Cramer: Q3's Biggest Winners, No Thanks to Trump or Fed

 | Oct 02, 2017 | 12:53 PM EDT
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You can tell so much from a quarter when it's in the bag, and this quarter speaks even louder given how terrific the year has been.

Before I go into the individual winners, a couple of observations. First, as much as we talk about Donald Trump and his impact on the U.S. economy, I can't find a single stock of the 10 largest winners this quarter that had anything to do with decisions the president made.

Further, I don't see any company in this list that really has much to do with the Federal Reserve, another obsession that seems to make us no money at this point.

Think about it. Think about how much brain space is wasted on these two issues. If the president's moves don't matter, why do we devote so much time to them on business news? I think there are a couple of reasons. First, it was supposed to matter, meaning President Trump wanted badly to play a role in the economy to get it growing faster. But nothing's happened yet, though something could happen down the road. Still, nothing in the top-10 list would indicate that investors who are buying these stocks are hoping for some quick action, like the kind promised by House Speaker Paul Ryan, who, to me, has become the speaker of Overpromise Inc.

The Fed's irrelevance also stands in marked distinction from our desire to shoehorn everything into the moves of Janet Yellen and Company. I would argue that Yellen's prudence in waiting for the economy to get stronger could possibly be playing a role in not hurting stocks. Again, though, I think you could argue that there simply is no reason why we have to pay endless attention to the Fed's moves, because if we do we would miss more than we would gain.

In that sense, let me go a step further. It's much easier for the media to focus on Trump and the Fed than it is to focus on individual stocks, which could be why it is so much harder to make money in the market if you pay attention to the daily noise. It renders you too weary and too confused to allow you to cut through the chatter.

Let me demonstrate it by going through the top 10 winners of the third quarter.

The first is NRG Energy (NRG) , a utility but not the kind that has anything to do with interest rates. Most utilities trade on their dividends, but this company has only a 0.47% yield because it has been so poorly managed that it doesn't offer much income. Two years ago, the company slashed its dividend from 58 cents to 12 cents a share after a hideous series of losses. The loss got David Crane, the CEO who had a vision of making NRG the first sustainable utility, fired. His replacement, Mauricio Gutierrez, has done a remarkable job re-establishing the company's finances and gone far toward making NRG a utility that could one day rebuild its dividend, hence the 50% gain in the stock. I also think it could be a takeover target given its national reach and only $8 billion valuation. It should be, even if it isn't.

Second is a stock that, as you will see, typifies winners: Michael Kors (KORS) , up 34%. Why is it typical? Kors is part of what I would call the left-for-dead cohort, the stocks that people have given up on because of the mall madness that infects all those who enter the market. If Michael Kors is sold at the mall, it's a loser, right? Not, exactly. First, it has a hit watch line. Yes, a hit smart watch. Second, its $1.2 billion buy of Jimmy Choo, something that would have cost a lot less not that long ago, is considered a sign of a pulse. Shorts don't work on stocks with a pulse. So I think a combination of short-covering and a positive earnings comparison has this one working even as I don't trust it.

But you know what I do trust? How about Gap Stores (GPS) , with a stock up 32%. What's going on here? I think it is a combination of closing underperforming stores and a resurgence not just of its Old Navy brand but also its flagship. I have been behind this stock ever since last winter when I needed some casual clothes in San Francisco and found a flagship Gap with bargains I couldn't believe. I have been living off my $200 worth of clothes I bought there all through the summer. It's amazing what bargains and high-quality merchandise can do.

Next up, the chemical company Albemarle (ALB) , with a stock up 30% quite simply because it fashions itself as a pure play on lithium, and every time a car company pledges to go electric, its stock flies. The move after Volvo said it intends to go all electric really kicked this stock into high gear. I like FMC (FMC) as a lithium play but I understand that there isn't that much stopping Albemarle.

Lam Research (LRCX) was the fifth-best performing stock, increasing 29%, and that's all about the Internet of Things. You can't make the semiconductors you need without machines made by Lam and the ninth-best performer, Applied Materials (AMAT) , up 25%. Both stocks were heavily shorted coming into the quarter because there was a strongly held belief among many analysts and their short acolytes that DRAMs would roll over in price this quarter simply because they just keep going ever higher.

That's a dumb reason, as anyone who was short the 13th-best performer, Micron (MU) , would tell you, because there aren't enough machines to make all the semis that are needed for the data center alone. I think all three stocks could have a good final quarter because demand is so strong, and I am basing that on the fact that I have spent a lot of time with the people at AMAT and Lam and I feel strongly that the demand cannot be met.

The best performer in the Dow this year is Boeing (BA) and it really showed its stuff this quarter when it ran for 28%. What's going on here? Some of it is defense, where the orders are very strong. Some of it is that the majority of the airlines are solvent, including Iran Air, which placed a huge order. But most of it is a disbelief on the part of the analysts who cover the stock that the Dreamliner is at last making money. It is the only large-plane model that is, but so what! It's doing it.

No. 7 seven is an odd one, the stock of CF Industries (CF) , a fertilizer maker. I think this is purely a function of the fact that the ag cycle has come back to life and everyone is looking for any stock in order to capitalize on it. The shorts were swarming on it early this year; they seem to have been run over.

No. 8 is one of my favorites, United Rentals (URI) , which I brought on after the Houston hurricane as the best single way to invest in the rebuilding of Texas. Why buy the equipment when you can rent it, as the rebuild will be of a short but capital-intensive cadence. CEO Mike Kneeland made a savvy acquisition of another rental company, Neff (NEFF) , for $1.2 billion Aug. 16, right before the hurricanes fell. Neff's got a huge footprint in Florida and a strong level of business in Texas. It's better to be lucky than good, but in this case United Rentals is both lucky and good!

I went over No. 9, Applied Materials, with a stock up 25% already. But I would emphasize that this company has an unbelievably good business making display machines that allow for all sorts of applications. Let it cool off, then buy.

Finally, there is no irony here: The takeover of Rockwell Collins (COL) helped create a 25% return for shareholders. United Technologies (UTX) couldn't let this one go. As CEO Greg Hayes told me, you have to pay up for beachfront property, and Rockwell Collins was one of the few remaining airplane parts makers left.

So to sum it all up, the 10 winners all had their individual reasons to go up, although a common theme was the expectation that they wouldn't be doing well, which brought short-selling, which turned out to be as wrong as you could get. I think the most important takeaway, though, is to stop focusing on Trump and Yellen, focus on the fundamentals and you'll do much better in the fourth quarter than you could otherwise believe. 

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