Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday, February 5.
Cramer called the selloff on Monday a reset for the market. "Think of it as the terrifying process that gets us back to more reasonable levels where we can start to have a real advance, not a parabolic move that's destined to be repealed," he said. He thinks the selloff makes sense and gave his list of reasons for the market to go down.
- Rising stock prices: For the first time in 12 years of hosting the show, Cramer observed that every CEO thinks that their stock is inexpensive. "They tend to think that their stocks should have the same trajectory, lifting slowly in fits and starts. They're comfortable with that. They don't trust what we call a parabolic move. The last leg of the rally was all about index fund money flooding into the S&P 500, not the fundamentals of specific companies, which is why most CEOs find it downright baffling," he added.
- Bonds: When the economy starts to improve, rates start to rise. "As long as they were rising off low levels, we weren't that worried. At a certain point, though, you reach a place where good news for the economy is then bad news for the stock market," said Cramer. That point was Friday when the 10-year treasury yield climbed to 2.8%. This competition of bonds to equities led investors to believe that the economy is overheating, leading to a decline in utility and dividend stocks. "Of course, if rates come back down like they did today then we're probably closer to a bottom than we realize, but I don't think we're there yet," said Cramer.
- Bear shortage: Lately, analysts kept on raising price targets instead of asking their clients to book profits. This led to a shortage of market moving skeptics leading to a non-stop rally.
- New shareholders: The past three to four months have seen new investors coming in, thinking stocks are safe again. "Now they find, out of nowhere, that it's otherwise. Put yourself in their shoes for a second. Do these new investors want to buy more on weakness or do they want to cut and run? Get your head around this. It's probably the latter, isn't it?"
- Banks: When the rates rise, bank stocks gain. However, after the Fed's restriction on Wells Fargo's (NYSE:WFC) business, banks took a hit.
- Apple (NASDAQ:AAPL): Apple had a great quarter but it gave a weaker than expected forecast. This led to the tech sector going down.
The market had run up too fast. "That's why last week I told you to raise cash. After today, though, it's getting too late to sell, and if we get another move down, it will create too many juicy bargains to ignore," concluded Cramer.
Panic selloff is bad
"I hate to sound glib here, but we were due for a decline. We just were. Markets do not go up in a straight line. Despite the large, scary red numbers you see on your screen, the truth is that these things happen. You've got to be ready for them," said Cramer. The 5% weakness occurs three times a year on average.
While rising interest rates and declines in key stocks started the decline, European markets in the red started the decline chain. When the jobs report on Friday showed the highest wage growth and the interest rates started to climb, it spooked investors as the Fed will be forced to tighten rates. Higher wages are good for people but it worries investors about Fed tightening unexpectedly.
When the entire market takes a hit, investors start selling stocks in panic. However this cannot be good for any portfolio. Instead, Cramer looks for bargains in the market rubble and secular growth themes. He thinks that Amazon (NASDAQ:AMZN) can emerge as a leader for stocks although it went down 3% on Monday. This can be a chance to buy it.
Some cyclical stocks like chemicals haven't run up that much and hence those make a good buy. With Wells Fargo going down and interest rates going up, JPMorgan (NYSE:JPM) becomes the go-to choice. "Here's the bottom line: harsh sell-offs are miserable to live through, but they are unavoidable. They are part of investing. This one was long overdue. As long as you can stop yourself from panicking, you will do well and will be able to identify the opportunities that are being created," concluded Cramer.
Cramer outlined a strategy for investors in times of selloff like the one on Monday. While the decline may look scary, it's not the end of the world. He answered user questions on the selloff.
How to find a market bottom? Cramer said that the market bottoms in thirds. He thinks financials and the healthcare sector will be the first ones to stabilize.
When to buy on a selloff day? Cramer suggested never to buy at the open and wait to see if a rally holds till 2:30 pm ET. If it doesn't there will be a second wave of selling. "The market tends to bottom intraday between 11:00 and 2:30, but if it doesn't rally, then there's a lot of forced selling that comes from margin clerks. So quarter to 3 is make or break," said Cramer.
Should one buy more Henry Schein (NASDAQ:HSIC)? Cramer said he'd buy dividend stocks like Johnson & Johnson (NYSE:JNJ) and Procter & Gamble (NYSE:PG). He also recommended cutting his position in Henry Schien.
CEO interview - Cypress Semiconductor (NASDAQ:CY)
Cypress Semi reported a great quarter with earnings and revenue growth. Cramer interviewed CEO Hassane El-Khoury to hear what lies ahead.
El-Khoury said that their business is strong and outlook for 2018 is no different. "Our automotive outgrew the automotive market. We grew 16% in our auto, which is one of our biggest focus markets. Consumer outgrew. Industrial outgrew. Look at our IoT connectivity. Everything is getting connected. That grew 46% from an annualized Q4 in 2016," he added.
It's not just about the number but how consumers interact with the company's products that are in everything from wearable devices to connected cars. Be it high performance or ultra-low power consumption, Cypress's products excel in every aspect.
Viewer calls taken by Cramer
Exxon Mobil (NYSE:XOM): They have 4% yield and they have a great balance sheet along with a good long-term plan. Cramer is a fan of the stock in the $70s for the long term.
Sirius XM (NASDAQ:SIRI): The stock is good at $6.
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