Seeking Alpha

Market Is Not Waiting For Tax Reform - Cramer's Mad Money (10/18/17)

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Includes: ABT, BMRN, BMY, IBM, JNJ, MRK, MTW, SBUX, SKX, UNH
by: SA Editor Mohit Manghnani
Summary

Johnson & Johnson has more room to run.

IBM CFO Martin Schroeter believes the world needs cognitive technologies like Watson more than ever.

Skechers apparel business is in a tough-to-own group.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday, October 18.

US Treasury Secretary Steven Mnuchin said that the tax reform is baked into the market and if it doesn't go through, it will impact stocks negatively. Cramer thinks otherwise. "Look, I appreciate he's trying to get Congress motivated, but just on the facts, I think he's quite wrong. The truth is, most executives don't believe tax reform is coming. It's simply not integral to this market. Yes, they've lost faith," he said.

Cramer thinks that investors should not rely on tax reforms for buying stocks as the stocks are doing fine even with the help from Congress. Many executives do not even believe that tax reform will happen soon. Companies that benefit directly from the tax reform are retail, restaurants and entertainment companies, all of which are down and weak now as the market believes the reform is far away.

Stocks have found other ways to go up. UnitedHealth (NYSE:UNH) is up on good earnings even as the healthcare debate keeps dragging on. The bank stocks are strong and trading at low multiples. Interest rate rise in December will benefit them. Drug makers like Johnson & Johnson (NYSE:JNJ), Merck (NYSE:MRK), Bristol-Myers Squibb (NYSE:BMY) and Abbott Laboratories (NYSE:ABT) went down on Trump's comments on healthcare but that turned out to be an opportunity for investors.

The defense stocks have had good gains. "They've been some of the most dependable stocks every time they get hit because it's not like world peace is breaking out," said Cramer. Airline stocks are also trading at low multiples.

"With everything that's working in this market, the only thing I don't want you to be thinking about is tax reform. At one point it was indeed baked into stocks, the ones currently being clobbered, because they stood to gain from it, but that time has long passed. Otherwise, with a few exceptions like the bear markets in oil and retail, when you see a pullback in this market," concluded Cramer.

CFO interview - IBM (NYSE:IBM)

IBM reported their strongest earnings in five years with good guidance and the stock rallied 8.8%. Cramer interviewed CFO Martin Schroeter to hear more about the quarter.

"We now have, for the first time in probably five years, a good tailwind in terms of the dollar," said Schroeter. More than two-thirds of the business is done outside the US so the weak dollar translates to better earnings. "We have a global platform. Part of the reason people come to us for our services business and part of the [reason] people come to us for our maintenance business is because of the global platform we can deliver. Hopefully, we're in a longer term sustainable trend," he added.

Schroeter spoke about the need for cognitive technology adoption like Watson more than ever. "The long arc of this, though, is our point of view on how cognitive will change not only enterprises, but it'll change professions. It won't necessarily displace jobs. We've always said that this is not really about automation. But it will change 100% of jobs." There is data glut in the world and artificial intelligence will be the way companies comprehend information.

Schroeter also said their spending in business has peaked. With many acquisitions, the company has to stabilize spending so that new businesses have money to develop over time. Their new mainframe systems keep the environment secure without losing on performance. Their Big Blue system is undergoing re-invention and it accounts for half the revenue.

"From a long term trend, we've been investing heavily, and I do think that we've positioned now with a great portfolio, a mix of things that are high-value, things that are accretive and good scale and things that are starting to build like blockchain. This has been a journey that we've been spending a lot of time and a lot of money in order to recreate the reason IBM exists," he concluded.

Johnson & Johnson (JNJ)

The stock of Johnson & Johnson was a battle ground especially after their acquisition of Actelion for $30B in January. "First, though, let's talk about why the stock became so contentious. Part of it simply comes down to the fact that, even though JNJ is an incredibly well-run company that's in fabulous shape, it belongs to a cohort that hasn't been getting much love lately, the recession-proof space," said Cramer

As the global economy expands, analysts upgrade industrial or technology names and are less inclined to upgrade JNJ. However their recent quarter puts the fears to rest. The sales of new drug business was up 15% and medical devices were up 7%. The stock still trades at a PE of 18, which is cheap. "With JNJ, yesterday's quarter tells us the bulls were right, and I think the stock could have more upside here," concluded Cramer.

CEO interview - BioMarin Pharmaceutical (NASDAQ:BMRN)

The stock of BioMarin went down after their presentation on the R&D day. Cramer interviewed CEO J.J. Bienaime to find out where the company is headed.

"We had a very exciting update today about our entire pipeline, but hemophilia and gene therapy was obviously a very important highlight. We now have a green light from regulatory authorities in the U.S. and Europe to move forward with our Phase 3 trial," said Bienaime. The hemophiliacs trial's preliminary results were promising and came close to preventing the disease. "So far, in the first 12, 14 patients we've treated, we've been able to show that with just one hour of intravenous infusion of the drug, patients are basically free of bleeding episodes," he added.

Each of the company's development drugs could represent a billion-dollar opportunity. They now have four facilities around the world to manufacture their products. He also added that the US is the world leader in biotechnology and that isn't going to change soon.

Viewer calls taken by Cramer

Starbucks (NASDAQ:SBUX): Cramer thinks they will get growth from China and the domestic same-store sales should improve too. He holds the stock for his charitable trust.

Manitowoc (NYSE:MTW): The reverse stock will not achieve anything. It's a fine stock though.

Skechers USA (NYSE:SKX): It's a good long-term story but the apparel business is hard to own in the short run.

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