Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday, January 3.
Despite the bears saying that gains from the tax plan are baked into stock prices, Cramer thinks otherwise. That's the reason there were about 29 analyst upgrades and only 2 downgrades on Wednesday. Why did this happen? "Tax reform. That's right, the very event that was supposedly baked into the market, that all the graybeards said was being overblown, is proving to be the main reason for most of these positive analyst reports and upgrades," said Cramer.
No one expected the Republicans to pass the bill so quickly and hence analysts are running to raise estimates. That's the reason high tax paying companies like Ulta Beauty (NASDAQ:ULTA), Dave & Buster's (NASDAQ:PLAY), Dick's Sporting Goods (NYSE:DKS), General Mills (NYSE:GIS) and Waste Management (NYSE:WM) saw gains after the tax bill was passed. Cramer thinks all these stocks are buys.
The estimates for Waste Management were too low and so the upgrade was overdue as the tax bill will benefit them greatly. Bears also said that tax cuts would result in dividend boosts and stock buybacks, but Cramer is hearing from CEOs that hiring is rising along with investment in capital equipment as there is a favorable rule for such expenditures. The tax law benefits also helped Dominion (NYSE:D) merge with Scana (NYSE:SCG) and they are paying $1,000 to customers as an apology for raising rates.
"The analysts are under pressure from their research directors to pound the table. They want to get ahead of when the companies themselves take their estimates up. And guess what? This was Day One of the process. Baked in? I think it's just getting started," concluded Cramer.
Dogs of the Dow
Cramer continued reviewing the stocks of the Dow 30. He reviewed the 5 worst performers to see if they can be worthy of a buy in 2018.
- The 5th weakest stock was Verizon (NYSE:VZ) that declined 0.8% in 2017. There's not much wrong with Verizon's business. "I'm not crazy about the stock of Verizon up here, but you could do a lot worse than owning this stock for steady income and decent performance in 2018," said Cramer.
- In at 4th place was Merck (NYSE:MRK) which went down 4% in 2017. In Cramer's opinion the drug stocks went down only because money managers rotated out of them in favor of high growth stocks. Its 3.4% yield still makes it a safe stock.
- Next on the list was Exxon (NYSE:XOM) which went down 7% in 2017. It doesn't have the growth but may go up with the rest of the group. Cramer prefers Magellan Midstream Partners (NYSE:MMP).
- IBM (NYSE:IBM) was the second worst performer in 2017 after declining more than 7%. The company has been trying to re-invent itself but the transition is not fast enough. With a 3.8% yield, Cramer still thinks it's a buy.
- General Electric (NYSE:GE) was the worst performer of the Dow 30 in 2017 as it declined 45%. "It takes a special kind of industrial to lose that much value during the best economy in ages," said Cramer. "A fresh start with a recognition of the errors that were committed would go a long way toward establishing the credibility this company needs for its $18 stock to return to the $20s, where it probably belongs," concluded Cramer.
As the mall-based retailer industry is dying, one stock has been shining and outperforming the rest. The kids' apparel retailer Children's Place (NASDAQ:PLCE) is up 45% in the last 2 months of 2017 and has tripled since its lows two years ago.
How did they manage this? They have been a great turnaround story thanks to CEO Jane Elfers and activist investors who have closed under-performing stores, and they operate in more than 1,000 locations in the US and Canada and 168 overseas.
Their last quarter was strong with a 5.1% rise in same-store sales far exceeding the analyst consensus. The company put in a new inventory system that allowed it to operate with greater flexibility. They also started selling clothes for older kids and tweens and that has paid off.
"Taking a 5 year old shopping may be a harrowing experience, but if you want their clothes to fit, you've got to try them on. That means Children's Place is much less vulnerable to online competition than most other brick-and-mortar retailers," said Cramer. The tax bill is another tailwind for them which will see their tax rates cut.
The stock trades at 18 times earnings and has more room to run. "Children's Place is a terrific story, Jane Elfers is a dynamite executive, and every time the stock has sold off, it's turned out to be a fabulous buying opportunity," concluded Cramer.
CEO interview - Mindbody (NASDAQ:MB)
Mindbody is the business management software provider for the fitness industry and they had a good last quarter in October. Cramer interviewed CEO Rick Stollmeyer to find out what lies ahead.
Stollmeyer said that the company helps businesses like spas, wellness centers, fitness studios and gyms with their platform that organizes their administrative structures and sends new customers their way. They connect the gyms to the largest audience possible and also allow customers to book classes and they offer dynamic pricing.
"What it's really about is solving for two problems. First of all, there needs to be a robust, continuously growing supply of wellness services. And these businesses are not easy to run. But once they get the right target audience and once they understand how they're going to deliver their services in a predictable way, they are really quite durable," said Stollmeyer.
Mindbody has 6.8M users on their platform and they also make money by selling subscriptions to wellness centers and taking a small fee for every transaction. The company continues to grow domestically and internationally.
Viewer calls taken by Cramer
Energous Corp. (NASDAQ:WATT): The stock is volatile and Cramer needs to work more to opine on it.
Novartis (NYSE:NVS): Cramer likes the stock and thinks they do not get enough credit. It's a buy at current prices.
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