Intercept Pharma (NASDAQ:ICPT): "The stock dropped because they delivered good results while people were expecting spectacular results."
Exxon (NYSE:XOM): "Exxon is a hold, but I am not going to ask people to buy it."
Kraft Foods (KRFT): "With the Heinz merger, they have Warren Buffett's blessing. I wish my charitable trust owned it."
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