Is The Economy In 'Late Cycle' - Cramer's Mad Money (11/15/18)

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Includes: CGC, GE, HD, IP, JPM, RGR, SYF, TLRY, WMT
by: SA Editor Mohit Manghnani
Summary

The Fed's changing stance is good.

Analysts got it right on General Electric.

Canopy Growth is the only pot stock worth owning.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday, November 15.

The market's perception is skewed and negative. Right now, there is talk about "late cycle," which means being in last stage of the economic cycle where things can't get better. These feelings appear on good days too, and hence, end up being down days.

The economy could handle rate hikes when they were low. But with the Fed pressing hard on the gas, the economy can only handle so much, and with each rate hike, there are increasing fears of a slowdown. There are signs of slowness in the economy, and investors are worried.

When one looks at the excellent earnings beat from Home Depot (NYSE:HD), the stock went up, only to close down later. Same was the case with Walmart (NYSE:WMT). All this was due to the rationale that "it's good, but can't get better." Homebuilder stocks are also being hit hard.

Cramer thinks if the Fed changes its tune and the trade war dispute with China sees progress, things could change. Until then, it's a persistent feeling on Wall Street, and it will remain unless there is enough evidence to see otherwise.

Fed

The Fed's Powell noted that he takes the risks of a slowdown and an overheating economy seriously on both ends of the spectrum. In a dovish tone, he acknowledged the global growth slowdown and the implications for US business. Dallas Fed president Robert Kaplan asked question that led Powell to walk back on his earlier aggressive comments about rate hikes.

The softening stance led to a positive streak in the market. Many CEOs have told Cramer offline that they are concerned about a cooling economy. "So many of them are baffled that we could find ourselves in this late-cycle dilemma that wasn't supposed to occur so soon," he said.

"There are degrees of slowdowns that, nonetheless, can cause an awful lot of havoc and cost a lot of jobs, and that's what we're on the verge of here. That's what the markets are saying. That's what the CEOs are worried about offline," Cramer observed.

Seeing signs of a slowdown, Cramer is being vocal about it. The rising rates, along with weakness in Europe and Asia, aren't helping either. "This end-of-cycle logic raises its head everywhere. Everything was good, so good that it can't ever be better, because we're at the end of the cycle. 'Late-cycle.' It's become almost circular reasoning. The stock can't go higher because it's the end of the cycle, and it's the end of the cycle because the stock's down," he said.

If the Fed changes its stance to being data-dependent and Trump gets a trade deal with China, the market will roar higher.

General Electric (NYSE:GE)

General Electric, once one of the largest companies in the world, is down 75% from its highs seen more than two years ago. Two analysts, Stephen Tusa of J.P. Morgan and John Inch, then with Deutsche Bank but now with Gordon Haskett, had been warning about earnings and cash flow in May 2016, and their price targets have been consistently lower than the market price.

They kept talking about the problems in GE and how there could be a dividend cut. "In November of last year, Flannery held an analyst meeting where he did indeed cut the dividend and revealed some disturbing details about the core business, including the fact that GE's dividend had been larger than its industrial cash flow for years. Turns out the bears were right all along," said Cramer.

Inch also predicted GE's removal from the Dow. At every step the company proved them right, and eventually, the CEO Flannery was ousted in favor of Larry Culp. Tusa predicted another dividend cut and multi-billion charges, and GE's recent quarter proved the analysts right again.

"Two weeks ago, Inch said he could potentially see the stock shrinking to $5, assuming that GE Capital doesn't ultimately become insolvent. Now he's talking about escalating liquidity risks. Then last week, Tusa cut his price target to $6. He thinks the real problem here is the fundamentals are deteriorating," said Cramer.

"The point here is that Tusa and Inch have nailed GE every step of the way, to the point where I don't think this stock will be able to rebound until these two bears sign off on its turnaround plans," Cramer concluded.

CEO interview - MJardin Group

Cannabis operator MJardin Group began trading on the Canadian Securities Exchange, and Cramer interviewed CEO Rishi Gautam to find out what lies ahead.

The company acquired GrowForce in a reverse merger, and has now become the largest operator in the global cannabis space. Gautam added that the company produces and sells more cannabis than Tilray (NASDAQ:TLRY) and Canopy Growth (NYSE:CGC) combined.

It runs its own shops, manages operations for retailers and grows cannabis as well. The company is operating on a 70-30 ratio of managed operations, and over time it's looking to get to 50:50. He adds that the industry will hit the second wave and asset optimization will be the key, and that's where MJardin can thrive.

The company has a good read on the pulse of the cannabis industry and can take advantage of that to grow.

Viewer calls taken by Cramer

Canopy Growth Corp. (CGC): It's the only pot stock worth holding. If one believes in the long-term growth, it's good to hold.

International Paper (NYSE:IP): This is an excellent company, but it's going down due to excess supply. IP is buying back stock too.

Sturm, Ruger (NYSE:RGR): It's a fine company. Such stocks go up when there is fear.

Synchrony Financial (NYSE:SYF): Why not swap out of this and own a best-of-breed like JPMorgan (NYSE:JPM)?

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