Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday, June 19.
The Greece situation will end soon, and while that is good news for Europe, it is not good for markets in the short term. "I've been proselytizing caution all day in part because this Greece situation is a bit of a lose-lose proposition, at least in the near term," said Cramer. The frantic action will take place only after the 19 European countries meet on Monday. Cramer expects European markets to remain weak and dollar getting stronger against the Euro. This could lead to a down opening on Monday. If a deal with Greece takes place, then what happens? "I wonder if we won't immediately hear from the various Fed heads that, with Greece settled, the Fed will soon raise rates. I almost expect that to happen," said Cramer.
If no deal is made, the dollar will continue its rally and earnings will still suffer which can lead to a sell-off. Either way, it's not looking good for next week. Hence Cramer advised wait and watch strategy. After all, even if there is a rally, it will be a small one on top a big one we already had. With that, he discussed the game plan for the week:
Sonic (NASDAQ:SONC) reports on Monday and Cramer expects them to report a good quarter. If the S&P futures sell-off pull the stock down, it can be a good opportunity to buy.
Durable goods orders report on Tuesday. "I need you to keep in mind that the weakness in these big kinds of capital goods is one of the reasons that the Fed's been able to hold off on raising rates," said Cramer. If we get a strong number and a Greece deal, the markets will sell off on the rate hike fear.
Carnival Corp. (NYSE:CCL) reports earnings on Tuesday and Cramer expects a good comeback.
Darden Restaurants (NYSE:DRI) has shed its Red Lobster division and Cramer expects the stock has legs to run further on earnings.
Accenture (NYSE:ACN), which reports on Thursday, has spoiled everyone by giving upside surprises. Be ready to hear that they had a strong European business.
Nike (NYSE:NKE), which hit an all-time high on Friday, is too strong to be bet against. Although Cramer is concerned of a slowdown in China, he advised investors to hold buying the stock till it comes down next week.
Micron Technology (NASDAQ:MU) also reports on Thursday and it can bounce.
Apart from this, Cramer expects takeovers and consolidation to continue next week. "I still expect takeovers to continue apace. The big mergers in the HMO space seem about to unfold; look for Anthem and UnitedHealth (NYSE:UNH) to scoop up Cigna (NYSE:CI) or Humana (NYSE:HUM). Aetna (NYSE:AET) might want to play too," said Cramer.
Fitbit was one of the best IPOs of 2015, and it rallied 50% on debut. Even after the monster move, Cramer thinks it's still a buy. With 85% market share in the U.S., its products range from $60 wrist bands that track distance traveled and calories burned, to $250 smart watches.
Regarding fundamentals, the sales and earnings growth of the company are amazing. It posted 175% revenue growth last year and 158% growth in user base. The gross margins went up by 50% in first quarter of 2015. Most important aspect is that the company is profitable. It is cash flow positive since 2013 and had positive earnings in 2014. The company is also spending a lot of money in R&D which means new products could be coming. "The fact that Fitbit is profitable means we can actually value its shares versus other publicly traded companies based on simple price-to-earnings-multiple arithmetic," said Cramer.
After the run, Fitbit is still a cheap stock considering the growth it has. Even taking conservative growth numbers for 2015 and 2016, the stock is trading at 26 times next year's earnings estimates. This is much lesser than competitors.
It's important to note that all the numbers of Fitbit are before Apple Watch hit the market. But its products are from $60-250, and the entry level Apple watch costs $350. These are 2 different types of customers and there is room for both segments. "I think there is room for many players here and I also think all of these competitive worries are already baked into Fitbit's share price and then some," said Cramer. While there are risks for the stock, the rewards outweigh them.
China growth concerns
On Friday, Cramer heard news from Hershey (NYSE:HSY) that chocolate sales were down in China due to change in shopping trends. This made him wonder if people in China are cutting back on chocolate to make ends meet? Then Wells Fargo research department indicated that Macau gambling is at a 4-year low. This could mean bad news for MGM (NYSE:MGM), Wynn (NASDAQ:WYNN) and Las Vegas Sands (NYSE:LVS). Diageo (NYSE:DEO) also confirmed that its best brands are not doing well in China.
The common connection between chocolate, booze, gambling and expensive clothing is 'the government'. It is clear that the Communist Party is cutting down on conspicuous consumption and the drop in jewelry, alcohol and chocolate sales are indicators. This is all related to the government's crackdown on corruption. Officials are usually bribed with a bottle of Johnnie Walker. "This all seems government led to me, not consumer led," said Cramer.
He is concerned that anti-corruption and anti-conspicuous reforms are starting to have an impact and after decades, the government has stopped acting like capitalists. This led to more questions such as Alibaba (NYSE:BABA) choosing a good time to go public. Did they expect or knew something was brewing? Will the spending slowdown impact U.S.?
On the other side, Apple and Starbucks (NASDAQ:SBUX) are doing well in China. Then the Baltic Freight index is up 40% but the commodities are seeing a slowdown. This makes China in a big conundrum. It's difficult to figure out what is going on in reality, and Cramer thinks that the next leg of growth has to come from China.
"After this week's downbeat news, I'm nervous about a turn. We have to stay tuned but when chocolate sales turn down, I say you can't afford to be too bullish about this former juggernaut of an economy," said Cramer.
CEO interview - Johnson Controls (NYSE:JCI)
Johnson Controls makes a lot of products, from automobile seating and interiors to batteries for cars and trucks, as well as heating, ventilation and air-conditioning systems. Cramer has been saying that all these divisions did not belong under one roof, and he was happy to learn that the company is breaking itself up. "The benefits here could be enormous. The seating business is No. 1 everywhere in the world and really deserves to be its own company so that it can raise enough capital to maintain its market leading position," he said.
After the spin-off or sale, the company can make acquisitions using the money to strengthen its position in the battery or climate control business, or could also do a buyback. Cramer interviewed CEO Alex Molinari to know what's in store for the company.
"We are the leading seating company in the world. What is most important is we are a leading company in China. So if you look what is happening, we have been through the outsourcing wave in North America, Europe, and the real opportunity is in China. And our position in China is something to be coveted," Molinari said.
On the battery business, he said that they are in 1 in 3 cars in the world. People look at us as an auto-part company rather than an energy storage play. He also said that the market is not ready for electric vehicles and the combustion engine has not given up yet. There is strong competition and car hybrid market is still good and improving too.
On the break-up, he said that the seating business needs more capital now, but they've been removing capital from it and putting into other business.
The underdog ESPN
ESPN has changed the way fans watch sports in the country. It's gone from being an underdog to a world's leader in sports. George Bodenheimer has moved from working in the mailroom in 1981 to the longest serving president from 1998 to 2011, and then executive chairman until 2014. Cramer interviewed George Bodenheimer earlier this week and showed some parts of that show. Bodenheimer is donating the royalties from his book to cancer research.
He said that ESPN never stopped growing and no one knew how big it can be. ESPN has become powerful and they determine the schedule teams play.
Viewer calls taken by Cramer
Smith & Wesson (SWHC): "They're good. I am a bigger fan of Orbital ATK (NYSE:OA). The stock looks great chart wise."
MasterCard (NYSE:MA): "We're trimming our charitable trust position." He said the stock still looks good.
Alibaba (BABA): "We're staying away from China stocks. If you want Alibaba, play it through Yahoo (YHOO)."
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