Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday, October 18.
The Dow went down on Thursday as investors realize that Fed has the power to hurt stocks. "This is one of those moments where it's dawning on people that maybe all the assurances that we don't need to be afraid of the Fed are being proven to be totally bogus," said Cramer. The assurances behind the Fed's hike are lousy in his opinion - first that interest rates need to rise due to full employment; second is that rate hikes won't hurt the market as they are already baked in.
Cramer said that though the employment is full, the statistics indicate that wage inflation is not out of control. Fed can raise rates 4 times if hourly wages are skyrocketing. However, many workers are losing their jobs due to bankruptcies and automation. "There's no cause for the Fed to tighten four more times. This is what all this turmoil's about in the market. They're taking preemptive action because they're afraid of potential inflation. I think that's a mistake. The labor market's taken a decade to recover from the financial crisis. Why not give it some more time?" asked Cramer.
The second theory of rate hike being priced in is not true either. Small businesses are seeing squeezed margins due to wage growth, and higher rates means increase in borrowing costs. This has led to slowdown in housing as cost to build has increased and slowed down load growth. "Stop kidding yourself if you think all the bad news is baked in. You don't get these kinds of declines if it is, which I'm sure the bears will call out tomorrow," said Cramer.
"Until people accept that fear, the market will not find its long-term footing," he concluded.
Use the selloff
During a selloff, many companies fall down on pin action and for no reason in particular. This gives investors an opportunity for bargain buying. As the markets go down, investors should be ready with their shopping list. Cramer gave a list of stocks he'd consider buying as they head lower - United Continental (NASDAQ:UAL), Citigroup (NYSE:C), UnitedHealth Group (NYSE:UNH) and PepsiCo (NASDAQ:PEP).
United Continental reported good earnings and raised their guidance for the third time this year. This is remarkable at a time when input costs for airlines are rising.
Citigroup delivered one of the best earnings quarters. It does a lot of business overseas and hence is protected from domestic rate hike fears. The stock is cheap considering its book value.
UnitedHealth reported yet another strong quarter and remains Cramer's favorite pick in the healthcare group. Their raised guidance shows strength of the business.
PepsiCo had a good quarter but the stock went down after earnings. It has a good buyback program and dividend yield. "Stick with companies that just reported monster good numbers and you rarely go wrong, even in this kind of incredibly negative pin action," concluded Cramer.
Power Rankings - Tech
Cramer continued the power rankings segment by assigning top 5 ranks to stocks in the tech sector.
- Apple (NASDAQ:AAPL): The only Trillion-dollar company by market cap is at the top. Cramer believes if Apple is valued as a consumer company rather than tech, it will be valued much higher. "Apple trades at less than 16 times next year's earnings estimates. It's cheaper than the average stock in the S&P 500. More important, it's cheaper than the consumer product stocks even though they have slower growth," said Cramer. Their subscription model for service business is great.
- Salesforce (NYSE:CRM): The cloud-based enterprise software giant is one of the best performers in tech group in 2018 as it helps companies move to cloud and engage better with customers. "The cloud remains one of the most exciting software stories around and Salesforce practically invented it," said Cramer. The stock could go down due to the selloff but history shows that every selloff has been a buying opportunity.
- Adobe (NASDAQ:ADBE): It is one of the cloud kings that is also a play on the subscription economy. The company forecasts a $108B total addressable market by 2021 along with 20% revenue growth. "I think you need to view that weakness as an opportunity because we know how well they're doing," added Cramer.
- Microsoft (NASDAQ:MSFT): Many thought that Microsoft peaked two years ago. "Nadella turned things around, and now their sales are growing at an incredible 17% clip; double-digit growth across all segments; commercial cloud revenue up 53%. This is not your father's Microsoft," said Cramer. It trades at 22 times next year's earnings and it's worth buying here and when it comes down.
- Mastercard (NYSE:MA): This is a fintech play that doubles as a tech company. "They've been steadily growing their payment network all over the world, and, at the end of the day, that's why I prefer Mastercard over Visa (NYSE:V) for this fifth slot: because it's got higher organic growth and more runway," said Cramer.
Even though the tech stocks are coming down due to selloff, it is worth buying as they are a big leadership group.
Off the tape
Cramer went off the tape to review the privately held Green Growth Brands, which is a cannabis-focused consumer products company. He interviewed CEO Peter Horvath, who is a retail veteran.
Horvath visited 100 cannabis stores in the United States on a mission to understand the landscape. "In most retail experiences, there's too many points of dissonance. In cannabis, it's the same, except they're even more extreme. There are things to admire, but generally, every single store is underperforming its true market potential," he said.
Their team has decades of experience in successful retailing and building great brands.
Horvath's experience visiting stores was overwhelming. "It's not organized in a way that's intuitive. You're worried: am I in line? Are they going to make me buy something if I just want to ask a question? In this case, I got to the desk, ready to buy something, and they said, 'Did you register?' Uh, no. 'Oh, you have to register at the desk in the front," he said.
With a strong retail team, the company is working on multiple channels for both CBD- and THC-based products. They aim to come public by next year.
Viewer calls taken by Cramer
Roku (NASDAQ:ROKU): It is positioned well but the stock has run up a lot. Cramer thinks the stock is expensive.
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