China Blinked - Cramer's Mad Money (7/12/18)

Summary

• Opportunity in domestic gaming stocks.
• Many large-cap stocks are cheap, and hence the market cannot be expensive.
• Buy Kohl's when it goes down to the low $60s.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday, July 12.

Cramer gave his theory that the stock rally on Thursday was because China blinked when it comes to the trade war. Many stocks from airlines, fintech plays, defense stocks, chipmakers and health care names rallied one day after US escalated the trade war with China. "When that happens and the stocks of American companies that do business in China start to rally, it emboldens other investors. People don't want to be crosswise with this one," said Cramer.

"China blinking is a key prop to this rally and it allowed all of the usual suspects that got hammered yesterday to go right back up," he added. Netflix (NFLX) was the only negative after a downgrade. The stocks of Mastercard (MA) and Visa (V) went up on the promise that they can expand in China with a joint partnership. Can American Express (AXP) also get through?

Casino and gaming stocks

Due to the trade war fears, international casino stocks have been under pressure for their exposure to Macau in China. However, Cramer gave a list of domestic players in the casino and gaming industry that could be worth buying. "Don’t get me wrong, I’m one of the few people who believe we can win this trade war and perhaps even win it quickly, but the risk-reward with the Macau-oriented casino stocks is very much against you," said Cramer.

Boyd Gaming (BYD) and Penn National Gaming (PENN) are two such stocks with over two dozen properties. "We’ve got a roaring economy and a very strong consumer who can afford to burn a little money, which is why we’re seeing a major uptick in gambling revenue in the places where it’s legal," he added.

The Supreme Court has legalized sports betting in many states which is a good opportunity in a massive business that's illicit. Both these companies along with Churchill Downs (CHDN) will benefit from sports betting. Churchill Downs has four racetracks, an eight-state casino business, an online betting arm called TwinSpires.com and a horse racing research segment. "If you want a way to play the legalization of sports betting, it’s hard to think of a better way to play it than a company that owns horse tracks," said Cramer. After a run up, this stock has more upside.

The REIT stock VICI Properties (VICI) owns properties under Caesar's and other golf courses. It also yields 5%. "Boyd Gaming, Penn National and Churchill Downs are best of breed, while VICI gives you a nice REIT alternative," concluded Cramer.

Is the market expensive?

Many say that the market has become expensive. "The more I think about certain calls, certain stocks, certain valuations, the more I recognize that we really have to stop relying so much on the idea of the market, because the valuations for many big-capitalization stocks just aren’t that expensive here," said Cramer.

Apart from Amazon (AMZN), Netflix (NFLX) and Tesla (TSLA), which cannot be traditionally valued, major stocks like Apple (AAPL), Facebook (FB) and Alphabet (GOOG) are not expensive considering their growth. Johnson & Johnson (JNJ) is trading at 15 times earnings with a great balance sheet.

"To me, the only way the market’s truly expensive is if you believe that 2019 is going to be a nasty, horrendous year where there’s a full stop to all businesses, a la the Great Recession from a decade ago. I’m making the case that perhaps we should just value the market as it is, with a lot of cheap big-cap stocks and some expensive ones," said Cramer.

CEO interview - Sage Therapeutics (SAGE)

The stock of Sage Therapeutics, which has drugs for fighting depression has tripled in the last year. Cramer interviewed CEO Dr. Jeff Jonas to know what lies ahead.

Jonas said that depression is a disease and not a lifestyle. "People with depression are very ill. Women with postpartum are very ill. And they deserve the same type of urgent therapeutic interventions like someone with a broken leg might need or someone with a seizure might need," he added.

Sage is working on number of treatments including for postpartum depression, major depressive disorder and bipolar disorder. The drug for postpartum depression, currently in clinical trials, has shown good results in 70% patients after just 2.5 days. "You can’t biopsy the brain and find out what’s going on, right? You have to treat people. And when you treat people, we decided if we could calm the brain down, there might be an opportunity to reset the way the brain is working, almost like a reboot," added Jonas.

The drug has passed Phase 3 of clinical trials and is in registration for trials on wider group. Apart from that, they are working on other molecules for Parkinson's, Alzheimer's and ADHD.

Viewer calls taken by Cramer

Blue Apron (APRN): Book partial profits and let the rest run.

Anadarko Petroleum (APC): They have a good buyback, and they are improving their balance sheet. It's a buy.

Kohl's (KSS): It could have weakness as it has run up a lot. Buy it if it goes to the low $60s.

Marriott International (MAR): It's a well-run company. Buy it.

Automatic Data Processing (ADP): It's a buy on any weakness.

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Comments

[Zhubajie]

Blink, blink.

Has it actually started??

Think just one stock. Facing the real threat of being shut down in China, and the prospect that it will literally take 2-3 years to rebuild that supply chain, and still end up with much higher per unit production costs, Apple tried this week to forestall the crisis by announcing a US$300 million "China Clean Energy Fund" for building 1 GW of renewables in China. But that likely is too little too late.

The nature of the highly efficient supply chain is such that even just doing final assembly still requires highly skilled, motivated laborers. Apple alone uses about 250,000 in China. Where else in the world can you replace that on short order?

Imagine no more sales or even exports of Apple products in and from China for a year, and what that does to Apple share prices and the stock market per se.

Has China blinked, I do wonder.

[Z Hu]

could someone enlighten me on what it was that China did in regards to blinking on the trade war?

[flockof4]

Was wondering the same thing.

[paul j schupf]

Cramer, what do you think of Hok Tan Hok Tan? You constantly recommended AVGO and now not a word. You are an irresponsible pastiche

[Michael Delaney]

Paul,

What do you think of AVGO at current valuations? What is your opinion of Hok Tan?

[John Naccarelli]

If there are 'some cheap large cap stocks, the market cannot be expensive'. I don't know about the rest of the investment community, but that was EXACTLY the case in 1999-2000. What started in April 2000 an continued for two years? … That's right … a HUGE correction. How can you possibly forget that event and the bifurcation of the market in the preceding years?
This is just completely wrong advice.

[flockof4]

Not saying you don't raise valid concerns; unfortunately we can't know until viewed through the lens of history. But...don't you think there is one big difference between 99/00 and today? That time period was the dawn of the internet with pie in the sky dreams. Venture capital being shoveled into the wind to see what grew. As it turns out a lot of it just blew away as those dreams turned to reality. Contrasted with today where these companies are cash generating behemoths. AAPL, GOOGL, AMZN, FB et. al. are machines and what rose from the ashes of the late 90's. Idk, I get worried too because everything seems expensive but what does that mean? I also don't think we are entering the 10th year of a bull run. More and more analysts are now writing about how there already was a reset in 2015/16 with many sectors correcting down 20% and we are now actually in a new bull market. I tend to agree with this though again, hard to say until viewed historically.

[John Naccarelli]

you are absolutely correct ... we won't know until we look in the rear view mirror. Yes, there are differences but there are similarities as well. The cryptocurrency boom and blockchain theme is the replacement for the internet boom of the 90's.