Irrational Reaction To Iran Deal – Cramer's Mad Money (5/8/18)

Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Tuesday, May 8.

“There are some markets where it pays to be smart, to really think things through. This market is not one of them. This is a straightforward market that’s as dumb as a bag of hammers, and if you want to beat the averages here, the trick is you can’t overthink anything,” said Cramer. He believes the market’s reaction to Iran nuclear deal was irrational.

Investors bought defense stocks on this news due to the fear of heightened tensions in the Middle East, but Cramer argues this was obvious as Trump had made this promise when he was a candidate. Intelligent investors should be buying the rumors and selling the news. As tensions ease in North Korea, Cramer thinks Tuesday’s move of buying defense stocks was not smart.

Next, investors bought oil stocks and some sold airline stocks, thinking that oil prices would rise. But the Iran deal was not a surprise. “If you had done a lot of homework and you had a good memory, you would’ve been selling the oil stocks, not buying them, as would be the case with almost every other market I have ever witnessed. And all that thinking and history and knowledge would’ve betrayed you as oil stocks just roared. This market did the unthinkable: you are not supposed to be able to make money in such an obvious way. But the obvious is what’s working,” added Cramer.

Investors also bought cloud stocks without any new development. Cramer finds this trend worrisome as he believes investors should discount the news game. Don’t be faked out. “I don’t want you to let your emotions rule. I think if you stay disciplined about your conviction, you can run out these inanities,” concluded Cramer.

Off the charts

Three industrial stocks – Boeing (NYSE:BA), Caterpillar (NYSE:CAT) and United Technologies (NYSE:UTX) went down after comments on their conference calls. Cramer looked at the charts of these companies with the help of technician Bob Lang to get a technical view on them.

Caterpillar had a good quarter but the high water mark comment crushed the stock. Lang said that the stock was stuck in $139-152 range but if it could break the $152 level, things will improve. The MACD indicator has made a bullish crossover indicating that the trajectory is about to change. “Put it all together and Lang believes that Caterpillar can rally $3 from here, break out over its $152 ceiling of resistance and then coast to the $160s,” said Cramer.

The charts of Boeing are similar. The stock was going up until the trade war began which crushed the stock. It went down on earnings as well. The stock is off $33 from its highs. Lang believes the stock is just consolidating. The stock has been bouncing back on good volume which is a good sign. “If the stock can break out above $345, up a little more than 2% from here, then Lang thinks it could head straight back to its old highs of $370 and beyond,” added Cramer.

United Technologies also went down on trade war fears. “In Lang’s view, United Technologies is the baby that got thrown out with the industrial bathwater. When the stock broke down last week, it did fall below its 200-day moving average, and from Lang’s perspective, that’s a meaningful negative,” said Cramer.

The RSI indicator is positive and the strong volume of buying between $117-120 shows institutional buyers accumulating the stock. If it breaks the ceiling of resistance at $126, Lang will be bullish.

CEO interview – Broadridge Financial Solutions (NYSE:BR)

The stock of Broadridge Financial Solutions is up 320% in the last five years. The company reported a good quarter of revenue growth and an earnings beat and Cramer interviewed CEO Rich Daly to hear more about the quarter.

Daly said that Broadridge Financial is a trusted brand. The total addressable market for governance communications business and capital market solutions business is worth $40B.

Retail investors make up one-third of total investors in the US and Broadridge Financial provides services to them too. The company also has technology to alert shareholders every time there is a proxy vote and yet only 30% actually vote on their shares.

CEO interview – Valeant Pharmaceuticals (NYSE:VRX)

The stock of Valeant Pharma went up on good earnings. The company is also changing its name Bausch Health. Cramer interviewed chairman and CEO Joe Papa to find out what lies ahead.

Papa said the Salix unit and Bausch & Lomb arm were the real growth drivers for the company. They account for 76% of the company’s revenue and despite reporting a loss, Salix and Bausch & Lomb combined grew by 10%.

It was the first time since 2015 that Valeant reported organic growth. Their newest product, Xifaxan, which treats irritable bowel syndrome and other gastrointestinal symptoms, hit $1B in sales just in the first quarter of 2018.

“I increased research and development this year by 15% because we firmly believe it is these new products that will help us to improve our earnings. The $6.9B payment gave Valeant freedom to operate and innovate,” added Papa. Investing in products like Xifaxan will help drive long-term shareholder value.

Viewer calls taken by Cramer

Camping World Holdings (NYSE:CWH): They went down as they did not beat estimates and raise guidance.

AbbVie (NYSE:ABBV): Don’t buy more stock on buyback news. Hold and let it ride.

CommScope (NASDAQ:COMM): They are in the penalty box due to a horrible quarter.

Exxon Mobil (NYSE:XOM): Don’t get rid of it when it yields 4.2% yield. It’s too cheap.

Pfizer (NYSE:PFE): Keep reinvesting the dividends and let it compound.

Cisco (NASDAQ:CSCO): Cramer thinks they will report good numbers and it is an inexpensive stock.

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