Mini Sessions In The Market - Cramer's Mad Money (1/24/18)

by: SA Editor Mohit Manghnani

Cramer checks the bull and bear cases for consumer stocks.

"There's a shortage of skilled labor" - Illinois Tool Works CEO.

Nucor is the best of breed in steel stocks.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday, January 24.

Market action on Wednesday was like three trading days packed into one. The stocks opened higher, declined at midday and then went higher again going into the close. It all began with earnings and confused investors who react to earnings headline and don't do their homework. Texas Instruments (NASDAQ:TXN) reported good earnings, but it was not good enough to justify the huge run in stock price. "Having the misfortune of having to do all the homework, as I do, I can tell you that this was definitively not a bad quarter from TXN. It was actually an excellent quarter," said Cramer. He added that the stock was due for a pullback.

After that, rival Lam Research (NASDAQ:LRCX) also posted good numbers and its stock rallied 4%. The next negative news came from Apple (NASDAQ:AAPL) suppliers that iPhone sales may have declined last quarter. While Cramer had no insights about the sales numbers, he said that no one got hurt taking a profit. "However, in what may be the loneliest defense of Apple I've made in ages, let me just say that even if sales are weaker, this company's been able to triumph over moments of weakness in the past. Remember, Apple's less a tech stock than a consumer products company with [a] terrific revenue stream and fabulous technological prowess. But that doesn't mean it never gets hit," he added.

The airline stocks got hit with bad news after United Continental (NASDAQ:UAL) shocked the sector with the news of adding capacity. A company executive said on the conference call, "The best way to compete with low-cost carriers is to match their prices. We can’t let low-cost carriers have price advantages in our hubs." This led to fears of price wars among carriers.

Lastly, there was General Electric (NYSE:GE) with not-so-bad earnings on which the stock went up only to go down later as the company disclosed an SEC probe on their accounting practices. "My discipline says that accounting irregularities always equal sell, but I don't think this one's as bad as the people who bailed on the stock seemed to believe," added Cramer.

"Bottom line: we had two terrific sessions today, but we also had one hideous one. Pick your poison. I say if this pattern continues, you want to use the weakness to buy your favorites and use the strength to ring the register," he concluded.

CEO interview - Logitech International (NASDAQ:LOGI)

The stock of Logitech went up 5% after reporting good earnings. It also got analyst upgrades. Cramer interviewed president and CEO Bracken Darrell to find out what lies ahead for the company. Cramer has recommended the stock for the past 15 months and it's up 76% since then.

Darrell spoke about their latest wireless Bluetooth speakers which are sturdy, waterproof and have Alexa built in. He attributed the growth in the company to three main drivers, "the markets we're in are generally growing, some of them strongly. We can gain share if we innovate well, and we're innovating well. We're winning lots of design awards. And then we can enter new categories. That's exactly what we're doing," said Darrell.

With such a great quarter, Darrell thinks they could have done better. "We didn't get as much as we could've because we didn't transition as well as we could've one of our distribution centers, and we could've had better profit," he added.

He was excited about e-sports, a category seeing explosive growth and their video collaboration is up 25% in the quarter with annual run rate projection of $200M. 70% of the company's China business comes from e-commerce and the rise of e-sports. "We're really at the beginning of what we're doing. There's a gigantic opportunity for all kinds of companies and certainly for us," said Darrell.

Consumer packaged stocks

The consumer packaged stocks have been left behind by Wall Street. Even good companies with serious dividends like Procter & Gamble (NYSE:PG) and Kimberly-Clark (NYSE:KMB) are being left behind as money managers run behind cyclical stocks for growth. "The whole group is facing some major problems that we haven't had to deal with for ages, issues of relevance, capital returns and rotations that have made the stocks seem a lot less attractive," said Cramer.

In a booming economy, low growth consumer packaged stocks always tend to fall behind high growth stocks. There are many arguments against investing in consumer packaged stocks like their dividends won't offset the cost of rising interest rates and companies like Kimberly Clark deriving 1% growth even with benefits of improving economy, weakening dollar and rising inflation.

"However, the fact remains that none of these stocks have lost their bond market equivalent status, and if you can find the ones with the right balance of capital allocation toward dividends and buybacks, you should be able to do pretty well long term," said Cramer. While he supports the long-term investment strategy of investing in consumer packaged stocks, he sees many constraints too.

  • Growth constraints from e-commerce giant like Amazon (NASDAQ:AMZN).
  • Millennial buyers seeking value and deals from discount retailers.
  • Declining US birth rates.
  • Rising interest rates.
  • Slow innovation compared to healthcare and technology companies.

"I think it's simple: if you're running a diversified portfolio, as everyone should be, and you're looking for a sustainable, long-term source of income, then these stocks are absolutely worth looking at. Worst case, they go lower and give you higher yields," he concluded.

CEO interview - Illinois Tool Works (NYSE:ITW)

Illinois Tool Works reported terrific earnings and Cramer interviewed CEO Scott Santi to hear more about the quarter.

Santi said that Illinois Tool Works is a 105-year-old strong company that is built for the long term. "One of the real issues with a lot of trades these days is that there's a growing shortage of skilled and trained labor. You see it in the automation arena and certainly in the welding arena," he added.

The company however had a good quarter due to innovation for solving problems like these. The automotive segment was soft but growth in welding more than offset it. The food service segment is important for the company as their equipment helps restaurant owners save operational costs.

"A big component of our innovation focus there is to take some relatively sophisticated technology, but create user interfaces that allow you to apply that sophisticated technology to a lower skill level of trainee, if you will, and they can be very effective at their job," said Santi.

Viewer calls taken by Cramer

Alaska Air (NYSE:ALK): Cramer thought the merger could be good for them. But the news of extra capacity in the sector is bad for stocks.

US Steel (NYSE:X): Cramer prefers Nucor (NYSE:NUE) more as it's the best of breed and is owned by his charitable trust as well.

Universal Display (NASDAQ:OLED): Let the analysts downgrade the stock and weak hands get out of the stock. That's the time to buy the stock.


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