Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Wednesday, December 16.
The Fed raised the interest rates for the first time in 9 years and the market rallied in response. The part that impressed the market was that the Fed will raise rates only 4 times next year or fewer depending upon the strength of the economy. They acknowledged that things are not perfect but still good enough. "In other words, the economy more than deserves to get out of intensive care, and it might go to a regular hospital bed for a while and then go into rehab until it is totally healthy. Rehab being rate hikes spaced out over time, with some pain if we get too much gain," said Cramer.
Since the fed is cautious, investors can focus on individual stocks again. Which individual stocks? Firstly, 15% of the S&P 500, i.e. the financials will make more money on customer deposits. This makes the likes of Wells Fargo (NYSE:WFC), JP Morgan (NYSE:JPM) and Bank of America (NYSE:BAC) attractive since these have the largest deposit bases.
The group of stocks that will feel the pinch are the energy stocks if oil prices remain low. The junk debt will likely default and cause pain to investors. Lastly, the group of stocks that will not be impacted by the rate hike are the high growth tech stocks like FANG, or the biotech stocks. Consumer packaged stocks that offer more yield than the treasuries will also attract fund managers.
"There is literally not much news between now and year end, so a lot of growth managers who have been holding back from buying don't need to hold back anymore," said Cramer.
Are junk bonds really cheap? "Having been knee-deep in researching the funds that own this kind of paper, I come back and say that the classes of junk bonds are so bifurcated that the notion of cheapness is ludicrous," said Cramer. There are cases of companies in healthcare that have debt but have not yet gone public due to a weak IPO market. Then, some bonds stem from the mall-based retailers that have gone private in the last few years, but they just appear cheap and are not desirable in Cramer's opinion.
The majority of the distressed bonds come from companies in the minerals, mining, steel, iron, coal, oil drilling, oil service and natural gas industries. Given how bad the situation is for these industries, it is best to stay away from such debt.
"The moment these bonds come off the proverbial lot, so to speak, I think they are worth less than what you paid for them because you may be the only sucker out there who is willing to buy the stuff," said Cramer. The coal debt is something to be stayed away from since it is not coming back soon. Similarly, metals and steel are not coming back anytime soon either since they are dependent on the Chinese economy.
The people screaming that junk bonds are cheap are the same people who said that emerging market debt was cheap. "All I can say is that these people who claim it is cheap tend to have one thing in common; they have some junk to sell you," added Cramer. Beware of debt merchants.
Chipotle's (NYSE:CMG) E.coli outbreak
The report of at least 52 people getting sick from the multi-state E.coli virus outbreak was linked to Chipotle. Health officials could not find the cause of the outbreak, but Chipotle is taking measures to make itself safer. Historically, such outbreaks have a negative impact on the stock and the company for multiple quarters. Chipotle's stock could have bottomed around $515 according to Cramer. He spoke to founder and co-CEO Steve Ells, and co-CEO Monty Moran to discuss more about the outbreak.
"I will say though, that we can assure you today that there is no E.coli in Chipotle," said Ells. "We have thoroughly tested our food, we have thoroughly tested our surfaces and we are confident that Chipotle is a safe place to eat," he added and mentioned that the company's new standard will put it ahead of the industry standards.
The company is working with a leading epidemiology team to develop new safety systems and they are widely known for their integrity and culture. "We do not believe there is anything less safe about eating that way, and we believe that what we need to do now is put that same innovation that we put toward food with integrity and that we put toward our very special people culture; we've got to put that same kind of innovation into food safety now," said Moran.
Moran also mentioned they closed down 43 stores not because they were asked to, but because they wanted to find out the source of contamination. The company and the government has done thousands of tests on surfaces, ingredients and employees with no results.
CEO interview - Take-Two Interactive (NASDAQ:TTWO)
The video games companies make most money in the fourth quarter due to the holiday season. Cramer considers Take-Two Interactive to be the best in the group with well-known brands such as "Grand Theft Auto", "Red Dead", "Max Payne" and "MLB 2K." The company reported a great last quarter with management raising its full year guidance. Cramer interviewed CEO Strauss Zelnick to hear what lies ahead.
Zelnick mentioned that the company has evolved from a hit-driven business model to one that can make money in between releases also. The brand extensions are keeping the customers engaged. "40% of our revenue in the last quarter was digitally delivered. Half of that was recurrent consumer spending and that is basically a brand new business," he added.
Zelnick said that the company has been fortunate to have one hit title every year since 2007.
Cramer in his final segment gave his opinion on which stock of the two is worth investing in, depending on the age of the investor.
Salesforce is 33% up during the year but it also trades at a high valuation of 78 times earnings. Companies like Oracle (NYSE:ORCL) trade at only 19 times earnings.
Microsoft, on the other hand, trades at just 18 times earnings with limited upside, but has stable dividend and consistent growth. The stock is up 21% for the year.
Younger investors can take higher risks since they have more time to recover losses. Older investors, however, need stability with stocks like Microsoft.
Viewer calls taken by Cramer
Should stock positions be trimmed with the Fed rate hike? Cramer advised staying the course with less exposure to companies with international businesses.
Keurig Green Mountain (NASDAQ:GMCR): Sell the stock as the upside is over.
Energy Transfer Partners (NYSE:ETP): No yield is safe right now, but the stock is okay at $30.
Caterpillar (NYSE:CAT): It is levered to metals and mining and there are better companies out there.
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