Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday, December 13.
The market did not fall on the 25bps interest rate hike and celebrated it instead. While this did not impact the stocks, this will not last forever. Fed wants to promote growth and fight inflation by raising rates which in turn make the bonds attractive, thereby making equities the lesser preferred option. This will matter in the long run and not in the short run.
Cramer quoted Sir John Templeton, "Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria." The market is currently in stage 3 - optimism about 2018. Despite the optimism there isn't much euphoria. The only euphoria in the market is the cryptocurrencies like bitcoin. Fed Chair Janet Yellen said that it is still a small segment of the payments system.
"I get the sense that when they become big potatoes, the Fed will have a more forceful policy. But right now, Yellen, even after repeated questioning, didn't seem to take the cryptocurrency bait. She just didn't think they're that important," said Cramer.
The areas to be concerned are that there are fewer skilled jobs being created. That is why Apple's (NASDAQ:AAPL) investment in Finisar (NASDAQ:FNSR) is good news. "Without this injection of capital, I think Finisar would struggle versus foreign competitors," said Cramer. This will fund 500 new jobs and refurbish a closed facility in Texas where the company will manufacture chips for Apple's latest devices. The other concern is that long-term interest rates are not controlled by the Fed and there isn't enough lending.
The bull will stick for much longer. Till that time, take some gains, build cash and wait for a pullback as there is lot of money waiting on the sidelines.
Disney and Twenty-First Century Fox
Cramer reviewed Disney's (NYSE:DIS) deal of acquiring FOX (NASDAQ:FOX) which values it at $60B. This gives Disney the scale to compete with other industry players. "If you aren't dominant, then you won't win, or worse, you might not even survive. Disney is in the position that I was in 22 years ago. It really doesn't matter how much they pay, they'll be getting huge scale, and with this deal, they need that scale badly," said Cramer.
Scale is both an offensive and defensive move as it not only gives Disney great assets but also prevents it from going in the hands of other content providers like Facebook (NASDAQ:FB), Apple (AAPL) or Netflix (NASDAQ:NFLX).
The scale gives Disney an opportunity to combine ESPN with Fox Sports and it can spin off those assets as a separate company. They also get rights to more marvel characters which mean more movie franchises and more rides in Disney theme parks.
"Either way, Disney has bought itself time and boxed out its real enemies, the digital titans who can decide that they want to take Disney's business, meaning the business of getting you to watch them. Netflix and Amazon don't care whether you watch on TV or your phone or your computer," said Cramer. The important part is that with the deal the constant chatter of analysts about ESPN subscriber losses and cord cutting will come to an end.
Cramer revisited the recent breakup of Welbilt (NYSE:WBT) from Manitowoc (NYSE:MTW). In 2016, Manitowoc spun off its food service equipment business into a separate company - Welbilt. "This was a textbook example of a company that actually deserved to be broken up. There's no universe where cranes and kitchen equipment belong under the same roof," said Cramer.
As the construction business recovered in 2016, the breakup was met with cheer from investors. Since the split, Manitowoc is up 145% and Welbilt is up 64%. This results in combined gain of 83% for both shareholders. Both these companies are still thriving.
"With the stroke of a pen, management broke up the old business and gave investors two smaller, much more appealing companies. I say three cheers for Manitowoc. And sometimes, it really is that easy," concluded Cramer.
Has J.M. Smucker (NYSE:SJM) found a bottom finally? "Here's the problem: this is not Smucker's first attempted comeback since the stock's sickening decline began over a year ago. We've seen this thing try to turn around before, and every time, the rebound has fizzled and the stock has ended up going still lower," said Cramer.
The stock has bottomed at $34 in 2009 and had a huge run till $157 by mid-2016 thanks to smart acquisitions that made this company a packaged food powerhouse. Post that, food deflation began and it took a toll on the company's sales. The company made many false bottoms, but this one looks good as the stock has rallied 19% from its lows.
However, Cramer thinks one good quarter doesn't mean a turnaround. The stock is still cheap at 15 times next year's earnings and the market has been warming up to food stocks as food deflation subsides. "I'd like to see a second strong quarter in a row before I recommend Smucker wholeheartedly. But if you want to dip your toe in and start a small position right here, I'm going to give you my blessing. You know why? Because in the end, this is a very high-quality company run by a family that has historically generated better returns than the others in its sector," concluded Cramer.
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