• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Energy

Riding the Waves of a Sea Change

When bad stocks soar and good stocks get hammered.
By JIM CRAMER Apr 27, 2015 | 01:46 PM EDT
Stocks quotes in this article: UNH, FCX, HP, CELG, GS, GS, SDRL

So we've decided all at once that we are tired with the expensive health care stocks. We want cheap, down and dirty, and that's why the averages are doing what they are doing.   

The question is, do we have a contrary day on our hands, or is this the new setup? Are we gripped with some sort of sea change, or is this just the same sucker rally we have seen time after time after certain stocks get pushed down to the point where they can spring back regardless of the fundamentals at the companies?

Let's figure it all out.

First, the overriding reason why you get a sea change in all stocks has much less to do with earnings and much more to do with world view. Until today, we were looking at stocks on a case-by-case basis, trying to make decisions based on how a quarter played out. If a company raised earnings and sales guidance, it went higher. If it cut, the stock went lower. Pretty simple stuff. Just the way it should be in a world where individual companies control their own destinies.

But then there are days like today where we throw the book out on what companies are saying and we make decisions based on some big-picture theme that almost totally overrides what the companies themselves are saying.

How do you spot these? You look at the best of the best of the companies that reported good numbers and you look at the worst of the worst of the ones that reported the worst numbers and you extrapolate to make judgments and spot trends.

So let's take the best of best, starting with health care. This group has been on fire for most of the year and it's been a dramatic run. I am going to use UnitedHealth (UNH) as the example, the paradigm, to explain what's happening.

UnitedHealth reported an incredible quarter, guided higher on the top and bottom line, and showed you how it has incredible earnings power in an environment where the Affordable Care Act is the law of the land. It had excellent enrollment growth, low health care costs. It's a purely domestic play that has nothing to do with the dollar; no headwinds with this one. This Dow Jones Averages company delivered everything you could ask for. I would go as far to say it was picture perfect.

And it is getting hammered. It seems no one wants it.

Now let's take Freeport-McMoRan (FCX). This company had what can only be called a disastrous quarter. It lost $2.5 billion, or $2.38 a share. It has a heart-stopping $20 billion in debt.

Its copper business has been in the doldrums forever, in part because China's slowing down a lot more than people seem to realize. It even went as far as to call out its copper business as disappointing. Who says "we disappointed" these days? Gold's been going nowhere.

This company bought an oil and gas business right at the top and borrowed heavily to do so. On the call, we learned it intends to sell a big chunk of the company to pay for the acquisition. Worst of all, it slashed its dividend by 84%, a dividend that attracted many income seekers to the stock.

And what's Freeport done since that miserable and most unfortunate series of events? How about do nothing but roar higher, including today.

Is this insanity? Is this one of those cruel jokes that the market's playing on us?

Hardly, this frontsy-backsy action is the sign that some are betting on a sea change. First, it's a bet that commodity inflation is going to get stronger and interest rates are done going down. Freeport is a pure commodity play, kind of like a commodities supermarket. It can only rally if people think inflation is coming back. That's what makes you want to buy gold. It's what you think about when copper's coming back. It's about oil making a U-turn and going higher.

What do all of these have in common? What spurs them? A weak dollar, that's what. Commodities are priced in dollars. When the dollar goes down, it takes more of them to buy commodities. Freeport, the ultimate mosaic of commodities, is reacting to what could be a weak dollar, not what could be better earnings. The company just told you how bad things are.

Then how about UnitedHealth? Investors have been hiding in UnitedHealth for ages and ages because they didn't need to worry about a strong dollar. It is all domestic. UnitedHealth's value rests in its long-term earnings growth, but if inflation comes back, we won't pay as much for that growth. It's basically a stock that you have to avoid if there is commodity inflation and the dollar peaks because portfolio managers will rotate out of it no matter what the company does!

Are these two aberrations?

I don't think so. Let's get another contrast: Helmerich & Payne (HP) vs. Celgene (CELG). If you don't know Helmerich & Payne, you are missing out on one terrific company. It's a storied oil driller, maybe the best on the planet, and it was also the first company to warn that if oil kept going down -- and this was when oil was in the $70s -- its earnings would be crushed. Yet it raised its dividend anyway and spoke of a much longer-term future ahead of it. Today, Goldman Sachs (GS) upgraded it to a buy from a hold and it is screaming. HP's incredibly sensitive to the price of oil, by its own admission. You get this kind of move when you know that oil's bottomed. Don't believe me? Check out Seadrill (SDRL), a drillship company, which is rallying even as two firms cut it to a sell! Again, that's the sea change at work.

At the same time, Celgene, which had not one but two separate bits of good news -- a terrific acquisition and excellent results on a drug trial -- is just getting annihilated.

I could go on and on about different stocks and what's happening with them. But it's all the same exact pattern. Dollar topping, oil going higher, gold rallying.

Now, before you go out and sell every safe stock that has been a terrific performer and chase all these companies that have had subpar results, let me point out that we have seen many a rotation into the down-and-dirties and out of the sweet-and-lights over time, and they have pretty much all been sucker plays. This time, however, it feels like it has a little more credence. The dollar just seems to refuse to go higher. The euro's doing well because the world wants to own European stocks. The data out of the U.S. hasn't been strong of late, with the strong dollar taking its toll. In other words, the move could make sense. It could reverse on a dime, or more likely on a dollar.

But you have to recognize that many see the sea change as real, and they will react the way some react to extreme patriotism -- my country right or wrong -- so if you are worried about short-term movements, be aware that this vicious squall may not be done and the damage in its wake could override terrific earnings for days and days before the tempest has past.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Energy

More from Energy

The Pendulum Swings Back, but Don't Look for Things to Stabilize

Peter Tchir
Aug 15, 2022 11:00 AM EDT

It could swing past the point where things look normal or OK to a point where things look bad again.

Where Are Crude Prices Heading, and Could They Clog Up a Recovery?

Bruce Kamich
Aug 12, 2022 11:00 AM EDT

Let's check the charts to see where we can expect oil prices to flow.

PPI Cools, Home Prices Don't, Fed in the Dark, Technical Battle Lines, Chevron

Stephen Guilfoyle
Aug 12, 2022 7:29 AM EDT

Just when is the Federal Reserve going to reduce the cash slosh, anyway?

This New Energy Fund Sounds Dirty, But Could Help Investors Clean Up

Mark Abssy
Aug 11, 2022 1:33 PM EDT

The Strive U.S. Energy exchange-traded fund is billed as an anti-ESG ETF. Let's see how it stacks up against the similar Energy Select SPDR Fund.

CorEnergy Is a Pipeline to High Yield

Jim Collins
Aug 11, 2022 1:15 PM EDT

It's the best of both worlds, a hydrocarbon company that also has a green component.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 02:23 PM EDT STEPHEN GUILFOYLE

    We're Cleaning Out This Retailer From the Bullpen

    Check out the latest moves in TheStreet's Stocks U...
  • 10:24 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    To Improve Your Trading and Investing, Spend More ...
  • 08:44 AM EDT PETER TCHIR

    CPI Beats Expectations, But Maybe Not the 'Whisper'?

    Slightly better-than-expected inflation across the...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login