Avoid Extreme Stocks - Cramer's Mad Money (7/24/18)

by: SA Editor Mohit Manghnani

The S&P 500 could make all-time highs by the end of earnings season.

Danaher has more room to run.

Dominion Midstream Partners has become too cheap.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday, July 24.

It's a market of the extremes. "If I had to sum up this market in a word, I’d call it extremist. We rush from one extreme to the other, sometimes in the same day," said the Mad Money host. The Nasdaq rallied only because Alphabet (GOOG, GOOGL) reported great earnings while the industrial stocks went down on tariff concerns.

"Industrials also went down because many traders made up their minds that things weren’t so hot before they even knew what the industrials were going to say," he said. The stock of 3M (NYSE:MMM) went down after the company reported good earnings. Cramer was frustrated, as trading was being done on headlines and it had nothing to do with the actual companies. After trading near its low, the stock reversed as investors realized that the quarter was not bad.

"I know Wall Street has given up on China as a source of growth because of trade friction, but last night the PRC injected some serious stimulus into its economy, something that will indeed help the likes of 3M and United Technologies (NYSE:UTX)," added Cramer. The commodity markets are also hot, which is a good sign for the industrial stocks.

Though Alphabet had a good quarter, it has nothing to do with entire tech. Likewise, all the industrial stocks do not need to go down if the Street doesn't like 3M's quarter. "The moral of this story is that the extremes have to be avoided. Don’t buy up, don't chase when there’s nothing but rampant pin action. In fact, here’s a radical idea for everyone who dumped the industrials this morning: maybe try to figure out what’s going on before you take action," he concluded.

Off the charts

Cramer went to the charts with the help of technician Mark Sebastian to get a reading on the VIX. "Will it be smooth sailing? Or is it time to be afraid because we could be in for another February-style swoon?" asked Cramer.

In a healthy market, the S&P 500 and VIX trade in opposite directions. January showed a troubling pattern of S&P 500 rising along with VIX, which led to a fall in S&P 500 in February. Things are looking better now, as since June 27, the S&P 500 has rallied 5% and VIX has gone down from 18 to 12.

"Unlike in January, when the market was getting nervous about the rally even as stocks kept climbing, traders are not racing to buy put options to protect themselves against wild swings here. Just the opposite - they’re expecting a lot less volatility, not more volatility. The smart money believes in the rally," Cramer noted. However, the drop in VIX was odd, as things turn volatile in the earnings season. Although the decline was unusual, it is not concerning.

The VVIX is also holding steady near the 100 level, which means VIX traders are wary about the index. If VIX goes below 12 and VVIX doesn't fall, it's a bad sign. "In short, if the VIX keeps going lower but the VVIX doesn’t come down with it, Sebastian thinks you should expect some choppiness in the stock market. Although, to be totally clear, it hasn't happened yet, it’s just something he wants to look out for. At the moment, both the volatility index and the VVIX are painting a positive picture," Cramer explained.

Overall, Sebastian thinks the S&P 500 could be heading for all-time highs by the end of earnings season, and it can also get to 2,900-3,000 based on some resolution in trade and tariffs. "I am watching the VIX like a hawk for any signs like we got going into the late January because, wow, that peak and that February bruising? We've got to spot that before it happens," concluded Cramer.

Danaher (NYSE:DHR)

Danaher reported good earnings in the last week. Not only that, the company also unlocked shareholder value by announcing a spin-off of its dental business, which accounts for 14.5% of revenue. Danaher ran into the problem of being too diversified two years ago, and it responded by spinning off Fortive (NYSE:FTV), which is up 56% now.

The remaining Danaher was a solid performer with slow and steady growth. As fears of tariffs started, the dental business started weighing on the company, and hence, Danaher is spinning it off too. The company has already mentioned that tariffs would have $0.01 impact, and it is working hard to mitigate that as well.

"Now, Danaher's diagnostics, life sciences and environmental segments can continue to enjoy their double-digit growth and margin expansion without the slow-growing dental business infringing on the numbers," Cramer said. The company is doing everything for the shareholder, and Cramer thinks it has more room to run.

CEO interview - Centene (NYSE:CNC)

The stock of Centene went down 4.5% despite the company posting a solid quarter. The stock is up 342% over the last five years. Cramer interviewed chairman and CEO Michael Neidorff to know why the street wasn't impressed with good earnings.

Neidorff said that healthcare costs are growing in single digits, and this will help the company keep management costs of Fidelis lower. Centene is a believer in Big Data, and is using predictive analytics to achieve better outcomes for patients.

Commenting on US healthcare, he said that it is moving from policy to politics. "Obamacare is working, we’re doing very well with it and we’re anticipating growing it. If you look at what’s the right healthcare policy for this population, the ACA works. And we’ve proven it. We’ve been doing this for five years. It’s been very successful," he added.

Viewer calls taken by Cramer

Tilray (NASDAQ:TLRY): It's a medicinal marijuana stock. Cramer prefers GW Pharmaceuticals (NASDAQ:GWPH), but the group is volatile.

Synchrony Financial (NYSE:SYF): Cramer thinks this one is okay, but he is a fan of PayPal (NASDAQ:PYPL), which is also held by his Trust.

Dominion Midstream Partners (NYSE:DM): Cramer has soured on the group, but this is a cheap stock. Cramer likes Dominion Energy (NYSE:D).


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