Sanity Restored - Cramer's Mad Money (5/30/18)

by: SA Editor Mohit Manghnani

Salesforce "Remaining Transaction Price" metric stands at $20.4B.

AutoZone is better than Advance Auto Parts.

GameStop has a challenged business model.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday, May 30.

After panic selling on Tuesday, the market showed rationality on Wednesday. "We forget why people fled from high quality stocks in droves yesterday, even stocks that had nothing to do with Italy. For the record, that's pretty much every American company having nothing to do with Italy, aside from a handful of players," said Cramer. He decoded five reasons the market restored sanity on Wednesday.

  1. America is not Italy. "Anyone who thinks that Italy is a functioning state with a real live banking system is kidding themselves. They are sick and tired of the strong euro that is hurting the tourism business. That's the cause of the latest fracas: Italy loses far more than it gains from the euro," said Cramer.
  2. US economy is strong and that means higher stock prices as most companies do business domestically. Selling domestic stocks on Italy woes is stupid.
  3. America is booming due to its natural resources base and strong employment.
  4. Deregulation is an important part of the US economy growth. "Now that the Trump administration is slashing regulations left and right, or at least taking a very hands-off attitude for enforcing the rules it can't get rid of, America has become an even easier place to hire people and grow your business," added Cramer.
  5. US banks are not like Italy's banks. US banks are solvent, overcapitalized and growing.

"America is not Italy. New York is not Rome. Our banks are not their banks," concluded Cramer.

CEO interview - PVH Corp (NYSE:PVH)

PVH reported yet another earnings beat and lifted guidance. Their stock is up 15% in 2018. Cramer interviewed CEO Manny Chirico to find out more about the quarter.

Chirico said the business around the globe is the strongest he has seen in 25 years. Most of their strength came from Europe, Asia and North America with revenue up 12% for the CK business on a constant currency basis and 11% for the Tommy Hilfiger brand. South America and Brazil regions were weak.

Retailers are playing it different by keeping inventories lean, leading to fewer markdowns and promotions, thereby generating higher margins. Online channel is the fastest growing in retail.

He also commented on the China tariffs by saying he feels better about it than he did three months ago. "China needs to make changes to open up its market and the issue surrounding the theft of intellectual property needs to be addressed. I don't think you really want to disrupt everyone's supply chains coming out of Asia as we go forward," he concluded.

The company is maintaining a conservative guidance for the year considering the volatility in currency.

Salesforce (NYSE:CRM)

Cramer continued talking about great earnings. Salesforce's earnings also show that transition to the cloud is still in its early stages. He pointed out that Salesforce has a new metric called "Remaining Transaction Price", which represents the amount of unrecognized revenues from existing contracts and that number stands at a whopping $20.4B currently.

The two customer wins for Salesforce - U.S. Department of Agriculture and the Veterans Administration are really big for the company as they have big budgets.

Auto parts industry

Apart from O'Reilly Automative (NASDAQ:ORLY), the auto parts industry has been a laggard compared to the rest of the market. Other players like Advance Auto Parts (NYSE:AAP) and AutoZone (NYSE:AZO) have not done well mainly due to fears of Amazon (NASDAQ:AMZN) entering the auto parts market. Once those fears were gone, Advanced Auto Parts rallied 29% but AutoZone has declined 8%.

The stark difference in valuation of these stocks is due to expectations. Both these companies posted mixed results and AutoZone failed to meet the street's expectations while Advance Auto Parts was viewed as a turnaround story.

Advance Auto Parts trades at 16 times earnings while AutoZone trades at 11 times earnings. Cramer said that AutoZone has been a better operator historically and hence he'd put his money on it.

CEO interview - New Relic (NYSE:NEWR)

The stock of network monitoring platform company New Relic is up 127% in the last twelve months. Cramer interviewed CEO Lew Cirne to hear what lies ahead for them.

Cirne said as companies move to digital, their demands to keep up their technology and platforms running increases. That's why more companies are using New Relic's platform to monitor their digital properties to catch and resolve problems quickly. Companies want easy-to-use tools that can help them and their teams work seamlessly.

They have partnered with IBM (NYSE:IBM) which is reselling their platform. Domino's (NYSE:DPZ) is another important partner which Cirne described as a technology company selling pizzas.

Viewer calls taken by Cramer

Cronos Group (NASDAQ:CRON): Canopy Growth Corp (NYSE:CGC) is a better buy but Cramer cautioned that most of the gains have been made already.

GameStop (NYSE:GME): It's too low to sell but it has a challenged business model and is mall based. People buy their games online now.

Axon Enterprises (NASDAQ:AAXN): It's a $3.7B company that has a lot of shorts in it. However the stock has run up a lot and Cramer recommended buying it when it goes down.


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