Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday, May 17.
The economy is running too fast and is getting hotter. Cramer thinks someone will get hurt if the Fed keeps raising interest rates. After weaker than expected nonfarm payrolls, the street expected Fed to not raise rates aggressively. However, after the jobless claims data, the Fed could raise rates faster than expected. "That's the lowest jobless claims figure since December 1969, when we had a 120M fewer people in this country," said Cramer.
The Fed put the benchmark funds rate at a target of 1.5-1.75%. The chances of June rate hike is 95%. The Fed will keep raising rates to fend off inflation but higher rates make it expensive to borrow money which will slow down the economy.
Based on conference calls, Cramer sees inflation in retail, oil, lumber and his personal barometer, corrugated cardboard used in Amazon boxes. Besides that, there is digital deflation caused by the likes of Amazon, cloud companies who are doing more with less.
"In other words, when the economy gets too hot, we have these mechanisms in place that will cause it to cool back down, and that's where you might get hurt," concluded Cramer.
CEO interview - Canopy Growth Corp (TWMJF)
Cramer had said that as marijuana gets legal, the profits will go down. Pot is expensive only because it is illegal in many states. Cramer interviewed CEO Bruce Linton of Canada based Canopy Growth Corp. which has applied to be the first cannabis company to be listed on NYSE.
Linton said that legalizing marijuana at the Federal level in the US will result in fewer prescriptions of addictive substances such as opioids. The company has both medical division and recreation division. Constellation Brands (NYSE:STZ) has taken 9.9% stake in the company and partnership with them could result in a new low-calorie beverage. Marijuana has disrupted sales of other products such as alcohol and sleep aids around the globe.
"Cannabis is a huge disruptor to the opioid guys. Opioids, including heroin and fentanyl, were involved in more than 42,000 overdose deaths in 2016, according to the Centers for Disease Control and Prevention. The opioid epidemic affects American children as well. The number of pediatric opioid hospitalizations requiring intensive care nearly doubled to 1,504 patients between 2012 and 2015, from 797 patients between 2004 and 2007, according to a study published in the peer-reviewed medical journal Pediatrics," said Linton.
They are Canada's biggest weed company and their products are sold in 7 countries. There is still a lot of work to be done pairing cannabis products with oncology treatments for pain relief and loss of appetite. There is a big opportunity in the animal health market as well.
The company is regulated with the German standards and has real profits and revenue.
Expectations are killing stocks
Stock movement are all about expectation. That was the case with Masco (NYSE:MAS), Owens Corning (NYSE:OC) and Stanley Black & Decker (NYSE:SWK). All these stocks had a good run in 2017 but have fallen in 2018 due to housing related weakness.
Masco and Stanley Black & Decker have fallen 19% while Owens Corning has fallen 30% in 2018. Cramer called it a case of high expectations. When the companies posted good results, it wasn't enough to impress the street as they did not blow past the expectations.
The worry of rising interest rates and commodity costs hit the stocks further. In the current quarter, Black & Decker just met expectations, Masco missed earnings and Owens Corning posted bad results that led the entire group to go down.
These stocks are cheap - Stanley Black & Decker trading at PE of 15, Masco at 13 and Owens Corning at 10 but looking at the challenges of the current environment, they are not cheap. Cramer thinks Stanley Black & Decker is the only one worth buying as it's least levered to housing.
Consumer packaged goods and housing stocks
Cramer reviewed two important groups in the stock market - consumer packaged stocks and homebuilders. Most of the CPG companies are down by 30% while homebuilder stocks are down by 20%.
As the interest rates keep rising, the money managers are ditching the homebuilder stocks despite good earnings. The same case is with CPG stocks where the inflation and commodity costs are rising. Although there is yield protection in CPG stocks, it's not big enough to offset the rise in costs.
Cramer thinks these companies cannot survive just based on good earnings as the market has turned their back on them. There are easier ways to make money so he advised staying away from these groups.
Estee Lauder (NYSE:EL) is a CPG company that is going against the trend but this is seen less of a CPG company and more of an aspirational brand company.
Viewer calls taken by Cramer
Honeywell International (NYSE:HON): It's a good company that is also called a play on e-commerce. Buy it.
Huntington Ingalls Industries (NYSE:HII): It is growing. Hold the stock.
Herbalife (NYSE:HLF): It's up more than 50% for the year. Let it come down below $50 to buy.
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