Earnings Surprises Were Tuesday's Theme - Cramer's Mad Money (11/22/16)

by: SA Editor Mohit Manghnani


Home Depot will do well in the holiday season.

Trump rally is not over yet.

Cramer thinks Deutsche Bank will do well as Europe improves.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday, November 22.

Tuesday was a day of shocking upside earnings surprises. "It is important to remember that the magnitude and number of upside surprises versus downside letdowns can often determine the direction of the day," said Cramer. A big surprise came from Burlington Stores (NYSE:BURL) which beat estimates and raised its full year forecast. One should note that analysts will get ahead of the upside surprises at some point.

They had the perfect quarter and they made money with the right inventory and right prices. This also shows that the off-price business model of TJX (NYSE:TJX) and Ross Stores (NASDAQ:ROST) is successful. The only retailer that exceeds Burlington is Children's Place (NASDAQ:PLCE), which went up for the third day after terrific earnings.

Analog Devices (NASDAQ:ADI) also surprised the street with a positive FQ4 beat. The company has transformed itself into a great Internet of Things play. They are also set to buy Linear Technology (NASDAQ:LLTC) which will be additive to earnings and generate free cash flow.

Dollar Tree (NASDAQ:DLTR) and Signet Jewelers (NYSE:SIG) also reported earnings beats and their stocks rallied 8% and 2% respectively. This was because the expectations from them were low and their earnings were not as disappointing as expected.

"The complexion and the complexity of the wording and the number determine how things go in a given session," said Cramer.

CFO interview - Home Depot (NYSE:HD)

Home Depot CFO Carol Tomé is one of the best in the business according to Cramer. The company reported great earnings even in a tough environment, which shows their knowledge and customer satisfaction levels. Cramer interviewed Tomé to find out more about the quarter and what lies ahead for home owners.

"As home prices appreciate, something happens with the home owner. They think of the home as an investment and not an expense, and they spend differently in their home," said Tomé. During the financial crisis, home owners were not inclined to spend much on their homes due to the mortgage payment pressure.

She also said that Home Depot's addressable market is $550B and their market share is 20%. "We just need to invest in the customer experience because the consumer is changing. We've got to invest in that experience, and we can grow sales," she added.

She said that Boston has fully recovered since the economic recession while the Midwest is yet to recover. The company has not opened new stores as they are optimally situated and they are focused on driving existing real estate and productivity.

Home Depot has entered the holiday sales business and they sold more Christmas trees than any other retailer. This year, the company expects to sell 2.8M live trees. "We leaned to it in a big way, and we are going to have a knockout Black Friday," she said.

Off the charts

How long can the Trump rally last? Cramer went to the charts with the help of technician Mark Sebastian to find out the answer. Sebastian analyzed the relationship between the averages and the VIX to check the level of volatility that traders expect in the near future.

After the election, the VIX declined as the market climbed. This is a sign that investors believe in the rally and it will last. As the volatility falls and the market rallies, things will continue to go well. This pattern has played out during 2016.

When VIX and averages move in the same direction, it's a sign that averages are about to change direction. That looks unlikely now. When Sebastian looked at the volatility of the VIX, he discovered that after the election, the VIX actually dropped much faster than the VVIX. This means large money managers are not buying into the rally. In the last week, VVIX has dropped dramatically which means that the Trump rally still has legs.

"When the VIX starts to rally along with the S&P, that is when you start worrying," said Cramer.

CEO interview - Corbus Pharmaceuticals (NASDAQ:CRBP)

The stock of Corbus Pharmaceuticals is up 380% for the year. It's a development stage biotech and Cramer interviewed its CEO Dr. Yuval Cohen to hear what lies ahead.

Cohen mentioned that they treat cystic fibrosis and the systemic sclerosis drug caused excitement in the street based on much stronger signals than anticipated from the study. Usually, in a phase 2 trial, the statistical significance is not as high as it was for their drug. "We got statistical significance for the overall improvements, as well as certain time points. That to us sends a very clear and a very exciting, honestly, signal of clinical benefit," he added.

Cohen said that the company has sponsors for their trials and there is no immediate need to raise money. Cramer said that the stock is speculative.

Viewer calls taken by Cramer

AT&T (NYSE:T): It's going to be tough for the stock to rise due to a rise in interest rates and time for completion of Time Warner deal. It's a good stock but it will take time.

Deutsche Bank (NYSE:DB): Cramer is a believer in Europe and he thinks DB should do an equity offering.

General Electric (NYSE:GE): The stock is about to break out. Hold on to it.


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