Clorox Rally Causes Fear – Cramer's Mad Money (10/15/18)

Power rankings in the energy sector.

Buy Yum! Brands on weakness.

Square is a good long-term buy.

Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Monday, October 15.

Cramer advised investors to be patient. The Fed’s comments on inflation and rising rates have led investors in the past few weeks to sell growth stocks and buy defensive stocks. “My No. 1 fear when I looked at today’s action? It’s the rally in the stock of Clorox (NYSE:CLX). The best performers were the kinds of names you buy if you believe we are indeed headed into a downturn,” said Cramer.

Clorox is considered a safe stock with growth and is a bond market equivalent. Investors buy the defensive stocks like Clorox and Procter & Gamble (NYSE:PG) when they expect a long-term decline in stocks. “Don’t get me wrong. You know I like Clorox a lot — management is doing a terrific job, but when these kinds of consumer packaged good stocks start roaring, that’s the market telling you, ‘Look out, the Fed’s going to cause a slowdown’,” he added. Even the stock of Kimberly-Clark (NYSE:KMB) rose on Monday while that of Bank of America (NYSE:BAC) went down despite good earnings.

Cramer admitted that it is not the Fed’s job to keep the stock market rallying, but he expects them to pay attention to the patterns which signal there is a slowdown. Instead of an academic aggressive approach to rates, they should be data dependent.

This is not the time to sell as people have been selling for weeks. “The moment the Fed changes its view or simply sends someone out to clarify Powell’s comments, you’ll be scrambling to buy stocks at prices much higher than they are right now,” said Cramer.

“Sure, if you want to raise cash, that’s fine. Take some gains. Do some buying into weakness,” he concluded.

Power Rankings – Energy

Cramer continued with the power rankings segment from last week where he assigns top 5 ranks to stocks in a sector. He assigned ranks to the energy sector as oil prices have been rallying due to oil producing nations like Libya, Nigeria and Venezuela undergo domestic turmoil, thus crimping supply. “If Saudi Arabia ends up facing any kind of sanctions, that’s good news for our oil producers — the group should be going higher, not lower,” said Cramer.

  1. Marathon Petroleum (NYSE:MPC): Marathon is the king of refiners with management forecasting $1B in annual run-rate synergies within the first three years. The stock still sells at 10 times earnings, which is cheap.
  2. ConocoPhillips (NYSE:COP): It’s up 34% in 2018. “I think it’s a great proxy for the global oil and gas industry, as the company has a diversified portfolio of assets with a major emphasis on the United States, where fossil fuels are cheap and plentiful and you don’t have a lot of political risk,” said Cramer. They raised their guidance after last quarter and it still trades at 13 times earnings.
  3. Valero Energy (NYSE:VLO): They are the second biggest refiner after Marathon. The oil refiners are in a sweet spot as there isn’t enough worldwide capacity and building additional capacity could take as long as till 2020. It’s a bargain, selling at just 10 times earnings.
  4. EOG Resources (NYSE:EOG): They are pioneers in fracking and are an independent oil and gas producing giant. The stock sold off in the last week and is now trading at 16 times earnings. “I know that sounds high, but this has got the best growth profile. I think it’s absurd that its stock trades this cheap, especially when you consider that EOG’s expected to grow at a 29% clip. That’s like a tech company,” said Cramer.
  5. Anadarko Petroleum (NYSE:APC): Cramer’s trust owns this stock. “In all honesty, Anadarko would’ve been my No. 1 pick here if not for one single thorny issue: the company owns 400,000 acres in the DJ Basin area of Colorado. The problem? On election day, Colorado’s holding a referendum that would effectively ban new drilling in the state,” he added. Wait until election day for some buying.

“The world is a mess and that’s great for oil producers and refiners,” concluded Cramer.

Yum! Brands (NYSE:YUM)

After the spinoff of Yum! China, Yum Brands was supposed to be a consistent performer while Yum! China a growth story. Thanks to the trade war with China, Yum! China has been a laggard but Yum! Brand’s stock is showing strength and Cramer thinks it’s time to buy.

The company’s revenue declined 5% in the last quarter but gross and operating margins saw an uptick. They are also moving to an all-franchise model which is lower risk and gives a steady revenue stream. Yum! is closing under-performing locations and this is helping them post earnings growth.

They have a big $2.3B buyback program which represents 8% of the company’s current shares outstanding and will positively impact EPS going forward. “I would be a buyer of this incredibly well-run company into any additional weakness,” concluded Cramer.

Off the tape

Cramer went off the tape to review the privately held MedMen Enterprises (OTCQB:MMNFF), that operates 19 medical marijuana facilities across the US. They recently announced the acquisition of PharmaCann for $682M. Cramer interviewed co-founder and CEO Adam Bierman to find out what lies ahead.

Bierman said PharmaCann’s acquisition will increase their footprint to 12 states with 66 stores and 13 production facilities. California, Nevada and New York are still the best states and their revenue represents 6% of total in California. “What this allowed us to do was leapfrog that next stage of our growth so we can just hunker down and focus on execution,” he added.

Bierman added that MedMen is building an industry and an asset class for everyday investors. They are not in this for the short-term wins like Canada’s pending legalization of recreational marijuana later in the week. He added that progress and building of an industry take time.

Viewer calls taken by Cramer

Square (NYSE:SQ): Square is doing interesting things and it’s a good company. CFO departure has pushed down the stock and it can be a buying opportunity.

Spotify (NYSE:SPOT): It’s a long-term situation. Don’t look at it from daily trade point of view.

Transocean (NYSE:RIG): It’s a good buy as oil prices are up. They should start drilling more.

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