Sell-Offs Are Creating Buying Opportunities - Cramer's Mad Money (7/16/18)

by: SA Editor Mohit Manghnani

The analysts got it wrong on McCormick.

Bank of America CEO Brian Moynihan talks about the strength of their digital efforts.

Buy Starbucks below $50s.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday, July 16.

The sellers have got it wrong. The banks sold on Friday despite strong earnings from the majors like JPMorgan (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC). However, they rebounded on Monday after earnings from Bank of America (NYSE:BAC). No justification for Friday's sell-off can be good but Cramer anticipates that the sellers will return.

There was selling in oil stocks as well on the pretext that Russia would pump more oil or the U.S. may release excess crude from reserves to curb prices. Oil demand is increasing by 1.5% a year and Cramer said selling oil stocks could be a mistake.

Next, the sell-off came after Netflix's (NASDAQ:NFLX) earnings. Their subscriber growth fell short by 1M and the stock went down 13% in after-hours trading. The stock had risen 108% in the year going into the quarter. This is the first miss on the line item in five quarters and Cramer thinks this could be an opportunity. The company said they over-forecasted growth but analysts think that this could be a slowdown for the media giant.

The FANG stocks sold off after Netflix earnings along with other subscription-based stocks like Spotify (NYSE:SPOT). "It feels a lot like guilt by association. These companies like Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) are going down? I mean, come on. The only thing they have in common with the stock of Netflix is they were up a lot," said Cramer.

"In this crazy market, you need to be being willing to go against the grain because it’s the only way to be rational. Just try not to overreact so that you can be opportunistic – don’t be blind," concluded Cramer.

CEO interview - Bank of America (BAC)

Bank of America reported stellar earnings and the stock rallied 4%. Cramer interviewed chairman and CEO Brian Moynihan to find out the secret of their growth.

Moynihan said that the company's digital efforts are paying off by lowering costs. "I got asked a question on the earnings call today, ‘Is this millennials?’ Well, there’s 35M digital users. There aren’t enough millennials to do that. And so it spreads across all age cohorts, even guys as old as us," he added.

The company cut costs and that led to a 5% decline in expenses. The bank's answer to PayPal's Venmo app is 'Zelle', which saw 35M logins. "Our customer service scores continue to go up, while at the same time the cost structure, in the consumer bank especially, continues to come down," said Moynihan. This was the 14th quarter of higher operating leverage.

Though the number of branches has fallen from 6,300 10 years ago to 4,300 today, they are performing fewer transactions but relationship managers are interacting with more customers and providing value.

Moynihan also said that he is happy with U.S. employment, tax reforms and the economy as a whole.

McCormick (NYSE:MKC)

The stock of McCormick went up after great earnings. It caught analysts by surprise mainly because consumer packaged goods stocks were not doing well. More so, Deutsche Bank analysts put a sell rating on the stock in January. "They said the legacy McCormick business was poised to lose major market share to private-label competitors, and there would be little to no organic growth to be found. Basically, they painted a very grim picture, and while, quarter after quarter, McCormick proves this picture dead-wrong, the negative thesis simply refused to die," said Cramer.

The company's good Q1 was not enough to send the stock up. They did well in Q2 with recently acquired Frank's and French's brands adding 13% to revenue. Their Q2 report puts the bear thesis to rest as all the brands that were thought to under-perform as per Deutsche's analyst report were growing. McCormick's CEO, Lawrence Kurzius, said he believed Frank's RedHot could be the top hot sauce in the world. The analysts misunderstood the strength of the acquired Reckitt Benckiser’s food division.

"Finally, the stock got some real lift, surging 8.4% that day and then continuing to rally to an all-time high of $120 last week," said Cramer. However, it was strange to him that the stock rallied even when the management did not raise guidance.

The stock now trades at 22 times next year's earnings which makes it a little expensive. "McCormick has proven the bears wrong every step of the way and, after languishing for the better part of the year, I think this rally is just getting started as the stock has become the darling of the packaged foods group," concluded Cramer.

CEO interview - Enbridge (NYSE:ENB)

The stock of Enbridge is up 22% from its lows in April and yields 5.8%. Cramer interviewed CEO Al Monaco to hear what lies ahead.

It has been a year since they acquired Spectra Energy and the strategy is paying off as their focus now is to be the best natural gas pipeline company and gas utility. The company also has a lean structure now as investing in MLPs is going out of favor.

"We see a huge opportunity for natural gas growth in this country, very much a low-cost supplier. Now, the opportunity is how can we build the infrastructure? It’s all got to be pointed, at least in our view to gaining export markets, gaining global market share for what we have here in North America, which is a tremendous competitive advantage in energy," said Monaco.

They are focusing on pipeline and utility operations and selling non-core assets to strengthen the balance sheet. "It’s all about pointing that infrastructure to capitalize on that advantage and gain export market share on a global energy basis," he concluded.

Viewer calls taken by Cramer

Trinity Industries (NYSE:TRN): Union Pacific (NYSE:UNP) is a much better buy than Trinity as they are also buying back their own stock.

Starbucks (NASDAQ:SBUX): It's worth buying below $50 as a lot of the negatives are beginning to be recognized.


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