Cramer: This FANG Is a Diamond on Today's Rotation

 | Jul 25, 2017 | 11:02 AM EDT
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FB

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apc

FANG's back! But it's the wrong FANG. That's right, we are having a brutal rotation right now out of the highest-growth stocks -- courtesy of what some would call a miss of gigantic proportions by Alphabet (GOOGL) -- and into the resource stocks, stocks like Diamondback Energy (FANG) , symbol FANG.

The irony here is really incredible. Alphabet is getting hammered because it's not making as much money off of mobile ads as it does on desktop, and mobile is now crossing over as the way people use Google. The incredible amount of hours that people watch their Youtube --1.5 billion people watch an hour a day -- is not being monetized at a rate that the desktop ads are, so the conclusion? This stock is going to be like the stock of Facebook (FB) when it wasn't prepared for the shift to mobile.

Diamondback Energy is up because of the phenomenon that Schlumberger (SLB) flagged the other day on its conference call: The shale producers, of which FANG is a standout, are starting to cut back on their capital expenditures because they aren't making enough money to cover their costs. Anadarko Petroleum (APC) last night cut $300 million out of its spending to try to rationalize its efforts. Others will follow.

If you recall, Schlumberger said there would be newfound discipline among the U.S independents, given the lower oil price -- and that means the companies are, at last, going to stop their hemorrhaging. It also means that the 8% of worldwide oil that comes from the U.S. is peaking.

If that's the case, then the traders who dominate the crude futures pit will switch direction and go long oil because of U.S. cutbacks. That should drive oil back to $50, hence the gains in FANG, or Diamondback Energy.

How about Alphabet? What can I say? It is entirely possible that the growth in one of their key businesses, the ad business, is slowing. But it does have $94.7 billion in cash to make acquisitions or buy back stock to increase their EPS. More important, I refuse to write off a company that has the number one autonomous driving technology, that can be a worldwide television network without any production costs because of Youtube, and still has a phenomenal ad search business. That said, I do believe the stock is in purgatory for a bit, as people assess the worth of this company versus other hot areas in the stock market.

In other words, the stock of Alphabet, despite all it has going for it, will become a source of funds for a bit, Wall Street slang for a stock that can be sold to pick up other stocks of companies with a faster growth rate that are delivering now.

Do I think anything's changed at FANG or Alphabet? Not really. When oil gets to $50, you have to sell FANG, because I believe the oil companies will come in once again and sell crude futures to bolster their anemic cash flow.

Alphabet? No one downgraded it. Most praised it and raised their price target. If we get tax reform, they have $57 billion overseas. I say wait until the hot money comes out and then make your stand. Believe me, you will know when that happens. It will be when the stock stops going down.

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