Sell Costco and Target and buy into Walmart.
HCA Healthcare is an inexpensive stock that is growing rapidly.
Hold Tesla to its logical conclusion if you've owned it till now.
Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday, August 7.
Where are the sellers? Even the stock market is affected by laws of supply and demand. Thanks to the strong economy and job growth, people are investing more than ever. "The game has changed since I first started picking stocks almost 40 years ago. We didn't even have index funds back then. Now they're the preferred way to invest for the majority of people who want to own stocks," said Cramer.
He added that stock prices are rising due to a stock shortage created by more money flowing into index funds and company buybacks.
As consumers save a bigger portion of their paycheck, a big chunk of it goes into index funds. As issuers introduce no fees index funds, it's a catalyst for more money coming into these funds. The companies, on the other hand, are buying back their own stock which further adds fuel to the stock price. A Goldman Sachs research report said companies are buying back up to $1T of their stock in 2018. Stock buybacks are up 46% compared to last year and August has been a popular month for buybacks historically. "As someone who's personally authorized and executed buybacks myself, I can tell you that they have the potential to give stocks a serious boost," said Cramer.
Both these trends have created a stock shortage of huge proportions. "There just aren't enough shares of big-cap companies to go around until sellers materialize," said Cramer. Apart from that, rising interest rates lead to banks making more money and hence the financials are showing strength. Money managers also see rising oil prices as a signal of strength which allows them to invest freely.
"There just aren't enough shares to go around, at least at the prices that we are trading at now, and it's making even bearish money managers afraid to sell. When there's not enough supply, prices go higher. End of story," concluded Cramer.
Off the charts
Are the retail stocks ready to compete with Amazon? Cramer finds out by taking a technical view with the help of technicians Tim Collins and Larry Williams. They reviewed the charts of Walmart (NYSE:WMT), Target (NYSE:TGT) and Costco (NASDAQ:COST).
Walmart has made a double bottom in May and the stock started going higher six weeks ago before it settled at $89.77. Collins said that the trend looks like a "pattern within a pattern". The stock is trading in tighter range creating two floors of support at $87-88 and at $82. "If the stock goes below $87, roughly $3 bucks down from where it is, he'd become more cautious; if it breaks down below $82, he'd tell you to abandon the bull thesis and simply cut your losses," said Cramer. If it passes the $90.50 level, it will be smooth sailing till $103.
Target made a 52-week high and is closing towards its all-time high. The full stochastic oscillator shows the stock is in the "extremely overbought territory", which means that it is likely to pull back before it rallies higher. If the stock hits the ceiling of resistance at $82.50, it could get a boost. Collins doesn't like the risk-reward and recommends swapping Target for Walmart as it has more room to run.
Williams had recommended buying Costco at $150, two years ago. The stock has rallied to $223 and it's time to ring the register according to him. After the recent rally, COT indicator has plunged which shows that major financial players are selling the stock. "I love Costco's membership-based model, I go there all the time, but nobody ever got hurt taking a profit," said Cramer.
Trade war with China
People's Daily said in a report that Apple (NASDAQ:AAPL) could be the target of nationalist sentiment and be used as a bargaining chip in the China-U.S. trade war. Cramer said this could be painful for shareholders.
He believes that the U.S. should stand up to China to protect their intellectual property but that cannot happen with new tariffs being added on a weekly basis. The victory can be achieved only through negotiation.
Boycotts are one of the most effective ways for China to retaliate and this could entangle Apple in a political fight. It's best to make a deal right now.
CEO interview - Logitech International (NASDAQ:LOGI)
Logitech reported good earnings and the stock cooled off. The stock is up more than 90% since Cramer first spoke to CEO Bracken Darrell in November 2016. He interviewed Darrell again to find out what lies ahead for the company and the future of esports.
"In 1965, 1968, 1969, I remember the NFL and the Super Bowl, how big it seemed then. Looking back on that, it was tiny. I think that's exactly where we are now in gaming," said Darrell. This is a good period for gaming and he showed the headset which has tripled in sales volume in the last three years.
Darrell said the company met with the International Olympics Committee and he believes that esports will be part of the Olympics someday. "I'll make another prediction which it'll be hard to hold me to unless you have me on the show in 10 years or 20 years, but I think it'll be the biggest sport in the world," he added.
Competitive gaming has swept across high schools and universities have started creating programs and scholarships for students. Logitech has been a partial sponsor of UCI's program and provided high-end gear for the school's esports facility. "Scholarships are starting to spread across the university system. My brother's a college president, Kentucky Wesleyan College. It's a small liberal arts college. They're putting in gaming as not a varsity sport yet, but a club sport. It's coming everywhere," said Darrell.
This trend is showing in Logitech revenue, which grew 60% in Gaming and Video Collaboration categories. This has also reignited growth in webcams business as gamers seek higher quality video equipment to film themselves.
The market is getting bullish on hospital stocks. Cramer recommends sticking to the best of breed stocks like HCA Healthcare (NYSE:HCA).
The company operates 178 hospitals, as well as surgical centers, in 20 states. "You've got an improving economy that makes patients feel more comfortable about going to the hospital when they get hurt, and at the same time, HCA's got a terrific geographic footprint in many fast-growing cities, as I mentioned, especially down South, where the economy is just booming," said Cramer.
The company reported three good quarters in a row. Despite raising the company's earnings forecast to $9.40 per share, it is trading at just 13 times earnings compared to 21 times for rivals. "If you want exposure to the health care sector, this one is a must-own," he concluded.
Viewer calls taken by Cramer
Grand Canyon Education (NASDAQ:LOPE): Cramer is not a fan of the group. He needs to work more to opine on the stock.
Tesla (NASDAQ:TSLA): There are people who want to buy the stock. If you have owned the stock to this point, own it to its logical conclusion.
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