Market Is Supporting Opposing Rallies – Cramer's Mad Money (1/11/18)

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

The market holding two opposing rallies at the same time is a sign of good health. This happened on Thursday, and Cramer said the animal spirits of the market are rolling. “Oil and airlines, they don’t mix. Jet fuel is the No. 1 cost for the airlines, so they shouldn’t be able to rally at the same time – unless it’s their stocks we are talking about. I keep highlighting the bizarrely bullish ways that stocks are trading, and sometimes they’re totally in your face, like this simultaneous move in the price of oil and the airline stocks,” the Mad Money host said.

Delta Airlines (NYSE:DAL) reported good earnings, and the stock went up. The notion that fare wars are hurting airlines was also put to rest when Delta reported 4% higher fares per seat per mile Y/Y. “Given its profitable growth, the stock is way too cheap, trading at a minuscule nine times next year’s earnings,” said Cramer. This led to pin action in other airline stocks.

The price of oil hit $64, which is a multi-year high. Such moves make money managers short airline stocks, as fuel is the biggest cost for airlines. Instead, both oil and airline stocks were high. This led to Boeing (NYSE:BA) stock going up as airline buy NetJets from Boeing that use lesser fuel.

Interest rates are rising, and yet, the home builders are going up. Netflix (NASDAQ:NFLX) also went up, along with its competitors Discovery Communications (NASDAQ:DISCA) and Viacom (NASDAQ:VIAB).

“To borrow a line from F. Scott Fitzgerald, the test of a first-rate market is the ability to hold two opposing rallies at the same time. That’s something this wonderful market keeps doing with aplomb. I say get used to it,” Cramer concluded.

CEO interview – Denny’s (NASDAQ:DENN)

Restaurant chain Denny’s gave good guidance before the ICR presentations where it reported 2.2% same-store sales growth. Cramer interviewed CEO John Miller to find out more about the company’s upcoming quarter.

Miller said that Denny’s is liked by millennials. The on-demand online ordering service has new packaging for its food, health-focused meal options, value-oriented menus starting at $2 and meal personalization. Its most delivered items are burgers and milkshakes.

The company’s turnaround is due to reinvention of the chain as an old-time diner. “People said they want their old diner back. It needed to be a place appropriate for dinner, so we warmed it up a little, divided the spaces,” Miller explained. 67% of the restaurants have changed their image so far, and it is expected that 80% will embrace the change by 2018.

Denny’s has a good share buyback program and is expanding its footprint in college campuses and New York City, among others. “We believe a great society runs best when you sort of push responsibility down. Give people choice. Let them make their own decision. You want to indulge in a shake on Sunday, we’ll sell it to you. But Monday morning, you can have a Fit Slam egg white omelet,” Miller said.

Bank earnings

The earnings season will kick start with bank earnings being reported on Friday. Cramer expects a lot of one-time charges in this quarter because banks carry unrecognized losses to offset their gains. With tax rates falling, banks will use their losses now. “I’m not trying to predict which banks will do well and which ones won’t. I simply want to help separate the signal from the noise so that you’ll be in a position to understand what’s actually happening – as it happens,” Cramer noted.

Citigroup (NYSE:C) and JPMorgan (NYSE:JPM) risk reporting a drop in earnings due to unrecognized losses. “Put it all together and that means the earnings for the fourth quarter could look horrendous on the surface. People will be [selling] the moment that it happens. I’m trying to steel you from that,” Cramer said.

The trading volume might also be down due to a trading bonanza after Trump’s win in 2016. “That’s pretty suboptimal, but you have to understand that the banks are coming up against some very difficult comparisons here,” said Cramer.

He discussed the best way to evaluate the banks. First and foremost is the net interest margin. “It’s still the primary way that banks make their money. Given that we got three rate hikes last year, and the last quarter the net interest margins were pretty impressive, there’s some real reason for optimism here, and I think it could prevail,” Cramer said. If net interest margins go up, regional banks will benefit the most.

The second indicator is loan growth, which shows the growth of the banks and the health of the economy. Stronger loan growth means confidence among businesses and banks. The thing Cramer is most excited about is the bank’s plans for dividends and share buybacks due to lower tax rates and a less strict regulatory environment. Also, as a former investment banker is about to become the new Fed chairman, banks are confident. “They are sitting on boatloads of cash, so let’s see how much they can increase their buybacks or signal large dividend boosts without risking the ire of the Fed,” he added.

“Here’s the bottom line: when the banks start reporting tomorrow, please don’t be thrown off by all the one-time charges from the fourth quarter. But do listen to everything they have to say about net interest margins, about loan growth and their plans to send money back to you,” concluded Cramer.

Off the tape

Cramer went off the tape to review the privately held luggage maker Away. He interviewed co-founder and CEO Steph Korey to know more about the company.

Away has digital-savvy luggage with USB ports, and it has been gaining popularity in two ways. “The No. 1 way our customers find out about us is a recommendation from a friend. We find that if we can create a special experience – like our web experience, our purchasing experience, our in-store experience, our product experience, how you travel – if we can create something that leaves a lasting impression with people, that’s so rare these days that they’ll tell everyone they know about it,” said Korey.

The second way is by social media popularity. Away encourages its customers to share when they are traveling. “Inspire your networks and share what you’re doing. So now, when people are traveling, they’re going somewhere new, they’re Instagramming themselves with their luggage, and that’s how people are finding out about it,” she added.

Away’s luggage allows travelers to fit more inside, charge their devices and is ultra-light. Its specialty color, Millennial Pink, sold out in record time and had a wait list of 20,000.

Viewer calls taken by Cramer

Discovery Communications: It’s a good stock.

Juno Therapeutics (NASDAQ:JUNO): It’s a good spec.

LendingClub (NYSE:LC): The company is spotty and inconsistent, and its business management is sub-optimal.

New York Community Bank (NYSE:NYCB): Don’t go down the food chain when JPMorgan is available.

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