Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday, August 14.
The market is worried about tariffs and the Turkey crisis but no one seems to care about the shift in consumer spending. The earnings from top companies show what consumers are spending money on.
Home Depot (NYSE:HD) reported a good quarter but their guidance was conservative. The earnings from Advance Auto Parts (NYSE:AAP) showed that consumers are not buying cars either. "Despite an incredibly strong job market, we're seeing a decisive shift in how the consumer spends her money: houses are out, clothes and accessories are in," said Cramer.
The earnings from Tapestry (NYSE:TPR) show that consumers are spending money on clothes, handbags and accessories. Other retail stocks are reporting good numbers too. The earnings from Redfin (NASDAQ:RDFN) show that housing has hit a wall. Are mortgage rates too high or have housing prices gone up beyond affordability? "The millennials may be inheriting the earth, but they're not necessarily inheriting a lot of wealth right now. More and more they feel priced out of housing," said Cramer.
While the economy can sustain for a while, the changing consumer trends are a cause of concern. "The homebuilders, traditional winners in a full employment environment, their stocks aren't working here at all," he concluded.
"When the FTC blocked the Walgreens-Rite Aid merger, they actually laid the groundwork for less competition, because the delay and subsequent confusion ending up crushing Rite Aid. They thought they were preventing the industry from becoming an effective duopoly, instead they turned it into one. And the biggest winner here is CVS: it's a best-of-breed stock with a lot more room to run," said Cramer.
After FTC concerns, Walgreens bought 1,932 Rite Aid stores for $4.4B. The business of Rite Aid just weakened after that and its attempt to sell to Albertsons was not approved last week. This has led to the stock going down.
When all this was going on, CVS Health has just got stronger and their merger with Aetna (NYSE:AET) will increase their clout further.
CEO interview - Tapestry (TPR)
The stock of Tapestry went up 12% on solid earnings and guidance. Cramer interviewed CEO Victor Luis to find out more about the quarter.
Luis attributes the strength in revenue to the accessories segment. "The past year has seen really terrific growth with high single digit, low double digit growth globally, truly driven by the fact that accessories remain the most important category for how consumers express their individuality," he added. Their acquisition of Kate Spade and Stuart Weitzman has added to growth along with growth in China.
"Of course, very, very sad with the passing of the founder. She has not been with the brand for the last decade, but of course we were very touched by the response we got on social media across the world to her passing," added Luis on the passing of the founder of Coach.
Luis added that "men have discovered bags" and it could be the next billion-dollar market for the company. He also doesn't expect a big impact from tariffs as sourcing from China accounts for only 2-3% and they have a global supply chain.
There were some execution issues with the Stuart Weitzman brand but Luis expects the brand to return to growth late this year.
Off the charts
Cramer went to the charts with the help of technician Carley Garner to get a reading on the bond market.
U.S. Treasury bond yields have been rising this year as the Fed keeps raising the short-term interest rates. The rising bond yields and falling bond prices get investors worried. "The conventional wisdom on both Wall Street and Main Street is that U.S. Treasuries are one of the worst possible asset classes to own right now," said Cramer.
Garner thinks that the bears in the Treasury complex have gotten overconfident. The weekly chart of the 10-year U.S. Treasury futures shows that professional money managers are betting against the treasury prices' record levels. "Not only are they holding net short positions in these 10-year Treasury futures, but they're more bearish than they've ever been at any other time in living memory," said Cramer.
The Commitment of Traders report shows that the net short positions have increased to 800,000 futures contracts. Garner thinks that the trade has got overcrowded and when all these shorts are closed, the sellers will buy back the treasuries and the bond prices will rise.
The 10-year Treasury bond charts show a pattern that prices tend to rise in the second half of the year. The trend is reliable with a rally occurring from July-October. She thinks the rally this year will be pronounced as Treasury prices are depressed.
"Don't just assume that our long-term interest rates are destined to head lower immediately. The charts suggest that U.S. Treasury prices could actually have some upside here," concluded Cramer.
Viewer calls taken by Cramer
Carvana (NYSE:CVNA): Cramer wonders why the stock has rallied higher. He needs to work more to opine on it.
Wyndham Destinations (NYSE:WYND): Cramer thinks it's too cheap to ignore.
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