Trade War Relief Rally - Cramer's Mad Money (5/21/18)

|
Includes: BA, BB, CAT, FDX, HON, IFF, KMB, NKE, RIG, SBUX, SLB, TTWO, UTX, Z
by: SA Editor Mohit Manghnani

Summary

Frutarom deal gives big advantages to International Flavors & Fragrances.

Games like Fortnite are good for video game industry.

Schlumberger is the best of breed in the oil services company group.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday, May 21.

Stocks rebounded on Monday as the US-China trade war is on hold. "While we often act like only the large-capitalization stocks like Caterpillar (NYSE:CAT) and Boeing (NYSE:BA) are really in the crosshairs here, the truth is it's much, much bigger than that. Let's talk about why this rally actually makes a lot of sense," said Cramer.

China's influence on the US economy is big as China sells in the US. "A full-blown trade war could make life very, very expensive for most Americans," said Cramer. This came as a relief for retail stocks as they import a lot from China. A trade war could have led to tariffs on such imports which would have made products expensive for American consumers. That's the reason retail stocks rallied on the news.

Apart from that, rail stocks also rallied as rails haul lots of freight from West Coast ports to the rest of the US. Stocks like Honeywell (NYSE:HON) have a big impact from China on their earnings and United Technologies (NYSE:UTX) sells a lot of Otis elevators in China. Companies like FedEx (NYSE:FDX) will also gain due to flow of goods across the borders.

Nike (NYSE:NKE), Kimberly-Clark (NYSE:KMB) and Starbucks (NASDAQ:SBUX) also gain from good US-China relations. "At a time when we're increasingly worried about inflation and how it might force the Fed to raise rates faster than we'd like, the last thing we needed were tariffs on retail goods. We can all breathe easier now that we've lost what could've been an immediate driver of inflation," concluded Cramer.

CEO interview - International Flavors & Fragrances (NYSE:IFF)

International Flavors & Fragrances acquired Frutarom for $7.1B in a cash and stock deal. Cramer interviewed CEO Andreas Fibig to find out what the acquisition means for the company.

Fibig said that while the deal will be dilutive to shareholders initially, it will be accretive to earnings soon as the company complements IFF. "It's very complementary. Frutarom will make IFF the No. 2 flavor and fragrance producer in the world. We believe that this can help us a lot to accelerate our profitable growth going forward," he added.

IFF sells to 3,000 large customers while Frutarom sells to 30,000 small ones. Apart from that, Frutarom is the leader in natural and clean labels which are important to younger consumers. This gives IFF an enormous opportunity to cross-sell and also get access to locations that IFF had no footprint in.

"I would say we have done a very good job already with naturals, but they have some supplemental platforms we don't have. That could be very, very helpful for us going forward to satisfy that consumer demand, which is probably here to stay with all the millennials and all the consumer interviews we are doing every year," said Fibig.

Cramer thinks the negative reaction to the deal was an overreaction.

CEO interview - Take-Two Interactive (NASDAQ:TTWO)

After an earnings miss by Take-Two, the stock rebounded as analysts looked forward at key games. Cramer interviewed CEO Strauss Zelnick to hear what lies ahead.

Zelnick said that interactive games is the fastest-growing segment of entertainment. When asked about the current hot game Fortnite, he said that, "There seems to be a good deal of evidence that those who are playing 'Fortnite' are new to the category. It apparently speaks, at least anecdotally, to a younger audience. As they age, they will obviously be consumers of more mature titles, and currently, they can consume titles that are rated for everyone," he added.

Games like Fortnite are just expanding opportunities by expanding the consumer base for companies like Take-Two. "It would be great if we could corner the market on all hits. That's not realistic. The emphasis is on innovation, not derivation," he added.

Grand Theft Auto is one of the two longest running franchises and had another record year. The company also bought back $300M of its own stock. Zelnick did not comment on specifics of his meeting with President Trump.

CEO interview - Zillow (NASDAQ:Z)

Zillow started a service called 'Instant Offers' to buy and sell homes. Cramer interviewed CEO Spencer Rascoff to get to know more about it and what it means for the company.

Rascoff said that in the current instant world, consumers want to press a button to make everything happen and that's what 'Instant Offers' does although it's an extension of their existing services.

The company has lot of data on homes and home buyers. When a customer clicks on an instant offer, Zillow gives an instant offer for their home based on the data. Most customers don't accept the instant offer and that can then be handed off to a premiere real estate agent.

The company aims to sell the homes they buy in 90 days or less.

Viewer calls taken by Cramer

Transocean (NYSE:RIG): It's up 28% but Schlumberger (NYSE:SLB) is the best in show.

BlackBerry (NYSE:BB): Their intellectual property is worth a lot more than what the stock currently trades at.

::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

Jim Cramer's Action Alerts PLUS: Check out Cramer's multi-million dollar charitable trust portfolio and uncover the stocks he thinks could be HUGE winners. Start your FREE 14-day trial now!

Get Cramer's Picks by email - it's free and takes only a few seconds to sign up