Earnings forecasts will be cut if the Fed keeps raising rates.
JPMorgan remains the best of breed among bank stocks.
Book profits on W.W Grainger.
Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday, October 12.
After the selling in the week, there could be buying in the coming week, thanks to earnings and the focus shifting on the outlook for companies from macro news. "But, listen, we won't get a sustainable rebound until it's based on something domestic, something here, which is why we had that intraday sell-off before the late-afternoon bounce," the Mad Money host said. With that, he proceeded to discuss the game plan for the week.
Bank of America CEO Brian Moynihan is a step ahead of competition, and he can point out if there's a slowdown. The stock is cheap, but it doesn't mean it cannot go lower like other peers.
Cramer is interested in listening to J.B. Hunt's conference call. "We keep hearing that there's a shortage of truckers in this country and it's making transportation more expensive, so let's go directly to the source to find out what the heck is going on," he said.
Earnings: UnitedHealth Group (NYSE:UNH), Johnson & Johnson (NYSE:JNJ), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), IBM Corp. (NYSE:IBM), Netflix (NASDAQ:NFLX), CSX Corp. (NASDAQ:CSX), Lam Research (NASDAQ:LRCX), United Continental (NASDAQ:UAL)
Cramer's trust holds JNJ and UNH. United Health is the best in its business, and JNJ has one of the best pipelines in the business. He expects UNH to raise its guidance.
Both Goldman Sachs and Morgan Stanley are not getting the respect they deserve. Cramer expects good numbers from them and called Goldman the cheapest in the group.
He is bullish on United Continental but advised caution with regard to CSX. Lam Research could go down further due to pressure in the semiconductors group.
IBM is trading near its 52-week low and Cramer thinks the stock can rebound. "To me, IBM doesn't seem to have much downside. It does sport a 4.5% yield here," he said. Netflix also had a disappointing subscriber growth in June, and this quarter could be lukewarm too. "Unless those numbers pick up from the last quarter, this stock is not going anywhere," he added. He still thinks it's a good long-term buying opportunity.
Abott is a steady performer, and Cramer expects good numbers and a raise in guidance. United Rentals, on the other hand, could see a slowdown due to the construction business and load growth. "That would confirm my view of a looming Fed-mandated slowdown," he maintained.
Cramer expects improved numbers from Nucor now that tariffs on steel have kicked in. "If the numbers aren't great, I think it'll be surprising to Wall Street," said Cramer.
PayPal has fallen from $93 to $79. Cramer advised buying on weakness as the company looks to monetize Venmo. American Express earnings have a pattern: "The stock goes down on the numbers no matter what they are, and then bounces back up upon further reflection. This could happen again," he noted.
Cramer thinks he will like what Honeywell will say after the earnings and its recent spinoff. Schlumberger has been a tough holding for Cramer's trust. "I figured that the dramatic run in oil prices would somehow be reflected in this stock. I was plain wrong. The business is just bad, as a surprising number of countries and companies simply refuse to increase their drilling budgets even though oil's gone up so much. It's been a severe disappointment," he added.
PG's earnings would give investors a peek at whether activist Nelson Peltz's involvement is working. "If there's any additional growth, or, even better, a restructuring, the stock could fly," said Cramer.
V.F. Corp's earnings will reveal a lot about high-end retail brands.
"I expect heightened volatility, but after a week of seemingly endless selling until today, it can be volatility to the upside, as long as the president cools the rhetoric and the Federal Reserve at least acknowledges some nascent weakness in the system," he concluded.
As earnings season has started, Cramer reminded viewers that it's all about the earnings forecast. The Fed plans to raise rates three times in 2019, and that will impact the earnings forecast. "Three lockstep rate hikes next year will slow growth, boost the dollar and make people feel less wealthy. That is a fatal cocktail, one that makes it very difficult for most companies to raise their forecasts," he said.
Cramer is okay with the Fed raising rates in December, but he expects them to take a data-driven approach. If they raise three times in 2019, it will spike the short-term rates from 2.25% to 3.25%. This will raise the borrowing costs for companies, and coupled with a strong dollar, it will hit the bottom line. The economy is not in a recession as it is strong, but a dent in GDP growth will hit stocks.
"The Fed is making the same mistake now that they made 11 years ago. They've decided to stop doing their homework, or they've become very anecdotal in their analysis. Back then, the Fed just looked at the headlines," Cramer concluded.
As the major banks reported on Friday, Cramer gave his scorecard on how they fared. He said that the earnings were not as good as they hoped, but they weren't as bad as feared.
JPMorgan (NYSE:JPM) reported strong earnings on the back of strength in consumer banking. CEO Jamie Dimon's comments on global tailwinds threw caution to investors. It's still the best of breed among bank stocks.
Wells Fargo (NYSE:WFC) reported good earnings as well, but PNC Financial Services Group (NYSE:PNC) had a soft quarter due to competition from non-banking lenders. With the regional banks struggling, he is less optimistic on the US economy.
CEO interview - Okta (NASDAQ:OKTA)
McKinnon said that Okta is growing as the tailwinds that not pegged to economic growth are in their favor. Companies are spending to digitize their operations, are embracing cloud and want a secure infrastructure.
"First, every organization is using the cloud to make their workforce more productive, rolling out the best tools, best technology. Second one is every company in every industry is figuring out how they can use the cloud to be the Amazon of their industry before Amazon becomes the Amazon of their industry. The third one is that, when you think about workforce productivity and being a digital company, it's all open and more connected, but it's also a security risk, and the opportunity to have better security is more important than ever," said McKinnon. Okta helps companies achieve all three.
The company now has 5,000 customers, including Major League Baseball, and it provides easy-to-use and secure login from any device. Okta's operating margins are still negative, as it is investing heavily for the future. "That's growth and that takes investment, so we're investing heavily to help these customers, to innovate, make sure our products are broad and deep and capable and make sure we can have the sales and marketing to go after these customers," concluded McKinnon.
Viewer calls taken by Cramer
Nutanix (NASDAQ:NTNX): It's still losing money, but it's a good company for the long term.
W.W. Grainger (NYSE:GWW): It has had a big run. As strong and medium sized businesses are getting hurt, it's good to take some profits off the table.
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