Jim Cramer says investors should ignore the averages and buy the stock of companies providing real value in the real economy.
Think stocks are too expensive? Think again. Jim Cramer told his Mad Money viewers Tuesday that despite many investors proclaiming that stock prices have gotten out of control, he’s taking the other side of the trade.
Nothing is more dangerous to a market than too much supply, Cramer reminded viewers. Yet last year was a record for IPOs, SPACs and secondary offerings, all of which flooded the markets with worthless shares that nobody wanted or needed.
In fact, 2021 wasn’t all that dissimilar to 2000, when the dot-com era saw 300 hot new IPOs hit the tape, only to have most of them fail within the next few years. The hype surrounding these issues was the same, and so too were the valuations, which relied on price-to-sales and countless other made-up metrics to make them sound legitimate.
But while many of the SPACs and IPOs are now proving to be worthless, the stocks of real companies with real earnings tell a different story. By Cramer’s valuations, among this group of companies that reported today, there were 13 winners to just four losers.
That’s why Cramer urged viewers to ignore the averages and instead look at companies like IBM (IBM) – Get International Business Machines Corporation Report, which rose 5.6%, American Express (AXP) – Get American Express Company Report, up 8.9%, Johnson & Johnson (JNJ) – Get Johnson & Johnson Report, up 2.8% and Raytheon Technologies (RTX) – Get Raytheon Technologies Corporation Report, up 2.4%.
These companies represent the real economy, Cramer concluded, and these are the stocks you should be investing in.
Executive Decision: Verizon
In his first “Executive Decision” segment, Cramer spoke with Hans Vestberg, chairman and CEO of Verizon (VZ) – Get Verizon Communications Inc. Report, the telco that just posted a top- and bottom-line earnings beat and upbeat guidance for 2022. Shares of Verizon currently trade for less than 10 times earnings.
Vestberg started off by saying that Verizon has invested over the past three years to get to where they are today. His company now has seven vectors of growth, including 5G wireless, which now covers over 95 million people in the U.S. Vestberg said 2021 was the most transformative year ever for Verizon.
When asked about the headlines concerning 5G interference with airline operations, Vestberg explained that Verizon is actively working with the FAA and the airlines to resolve any potential interference issue around our nation’s airports.
When asked about their financial outlook, Vestberg noted that Verizon has always been financially disciplined and is growing revenue and earnings while still remaining committed to their dividend. Verizon has increased their dividend payout every year for the past 15 years, he said, all while still investing into their business and paying down debt.
Stock-Picker’s Market
Don’t let the averages fool you, it’s a stock-pickers market, Cramer told viewers. In the case of the railroads, there’s a big difference between Union Pacific (UNP) – Get Union Pacific Corporation Report and rival CSX (CSX) – Get CSX Corporation Report.
The past six years have been a golden age for railroads, mostly due to their own actions. Union Pacific pioneered precision railroads, a concept quickly adopted by CSX. That’s why shares of CSX are up 126% over the past six years, while Union Pacific shares have gained 146%.
But when the two railroads reported this quarter, differences clearly emerged. Union Pacific rallied, but CSX fell 3.2%.
While both railroads saw declines in volumes and efficiency, CSX fared worse. Union Pacific was able to provide terrific guidance for the rest of the year, while CSX offered only muddled guidance with few assurances.
Ultimately, it comes down to geography and pricing power, Cramer explained. Union Pacific was able to raise prices to offset rising costs as it has the better routes and geographies. CSX wasn’t able to match these increases which, when added to their efficiency losses, made for an ugly quarter.
Executive Decision: Logitech International
For his second “Executive Decision” segment, Cramer spoke with Bracken Darrell, president and CEO of Logitech International (LOGI) – Get Logitech International S.A. Report, the computer peripheral maker that saw its shares rally 4% after reporting earnings. Shares of Logitech currently trade for 18 times earnings.
Darrell explained that after losing sales to supply issues last year, Logitech is now making up lost ground and is gaining market share in webcams and other categories. He said Logitech isn’t just for hardcore gamers either. The company has many products that can be enjoyed by everyone, from the casual gamer to the new work-from-home labor force.
Darrell said that more consumers are making videos for YouTube, TikTok and streaming platforms. There are a lot of things you need to make great video, that’s why Logitech has everything from webcams to microphones to lighting and editing software.
As for the enterprise, Darrell noted that only 10% of all meeting rooms are currently video enabled, which leaves plenty of growth ahead as at least a portion of the workforce returns to the office.
Lightning Round
In the Lightning Round, Cramer was bullish on Weber (WEBR) – Get Weber, Inc. Class A Report and Cleveland-Cliffs (CLF) – Get Cleveland-Cliffs Inc Report.
Cramer was bearish on Schrodinger (SDGR) – Get Schrodinger, Inc. Report, Digital Turbine (APPS) – Get Digital Turbine, Inc. Report and AGNC Investment (AGNC) – Get AGNC Investment Corp. Report.
Advice for Young Investors
In his No-Huddle Offense segment, Cramer said like it or not, the future belongs to young people. And while that’s great news for companies like American Express and AEO (AEO) – Get American Eagle Outfitters, Inc. Report, it does come with a downside.
American Express is the card of choice among younger people. That’s why the company says 60% of new cards it issues are to millennials. As for AEO, it owns the Gen Z market and has the earnings to prove it.
But let’s not forget that it was younger people that a year ago bid up the stocks of GameStop (GME) – Get GameStop Corp. Class A Report and AMC Entertainment (AMC) – Get AMC Entertainment Holdings, Inc. Class A Report because Reddit told them to. These younger investors weren’t fans of doing their homework or knowing what they owned, or why they owned it. That’s why most of them failed to get out in time and lost fortunes. If these investors had known how bad things were at both companies, they would have thought twice before following the crowd.
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