What Does The Rate Hike Mean For Stocks? – Cramer's Mad Money (6/13/18)

AT&T-Time Warner has paved the way for more mergers in the media space.

Short sellers of RH were taken by surprise.

Winners of the $100B club.

Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Wednesday, June 13.

As the Fed has decided to impose more rate hikes during the year, buyers became cautious and the market dipped. “Recognize that owning stocks just got harder. Higher rates are not a positive for the market. They’re a negative. Still, there is zero reason for panic. The market plummeted and then even bounced back a bit after Fed Chair Jay Powell allayed our fears in a very well-run press conference, ensuring us that we won’t get a rat-a-tat-tat series of rate hikes no matter what,” said Cramer.

Rate hikes make lending more expensive and hence borrowing becomes expensive for companies. It also affects the future earnings and so owning stocks becomes harder. “Many people have been lulled into a belief that inflation can’t come back. But when the Fed chief says the economy has accelerated, that makes many investors assume that inflation could be right around the corner,” added Cramer.

Rising rates also make bonds attractive. Cramer believes that rising interest rates will lead to short-term dips but the long-term story remains intact. Investors will just rotate money from sectors that get affected by rising rates like housing, retail and consumer packaged stocks into sectors that benefit from hikes like banks, payment processors etc.

Cramer expects tech, retail and industrial stocks to take a short-term hit but FANG stocks continue to take market share. Even with a few rate hikes in the year, U.S. rates will be lower historically.

CEO interview – RH (NYSE:RH)

The stock of RH, formerly known as Restoration Hardware, went up more than 30% on a better than expected quarter. Cramer interviewed CEO Gary Friedman to hear what led to the strong performance.

Friedman said he bought the stock of RH four times in the last year to show his confidence in the company strategy. “Despite that, I think we were the seventh-most-shorted stock in all of the Nasdaq and the New York Stock Exchange. We moved from a promotional model to a membership model. Most people are shrinking the size of their retail stores or closing retail stores and we’re building the biggest specialty stores anyone’s ever built, so that goes the other way. People are eliminating catalogs; we’re mailing the biggest source books people have seen,” he added.

The company is building operational infrastructure in an integrated and unique way. “Even in the small, the little 6,000-square-foot stores we inherited, those went from, on average, $2.9 million to $15 million in the same square footage. In our new design galleries, we have stories in excess of $60M. In fact, we’re going to open one here in New York City that we believe will do in excess of $100M,” said Friedman.

The company is innovating for the future. They are doing the same for their balance sheet. They raised $600M in bond deals at low rates when they did not need to money but came in handy to buy stock at lower prices.

Cramer believes the stock is not done going higher.

Media landscape

What will the future of the media landscape look like since the AT&T (NYSE:T) and Time Warner (NYSE:TWX) deal has been given the nod? Cramer thinks the verdict is all about saving traditional media from extinction. Traditional media is fighting for survival in a world of Google and Facebook which are taking more market share.

Consumers are also cutting the cord in favor of new on-demand services. This court ruling also paves the way for Comcast’s (NASDAQ:CMCSA) bid for Fox’s (NASDAQ:FOXA) assets. Cramer thinks the court does not understand the world we are living in. Traditional media is at a disadvantage with higher costs and declining revenues. No matter how big they get, their overall share in the new media landscape is reducing.

The future lies in digital.

$100B club

With the rate hikes on the horizon, investors can still find a bull market. Cramer looked at the $100B market cap club. These are companies that have market cap of $100B or more in the last 12 months. “Why should we care about these mega-cap stocks? Because unlike an index, the $100B club isn’t selected by anyone. There’s no nominating committee. The only way a company gets its name on this list is by producing years and years of gains. In the last 12 months, this club has seen 15 new members,” said Cramer.

  • DowDupont (NYSE:DWDP) got the market cap of $162B after it split and merged in 2017. “Given the tremendous amount of value Ed Breen created by breaking up the Tyco company back in the day, I am very much a believer in this story,” said Cramer. He would buy the stock.
  • Nvidia (NASDAQ:NVDA) has gone from $15B to $159B in three years. “Ideally, you want to wait so you can get a pullback. And Nvidia does get pullbacks, usually because someone slags it for being up too much,” he added.
  • Nike (NYSE:NKE) reached $100B in 2017. It is due to report earnings soon and the stock has a tendency to drop after earnings which will be an opportunity to buy.
  • Texas Instruments (NYSE:TXN) stands at $112B and is the world’s largest maker of analog chips. “Best of all, this company is a voracious re-purchaser of its own stock. When it gets slammed, you know they’re in there buying it with you.”
  • The largest railroad operator Union Pacific (NYSE:UNP) stands at $145B. The next time the transports pull back, you might want to think about doing some buying of Union Pacific. The company’s got a monster buyback, they’ll be in there with you,” added Cramer.
  • Broadcom (NASDAQ:AVGO) crossed $100B in 2017. They are an Apple supplier and can be tough to own.
  • United Technologies (NYSE:UTX) stands at $102B and China is a major source of growth for them. With the recent trade war, Cramer still thinks CEO Greg Hayes will do the right thing.
  • United Parcel Service (NYSE:UPS) reached $100B last year. Cramer thinks there are better players than them.
  • Netflix (NASDAQ:NFLX) stands at a 52-week high market cap of $165B. “Ideally, I’d wait for a pullback before buying more,” said Cramer.
  • For the remaining companies, Cramer was bullish on Adobe (NASDAQ:ADBE), Abbott Labs (NYSE:ABT), Accenture (NYSE:ACN) on weakness and Salesforce.com (NYSE:CRM) on a pullback. He was bearish on Booking Holdings (NASDAQ:BKNG).

Viewer calls taken by Cramer

Adamas Pharmaceuticals (NASDAQ:ADMS): It’s a speculative small-cap stock which does poorly in an inflationary environment.

H&R Block (NYSE:HRB): Their last quarter conference call was not good. Cramer prefers Intuit (NASDAQ:INTU).

Canopy Growth (NYSE:CGC): Constellation has a big investment in the company but the stock is up 30% for the year and so Cramer does not want to pound the table to buy.


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