Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday, August 2.
Apple (NASDAQ:AAPL) hit the $1 trillion mark, and it's important for investors and the market as a whole. Despite the move, Cramer believes that Apple has a lot more room to run. He gave 10 reasons for this:
- "The notion that any company could ever be worth more than a half-trillion was considered dangerous, foolhardy, seditious, maybe the sign of a pending crash," said Cramer referring to the dot.com bubble. Apple managed to achieve this feat trading at just 15 times earnings. Leaving out the cash, it's trading at 11.5 times earnings.
- Apple is more than just hardware and phones. It's an ecosystem of great software and hardware. "A subscription business is perhaps the most reliable and predictable form of revenue, which is why the stock deserves a much higher price-to-earnings multiple than it has. That's one huge reason why Apple could trade right through this trillion-dollar mark," Cramer opined.
- Consumers love Apple products, and Cramer thinks it should trade like a consumer packaged goods stock which deserves a higher valuation.
- Apple is nowhere near its total addressable market. It is the third-largest cellphone maker in the world by volume, and has a lot of room to take market share.
- The company has a massive cash hoard of $243 billion, and it can buy back stock whenever it wants. CFO Luca Maestri thinks the stock is cheap, and hence, it's a good idea to buy it on dips.
- The management is great. "Cook cares more about the quality of Apple's products than he does about the quality of its stock price. He's taken big risks: cord configuration changes, ear buds, sky high price points, and every time, he's been right," Cramer noted.
- There is constant worry and doomsday theory around Apple by analysts. It has become a hub for voracious traders, which also helps the stock to climb higher.
- "The law of large numbers" says that Apple cannot keep growing at the same pace. However, the company defies that every time it reports earnings.
- Inflation helped Apple too. Other contenders are close to the trillion mark as well.
- Lastly, Apple is one of the tech titans, and good earnings from the others also help due to pin action.
"Here's the bottom line: Like the iPhone X, Apple's stock deserves to sell for what people are willing to pay for it. And apparently that's $1 trillion, but, frankly, you know what? I bet it's headed higher. Maybe a lot higher," concluded Cramer.
Competition hurts bottom line
"Competition may be the lifeblood of capitalism, but it is anathema to making money. As an investor, you want to own companies with as little competition as possible," Cramer said.
The most common names of companies with little to no competition are FAANG stocks. Not only do they have pricing power, but they barely have any competition. However, when companies face cut-throat competition, buying their stocks could be treacherous.
Wynn Resorts (NASDAQ:WYNN) is a classic example where competition has hurt the company. The burger-focused chain Red Robin Gourmet (NASDAQ:RRGB) fell 25% after it pre-announced a drop in same-store sales. "We don't need a weatherman to know which way the wind blows: this is about the burger wars. Even McDonald's (NYSE:MCD) is being hurt," said Cramer.
Even a company like T-Mobile (NASDAQ:TMUS), which is gaining market share, wants to merger with Sprint (NYSE:S) to fend off powerful rivals. "The unassailable franchises tend to give you larger gains than the stocks of companies that actually have to fend off rivals. Of course, capitalism doesn't work without competition, but your portfolio can certainly live without it," Cramer said.
CEO interview - Starbucks (NASDAQ:SBUX)
Starbucks confirmed its partnership with Alibaba (NYSE:BABA) for food delivery from more than 2,000 Chinese stores by the end of 2018, and also to get access to Alibaba's customers. Cramer interviewed CEO Kevin Johnson to know more.
Starbucks has been in China for 20 years, but it has built a business using local design and local operators that blend well with Chinese culture. This works for Starbucks, as despite 2% drop in same-store sales in China, it saw 17% top line growth.
Johnson believes that the partnership with Alibaba will be the "rocket fuel" to Starbucks that will help accelerate the business. Commenting on tariffs, the CEO said that there are geopolitical tensions everywhere, and Starbucks just finds a way to manage and blend in.
CEO interview - Dow Chemical
Fitterling mentioned that DowDuPont plans to spin off Dow Chemical by 1Q 2019. He said that the business is strong, as the middle class and strong economies are driving growth in packaging around the world.
"Plastics are a great sustainability story. They're the most sustainable package in the world and they're the fastest-growing packaging in the world. We do have a plastic waste problem, though, and at this point in time, I've never seen the industry more aligned about tackling that problem. It's not acceptable. We have to address it. And the good news is the industry has many solutions to do it," the CEO said. "Every year, we make 400 million metric tons of plastics as an industry, all types of plastics, and they go into many different markets. We're dealing with about eight million metric tons per year that ends up as a waste problem," he added.
With tariffs, aluminum costs will rise, and that will make for more shifts to plastic. Dow is working with the industry and governments to tackle these issues and provide innovative solutions.
Viewer calls taken by Cramer
Redfin (NASDAQ:RDFN): There are not enough home units being built, and hence, stay-at-home culture cannot be correlated to it.
Cimarex Energy (NYSE:XEC): It still has a lot of natural gas. Cramer thinks the stock can go higher by next year.
Salesforce (NYSE:CRM): It's down a few from its highs after a big run. The company is doing well.
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