Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday, February 7.
While the market swung in the past week, it is still not out of the woods. Declines do give investors an opportunity to buy but they have not made a bottom yet. The market had been rallying since last year without a pullback and it was overdue. The new normal is that stocks matter less but how the market trades matters more.
The leveraged instruments like VelocityShares Daily Inverse VIX (NASDAQ:XIV) and other double and triple leveraged instruments are causing havoc. As fundamentals have little to do with the current market scenario, Cramer pointed to bargains created by the market tailspin. Disney (NYSE:DIS) reported a terrific quarter with growth in its parks business and a new distribution strategy for ESPN. "Most important, you can personalize what you want, which is incredibly important to the younger generation. I can't wait for the service. Disney's merging with Fox, a deal I love, made even more amorous by a strong Fox earnings report after the close this very night, but in the interim, Disney's buying back its own stock hand over fist," said Cramer.
Snap (NYSE:SNAP) reported numbers through the roof which led to the stock rallying 47%. Cramer was bearish on the stock since its IPO. "Of course I did. I mean, it was losing oodles of money with botched plans and little to show for it," he said. After the good earnings report, Cramer reconsidered Snap and it reminded him of the early Facebook (NASDAQ:FB) days where the company eventually figured out how to make money from mobile. "Sure, I was a skeptic, but after this quarter, I'm now a believer. There simply aren't enough investable social media plays around," said Cramer.
He suggested looking for bargains created by the market volatility. "The longer-term problems of higher interest rates and the possible re-emergence of inflation will make things tougher. But you can get tougher yourself, as long as you know that you're doing the punching and bagging the best merchandise you can get," he concluded.
CEO interview - Hasbro (NASDAQ:HAS)
Hasbro reported an earnings beat with a small revenue shortfall. The company's stock went down briefly after the earnings but ended up after acquisition chatter about Mattel (NASDAQ:MAT). Cramer interviewed chairman and CEO Brian Goldner to find out about the M&A possibility and the quarter.
Goldner did not confirm the rumor talk. "We, first and foremost, are investing in our business. We built these capabilities of the brand blueprint over a 10-year period. You're seeing our performance come to the fore. We always are looking at how we return excess cash to shareholders. Our board just approved raise of the dividend to an 11% raise. That's really been our focus and I couldn't comment on any M&A speculation," said Goldner.
He also said that soft Star Wars toy sales worries are overblown. "We really have seen the performance of The Last Jedi product accelerate once people saw the movie, we just thought that the window between the merchandise date and the movie date was a bit too long. We've already taken that into consideration in partnership with Disney," he added.
"We'll shorten that window, which enables us to take advantage of both paid and earned media and all the excitement around that movie coming to theaters. You can imagine that between Last Jedi and its home entertainment window and the Solo movie, we have great product at all kinds of different price points for fans and families," said Goldner.
He was excited about the company's new partners, deals with Marvell and the Monopoly 'cheaters edition'. Goldner said the company wants to own more of the franchise economics for their brands. "It allows us to go around the world with one voice to retailers, offering everything from apparel to toys and games, and that's really activating our brand and delivering value for shareholders," he concluded.
Considering the current geo-political environment, the long-term secular trend in defense stocks is still intact despite the huge gains since 2016. "When the defense contractors get slammed by a big sell-off, they should be right at the top, No. 1, of your shopping list because the things people are worried about like the Fed getting too aggressive matter a lot less to the defense industry than the industrial stocks," said Cramer.
During the recent selloff, many stocks went down and have created bargains as they are cheaper than they were before the pullback. The Senate reaching a budget deal with increased defense spending will add to the rally in defense stocks. "When Republicans control the White House and the legislature, Washington becomes a fabulous feeding trough for the defense contractors because this is the one thing that the GOP really likes spending money on," added Cramer.
Cramer's favorite stocks in the defense group are Lockheed Martin (NYSE:LMT), Raytheon (NYSE:RTN) and Harris Corporation (HRS). Lockheed Martin has orders worth $100B on its books and Raytheon makes missile and mission systems which are in high demand. Both these companies benefit from a lower tax rate as well.
Harris is in electronics and communications systems which are an integral part of Lockheed Martin's F-35 jets and operations at the Pentagon. "But you know the main reason I like Lockheed, Raytheon and Harris? It's because we know for a fact that all three companies are in fabulous shape. In fact, they were doing well even before Congress agreed to boost the defense budget. We know this because all three companies just reported terrific results," added Cramer.
Don't chase the defense stocks as they have moved up a lot but keep them on the shopping list to buy when they come down.
CEO interview - Clorox (NYSE:CLX)
Clorox reported in-line earnings but issued favorable guidance. Cramer interviewed chairman and CEO Benno Dorer to hear more about the quarter and his views on the challenging environment for consumer stocks.
Dorer spoke about the benefits of the new tax law. "83% of our business is here in the U.S., so we are disproportionately benefiting from tax reform. Our suggested tax rate for this fiscal year prior to tax reform was going to be in the 32-33% range. Now, we estimate it to be, post-tax reform, in the 23-24% range. That is a dramatic benefit and we will put that money to work for our shareholders and to make our business stronger." The company will invest the money in cost savings, growth and capital return to shareholders.
The reason they want to invest in cost savings is because the rising commodity and transportation costs impacted their earnings in the last quarter. The company's focus now is to innovate and get products into more households throughout the world.
Viewer calls taken by Cramer
Lululemon (NASDAQ:LULU): The action in the stock means either the company could be acquired or the numbers will be better than expected. The company is not revealing details.
United Parcel Services (NYSE:UPS): While the stock is a buy, no one ever got hurt taking a profit.
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