Jim Cramer breaks down Alphabet’s latest earnings and explains why he thinks the company has more potential than investors may think.
After the stock of Google parent Alphabet shed some of its gains post-earnings as investors acted on concerns about the tech giant’s advertising model, Jim Cramer explained the stock’s temporary weakness.
„It’s entirely possible that the growth in their core business is slowing, “ the “ Mad Money “ host said. „But Alphabet does have $94.7 billion in cash that it can use to make acquisitions or buy back stock in order to boost the earnings per share. More important, I refuse to write off a company that has the No. 1 autonomous driving platform, as well as what can be considered a worldwide television network [with] zero production costs — YouTube — not to mention virtually a hammer-locked monopoly business called search.“
Cramer figured that while Wall Street digests what it considered to be a miss for Alphabet, its stock might become a „source of funds“ for managers who sell it to buy faster growing names.
„No one downgraded it. Most analysts actually praised it and raised their price targets, “ he added. „I say wait until the hot money comes out and then make your stand, which will, I believe, not be too far down from these levels.“
Earnings season can stir doubt even in some of the stock market’s top performers, and Cramer had to right the record when he spotted declines in four of his favorite names.
„Look, you need a healthy amount of skepticism to be a good investor, no denying that, but it’s also important to know when to believe, “ Cramer said. „I’m talking about buying the stocks of companies that have been left for dead because of a single bad quarter when the executives have proven time and time and time again that they can navigate rougher waters and right the ship.“
The four bedraggled names? The stocks of 3M, Domino’s, Hasbro and Alphabet, all of which Cramer said were solid, high-quality buys on weakness.
McCormick Chairman and CEO Lawrence Kurzius had an explanation prepared for critics who said his spice company’s $4.2 billion acquisition of Reckitt Benckiser’s food division was too costly.
„You know, I wish I could’ve bought my house for a discount, but if I had tried to, somebody else would be living in it. And it’s the same with this, “ the CEO told Cramer on Tuesday. „It’s a quality asset, these are leading brands, they’ve got strong growth characteristics, they’re on-trend and they’re tremendously profitable. A lot of other companies saw value in this.“
Kurzius said the acquisition, which put top condiment brands like French’s Mustard and Frank’s RedHot in McCormick’s portfolio, had been on the company’s strategic list for over a decade.
With earnings season well underway, Cramer wanted to remind investors of a crucial piece of advice as the results pour in: do not overthink this stock market.
For example, when United Technologies issued a strong earnings report, its stock still went down. Chalking it up to earnings season confusion, the „Mad Money“ host said the action provided a buying opportunity rather than a genuine take on the aircraft manufacturer’s quarter.
To help explain this irrationality, Cramer turned to technician Tim Collins, his colleague at RealMoney.com, who said one defense stock could provide investors with a similar opportunity.
„Collins thinks we could potentially be seeing something very similar from GD, General Dynamics, the big defense contractor, after it reports [Wednesday] , “ Cramer said. „If General Dynamics gives you a nice beat and maintains its guidance but the stock goes down, which it would, by the way, then you might just be getting a wonderful gift.“
Finally, Cramer sat down with Donald Walker, the CEO of Canada-based automotive company Magna International, to get his take on the welfare of the auto industry.
Walker maintained that the global auto industry is doing well despite a slowdown in North America, but what the CEO considered to be more pressing was the question of the North American Free Trade Agreement, a trade partnership between Canada, the United States and Mexico that President Donald Trump’s administration has taken issue with.
„I actually think one of the reasons our stock price is underpriced right now is because there’s concern with NAFTA, “ Walker told Cramer on Tuesday.
Walker said that being the head of a globally involved company, he was not very concerned with where his company was located, adding that Magna employs 25,000 workers in the United States.
„I look at NAFTA as a trading partner, “ he told Cramer. „We need to make sure we keep it solid, we keep it competitive, because it’s Asia, it’s Europe that are really competing, and NAFTA has to be competitive. So I think fair trade is good, I think fair trade in the rest of the world is good, and from what I see, and they can tweak it, but it already works pretty efficiently. We’ve just got to make sure they don’t do something to damage the effectiveness of all three countries working together.“
In Cramer’s lightning round, he flew through his take on some callers‘ favorite stocks, including:
Macy’s: „I think the whole group – I think Nordstrom is going to get a deal, I think Macy’s is probably done going down. I think when you drop the February month, you’re going to see better numbers. But I suggest you buy PVH even up here. We’d rather have the arms dealer that sells everywhere than one particular company.“
Petmed Express: „You’re a genius because you know that the humanization of pets only has a couple of players, Idexx [Laboratories] and PetMed Express.
