Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday, October 25.
The market is volatile and investors are being reactive rather than looking at the big picture. However, this volatility is nothing like that seen leading up to the crisis of 2008. "People are missing the point. Nobody's talking about a recession. This is not the end of the world, which you would think it was when you looked at yesterday's action. There's no systemic risk. The economy might go from really good to really mediocre," said Cramer.
The big picture is that the Fed is putting a brake on inflation by raising rates and Trump's hard stance on trade by putting tariffs is raising costs. Moreover, Trump commenting on the rate hike makes Fed chair Powell not budge to prove the independence of the Fed. This is hurting companies directly.
"We're talking about a slowdown that reverses much of the economy's recent growth and causes rounds and rounds of layoffs. Maybe our gross domestic product decelerates. Maybe it goes from 4% to 1-2%, thanks to the lack of demand for autos, housing, construction and so many other industries — plastics, paper. That could easily be in the cards," said Cramer.
The Chinese are not interested in negotiating and have many ways to fight back. Business of companies operating in China is slowing down as well. The market is nothing like heading into a recession, but a slowdown is definitely possible as demand for autos and housing is down. If this continues, the estimates for companies will come down and that will lead to a selloff.
"It's more like 2006, or at least a much healthier version of 2006 when it comes to balance sheets, where the crash still can be averted if our leaders know what they're doing. Let's hope the president and the Federal Reserve do a better job this time around," concluded Cramer.
CEO interview - Visa (NYSE:V)
The stock is up 20% for the year. The company reported great earnings and Cramer interviewed CEO Al Kelly to know more about the quarter and his views on cryptocurrency.
Kelly said that the strength in the quarter came from them adding 7M new merchants to their network, taking the total to 54M around the globe. The cross-border payments were strong, growing volume by 10%, which shows that global economy is healthy.
Commenting on competition, Kelly said that their main competition remains cash. Converting people from using paper to digital is the trend that drives Visa's growth and the company remains the biggest payment processor in the world. Their brands are their biggest assets and sports sponsorships remain a part of maintaining the brand.
He also commented on cryptocurrency. "If we actually think that crypto starts moving from being more of a commodity to actually really being a payment instrument. If it goes in that direction, we will move in that direction. We want to be in the middle, Jim, of every payment flow in the world regardless of how it happens or what the currency is behind it. So if we have to go there, we will go there. But right now, it's more of a commodity than a payment vehicle," he said.
Losers of the trade war
Are the tariffs working? Who is losing in the trade war? If Nucor's (NYSE:NUE) earnings were to be seen, the tariffs don't seem to be helping. The tariffs on steel were one of the first, and Nucor told investors that it will be good for business.
As full effects of tariffs have set in, it is clear "the tariffs aren't helping the steel industry; in fact, they may be hurting the steel industry. The steel stocks have been slaughtered since the tariffs went into effect," said Cramer. The management said this on the conference call, "Earnings in the fourth quarter of 2018 are expected to decrease across all three operating segments compared to the third quarter of 2018," said Cramer. This shows that tariffs are not doing what they were supposed to.
The tariffs have now reduced the demand for steel and have added barriers to global trade thanks to the trade war. The price increases in steel are being felt by companies and consumers alike.
Cramer said he got it wrong about Nucor as the effects of tariffs turned out to be counter-intuitive. The other problem of tariffs is that they have a direct impact on inflation and the Fed will keep raising rates to tame it.
"The bottom line is that even the supposed winners from tariffs aren't winning here. And as much as I like Nucor, this is simply the wrong time in the business cycle to own a steelmaker. Even if these stocks have bottomed, I think the steel sector is simply too risky to touch for this moment," concluded Cramer.
CEO interview - Centene (NYSE:CNC)
The stock of Centene went down 8% after earnings. Cramer interviewed chairman and CEO Michael Neidorff, who thinks that investors should view Centene differently.
Neidorff said that they are not the $10B company they were four years ago. They are a Fortune 50 company with $70B in revenues and that's the reason investors are seeing tax deductions and other charges in earnings report that were not present earlier. The company keeps making acquisitions and hence the transactions have become complicated.
Commenting on healthcare in America, Neidorff said that the government has gone from policy to politics. "I'm an individual that believes that one of the three branches, when it's the other party, we get better government. I believe that if that happens, we'll see some negotiations and we'll end up with a lot of things better and our program will be that much stronger as well because there will be solid discussions about what it should be and not the political," he added.
Viewer calls taken by Cramer
Eaton (NYSE:ETN): The stock has given up a lot, but it yields 3.6% now. The current environment is not great for industrial stocks.
U.S. Steel (NYSE:X): The economy is slowing and that is not the right time to buy steel stocks.
International Paper (NYSE:IP): Hold the stock as the yield is good and so is the balance sheet.
DowDuPont (NYSE:DWDP): The company is going to split and that will unlock value. Wait for the next quarter.
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