There Is A Lot Going On Underneath The Market – Cramer's Mad Money (6/11/18)

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

The market did not change much on Monday but there was a lot going on underneath. “While the market certainly looked comatose, we’re witnessing some tremendous breakouts all over the place, breakouts that typically would be held back by the gravitational pull of profit-taking or higher interest rates or, yes, politics,” said Cramer.

The analyst upgrades for Nike (NYSE:NKE) and Signet Jewelers (NYSE:SIG) were good signs. RH (NYSE:RH) went up on good earnings along with Dave & Buster’s (NASDAQ:PLAY) which had a great quarter. There were some moves in the healthcare sector too. The stock of Eli Lilly (NYSE:LLY) had been trading in the $70s after their earnings but has been moving up slowly as JPMorgan’s pharmaceutical industry analyst issued a very positive note on the drugmaker. “Its drug analyst came out Monday and said that Lilly was one of the ‘best position names’ in the group. The note then totally rehashes exactly the same bull argument that could’ve been done 10 points ago in the $70s, except now it’s in the mid-$80s,” said Cramer. His trust owns the stock.

Eli Lilly is a classic example of how analysts are viewing the market – if you miss the hidden value, you might be left behind. Based on this thesis, Cramer believes UnitedHealth Group (UNH), Estee Lauder (NYSE:EL), Electronic Arts (NASDAQ:EA) and Activision Blizzard (NASDAQ:ATVI) may get analyst upgrades soon.

“You should be thinking positively, not negatively, these days if your stock’s had a nice run or even if it hasn’t. There are just too many good things that might happen to justify getting too pessimistic,” he concluded.

Jack Dorsey

Cramer has long believed, along with the rest of the market, that Twitter (NYSE:TWTR) and Square (NYSE:SQ) CEO Jack Dorsey needs to stop splitting his time between both companies. Cramer called him a part-time CEO. “And you know what? I was dead wrong. Jack Dorsey has been doing a dynamite job at both companies. And because I’m a big believer in accountability, I’ve gotta tell you: Dorsey deserves a lot more credit than he’s been getting,” said Cramer.

He admitted that he was wrong about Dorsey who has been running two separate complicated companies at the same time. Twitter is up 72% and Square 77% since start of 2018. The turnaround stories of both these companies are good.

Twitter has become a less harmful platform as it has cleaned up using AI, removed lots of offensive content and purged the accounts responsible. “The most objectionable comments now get buried, with the really vile stuff hidden behind a disclaimer,” said Cramer. “At the same time, Twitter finally figured out monetization, something that many social media companies have struggled with. Put it all together, along with some aggressive cost cuts, and Twitter’s profitability has improved dramatically. The margins are so much better it’s staggering,” he added.

Square, on the other hand, is a growth story. “They even lend money to their clients. The payments space has gotten pretty crowded and cutthroat, which is one reason this move into lending was such a good idea. Basically, Square gives its small business clients cash advances in exchange for a flat-rate percentage of their daily credit card sales. This is now a huge growth driver for the company,” said Cramer. Square CFO Sarah Friar is ex-Goldman Sachs and has created value for Square’s shareholders.

“As long as your chief executive is making the right big-picture decisions and hiring a good management team, that’s what counts,” concluded Cramer. He advised Dorsey to have a paid component on Twitter and not talk about Bitcoin with Square.

The burden of expectations

How stocks perform is based on what is expected of them. This is the clear case with HP (NYSE:HPQ) and Hewlett Packard Enterprise (NYSE:HPE). When the two companies split, HPQ was supposed to be a commodity play as it manufactured PCs and printers which were in a secular decline. HPE, on the other hand, was the growth-oriented company.

What happened since then was unexpected. HPQ is growing as the PC market has moved from decline to growth. This reinvigorated market has helped HPQ beat expectations continuously and this has led to the stock growing 77% in the last two years.

HPE, on the other hand, has not been able to keep up with the expectations and recently said that 2H is going to be challenging for them. The loss of CEO Meg Whitman has complicated things for the company.

HP now trades at 11 times earnings while HPE is at 10. “And even after its magnificent run, you know what? I’d still be a buyer of HP Inc here,” said Cramer.

Brink’s (NYSE:BCO)

Cramer recommended the stock of Brink’s 11 months ago when Starboard Value took a stake in them. The stock had moved to the $80s from the $60s. Starboard has since exited the company and some of the gains have been lost. Brink’s announced it is acquiring rival Dunbar Armored for $520M in cash. Is the stock worth buying now?

Cramer said when Starboard had taken a stake in Brink’s, the management upgraded their IT systems and moved to the cloud, upgraded their fleet of vehicles and became a consistent operator. After Starboard’s exit, the market is used to the new Brink’s which is growing.

The recent acquisition of rival Dunbar will just add to the company’s growth. It combines the number 2 and 4 players to become the single largest player in the market. That’s the reason Brink’s stock rallied 16% on the news.

The stock trades at 15 times earnings after all the gains and Cramer is willing to buy the stock on weakness. He wants to give management the benefit of the doubt.

Viewer calls taken by Cramer

Kinder Morgan (NYSE:KMI): Cramer doesn’t care for this group as their balance sheets are bad. He does not recommend buying the stock.

Whirlpool (NYSE:WHR): They have not been delivering. Don’t buy.

Etsy (NASDAQ:ETSY): Cramer is proud of what the company has done. It’s a great buy.

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