Cramer: Some Sectors Are Coming Apart at the Seams

 | Oct 25, 2016 | 3:23 PM EDT
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We have pretty much surrendered the concept of money management to a "if you can't beat them, join them" concept, that of the index fund, where we can capture the goodness of massive diversification. We can see the value in that; most money managers can't beat the averages and they aren't worth the extra pay, and on days like today you'll do fine.

But underneath, just at the moment when we celebrate the ascendance of the average, there are grave disparities for the first time in ages both within groups and whole sectors that were in dynamic bull-market mode that have just totally gone out of style.

Look, we know some of this is obvious. Regardless of what happens tonight, we know Apple (AAPL) has executed better than its chief rival, Samsung. The Galaxy Note 7 will only be given as a Christmas gift for roasting chestnuts on an open fire with the smell of plastic nipping at your nose. (Apple is part of TheStreet's Action Alerts PLUS portfolio.) 

But we are seeing classic examples of companies just excelling because the people at the top are doing a miraculous job with the hand they have been given, and that job can involve everything from a portfolio shuffle to upgrade the cards or just a skillful handling of bets in the overall landscape.

Take Procter & Gamble (PG) . Here's a company that had become a house of fat brands that seemed to have stalled. In fact, things had gotten so staid at the Cincinnati colossus that we began to view it as nothing but a bond market equivalent, picking up your 3% with the idea that a dividend boost is always right around the annual corner.

But nobody's thinking that today. Not after the company blew away the numbers and saw 3% organic growth, pretty amazing given the size of this company. David Taylor, the non-promotional but no-nonsense leader, sacrificed a lot of mediocre brands and put ad dollars behind winners to end up with that kind of growth. There was no whining about the global economy on this call. Unfortunately, Kimberly-Clark (KMB) did not perform as well, with basically flat numbers, with the stock stumbling about $5 on the news, bringing it down from pretty much in a straight shot from $138 in July to $114 in October. You need some Kleenex for all that crying.

Or how about Sonic (SONC) vs. McDonald's (MCD) ? Sonic, a former growth company, had pre-announced disappointing numbers not that long ago but, in what is a bit of a shocker from the way the game is played, then projected even worse numbers, maybe flat to down two when it comes to the key same-store metric. The company cited slowing consumer trends. But where were the slowing consumer trends at Mickey D's, with global same-store sales rising 3.5% including a 1.3% gain in the U.S. I think CEO Steve Easterbrook is initiating change worldwide and it's paying off. The notion that it is all one trick - all-day breakfast -- is ridiculous.

Or how about United Technologies (UTX) , which boosted its earnings guidance after a pretty terrific quarter, all things considered. In contrast, General Electric (GE) , which we own for Action Alerts PLUS, had to shade its forecast, and I think the case can be made right now that United Technologies is out-executing GE in more than just aerospace. GE's numbers were hurt by oil and gas, but if you look at the solid numbers and projections that Halliburton (HAL) and Baker Hughes (BHI) delivered, you begin to wonder whether GE's given you some bum oil and gas assets, or at least ones not levered enough to the U.S. shales and too levered to offshore. It's the domestic shale plays where the bottom's been called and the gains are coming. 

For the longest time, the consistent growth in the apparel business emanated from VF Corp. (VFC) , largely because of its North Face brand but also Lee and Wrangler jeans and Nautica, among a host of other brands.

But something's happening at VF and it isn't good, as all of those name brands seem to have lost their luster. You want outerwear, I would go technical with Columbia Sportswear (COLM) . You want jeans, time for Calvin Klein at PVH (PVH) . Both are out-executing VF even as the weakness at VF is causing the group to get sold down; I think it's an opportunity to buy the winners.

Or let's talk about the big deal of this year, AT&T's (T) prospective purchase of Time Warner (TWX) . I think the reason this deal smacks of desperation is because the core business of AT&T, both wireline and wireless, is really starting to report just plain bad numbers. In the meantime, T-Mobile (TMUS) and Sprint (S) have been cleaning up where it counts, in postpaid subs. John Legere, the fiery boss of T-Mobile, announced yesterday that his company added 851,000 postpaid users. AT&T on the other hand lost 268,000 subs. Brutal. Sprint rung up 347,000 postpaid additions, nowhere near the gains of T-Mobile, but double the previous quarter and a far cry from the 62,000 additions a year ago. I saw some wannabe trolls puzzling over why Sprint's stock didn't go higher on the news, but it had already told you good things were coming in a pre-announcement not that long ago. (General Electric and AT&T are part of TheStreet's Dividend Stock Advisor portfolio.) 

And let's not forget what really matters: T-Mobile's stock is up 28% for the year, Sprint's stock has galloped 79% and AT&T's only rallied 6%.

Now, some industries just have no winners. We saw some dramatic shortfalls today in the earnings of the once-red-hot housing-related companies, with the stock of Whirlpool (WHR) falling 19 points or 11% and the stock of Sherwin Williams (SHW) shedding 27 points or almost 10%. They join the already poorly performing PPG, which is suffering from a weak paint performance. Hmm, appliances and paints, that's Home Depot's (HD) bailiwick, which explains that stock's four-point decline. And kitchen and bath company Masco (MAS) reported a rare miss this morning, driving its stock down 10%. Very worrisome indeed.

And then there's the carnage in sports apparel. Under Armour UA, with a stock that was already 13 points from its high, has dropped another five points, down 21% for the year. Its crime? It has to up its spending to grow. There's only one problem. I think Under Armour has provoked Nike (NKE) , and that wounded tiger can make everyone's life miserable because it has the staying power to take on all comers. It doesn't help, by the way, that Adidas has made a stunning comeback. (Nike is part of TheStreet's Trifecta Stocks portfolio.) 

It's a time of tremendous turmoil, but it's important to recognize that while it may average out in the end, the picking of winners in both industries and whole sectors can be a most effective way of taking care of your mad money. No need to sell those index funds. We love 'em. But if you want to augment them with some stock picking of your own, be sure you include management in the issue and try to avoid the real battlegrounds taking profits when a placid tableau like home spending or sports apparel takes withering interstitial fire.

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