Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Monday, February 22.
Two weeks ago there was pressure to sell everything but Monday's rally showed that panic has been diluted. What led to this change? Mainly, it's the stability in oil around $30 and futures. Another factor that led to the rally is political.
"Bernie Sanders looks like a paper tiger. I swear the media made this guy seem like a bonafide candidate for the Democratic nomination, but suddenly with a small loss in Nevada he is buried alive," said Cramer. With Hillary Clinton and Donald Trump as front runners for presidential candidates the market seems to believe that both their agendas are pro-business.
Activity in the M&A space also added to the rally. Honeywell's (NYSE:HON) interest to purchase United Technologies (NYSE:UTX) is adding life to the M&A space. Lastly, earnings news was paid attention at amongst all the chaos. John Deere (NYSE:DE) and Nordstrom (NYSE:JWN) rallied 1.8% and 4.4% even when they reported weak quarters.
"It is a stunning turn and it cannot be dismissed out of hand, even as it may not reflect anything but short-term considerations," said Cramer.
How Gap (NYSE:GPS) lost its mojo
"You need to be able to tell the difference between beaten down stocks that deserve to be bought and beaten down stocks that deserve to be beaten some more," said Cramer. The Gap is behind many famous brands and was a high growth stock in the '90s. The company lost its same-store sales for a decade, faced stiff competition but got its groove back. It went up 67% in 2012, 26% in 2013 and 8% in 2014.
It all looked good until it started losing again in 2015. The company had a good turnaround with new initiatives, technologies and brands that cashed in on their popularity. But in 2015, the company started to miss earnings and revenue estimates. It was then that a management shake up came which was viewed as a positive for the stock. The same-store sales still kept on decelerating which led to analyst downgrades and the stock kept losing.
The back-to-school and winter season was bad for every retailer, including Gap. "The fact is, this company has done very little to inspire any confidence in its ability to turn around its declining same-store sales," said Cramer.
The stock has rallied 20% in the past week and trades at only 11 times earnings. Looking at other retailers in trouble, Cramer is sure that Gap has nothing to offer and it will report dismal results. He thinks owning Gap is a recipe for disaster and there is no catalyst to propel the stock.
"I bet this stock will continue to be toxic, and there are so many other better retailers including Costco (NASDAQ:COST), TJX (NYSE:TJX) and Ross Stores (NASDAQ:ROST) that are far more likely to thrive in this environment," concluded Cramer.
V.F. Corp. and Columbia Sportswear are similar companies tied to winter apparel and yet both gave opposite earnings. This shows that execution and power of brands matter. While many blame the weather, the fact cannot be ignored that weather has an impact on both the companies, and not V.F. Corp. alone.
Columbia declared a great quarter and its shares rallied 22%. The company focuses on winter apparel and had to deal with warm winter in the US and economic and currency issues overseas. However, their footwear business did well along with outdoor equipment business.
V.F. Corp., on the other hand, had many brands but reported a disappointing quarter missing estimates and the stock plunged 4.4%. The company blamed the weather but they had a similar situation in 2011 when they performed decently.
V.F. Corp. can blame the weather all it wants but the reason is that they did not execute well. If Columbia can do well, V.F. Corp. can too. The yoga exposure by Columbia is helping the company which is lacking in V.F. Corp. "For now, Columbia Sportswear is absolutely the better buy, and only a purchase of Lululemon (NASDAQ:LULU) by V.F. would change my mind," said Cramer.
CEO interview - Allergan (NYSE:AGN)
The environment for healthcare stocks is not conducive due to the political drama surrounding drug pricing. Allergan is a pharmaceutical giant and it reported a $0.07 earnings beat. Cramer interviewed CEO Brent Saunders to hear more about the quarter.
"We are divesting a business to Teva (NYSE:TEVA) and merging with Pfizer (NYSE:PFE) and yet the team performed well despite all the distraction," said Saunders. "I think this industry is going through massive change, which requires massive consolidation. And I think this combination with Pfizer does create the world leader in biopharmaceuticals," he added. He thinks the market will correct over time and till then this is a great opportunity for investors to buy.
Saunders was optimistic about the pipeline of aesthetics and gastroenterology drugs which are awaiting data from the latest round of clinical trials. He explained that the drugs for depression are also at an interesting stage.
Commenting on the political saga around drug pricing, he mentioned that rhetoric should be separated from reality. Drug pricing comprises only 10% of the healthcare costs and it saves people's lives and money.
Cramer thinks the stock is a buy and the company is very transparent.
Magic price for oil
"The slowing of the velocity of the decline in oil does create a positive backdrop for so many industries, and at this particular level, it allows for many oil companies to stay in business while they ratchet back expenses," said Cramer.
$33 is a sweet spot for oil and $1.77 gasoline is like a tax-cut for everyone. Lower energy prices benefit the consumers but Wall Street cannot figure out how.
The average income in the US is $52,000. $650 savings on gasoline, assuming the price stays where it is, combining with savings in heating bills lead to approximately $1,400 in reduced cost in Cramer's opinion. That is significant money for an average consumer.
The retail, travel and leisure industries will benefit from extra money the consumer spends. Along with that, many industries will see savings in input costs due to lower energy prices. At low $30s, oil companies can lower their break-even costs and avoid bankruptcies.
"The scenario I just traced out is one that does not make the oil companies investible, but it does make everyone else a little better off," said Cramer.
Viewer calls taken by Cramer
Tesla (NASDAQ:TSLA): This is a cult stock.
Target (NYSE:TGT): The valuation is low but Cramer is concerned due to the entire cohort going down.
GoPro (NASDAQ:GPRO): Cramer is not a fan.
Get Cramer's Picks by email - it's free and takes only a few seconds to sign up.