Blame The Fed For Wednesday's Decline – Cramer's Mad Money (4/11/18)

Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Wednesday, April 11.

The decline on Wednesday could not be blamed on Trump for a change. It was the Fed’s tone. There are also fears the President might fire special prosecutor Robert Mueller and regarding his tweets about Russia and Syria. Eventually, one has to ask the question, “What does Russia have to do with the price/earnings multiples of stocks?” China has a big effect on trade for the U.S. but Russia is immaterial,” said Cramer.

The other stock to be watched was Facebook (NASDAQ:FB). It was up 0.8% after going up 4.5% a day before. Cramer said his trust sold the stock of Facebook. He warned investors not to be too forgiving. “We simply can’t like Facebook as much as we used to. You don’t like a company more after its CEO gets grilled by lawmakers, you like it less,” added Cramer.

Congress does not have a good grasp on the way Facebook made its money. Their inclination to regulate Facebook will reflect poorly on the stock. Cramer wanted an independent investigator who could review Facebook’s practices and prevent another scandal but that did not happen.

“If there is another situation like this, Congress is going to take a pretty dim view of Zuckerberg’s testimony. He needs to get out ahead of the next scandal. I love the numbers, but I think the numbers could come down. This stock is a lot more risky than it was a month ago,” concluded Cramer.

CEO interview – The GAP (NYSE:GPS)

As Cramer has been talking about retail gaining traction lately, he pointed to the stock of GAP, which was up 50% in the last year and down 9% this year. They had a good last quarter with a 5.4% jump in comparable-store sales. Cramer interviewed President and CEO Art Peck to find out what lies ahead.

Peck said that they have a good portfolio of brands like Gap, Old Navy, Banana Republic and their newest brand, Athleta. He added that the company is evolving with the consumer by being flexible and closing stores with low foot traffic and investing in areas where the customer likes to shop.

Another reason for good performance is big data. “We’ve really been building back-end big data analytic capabilities now for a couple of years, and data is a huge asset for us. It’s surprising to me that more people in our space aren’t talking about it. We know a lot about our customers. We can see their lifetime value. We know who our most valuable customer is. Structurally, because we have multiple brands and multi-channels, we’ve got something not a lot of other apparel companies have,” said Peck.

They collect a lot of data from more than 2B visits a year between its websites and its stores. Peck believes that leveraging customer data pays big dividends as advertising dollars can be directed in the most effective way. “If you look at the difference between a customer who’s casually engaged and one who is really deeply engaged in our brands across channels, it’s at least 10 times the value of that first customer,” he added.

Most of their marketing has shifted to social media compared to traditional media earlier. “If I’m getting a 6x or an 8x return on my advertising spend, I might say I want to spend down to a 3x return and I’m still getting an incremental return on that dollar. It’s hard to do that in a lot of the traditional media,” he added.

They have a good combination of physical brands and online brands. Commenting on spending, he said Gap will invest in profitable growth only which would leave money for stock buybacks. The company has reduced its share count from 533M to 389M in five years.

Earnings season for banks

The earnings season will kick off on Friday with 4 major banks reporting. “This is the most important earnings season for the big banks in years. Some good performance by the financials is one of the few things that could get us back on track,” said Cramer. The market has been volatile in 2018 and the S&P500 is down 8% from its highs. The market lacks a clear leader and bank stocks could take that charge.

After two rate hikes in December and March, the banks stand to gain from the additional hikes. In an environment with low unemployment and strong consumer confidence, the banks do well. With a strong IPO market, M&A and commercial lending, banks have a lot to cheer about

While banks like Bank of America (NYSE:BAC) will get a boost from interest rate hikes, investment banks like Goldman-Sachs (NYSE:GS) will see an uptick in their trading business after a quiet 2017. Cramer’s top picks going into the earnings season are Bank of America, Citigroup (NYSE:C), JPMorgan (NYSE:JPM) and Goldman Sachs. The bank stock to avoid is Wells Fargo (NYSE:WFC) as more fines could come their way.

CEO interview – Taylor Morrison Homes (NYSE:TMHC)

How is housing doing? To get a read on the state of housing, Cramer interviewed Taylor Morrison Homes CEO Sheryl Palmer.

Palmer said everyone is focusing on interest rates, but they forget to view the other tailwinds for the business like demographics. “The average age of the millennial buying today is somewhere around 30, 31. The largest group of millennials is turning 29, 30, so we have so much runway ahead. And then you think about the financial security of the boomers, so I’m very bullish about where we’re going,” she added.

Consumer confidence is high, unemployment is low and labor participation rate is steady and incomes are rising. A third of all millennials still live at home which is an opportunity for the company. The U.S. is currently building 1.1-1.2M homes but the deficit created by recession needs the country to build 1.5-1.6M homes.

The company is seeing strength across the board from starter homes to retirement homes. She also spoke on gender equality and the need for more qualified women in the workforce, and to have diversity not just in business.

Viewer calls taken by Cramer

Square (NYSE:SQ): It went down as it is involved with cryptocurrency.

PNC Financial Services (NYSE:PNC): Cramer expects them to report a terrific number. It’s a buy.

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