Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday, January 8.
As the market went higher on Monday, Cramer deduced the reasons for the rally. "First, let's understand: this market is largely driven not by stock-pickers, but by index funds. That index fund money comes in automatically, every day, over the transom. Billions of dollars placed in equities will move equities higher," said Cramer. This approach is one-directional as money comes into the market and doesn't go out as treasury yields are low and not competitive for stocks yet.
Secondly, the number of public companies trading today is nearly half the number that were trading 20 years ago. Not only are there fewer companies now, they are also spending money to buy back their stock. "There's an extraordinary amount of stock being crunched, or retired, by the major old-line companies out there. When you do that, not only do the earnings get higher, but the price-to-earnings multiple goes lower," said Cramer.
If companies keep buying the stock, the supply will dry up and the market cap will shrink too. "Put it all together and you've got a natural recipe for higher stock prices," added Cramer. Thirdly, many companies are receiving analyst upgrades thanks to the tax cuts and favorable depreciation rules of the new tax bill.
Fourth, markets are revaluing stocks based on high expectations. Tesla (NASDAQ:TSLA) went up despite saying it will miss production targets. "This market is starting to value Tesla like a tech stock. I understand it: when a tech company has a hot new product but can't produce it in volume this year, investors will give it a pass because they figure it'll make up that volume next year," said Cramer.
Bottom line: stock shortages, money from index funds, lower valuations and negative news viewed as positive are what's driving up stocks.
CEO interview - Exact Sciences (NASDAQ:EXAS)
Exact Sciences went down 13% after reporting preliminary numbers. Cramer thought the numbers were good and interviewed CEO Kevin Conroy to find out what lies ahead.
Conroy said that the expected revenue for colon cancer screening test Cologuard was $160M and they delivered $266M. In cancer treatment, detection is the key. According to Conroy, 85M patients in the USA alone need to be screened and they have done 1M so far, which means there is a lot to go.
Their technology is not stopping at Cologuard and will apply to other non-invasive cancer detection processes like lung and liver cancer. He expects they will be able to screen for the top 10 cancers.
Cramer thinks the weakness in the stock is a buying opportunity.
Cramer said speculation should be done smartly by calculating risk. He often gets questions on the risks of Bitcoin, marijuana and Micron Technology (NASDAQ:MU). When people buy these things, Cramer thinks they are making a mistake as they don't know the risks concerned.
When it comes to cryptocurrencies like Bitcoin and others, Cramer called them highly speculative. While they will not go away anytime soon, they are not a sound investment as values are different everywhere. "I'll change my mind and become more positive the moment I see that cryptocurrencies are being treated like de-facto currencies, a la gold," Cramer said.
For marijuana, Attorney General Jeff Sessions said that the federal government couldn't override states' rights for cannabis legalization. Cramer is still worried about a Justice Department crackdown and hence this doesn't become a sound investment.
Lastly, Micron Technology (MU) is a commodity chip maker that has crashed three times in Cramer's career. "The bull case? Micron's stock sells for less than five times earnings. To me, though, that's exhibit A for the bears, because when Micron has sold that cheaply in the past, it usually means that the company won't be able to meet its earnings estimates," said Cramer. Both their products, flash memory and DRAM chips are subject to boom and bust cycles.
CEO interview - Alkermes (NASDAQ:ALKS)
Cramer interviewed Alkermes chairman and CEO Richard Pops to hear his take on biotech.
Pops explained that it can take billions of dollars and up to 10 years to develop a product. At times, there is failure and at times there is progress. He expects 2018 to be a transformative year for all their programs.
Pops gave his view on opioid addiction, "I think the best days of Vivitrol are still ahead of it. It's building into becoming one of the more important medicines for the treatment of this condition." Vivitrol is one of the three FDA approved medicines for treating opioid dependence and it prevents relapses.
As the federal government and lawmakers are getting serious about the cause, Vivitrol is taking center stage. He also added that their drug for schizophrenia is in Phase III testing, and has shown an ability to block weight gain that is associated with current treatments. This is good news as patients tend to avoid medication when there's weight gain.
Viewer calls taken by Cramer
EPR Properties (NYSE:EPR): The long-term outlook for the stock is stable.
Arconic (NYSE:ARNC): Cramer's trust owns the stock and it had a monster move. They are cutting down costs and are in a good situation.
CyberArk Software (NASDAQ:CYBR): Their last quarter was okay in comparison to others.
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