Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday, October 17.
The market is back in the phase where good news is bad news. Strength in earnings and the economy will push the Fed to raise rates which will put a dent in the economy. "Remember what's at stake here. We are now in the midst of earnings season, where we can piece together a mosaic of what's really going on in the economy. If the economy's fabulous, then the Fed's current course — one rate hike in December followed by three more next year — is correct. If the economy turns to weaker than expected, then Fed's moves will hurt both the economy and stocks," said Cramer.
The Fed could be ahead of itself as they are trying to overshoot inflation with lockstep rate hikes but they need to adopt a wait and watch approach. "I'm simply begging Fed Chair Jerome Powell and the rest of the Open Market Committee to take things one rate hike at a time. Because from what I've seen so far this earnings season, it might make sense to put next year's three planned rate hikes on hold until we know if the nascent strength is dissipating before our very eyes," he added.
The earnings from railroad CSX (NYSE:CSX) show the Fed is correct as they reported strength in everything from agriculture and cars to coal and commodities. The same goes for United Continental (NASDAQ:UAL) as their guidance improved. CSX's stock went down despite good earnings as investors fear that the best may be behind them.
Other important data shows that the Fed may be ahead of itself. Housing Starts fell by 5.3% and Mortgage Applications showed a strong decline which led to a downgrade of homebuilders and stocks like Home Depot (NYSE:HD) and Lowe's (NYSE:LOW). Vulcan Materials (NYSE:VMC) was also downgraded as demand for aggregates is falling.
If all the negatives are not enough, steel demand is being affected due to tariffs, and loan growth in regional banks is slowing down. "Remember, this is supposed to be a market where good news is bad news and bad news means the Fed can take a more measured approach. The thing is, that only works if the Fed's actually paying attention to the data. So we have to hope that our central bankers will be more flexible than they've implied they will be," concluded Cramer.
How are the FAANG stocks doing? - Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Alphabet (GOOG, GOOGL). Though there are rumors of the death of FAANG, Cramer thinks that many of them are worth buying after the selloff.
Netflix had a great quarter as it blew past numbers. It also has no direct competition and can get profitable by raising prices and consumers would be willing to pay.
Amazon, on the other hand, has competition from Walmart (NYSE:WMT) and yet all its businesses are growing. Cramer is a fan of the company and holds it for his trust too.
Apple has been a strong performer throughout and Cramer doesn't feel differently about it. There could be some short-term hiccups with China, but it's a strong buy for the long-term.
Alphabet is doing great with many businesses yet to be monetized. It trades at 23 times earnings which is cheap considering the room for it to grow. Cramer holds the stock for his trust.
Facebook has been amidst scandals but it's still holding up well. Cramer thinks they still have headline risk but it trades at 19 times earnings which means the rewards are far better than the risk.
Currently, Amazon and Alphabet are buys since Netflix has run up already.
Power Rankings - Industrials
Cramer continued the power rankings segment by assigning top 5 ranks to industrial sector stocks.
- Union Pacific (NYSE:UNP): The West Coast railroad company is up 12% in 2018. The stock trades at 17 times earnings and it's a good buy with freight prices going up.
- Boeing (NYSE:BA): They are up 24% for the year despite the selloff. The trade war could affect the company's business in China but Boeing's business cycle "transcends the gyrations of the broader economy" as it is based on the rise of the middle class. The demand for their planes outweighs the supply.
- Textron (NYSE:TXT): Yet another aerospace stock that is good. The maker of Cessna business jets and Bell helicopters is benefiting from increased military spending. "This is a high-quality company that's much more resilient than your typical industrial, yet Textron's stock is down more than 11% from its highs," said Cramer.
- United Continental (UAL): While airlines may not fall under the industrial sector technically, it's a strong company while its peers are going down. "The company has worked relentlessly to understand and connect with its customers and even after today's run, I think the stock has more upside. The darned thing's so incredibly cheap; it sells for merely seven times its 2020 earnings forecast," added Cramer.
- Harris (NYSE:HRS): This defense communications and electronics specialist is a pick due to its merger with L3 Technologies (NYSE:LLL). "I think it makes a lot of sense for these two companies to join forces, which is why I'm a fan of Harris even though the stock exploded higher on the news."
Cramer recommends these stocks in the industrial sector if there is a Fed-mandated slowdown.
CEO interview - Veeva Systems (NYSE:VEEV)
The cloud software provider to the pharmaceutical and life sciences industry - Veeva Systems - has run up a lot in 2018. Cramer interviewed founder and CEO Peter Gassner to hear more about what lies ahead.
Gassner said that the company won't be solely focused on helping the pharmaceutical and life sciences industries for long. They help organizations in the life sciences space move their paper-reliant business processes to the cloud and provide other key tech services.
"When you're manufacturing and distributing a chemical — cosmetics, consumer packaged goods, a laundry detergent — you have to be very careful about that type of stuff. Manufacturers have been burdened with client-server processes and paper processes, and we want to come in and modernize that, help people do better work in those industries. So that's a big frontier for Veeva," he added.
Their Vault QualityOne platform has offerings for non-pharmacuetical companies that help them scale. The company has tripled the number of products, quadrupled revenue and increased profit 6 times in the last 5 years. "That's what makes a great company: people who can reinvent themselves, a team that can create new products, keep customers happy and use success to grow the business, concluded Gassner.
Viewer calls taken by Cramer
Activision Blizzard (NASDAQ:ATVI): Cramer thinks the trade is missed. He recommended Take-Two Interactive (NASDAQ:TTWO) which is held by his trust as well. The group has become hot and one should wait for it to cool before buying.
Shopify (NYSE:SHOP): It's a good company but a wild trader. Cramer recommended starting with the likes of Amazon before buying Shopify.
Heico (NYSE:HEI): Cramer is a fan. They are in a niche business and they should be acquired at some point.
Cintas (NASDAQ:CTAS): Investors thinks the best may be behind them as there is a slowdown. It's too late in the cycle to own this stock.
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