Cramer: Why I'm Patient Now

 | Aug 14, 2014 | 6:22 AM EDT
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Sometimes sentiment isn't enough to make a turn. Sometimes, just betting that everyone else is negative isn't enough. Something positive has to happen, too.

We saw this come into play twice yesterday, first with King Digital (KING) and then second with Deere (DE). Going into King Digital, I was struck by what seemed to be a uniformity of thought that the sentiment toward King was too negative so the company's stock might bounce no matter what. But then it reported, and the numbers for the maker of Candy Crush were awful and the outlook worse. The darned thing is now down about 40% from where it came public.

Sentiment doesn't help when you company relies on one franchise that is getting long in the tooth. Go ask the people at Zynga (ZNGA), who brought you Farmville and couldn't get beyond it even with the Words and OMG Pop franchises in tow. How many times could you have said "this selling is way overdone, it just can't be this bad"? But it is.

Same exact thing happened with Deere & Co. While only a handful of analysts were bullish going into the quarter, there was an underlying sentiment that this stock, down about 6% for the year going in, had lagged so far behind the market that, well, how bad could it get? As someone who had just interviewed the CEO of Deere's competitor AGCO (AGCO), I know the answer: it could be real bad. And it was. Why should it have turned, when it's directly competitive in all of the tough markets with AGCO, and AGCO's not losing any market share?

I find the dichotomy mystifying.

Now, I do know that you can occasionally catch bottoms in stocks when things are bad, but that doesn't happen until every single element of hope has been disbanded.

For example, I am watching the stock of Ensco (ESV), the marker of the offshore rig we did our show in the gulf on not that long ago sink right before my eyes. It has been cut to hold or reduce at least five times in the last week; of the 18 major firms that follow it, only one has a buy and there are a half dozen sells on it. This despite the fact that it is the acknowledged best of the three major offshore oil rig companies, including Transocean (RIG) and Seadrill (SDRL) and it has the safest dividend, which management just reiterated last week when the company reported an inline quarter.

Nevertheless, I am worried. You know what makes me worried? JP Morgan (JPM). That one lone analyst recommender. I keep thinking to myself I am not safe in this stock, it will not find a bottom until that darned JP Morgan analyst surrenders to the group think and takes it off the buy list, too.

Unlike all of the naysayers, what makes me so confident that it could be okay and worth owning and worth buying more of on the downgrade? First, it's really only going down because of a fear of new ships coming on line. Second, we have had a lull in drilling in the Gulf of Mexico for both U.S. and Mexico and we've had a stunning lack of drilling coming out of Brazil. That could all change, with new elections in Brazil and with the new regime in Mexico and with the return of drilling post-Macondo in Gulf of Mexico. Just yesterday Mexico made it clear that 2015 will allow for a dramatic expansion in international oil drilling for what was once strictly Pemex territory. That should dramatically hasten big rig use.

Finally, while I can see, like everyone else that the price of oil is dropping, I have no doubt that it will find its footing somewhere in the low to mid $90s because there's just too much uncertainty to merit a much lower price.

Still, though, I acknowledge that I am playing sentiment and if it weren't for that yield, I, too, might be no different than the people hoping for a bottom in Deere or King Digital. But then again, unlike those two decliners, I am at least being paid to wait for a turn. And so I shall.

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