The Selloff Has Begun – Cramer's Mad Money (10/4/18)

Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Thursday, October 4.

The selloff has begun, and now investors will have to wait to find a bottom only due to the sheer magnitude of the selloff. “When it comes to this decline, I think it’s too early to be really aggressive. I am worried about your fellow shareholders. They’re your worst enemies right here. Many of them are people with big profits, renters who were just along for the ride. They don’t want to give up their gains,” said Cramer. He gave a list of 10 signs to watch if the market is near a bottom:

  1. The FAANG stocks need to be written off, and market has to get negative on them. Once that starts to happen, these stocks will show a bounce and start leadership.
  2. The drug stocks have run up a lot. “These Big Pharma names are bellwether inflation stocks. They all pay bountiful dividends, and these dividends get less attractive when bond yields are rising, so they tend to get clobbered in this kind of environment – and they haven’t been yet. I’ll feel a lot more comfortable when Merck (NYSE:MRK) goes back below $68 and Pfizer (NYSE:PFE) sinks below $40,” Cramer observed.
  3. The dividend yields of safe stocks still do not offer protection. They have to start yielding north of 4%.
  4. There have to be more analyst downgrades.
  5. Cyclical stocks are leading now and have to go down before a market bottom is found.
  6. Chartists have to bake in the negatives.
  7. The cloud stocks need to correct. “I wouldn’t touch them until they’re down maybe, let’s say, 8-9% from their highs. Worst-case scenario, they don’t go down that much and you miss a minor buying opportunity,” said Cramer.
  8. Oil prices have to stop rising.
  9. The Fed needs to cut down on hawkish comments of rising inflation and interest rates.
  10. The dollar has been too strong. It has to weaken first.

Wait for some signals, if not all, to find a market bottom. It’s okay to miss a little bounce.

CEO interview – Constellation Brands (NYSE:STZ)

The stock of Constellation Brands rallied 5% after reporting earnings as the margins increased. Cramer interviewed CEO Rob Sands to know what lies ahead and about the company’s stake in Canopy Growth Corp. (NYSE:CGC).

Sands explained the company’s core business is strong, it operates in growing categories like high-end imported Mexican beers and the demographic trends are working in its favor, making it a stronger brand. The wine category is also growing in single digits, as the demand for wine remains high.

Commenting on investing in Canopy Growth, the CEO said, “This has nothing to do with the core business or defending against the potential cannibalization of beverage alcohol by cannabis. There’s really no evidence of that. And our core business, as we’ve demonstrated in the first half of the year and this quarter, is stronger than ever.”

The company is playing offense on the opportunity of cannabis. It has already made unrealized gains of $1 billion from Canopy Growth. “Most likely, the products that will be produced as it relates to beverages will be non-alcoholic beverages. There may be a beer analogue, there may be a champagne analogue, there may be a spirits analogue, there may be a water analogue, a tea analogue, etc., all containing some version of cannabis,” said Sands.

Constellation Brands expects CBD to legalize, which is a non-psychoactive component in cannabis, after which there could be launching of most non-alcoholic beverages with CBD component.

CEO interview – Chipotle (NYSE:CMG)

Chipotle has been hit by multiple safety issues, and the stock has managed to rally 54% for the year after hitting lows. Cramer interviewed CEO Brian Niccol and CFO Jack Hartung to talk about the company’s turnaround.

Hartung said that food safety issues set Chipotle back in terms of its marketing goals. “We’ve always been a company that’s about food – real food, real ingredients, real cooking – and people, making sure that we hire great people, invest in them so that they can run great restaurants,” he added.

“We got knocked on our heels a little bit, so we stopped talking about the things that made Chipotle special. The great thing now, since Brian joined and we brought a new team together, is we’re back on our front foot. We’re talking about our food,” Hartung noted.

The former Taco Bell veteran Nicool admitted that the special brand of Chipotle required higher standards than the rest of the industry. “What we definitely are committed to doing is real ingredients, truly fresh, and that does require different food safety standards to be in place. These wellness checks that we do and other protocols that we execute – you’re not going to find that in a lot of other restaurants,” he said.

Hartung also added that safety is going to be a priority for the company and it will never change. It is also giving employees a good future and pays more than minimum wage and also has a good loyalty program for consumers. Chipotle is investing in digital initiatives as well.

Stock yields

Cramer said he understands investors’ eagerness to sell stocks with low yields like Clorox (NYSE:CLX) of 2.7% for bond yields of 3.2%.

However, bonds offer safety but no appreciation. Stocks like Clorox will cool off and then rise after the selloff is over. It trades at 22 times earnings with a 7% growth rate, and it’s easy to see why investors are running for the bonds.

However, as the selloff cools down, Clorox will go down and will yield more. That will be the opportunity to buy it and get the advantage of yield and stock appreciation over the long term.

In the long run, stock appreciation far outweighs the yields.

Viewer calls taken by Cramer

Amarin Corp. (NASDAQ:AMRN): Book profits and take out capital. Let the profits run.

Skyworks Solutions (NASDAQ:SWKS): Semiconductors are under pressure. Don’t buy yet.

Apptio (NASDAQ:APTI): Wait until it comes lower due to market-wide selloff.


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