What's actually safe to buy after this total breakdown and what needs to be sold? Between Covid-19 and the collapse of oil prices, everything is in question.
So this week I'm taking you through all 30 stocks in the Dow Jones Industrial Average to give you a sense of what's at risk here and what's not. We'll do 10 of them at a time in alphabetical order. For the first 10, see here.
Getting there. That's how I feel after the shellacking we had Monday. It's truly time to be thinking that there needs to be buying in some stocks here which is why we have been analyzing the stocks in the Dow Jones Industrial Average to make sense of where we are. In Part 1 we found very little worth buying, namely Coca-Cola (KO) , of the first 10 Dow stocks.
That's disappointing and I have to tell you that it is time to be a little more upbeat in thinking as we close in on 21,770 which was where things went to in the December 2018 paradigm that I like so much, the one that says "avert recession now." What makes me a little more positive? Simple: if the president is going to start pulling out all stops to make the economy get unstuck then you have to do some buying because wasn't that what caused the bottom to be put in during the decline in 2018?
Now, to be sure, this is a tougher animal. How many times did the market try to rally and fail going into the year 2008? How many times did any buys, including Warren Buffett's, create havoc to all but the wealthiest of portfolios? If you bit each time something good happened you were full up about half way down.
With that in mind let's consider the next 10 stocks in the Dow Jones Industrial Average knowing that we are dealing with a new hand, and a better one, than we had before.
1. Goldman Sachs (GS) . This stock has become a tremendous source of controversy as hedge fund managers near and far assess whether Goldman's "culture" has changed. I think that's a discussion best left for when the company sells at a premium to the market not at 7 times earnings as it does now. This isn't an auto company for heaven's sake, or a steel mill for that matter. There are still tons of smart people doing what they have done for so long - dominating. Which is why it's incredible that you can buy this stock at a discount to a very scrubbed tangible book value of $209. I know that every company is trying to husband cash but this one? It makes no sense to sit on cash when you can go in and buy. I think Goldman could further benefit from volatility, the mainstay of their trading revenue base and from their Apple (AAPL) credit card business which all sources tell me is doing quite well. The charitable trust sold stock higher and I am itching to buy it back at these levels. So should Goldman, especially with the stock yielding 2.89%. It's a better deal than anything else they can put their money in.
2. Home Depot (HD) just reported an amazing quarter. Sure the consumer could have taken a big hit in the last few days. I respect that. But we are about to head into spring gardening season and that's been a blow-out time for the company. Plus, interest rates are so low that it pays to get a home equity loan and refurbish -particularly if you can get that lower rate, which I know is hard to negotiate. Home Depot is one of the big box stores that can still benefit from the fact that more and more independents will go under this corona spring. I would pick it at this this level. Now you have to leave room because at the nadir of the Powell bear market this stock traded at $156, down 50 from here. Of course now interest rates are going the other way but customers may still be unwilling to come out and shop. Buy some; leave room even because even with stocks that have 2.85 yields there's not much separating the good from the bad.
3. I wish I could tell you that this is the level for Intel (INTC) , that I think that you can buy it here and put it away. But what are you buying? How about a competitor to Advanced Micro (AMD) that doesn't have as much to say about its destiny than it used to. I like its balance sheet. I like its yield. But more important I like competitors like AMD which just told you how well it doing last Thursday, and Nvidia (NVDA) which his back in a big way. Wait on this one.
4. IBM's (IBM) stock has positively collapsed and now yields 5.5% as if it is somehow impaired. That's nonsense. It has a new CEO, Arvind Krishna, a cloud devotee, and the effervescent Jim Whitehurst, late of Red Hat, running the joint and it has a huge amount of recurring revenue. I think that this stock is one worth putting away as everyone has given up on it and the last quarter wasn't even that bad! I would buy some given that yield and the prospects of an upside surprise versus lowered expectations.
5. Johnson & Johnson (JNJ) has the premier pipeline and the best balance sheet of any of the pharmaceuticals. It lacks the high yield of many of them, clocking in at 2.8% but it has faster growth and a bountiful buyback. Plus the dollar is no longer soaring and this is a very cheap dollar stock. There's plaintiffs bar risk at these levels I think that people aren't as concerned.
6. JP Morgan (JPM) : I could not believe that JP Morgan could trade down 14 and cut through all the high multiple stocks to finish with almost a 4% yield. Yes Jamie Dimon, the dynamic CEO, is laid up with a heart procedure and we don't' know what's going to happen, but that kind of decline is unwarranted even if they had 100% of the debt of the Permian frackers. I think you pick some up here and strap yourself in because there will be many people who refuse to recognize there is a fee revenue stream that's better than just about any bank there is.
7. McDonald's (MCD) : Here's a tough one. You have a new CEO in Chris Kempczinski who seems to be doing an excellent job. You have the great balance sheet. You have a good dividend which yields 2.68%. Yet, I am reluctant to recommend it because I can't see why it would necessarily rally on its own. There's just nothing to fall back on which is unacceptable for a stock that sells for 22 times earnings.
8. After a prolonged period of outperformance it looks like Merck's (MRK) string has run out. That last quarter saw holes in the amazing anti-cancer Keytruda formulation. Plus the street gave a resounding hazzah to the company for wanting to split off lower growth portions of their business. The thought was there would be a re-rating of the stock. There was: a re-writing down. I think the judgment is too hard, the company has a renewed interest in its pipe. I say buy it if you need a drug stock.
9. The stock of Microsoft (MSFT) was at $110 this week last year. Now it is in the $150s. How can it justify that move? The answer is clear: because everything is hitting one all cylinders, especially the cloud. Azure has double digit revenue growth and the company never minds telling you the whole story because it's instrumental in knowing what you own. I am continually impressed with how savvy this company is when it comes to what customers really want. I know I know, 26 times earnings. But this may be the premier growth stock in the tech world right now and I think it belongs in any portfolio that wants tech exposure.
10. Finally there's Nike (NKE) with a stock that sells at 29 times earnings even after all the battering it has taken. I think Nike has real earnings risk given its end-markets in Europe, China and the U.S. Usually one of those markets may be funky. But not all of them. Yet that's where Nike finds itself. I have no idea how it held up above $100 for so long and I am sure that there are many growth managers who are salivating about this one. Me? I just worry it is too loved and the estimates are too high.
(Goldman Sachs, Apple, Home Depot, Nvidia, Johnson & Johnson, JP Morgan and Microsoft are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AAPL? Learn more now.)