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Cramer Remix: Why a cereal company and health care play have more in common than you think
As the bull market heats up, Jim Cramer pinpointed two promising takeovers that were overshadowed by a tidal wave of earnings reports and overlooked by Wall Street.
"Post [Holdings] (NYSE: POST) and Cardinal Health (NYSE: CAH) have one thing in common here: they're not getting enough credit for how they're trying to change their stripes with these acquisitions they just announced," the " Mad Money " host said.
Post Holdings, the United States' third-largest cereal maker and the company behind Honey Bunches of Oats and Raisin Bran, is buying the United Kingdom's second-biggest cereal company, Weetabix, for £1.4 billion.
Though the Street wrote the takeover off as being too pricey, Cramer sees the payoff ahead. Weetabix does business internationally, with operations in Asia and Africa, while Post gets 93 percent of its sales from the United States and the rest from Canada.
"I think the international cross-selling opportunities could be enormous here," Cramer said, adding that the company is a smart acquirer that knows how to under-promise and over-deliver.
Cardinal Health may have slashed its full-year earnings guidance, turning investors off to its future prospects, but Cramer sees upside ahead for its $6.1 billion acquisition of Medtronic's patient care, deep vein thrombosis and nutritional insufficiency divisions.
"What really matters is that these Medtronic assets will help Cardinal Health continue to diversify itself away from that lousy drug wholesaling business that caused the darned shortfall in the first place, and they'll give the company's medical supplies segment a much needed shot in the arm," Cramer said.
Furthermore, Cardinal's disappointing guidance could give the company just enough weakness to spring from, as it expects this deal to boost earnings by 55 cents in 2019.
As the bull market surges higher and earnings reports continue to top expectations, Cramer turned to technician Mark Sebastian's charts to find out whether the upward move is at all sustainable.
Being an expert on the CBOE Volatility Index (STOXX: .VIX) — VIX for short — Sebastian compared the near term volatility tracker to the S&P 500 (INDEX: .SPX) to show the strength of the market's trajectory.
When centrist Emmanuel Macron came in first place in France's first-round elections Sunday, the S&P took off, rallying 1.6 percent since Friday's close. But the VIX saw an even bigger drop, cratering at the unusually low level of 10.5.
"Looking at this moment through the prism of the big rally we got last November when the VIX plummeted, Sebastian thinks this is showing that we have got a lot more room to run," Cramer said. "Based on the action in the VIX, he easily sees the S&P traveling to 2,450 before it runs out of steam."
Cramer is always up for analyzing the stock market's valuation when commentary suggests that it has run too far too quickly and is too expensive.
So the "Mad Money" host decided to compare the leading stocks' future price-to-earnings multiples from 2000, when the dotcom bubble burst, to now to see whether there is any weight to the argument that today's market is too pricey.
In 2000, tech giants were already running the show. Microsoft (NASDAQ: MSFT) traded at 59 times earnings, Cisco (NASDAQ: CSCO) at 179 times earnings, Intel (NASDAQ: INTC) at 126 times earnings and Oracle (NYSE: ORCL) at 87 times earnings.
Now, Microsoft trades at 20 times earnings, Cisco at 13 times earnings, Intel at 17 times earnings, and Oracle at 16 times earnings.
"When you consider that the average stock in the S&P 500 sells for 21 times earnings, not only are these four tech stocks ridiculously undervalued versus their prices back then, they're actually cheaper than the average stock in the S&P right now," Cramer said.
Then, after Dow (Dow Jones Global Indexes: .DJI) components Caterpillar (NYSE: CAT), DuPont (NYSE: DD), and McDonald's (NYSE: MCD) surprised the Street with huge earnings gains, Cramer looked into the companies to see if their wins were real or one-offs.
The market has grown used to what Cramer calls "manufactured earnings beats," or reports that come in a penny better than expected because of share buybacks or other corporate tricks.
But not these companies. All three outshone expectations via execution of smart tactics that seemed out of reach several years ago, the "Mad Money" host said.
Finally, Cramer spoke with Briggs & Stratton (NYSE: BGG) Chairman, President and CEO Todd Teske on Tuesday to gauge the company's future in light of the manufacturing stock's massive jump.
Teske attributed the engine maker's success to its push into the commercial market as well as increasing sales, but said he was concerned with the United States' growing skills gap.
The gap is extended by companies like Briggs & Stratton that rely on robots for a bulk portion of their manufacturing and thus require high-skilled laborers to maintain operations.
"I and other manufacturing CEOs have been out there talking a lot about the fact that we need people who can run robots, program robots, CNC equipment, robotic welding and things like that," the CEO said. "It's a big issue."
And while the manufacturer has training programs in place for new workers, Teske said that more should be done on a nationwide scale if the federal government tightens visa laws.
"I think there's more that we need to do as a country because the skills gap is only going to get worse, especially as more jobs come back here to the U.S. if, in fact, some of the administration['s] policies start to take hold," Teske told Cramer.
In Cramer's lightning round , he sped through his take on some caller favorite stocks, including:
Magna International Inc. (Toronto Stock Exchange: MG-CA): "Well, you don't want to buy it for [a rumor it will work with Apple on self-driving cars] no matter what, because that's way too far in advance and if you do want autonomous driving, you know I believe in Waymo, which is Google, which is Alphabet (NASDAQ: GOOGL), which is owned by my charitable trust. I think Magna is too cheap to sell, but it is related to autos and everything related to autos is stalled. But I am not going to tell you to sell it. I just can't count on buying it right here."
Sprint Corp. (NYSE: S): "Last night we had [T-Mobile (NASDAQ: TMUS) CEO] John Legere on and he was lobbing his usual bombs and throwing the claymore mines around and doing the bazookas, and all I can tell you is that he had good things to say about Sprint. And in the conference call, he even talked about looking, you know, trying to figure out what to do with them, maybe Dish (NASDAQ: DISH). I want to own Sprint."
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