“What’s been working now is very different from what was working even a year ago,” the “Mad Money” host said on Monday. “This is the kind of story where a picture is indeed worth a thousand words. So tonight, we’re going chart by chart, examining the winning groups in this new era to show you the true magnitude of this amazing transformation.”
Cramer started with the newly revitalized bank stocks, many of which investors avoided for months in favor of financial technology stocks or payment processors.
“Why? Primarily because long-term and short-term interest rates were so low that … [the banks] couldn’t get the margins they needed on their loans or on your deposits,” Cramer said.
“As long as the banks’ net interest margins — that’s the difference between what they pay you for deposits and what they charge you for your loans — stayed low, there was no reason to embrace either the big banks or the regionals, for that matter,” he continued.
But since the Federal Reserve came to a consensus on the economy’s well-being and began to raise interest rates, the bank stocks kicked back into high gear on Wall Street.
Coupled with loan growth and deregulation from Washington, rising rates paint a rosier picture for the big banks’ prospects. Many of the banks have also upped their share buyback programs, which tend to boost stock prices.
“The banks are just getting back to where they were before the Bush and Obama administrations forced [them to issue] that ton of equity during the great recession,” Cramer said. “In fact, the banks are now overcapitalized and they’ve got a much larger share of the lending pie than would’ve been permissible 10 years ago, especially the big dogs: J.P. Morgan, Wells Fargo, Bank of America, Citigroup. All but Wells now behave like growth stocks, and Wells is joining that.”
Recently, however, Cramer has watched the internet of things become the rising tide that lifts all (or most) boats for the tech sector, injecting a new secular growth story into many formerly cyclical names.
“With the rise of the internet of things, not to mention the ascendancy of the data center thanks to a new cloud-based software model, as well as the connected car [and] the connected home, the whole tech sector has been roaring,” the “Mad Money” host said.
Cramer focused on three winning cohorts: the internet of things stocks like Texas Instruments, Analog Devices and Cramer-fave Nvidia; the cloud plays like Adobe, Amazon, VMware and Microsoft; and the communications names, Qualcomm, Xilinx and Broadcom.
Companies that help companies move to the cloud are also working, Cramer said, pointing to Workday, ServiceNow, Salesforce.com and Accenture as his top picks. He added that in the cybersecurity space, Fortinet and Proofpoint are standing out as good buys.
Cramer has been utterly surprised by the strength in the health care stocks, from drug distributors to insurers to hospital operators.
“This is all about a peculiar backlash from Washington,” he said. “After the Republicans took over the White House and Congress, we figured they would be hellbent on making this sector smaller [and] less lucrative, because a lot of it relies on the government. But when the GOP failed to obliterate Obamacare last year, investors rushed back into a sector that many people had shorted.”
A booming economy usually brings poor tidings for the health care stocks, but this time, it has incited a resurgence in drug distributors like McKesson, AmerisourceBergen and Cardinal; drugmakers AbbVie and Abbott; and pharmaceutical giant Johnson & Johnson, Cramer said.
Other unexpected leaders include medical device and life science plays like Danaher, Thermo Fischer and Illumina. Cramer called the biotech group largely “underrepresented” except for Amgen, and labeled one of his favorite health stocks, UnitedHealth, a “must-buy” winner.
It’s been years since Wall Street saw the retailers as anything but dead meat.
“The only merchant that mattered was Amazon, the so-called Death Star destroying everything in its path as part of its never-ending quest for market share,” Cramer said. “We all figured this had become a zero-sum situation.”
But after an uptick in consumer spending that kicked off during 2017’s robust holiday season, retailers are gaining momentum, implementing better plans to push back against Amazon’s influence and developing their own e-commerce strategies.
“I think it’s too early to crown individual leaders within retail outside of home goods, but I’ve got to tell you, Walmart, Burlington Stores, Dollar Tree, Dollar General, they stand out because they can beat Amazon on price,” Cramer said. “Throw in Costco and you may have all you need.”
Consumer spending is also lifting shares of travel and leisure companies like the airline, hotel and casino operators, the “Mad Money” host said.
“The cruise lines are roaring as there’s really a dearth of ships and a plethora of younger people who’ve discovered that cruises make great backgrounds” for photos on social media, he said. “Don’t rule out a Thor Industries because RVs are red-hot, again for the experience, for the selfie. Needless to say, you need Estee Lauder to make it all work. That stock won’t quit. It’s obviously the cameras.”
A slew of positive business cycles have ignited a resurgence in industrial stocks, from the oil drillers and refiners to the manufacturing and machinery plays.
OPEC’s production cuts and geopolitical turmoil in Venezuela have made the United States a central oil and gas producer, spurring expansion in areas like Texas’ Permian Basin.
“We went from being in a deficit with natural gas to being the cheapest and world’s largest producer,” Cramer said. “That has triggered a building boom for the chemical industry, as they use this stuff as their main feedstock.”
This trend, combined with rising oil prices, has also paved the way for construction of new pipelines, factories and shipping terminals.
Finally, Cramer noted that defense contractors Raytheon, Northrop Grumman, General Dynamics, Lockheed Martin, as well as smaller players Leidos, L3 and Harris, are benefiting from the Republican control of Washington.
All things (and stocks) considered, Cramer determined that traditionally “safe” investments like the PepsiCos and Colgates of the world will not give investors the gains they want in this environment.
“Bottom line? You’ve just been given the only guide you need to pick among the winners for the best choices,” Cramer said. “Don’t let the astounding nature of this rally blind you: it’s very much for real and it’s based on the fundamentals, … which have only gotten even stronger now that tax reform is finally kicking in.”
Disclosure: Cramer’s charitable trust owns shares of J.P. Morgan, Citigroup, Facebook, Alphabet, Nvidia, Microsoft, Broadcom, Abbott Laboratories, Danaher, Honeywell, and PepsiCo.
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