Jim Cramer: Sometimes You Just Have to Go Against the Grain

 | Jul 16, 2018 | 4:00 PM EDT
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Sometimes you just have to go against the grain. You have to be bold enough to say the sellers have it wrong and you have to wade in and buy. Other times you have to be willing to sell what others are going gaga over.
 
That's how I feel on a day like where the market hung but couldn't break out despite the change in leadership.
 
Classic example, on Friday, Citigroup (C) , Wells Fargo (WFC) and JPMorgan (JPM) reported and they all laid eggs despite reporting better than expected earnings.
 
It didn't matter than Citigroup committed to buying back more than 10% of its stock. It didn't matter that JPMorgan gave you a fabulous return on equity and much better than expected trading. It didn't matter that Wells Fargo turned out to have very little fallout from its previous transgressions. In fact, the only reason why it didn't report bigger numbers was a decision, a prudent decision, to limit lending in markets that didn't offer a good enough reward to compensate for the risk.
 
I was flabbergasted when I was on television, simply shocked that the sellers could be so obtuse. I figured when the companies' execs finished their conference calls the sellers would come to their senses and the buyers would step up. With the exception of Wells Fargo, which explained why the numbers looked so weak, there was a total buyers' strike and a hugely important group for the stock market was laid to waste.
 
Today Bank of America (BAC) reported and it did have good news on pretty much every single line. The company was incredibly efficient. The government allowed a plan where it could return $26 billion over the next year and repurchases and dividends which is $9 billion more than last year. Net income for the quarter was a staggering $6.8 billion after tax and that's up 33% from last year. At the same time the company's taking advantage of the yield curve to grow its net interest margin responsibly. And it's showed a deftness toward technology that has created tremendous returns versus traditional brick and mortar banking.
 
The result?
 
Its stock took off before the market opened, the opposite of what happened to the bank stocks on Friday.
 
Moreover, it took ever important bank stock with it including the big three that reported Friday and crushed investors, with Citigroup, JPMorgan and Wells Fargo, just erupting to the upside. Why not? These are the cheapest stocks in the market other than the autos and unlike the autos these companies are showing excellent year over year growth.
 
I think you have to step back sometimes and say to yourself, wait a second, how weak were these numbers? I sat down and looked at line after line after line and found so few weak ones, probably 10 to one, not kidding, 10 to one, and you simply had to go against the grain on these stocks.
 
Where else can the market be wrong? Today President Trump met with President Putin in Helsinki and we heard some rumblings that made it sound like Putin might pump more oil to appease the president of the United States. That, coupled with whispers that the Saudis will be pumping more and that the U.S. might drain some of the strategic reserve, all combined to knock down the price of oil by almost $3.
 
Here's the problem, just like the sellers were whacking the bank stocks on Friday, the buyers had bid up the oil stocks not that long ago. Now oil's been clobbered and the oil stocks are under huge pressure. So Chevron (CVX) , which was just bid up from $123 to $127 has now gone down to $122. Or how about Diamondback (FANG) ? Its stock had just run from $129 to $137. Now it's touching the $128 level.
So were the buyers wrong? No, but I do think they were overenthusiastic for certain.
 
Now, that crude has come down to $68, falling three bucks today after being down for several days last week, though, I think, once again, you have to take the other side of the trade.
 
Why?
 
Simple. Because let's say we are going to unleash some of the oil from the strategic petroleum reserve. Let's say that Russia does put more oil into the market to give Trump a win. Let's say that the Saudis are making deals to offload more oil into the market.
 
These are not what matters to the market longer term. It isn't about individual countries bringing more oil to the market.
 
It's about exploring and producing more oil and that's not happening. We heard from Core Lab (CLB) last week and have listened to Schlumberger (SLB) talk endlessly about how drilling budgets have not been increased much at all by most major countries and some, like Venezuela and Mexico continue to be in bleed-down mode. If these countries don't replenish their oil coffers we are certain to see oil go up in price and those oil companies and countries that are drilling will be rewarded with much higher prices. To bet against oil after a decline just hasn't proved to be a smart bet given that we are experiencing a one and a half percent increase in demand this year after having no more than a one percent demand for more two decades.
 
Now I am not saying that every bit of weakness is a buying opportunity. Last week the president castigated the drug companies for rampant price gouging and the stocks went up in the face of that news. Why would I be more concerned? Because only Pfizer (PFE) , which the president singled out by name, agreed to roll back prices. What happens when the president returns home? I think he hammers them. And I am surprised that so many retailers that sell goods made in China have been so strong in the face of the trade war where some of their wares are point blank being jacked up in price. Lowe's (LOW) has been on a tear. The dollar stores have had very strong stocks. And Five Below (FIVE) , which has so much of its wares made in China is seemingly unstoppable? Swans reverting to ugly ducklings? No, I just think they shouldn't be rallying all that hard.
 
So, this market is about being willing to go against the grain. And it's about being opportunistic. If you remain that way you won't be throwing away merchandise in the face of good news and you wont be panicking in the face of bad news. You will be rational, and that's all one can ask an investor to be.
 
 

 

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