The Market Is About Earnings And Not Just Trump - Cramer's Mad Money (2/7/17)

by: SA Editor Mohit Manghnani


The Cybersecurity theme has bounced back.

Retail has become uninvestible.

Nike is trading sideways, and there are better stocks available.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday, February 7.

Investors and money managers are linking everything in the stock market to Trump. In fact, the rallies are based on earnings and the belief that companies can do better. "There is a lot of raw emotion when it comes to Trump, and when people get emotional - even really smart professional money managers - they stop being able to analyze the situation objectively," said Cramer.

Cramer referred to the private letter written by respected hedge fund manager Seth Klarman to his investors saying that the election has created "perilously high valuations." This view is shared by many managers on the street.

The Mad Money host said that he agrees that Trump's way of communicating may not be presidential, but it should not be a reason to sell stocks. "It's been a pretty awful bet to sell since he got elected, and what you saw on the campaign trail is what you are getting right now, pretty much to a T," said Cramer.

He also thinks the high valuations are not for any reason like it was in 1999, but are based on real earnings. A pro-business president is good for business and a pro-capital president is good for capital. "The new highs we keep hitting are real, they are based on earnings, even if the gains could be erased if Trump truly goes off the reservation," he added.

When a company reports a bad quarter, its stock gets crushed, and if the quarter is good, the stock rises. That's how it should happen, and Trump has nothing to do with it.

There will be a correction eventually, and Cramer wants investors to raise cash for that event, as there will be an opportunity to buy high-quality stocks. "As far as I'm concerned, things are better - and that, not Trump, might be the real secret sauce behind this extraordinary and very real rally," he concluded.

Cybersecurity stocks

2016 was not a good year for cybersecurity. The ISE cybersecurity ETF (NYSEARCA:HACK) was up only 2% in the last year, but has bounced back in 2017 and is up 8% already. Cramer took a look at cybersecurity stocks, as it is a good theme considering hackers are in the headlines constantly.

The top cybersecurity stock currently is Checkpoint Software (NASDAQ:CHKP), which had a good quarter and gave strong guidance. Cramer thinks the stock has run up already, but it is still worth owning.

The next name is CyberArk Software (NASDAQ:CYBR), which protects privileged network accounts. It has also run up a lot, and hence, it is advisable to wait for a pullback before buying the stock.

Palo Alto Networks (NYSE:PANW) has declined 29% in 2016, but is a value name in cybersecurity and also a market leader. It has risen 20% in 2017 and trades at 41 times earnings. Considering the 30% growth rate, its valuation is not high and the stock is attractive. Lastly, Fortinet (NASDAQ:FTNT) is an expensive stock to own.

Is the shopping mall dying?

Cramer has learned that retail cannot be held hostage by the shopping mall. When Michael Kors (NYSE:KORS) reported earnings, it looked like a good quarter, but the conference call showed that the weakness in guidance was due to lack of traffic in malls.

Even a high-end brand like Michael Kors is not immune to the lack of traffic in malls. While it had strong e-commerce numbers, foot traffic numbers declined. Nowadays, a company needs to have strong traffic and e-commerce numbers.

Even Target (NYSE:TGT) and Newell Brands (NYSE:NWL) faced the same problem. "It has gotten to the point where even mentioning the mall on a conference call is the kiss of death. They are dying shrines to spending the old way," Cramer noted.

He said that the companies need to reinvent themselves, like Hasbro (NASDAQ:HAS) has done. Unfortunately for the suppliers to retailers, they have failed to re-invent. They did not think brick-and-mortar stores could go down. "Until they recognize the secular decline, they are doomed to have more numbers like Kors did today, and that makes the sector just plain uninvestible," Cramer cautioned.

CEO interview - Centene Corp. (NYSE:CNC)

Centene is a healthcare provider that specializes in government-sponsored programs like Medicaid and Medicare. It has done well under the Affordable Care Act, as it included expansion to Medicaid. The company posted strong earnings with robust guidance, and the stock rallied 5%. Cramer interviewed CEO Michael Neidorff to know his take on Trump's agenda of repealing the Affordable Care Act.

Neidorff said it will take years to repeal the Act. "I have said all along that it is business as usual. We have insisted on continuing to do our thing the way we do it, and it is working out very well. In fact, we told the Street today in our call that we actually have over $400M that we will be paying back in on the risk adjuster this year," he added.

Despite the chatter about repealing the Affordable Care Act in Washington, it is business as usual for the company. The CEO also added that Centene is flexible enough to meet the changes that arise.

Off the charts

Cramer went to the charts with the help of technician Tim Collins to take a technical view on old-school tech names Cisco (NASDAQ:CSCO), Jabil Circuit (NYSE:JBL) and Oracle (NYSE:ORCL).

Cisco is due to report earnings this week, and it is in a high risk-reward situation. There is solid floor of support at $29 and a ceiling of resistance at $31.50. If the stock can break out above $29, there will be smooth sailing till $34-35. The Chandelier Exit indicators shows the stock has more room to run.

Jabil Circuit has been consolidating after its up-move and has made a bullish cup-and-handle formation. Collins thinks if the stock can break $24.50, it will head towards $27.50 or $30 by the end of 2017. There could be concern if the stock falls below $21.50.

Oracle is showing the strongest trend among the three tech names. If it breaks the strong ceiling of resistance at $40, it will be an indicator to buy the stock, and it could head further up towards $43.50 or $45. However, Oracle is trading below its 40-day moving average, which makes it a tough one to own.

Viewer calls taken by Cramer

Shake Shack (NYSE:SHAK): Cramer is not a fan of casual dining stocks. The issue is that people don't like this group. It's not a great stock to own.

Finisar (NASDAQ:FNSR): The stock has had a big run-up already. It is consolidating now, but the segment is good and worth sticking around for.

Nike (NYSE:NKE): This is a best-of-breed name. It has strong competition, and the stock is going to be in a holding pattern. There are better fish in the sea.

AutoZone (NYSE:AZO): Mere competition from Amazon (NASDAQ:AMZN) is not enough to hurt this stock. Cramer still thinks it's worth buying.


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