Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday, April 19.
What triggered the market decline on Thursday? "Thanks to a nasty combination of the yield on the 10-year Treasury approaching 3%, a series of disappointments in the consumer products space, some amazingly fast growth in personal and corporate spending, a rally in commodities and a pickup in the trade war with China, we got hit with a flash flood of selling in a number of key groups," the Mad Money host said.
Cramer is worried about the trade war with China. While the tariffs have started showing an impact on miners' earnings, it is spreading to the tech sector. After the US imposed a 7-year ban on selling goods to Chinese phone equipment maker ZTE, the Chinese have retaliated by giving a negative view of the Qualcomm (NASDAQ:QCOM)-NXP Semiconductor (NASDAQ:NXPI) deal. Cramer thinks it's sheer tit-for-tat, as there is little overlap in the two businesses.
"It's totally arbitrary. It's totally capricious. That's the point, which is why this had such a devastating impact on a key leadership group: the semiconductor stocks," he added. This has led to pin action in other semis. Even the consumer packaged goods stocks were rattled by inflation after Procter & Gamble (NYSE:PG) reported a paltry growth of 1% due to inflation.
Cramer believes a little inflation in the red-hot economy is expected, and the positives in the market outweigh the negatives.
First Trillion-Dollar Company
Which will be the first company to reach $1 trillion? Apple (NASDAQ:AAPL) was the clear favorite sometime back with a market cap of $877B, but slowing iPhone sales have slowed down the momentum for the stock.
The other contenders are Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG) with market caps of $740B, $754B and $757B, respectively. Microsoft is riding on the wave of strong guidance and a focus on the cloud, while Amazon has 100 million paying Prime subscribers. Alphabet, on the other hand, has low expectations, so an in-line quarter will get the stock moving.
"Right now, though, Amazon's the one that could break free, break away from this three-horse pack to challenge Apple. Can it overtake the favorite? Not if Apple surprises to the upside this quarter. But if it misses and Amazon delivers, the roses may very well belong to Jeff Bezos."
The trade war between the US and China is heating up, and any stock in the blast zone is being hammered. Acacia Communications (NASDAQ:ACIA) collapsing this week as the US banned sales to Chinese cellphone maker ZTE is a classic example of the effects of trade war on stocks.
There was retaliation from China, which gave a negative view on the Qualcomm-NXP Semiconductor merger. Both these stocks went down on the news. Cramer thinks this battle will hurt the entire tech sector. "If this is the new normal, if the Chinese will block any semiconductor merger, that's going to be brutal for the stocks in the group. It makes the whole cohort less valuable," said Cramer.
He thinks that China has a better strategy. "The Chinese government loves to organize boycotts. Past tensions with Japan and South Korea have led to Chinese boycotts of Japanese and South Korean products. As I see it, this is China's ultimate weapon," Cramer said. Such a thing would not work in a democracy like the US. "Do you really want to be the one guy breaking a boycott in an authoritarian communist state? I didn't think so," he added.
This could spread to the consumer sector, and companies having business in China and the US could be affected. "Just because we're not talking about tariffs every day, that doesn't mean our trade dispute with China is somehow over. It's still very active, it's hot, it's just that the action has shifted to the tech front for the moment. You need to watch this very carefully," concluded Cramer.
CEO interview - Nucor (NYSE:NUE)
Steel has been a hot topic due to Trump's tariffs. Cramer interviewed chairman, president and CEO of Nucor, John Ferriola, to find out his views on the tariffs and trade war. The company posted a good quarter on higher steel selling prices and issued positive guidance.
Ferriola said that the US President should honor his commitment of imposing tariffs on the May 1 deadline. He added that the US needs a level playing field for steel and aluminum. Even without the tariffs, Nucor posted good results, as imported steel made 25% of the total market. The demand is rising, and the company is running plants at 92% capacity.
People still have the choice to use American-made steel from Nucor, or they can pay fair market prices if they import steel. Most of the company's end-markets remain strong, with flat sheet products being the strongest. Ferriola doesn't expect a shortage once tariffs come into place.
CEO interview - United Rentals (NYSE:URI)
United Rentals posted a good quarter with a huge earnings beat. The stock went down as there were concerns on falling margins. Cramer interviewed CEO Michael Kneeland to know more about the quarter and the company's $1.25 billion stock buyback program.
Kneeland said that all indicators point to a strong year for the company. The rates are improving, and so are the pries on used equipment. Also, due to the seasonal nature of its business, the company never raises estimates in Q1, but going further it will have a better handle on things.
The CEO said United Rentals has good relationships with vendors, and the company doesn't expect the tariffs to have an effect on it, as all its purchases are in for the year. The company is investing in technology and telematics for equipment which will provide geo-location, low fuel warnings and maintenance notices.
Cramer is still recommending the stock.
Viewer calls taken by Cramer
AMC Entertainment (NYSE:AMC): The stock has bottomed after selling off.
PepsiCo (NYSE:PEP): Cramer's trust has held the stock for a long time now. If it goes down, the trust will buy more. He admitted that consumer packaged goods stocks are facing a tough time.
AutoZone (NYSE:AZO): Its estimates haven't come down enough. The company has bought back stock, but it is in direct fire of Amazon.
Square (NYSE:SQ): It's an excellent company. Don't buy all at one go, but wait for it to come down.
Air Products and Chemicals (NYSE:APD): The company has exposure to China, and hence one has to be careful.
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