Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday, October 5.
The selloff was due and Fed had a hand in it. The Fed chair's comments on increasing interest rates to keep inflation in check are spooking investors and pushing interest rates up. "It's going to be hard for stocks to stabilize until he walks back those comments, or at least clarifies that he's going to make his decisions based on the data rather than giving us a series of lockstep, autopilot rate hikes that the economy, as strong as it is with these employment reports, may not be able to handle," said Cramer.
With slower than expected job growth, the wage inflation wouldn't be detrimental to the economy. Apart from the Fed, higher bond yields, strong dollar, rising mortgage rates and tariff talks are affecting the stock market. "I see housing, autos and now, after this week, maybe even retail slowing, so it's entirely possible the Fed is ahead of the curve already when it comes to stamping out inflation," added Cramer. With that, he discussed the game plan for the week
There is trade talk from the White House saying China represents a significant and growing risk to military product manufacturing. "It's an escalation of the trade war and I bet the president escalates right back," said Cramer. That could hit a lot of industrial stocks.
The stock of Smucker is down 17% for the year. Cramer said their analyst day will reveal if investors think that the economy is heading into a recession. "Let's see if management has a plan to re-energize the business. If they don't give you one and it rallies anyway, what that says is money managers are afraid of a recession," he added.
Okta's stock is up 150% for the year and it could go lower before it begins to rise again. "When the sell-off stops, I think it could be worth owning," said Cramer.
Honeywell (NYSE:HON) will hold their analyst meeting on Wednesday. They will reveal the plan to spin off Resideo Technologies, their home technology business. Cramer said that though the stocks connected to housing are not worth owning right now, Honeywell's spinoffs have always worked in the long run.
Walgreens Boots Alliance (NASDAQ:WBA) will report earnings on Thursday. Cramer is worried about the pressures on the retail industry from Amazon (NASDAQ:AMZN). "However, I like what its rival CVS Health (NYSE:CVS) has been up to with the Aetna merger. I'd like to see Walgreens announce something similar when they report," he added.
The Consumer Price Index will be out on Thursday and a lot is riding on it as inflation is on the Fed's radar. "If this one does come in hotter than expected, we're going to hear a lot of chatter about how the Fed is right to overshoot with its rate hikes because that's how you stop inflation in its tracks," said Cramer.
Cramer expects decent results from the banks and does not think they will blow away the numbers as the long-term interest rates haven't kept up with the short-term rates.
"We're going to try to put in a bottom next week with an oversold market and hopefully tamer interest rates and cooler inflation. That said, the Federal Reserve has gone from a tailwind to a full-on tsunami of a headwind for the stock market," concluded Cramer.
There has been a selloff in cloud stocks but that does not mean that some players are not worth buying into weakness. Cramer pointed to Guidewire Software (NYSE:GWRE), that creates software for property and casualty insurance providers.
The company is transitioning to an all-cloud based business model and SaaS. While the business seems boring, their transition could be exciting. Recent transitions by Adobe (NASDAQ:ADBE) and Autodesk (NASDAQ:ADSK) are proof that moving to the cloud and operating as a SaaS company makes sense for tech companies.
Guidewire management plans to double the company's revenue in the next five years and Cramer thinks their transition will make them a fortune. "At the end of the day, these guys still dominate this one business. They have limited competition. No one seems to want this market other than them," he added.
They trade at 9 times sales which means that they have the valuation of a cloud king without the growth. He added that it's worth betting on their transition and bottom fishing for the stock once the selling subsides. It could be worth a buy at the $85 level.
Eli Lilly (NYSE:ELY)
While there is a selloff, Eli Lilly has gained 9 sessions in a row and quietly moved up from $74 in March to $115. A few months back, the stock was downgraded by analysts on fears of the diabetes business being weakened by competition.
The analysts got it wrong as Eli Lilly announced a series of good news related to its diabetes drugs and reported great numbers. They also announced the spinoff of their animal health division Elanco (NYSE:ELAN).
The company received an analyst upgrade this week with a price of $130. "Bears just simply underestimated this great American institution and they should have to pay for it and be called out. They just hadn't done their homework," conclude Cramer.
CEO interview - Cloudera (NYSE:CLDR)
Reilly said that both companies have been competing for 10 years and the combination of both will unlock shareholder value. With their scale, they will compete better with the new cloud companies.
"A lot of the excitement about this merger is people expect us to be the next Oracle. Data's of much more volume and people want to do artificial intelligence and machine learning against that data. That's where we're going to compete and that's how we become the next Oracle of the future," said Reilly. Oracle has been a good partner to Cloudera and they will continue to be one.
The merger will bring the value proposition to enterprises as they will be the only provider delivering software across all the major cloud offerings. "Our plans are that by 2020, our combined company will be greater than $1B in annual revenues, will be greater than 20% year-over-year growth and will have greater than 15% operating cash flow margins," concluded Reilly.
Viewer calls taken by Cramer
Freeport McMoran (NYSE:FCX): China is the biggest buyer of copper and their economy is slowing due to the US tariffs. Don't buy.
JD.com (NASDAQ:JD): Chinese stocks have become toxic. Don't buy.
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