Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Wednesday, December 23.
The averages were up on Wednesday as all hedge funds have raised all the cash required for investors. "So, now we need to ask, which stocks are up artificially, and which have staying power? What stocks are down simply because they have been such fabulous performers in 2015 that they are ripe for profit-taking, as opposed to redemptions or tax loss selling?" said Cramer. He gave a list of stocks that are up artificially as investors should watch them for 2016.
Firstly, stay away from Chinese stocks. Every time investors keep thinking that China will launch a good stimulus plan. "I don't believe any of it. I think the Chinese government is content with the explosion of consumer spending. If this stimulus talk were for real, then China would need to import huge amounts of iron and coal and copper, but that is just not happening," said Cramer. Hence stay clear of industrial stocks like Caterpillar (NYSE:CAT), Cummins (NYSE:CMI), Freeport McMoRan (NYSE:FCX) and Joy Global (NYSE:JOY). The same logic applies to rebounding retailers like Kohl's (NYSE:KSS), J.C. Penney (NYSE:JCP) and Macy's (NYSE:M) that were oversold due to warm weather and competition from Amazon (NASDAQ:AMZN).
Cramer feels bad about energy stocks as well. Although the selling seems to be over here, the Saudis are still pumping oil and the lower crude inventory number is short-lived. Oil might rebound till the $40s, but Cramer thinks Saudis won't let it go over that.
"Enjoy the end of redemption season and tax-loss selling season and let them ride for the next couple of weeks, but don't overstay your welcome," concluded Cramer.
Things are not as bad as people thought last week. It's the season of forgiveness, and there is forgiveness all around the market as well. Last week CVS Health (NYSE:CVS) held an analyst meeting to raise the lower end of its guidance range and boost its dividend by 21%. The stock still took a hit to $94 from $97. On Wednesday, the stock bounced back on no news. It's as if the market has forgiven it.
Other stocks the market will forgive in 2016 and can have a turnaround are General Mills (NYSE:GIS) and Celgene (NASDAQ:CELG). General Mills reported a small miss last quarter on which the stock took a plunge. With new changes on the way as mentioned by the CEO and stock buyback, there is lot more to come. The market has forgiven the stock and it is back to where it was before the earnings.
Celgene, which is cheaper than the average stock of the S&P500, went down when its blockbuster drug missed its sales estimate. However, after the Revlimid patent settlement, the stock jumped.
Darden Restaurants' (NYSE:DRI) turnaround
Darden reported a great quarter and managed to survive the selloff. In fact, the stock went up by 11%. "For years we have known that among the restaurant companies, Darden is one of the most sensitive to the price of gasoline. You would better believe that they are benefiting from that $2 a gallon price," said Cramer.
Since the new CEO, Darden has had a good turnaround. The company has a new board, they sold the Red Lobster franchise, bought their own debt, converted land holdings into a REIT and had other restructuring. The company has got back to earnings growth, raised its 2016 outlook and has a buyback of 6% of its stock and yields 3.1%.
"Darden is one of the few companies that seems to be doing everything right at the moment, and I think the stock is headed higher long term, but ideally you should wait for the next big marketwide pullback," said Cramer. The stock trades at 19 times earnings and Cramer advised waiting for a pullback before buying back into the stock.
Carnival Corp. (NYSE:CCL)
Carnival has an interesting story. The company recently reported good earnings due to lower crude prices. It is the world's largest cruise line play and it benefits greatly from lower oil price. However, it's not just the crude that the company benefits from; they have a great turnaround as well.
This stock was considered a dead end 1.5 years back due to high-profile disasters like the Ebola scare and engine fire. The new CEO Don Arnold took over the job, cut costs, streamlined the company and made it more efficient.
Since fuel is the major cost for the company, it has been enjoying a smooth ride. They are also buying back their stock which is a good sign and it yields 2.2%. Carnival trades at 16 times earnings and Cramer thinks the stock is worth buying.
Cramer's four horsemen
With problems in biotech, it still managed to gain 12% for the year. Cramer said his four horsemen in the biotech group are Biogen (NASDAQ:BIIB), Celgene (CELG), Gilead (NASDAQ:GILD) and Regeneron (NASDAQ:REGN). "While there are hundreds of smaller companies working on revolutionary things, these four players often have a hand in them and they are likely to command the most attention from the stock market next year," he added.
Biogen is down for the year on growth concerns over multiple sclerosis drugs and the guidance cut in the middle of the year. The company is addressing these issues and Cramer thinks it has a lot of potential in 2016.
Celgene just settled a patent dispute over its Revlimid drug. In the current environment, this drug will be a blockbuster for the company. Gilead, on the other hand, shot up due to its Hep-C drug, but investors worry about the competition in this space. The company has low expectations, trades at just 8.5 times earnings and has many drugs in its pipeline. It's a great value play.
Lastly, Regeneron is the high-growth stock. It is expensive compared to its peers but Cramer thinks that the stock being 70 points off its high makes it a good buy. "Going into 2016, this market is going to be starved for growth, and with so many sectors slowing, biotech is the natural place to look," he said.
Viewer calls taken by Cramer
Blackstone (NYSE:BX): Cramer thinks the stock is fine.
SunEdison (SUNE): Cramer recommended selling the stock at $8.
Philip Morris (NYSE:PM): The stock is good for its dividend but Cramer does not want to recommend cigarette stocks.
Alaska Air (NYSE:ALK): Cramer thinks the stock is cheap.
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