Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday, July 31.
Every sell-off has to come to an end, and Tuesday was just the day Cramer felt that the sell-off has ended at least for the time being. There were two main reasons for the weakness: Facebook's (NASDAQ:FB) earnings and China trade talk. As far as trade talks are concerned, there are rumors that it is resuming, and that led to the entire industrial cohort's rise. While there is still no clarity about the tariffs talks, this is a good sign to begin with.
As far as tech-related weakness is concerned, it was offset by stellar earnings from Apple (NASDAQ:AAPL). Company management had positive things to say regarding the tariffs on the conference call. The services revenue showed strength and boosted the quarter, and the margins improved along with higher ASPs mainly due to higher iPhone X sales. "Given the rapid growth of that service stream, this company deserves to sell at a price-to-earnings ratio that is more like a consumer packaged goods company," said Cramer.
Apple trades at 17 times next year's earnings, but it deserves to trade at a 20s multiple, on par with good consumer stocks. "I could argue it should be valued at well north of $280 instead of about $200, where it is right now," added Cramer. The company's organic growth and capital return to shareholders is way better than those of consumer goods companies. "That's how I could explain how the stock should have a $300 target, not a $200 target, which I think it'll eclipse tomorrow," he noted.
Cramer thinks that it is still not late to own Apple, and he reiterated that it's better to own the stock and not trade it.
The economy is strong
Cramer said the economy is strong looking at the job growth. He said investors should ignore the strength in the economy at their own peril, and should follow the profits. The theory holds good considering the strength in retail. Current US GDP growth of 4.1% is the best since 2014. It reflects higher consumer spending and business investments.
Cramer likes the turnaround in Walmart (NYSE:WMT), which has rallied 6%, Target (NYSE:TGT), which now yields 3.2%, and Costco (NASDAQ:COST), which has a strong membership revenue stream. He likes Home Depot (NYSE:HD) which is benefiting from rising consumer spending and home repairs.
This pairs well with toolmaker Stanley Black & Decker (NYSE:SWK) and maintenance and repair players like HD Supply (NASDAQ:HDS). And most importantly, the best consumer growth story is Apple. "Remember that these domestically oriented stocks react positively on any bad news from China, meaning on anything that suggests the trade war is escalating. So, if you're still worried about Chinese tensions, these names are a great place to hide," concluded Cramer.
Off the charts
Cramer went to the charts to get a reading on gold with the help of technician Carley Garner. The strong dollar has been weighing on the price of gold, and with the talk of tariffs gold price should have gone up but has not. Cramer and Carley Garner dig gold to find where the price is headed.
Garner thinks the price of gold is due for a rise, as "the price of gold still hasn't really reacted to the current trade war or even the recent uptick in inflation," Cramer said. "With inflation on the rise and the government borrowing insanely high, you'd expect precious metals to become more popular on the Wall Street fashion show," he added.
The historical charts show that buying and holding gold between July 24 and September 6 has been a money-making move in 13 of the past 15 years. It's even better that the Street has turned bearish on gold, and as a contrarian, Garner has been able to spot opportunities.
The weekly chart of gold futures, complete with the Commodity Futures Trading Commission's Commitments of Traders Report, shows that things look downright pessimistic in the gold market. The data shows large speculators are slashing their positions in gold futures to the lowest they've been in years. Crucially, the last time the numbers got this low was in December 2015, which was right before gold shot up.
Gold has a strong floor of support at $1,200 and $1,125. If the floor holds, it could rally to $1,350. "Let me give you the bottom line here: for those of you who are genuinely worried about inflation and trade policy and rising rates, and let's throw in the budget deficit, you don't need to dump your stocks. Instead, though, how about buying some gold as an insurance against economic chaos, perhaps via the GLD ETF that owns gold so you don't have to," concluded Cramer.
CEO interview - Pool Corp. (NASDAQ:POOL)
As Pool Corp. announced a CEO transition, Cramer interviewed outgoing CEO Manny Perez de la Mesa. The stock price of the company has tripled in the last five years.
Perez de la Mesa will be stepping down at the end of the year after his 20-year tenure, and he believes that the company is in good hands. "We have a great team in place, great leadership, we're in a great industry, and as time goes on, I think that I should unleash them to the future and continue our track record of growth," he added.
Pool Corp.'s revenue comes from an installed base of more than 8 million pools in the US and 8 million abroad. The CEO was bullish on the company's ability to gain market share and boost revenue. Almost 70% of its revenues come from contractors who build, repair and refurbish pools and companies providing parts and supplies.
The company has seasonal business in the Northeast but year-round business in other parts of the country.
CEO interview - Cypress Semiconductor (NASDAQ:CY)
Cypress Semiconductor reported a strong quarter, and the stock rallied 6%. Cramer interviewed CEO Hassane El-Khoury to find out more about the quarter.
El-Khoury is an advocate of free trade. "This really allows companies to innovate, companies to compete on a very equal floor. However, with IP, with innovation, you need to have IP protection," he said. But he also feels US companies need intellectual property protections.
Tariffs could lead to minor 1.5% decline in revenues, but the company is trying to mitigate losses. "We're heavily involved with the respective parties. We're working on ways to minimize even that little 1.5% that we have. That's direct impact for Cypress. Obviously, we're all looking at what this would do on a macro level, but for Cypress directly, I'm not very concerned about it," the CEO concluded.
Viewer calls taken by Cramer
Raytheon (NYSE:RTN): Cramer's trust owns the stock, and he recommends buying the stock as it is not expensive anymore.
Nutanix (NASDAQ:NTNX): It sold off on tech-induced weakness. The company has had a good quarter and it's doing well. This is a cheap stock.
US Concrete (NASDAQ:USCR): The stock was up on expectations of a big infrastructure bill, and since that has not been passed yet, it has gone down. Hold on to it, as the company's market cap doesn't justify the opportunity.
Get Cramer's Picks by email - it's free and takes only a few seconds to sign up