Defense And Weak Dollar Are New Market Trends – Cramer's Mad Money (8/29/17)

Oil and copper are due for a correction.

Cramer prefers McDonald’s over DineEquity.

Don’t Buy Goodyear Tire & Rubber.

Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Tuesday, August 29.

The market is coming back with new trends. First, the USA is not the world’s policeman anymore. Countries need to strengthen their defense systems due to the lurking North Korean crisis. Japan and South Korea will need to buy more defense systems which means that defense stocks like Raytheon (NYSE:RTN) and Kratos Defense (NASDAQ:KTOS) will rise. Cramer suggested not selling these.

The second trend is the weakening dollar. This is advantageous for companies exporting overseas, especially to Europe, as it makes the pricing competitive. Johnson & Johnson (NYSE:JNJ), 3M (NYSE:MMM), Procter & Gamble (NYSE:PG) and PVH Corp (NYSE:PVH) are likely to profit from the weakening dollar.

Apple (NASDAQ:AAPL) hitting a record high is also good news. “Buffett views it as a consumer product company, and the average consumer product stock trades at 24 times earnings, yet it is lucky to have even 2.5% growth, whereas Apple has much faster growth with a stock that’s way cheaper,” said Cramer. “I remain adamant that the best places to be are the companies, especially the semiconductor makers, that can capitalize off voice technology and the upcoming iPhone launch,” he added.

The group to be avoided is athletic apparel after the collapse of Finish Line (NASDAQ:FINL).

Off the charts

With many oil refineries shut down due to the storm in Houston, Cramer went to the charts with the help of technician Carley Garner to find out the direction of oil. “The trouble with the oil market right now, in Garner’s view, is that the buyers all feel like eternal optimists and they won’t let multiple failed rallies stand in the way of their conviction,” said Cramer.

Each time oil goes up, speculators become more optimistic. This leads to a letdown for speculators as oil has been trading in a range. “We’ve made this point before, but Garner thinks it’s worth stressing now, because we’re currently approaching what’s historically been a bearish time of year for the oil markets and she wouldn’t be surprised if the bulls just get blown out here,” said Cramer.

The Commitment of Traders report shows that optimists have created a net long outstanding of 445,000 contracts. This is a weak season for oil based on a pattern of 15-year average and if oil doesn’t hold the floor of support near $40, it could go lower to $35.

The next commodity is copper. It has been rising due to the weak dollar and rising demand from China. Garner suggested it could be nearing an end in its rally. “When you check out both the weekly and the daily charts for copper, you see a bunch of indicators that suggest it’s already way overbought,” said Cramer. The RSI is high which is a sign that a correction is overdue. The net long contracts are high and the commodity is overbought.

“Here’s the bottom line – The charts, as interpreted by our go-to commodities person, Carley Garner, suggest that crude oil could soon fall off a cliff while copper might be running out of momentum. Neither of these is what I’d call a good sign. You know what? I’m on board with both calls,” concluded Cramer.

Retail

It has been a tough quarter for retail. Cramer thinks most retailers can fall into five categories:

  1. Bad results: L Brands (NYSE:LB) and Finish Line (FINL).
  2. Ok results: Wal-Mart (NYSE:WMT).
  3. Strong results: Ulta Beauty (NASDAQ:ULTA) and Best Buy (NYSE:BBY).
  4. Excellent results: Target (NYSE:TGT), Ross Stores (NASDAQ:ROST) and TJX Companies (NYSE:TJX).
  5. Better than feared results: American Eagle Outfitters (NYSE:AEO), Abercrombie & Fitch (NYSE:ANF), Express (NYSE:EXPR) and Signet Jewelers (NYSE:SIG).

CEO interview – Del Taco (NASDAQ:TACO)

Del Taco is the second largest Mexican food chain in the U.S. Its stock is up just 2% YTD and Cramer interviewed CEO John Cappasola to hear what lies ahead.

Cappasola said that their unique blend of speed, convenience, quality and value makes them stay at the top of their game. “This is actually a structural advantage for us, the fact that we do it fresh in our restaurants,” he added.

“From a food cost standpoint, we are cutting out the middleman. When you think about the value add you pay to have someone else chop it and slice it and put it in a bag and ship it in, we don’t do that. We take it inside and we do the chopping and the slicing and the grating and the grilling, and we feel really confident that that’s what delivers a great food experience for us,” said Cappasola.

They are taking a slow approach to expand and not getting ahead of themselves. They are keeping the food costs low and lots of preparation in-house. They are also testing a delivery service in two markets.

Viewer calls taken by Cramer

Goodyear Tire & Rubber (NYSE:GT): It’s a sell.

DineEquity (NYSE:DIN): Cramer is concerned about their dividend. He likes McDonald’s (NYSE:MCD).

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