Inflation may be raging, but that doesn’t spell bad news for every stock, Jim Cramer reminded his Mad Money viewers Tuesday. In fact, there are stocks that win big when inflation is on the rise, while others are simply immune to inflation altogether.
Energy is a natural inflation winner, as energy producers get paid more for every unit they produce. That means investors can’t go wrong with stocks like Chevron (CVX) – Get Chevron Corporation Report, Pioneer Natural Resources (PXD) – Get Pioneer Natural Resources Company Report and Devon Energy (DVN) – Get Devon Energy Corporation Report. They can also condor oil services with Schlumberger (SLB) – Get Schlumberger NV Report, natural gas with Tellurian (TELL) – Get Tellurian Inc. Report and pipelines with Enterprise Product Partners (EPD) – Get Enterprise Products Partners L.P. Report.
Then there are the financials, which also benefit when inflation sends interest rates higher. Investors can consider banks like Bank of America (BAC) – Get Bank of America Corp Report or Wells Fargo (WFC) – Get Wells Fargo & Company Report, or bellwether names such as Goldman Sachs (GS) – Get Goldman Sachs Group, Inc. (GS) Report and Morgan Stanley (MS) – Get Morgan Stanley (MS) Report.
Next, there are technology and cloud stocks, which help companies save on labor and costs by making them more productive. Here investors can turn to names like Workday (WDAY) – Get Workday, Inc. (WDAY) Report, ServiceNow (NOW) – Get ServiceNow, Inc. Report and Snowflake (SNOW) – Get SNOWFLAKE, INC. Report, along with Amazon Web Services (AMZN) – Get Amazon.com, Inc. Report and Microsoft (MSFT) – Get Microsoft Corporation (MSFT) Report. Cybersecurity is also a necessity, which means Palo Alto Networks (PANW) – Get Palo Alto Networks, Inc. Report, and all of these names need semiconductors from Advanced Micro Devices (AMD) – Get Advanced Micro Devices, Inc. Report and Nvidia (NVDA) – Get NVIDIA Corporation Report.
Finally, there’s healthcare, which is immune to inflation altogether. Cramer recommended Eli Lilly (LLY) – Get Eli Lilly and Company (LLY) Report and Johnson & Johnson (JNJ) – Get Johnson & Johnson (JNJ) Report as his favs.
Emerson Electric and Aspen Technology
Earlier this month, Emerson Electric (EMR) – Get Emerson Electric Co. Report announced its merging its software division with Aspen Technology (AZPN) – Get Aspen Technology, Inc. Report in an $11 billion deal. Cramer interviewed Emerson’s CEO, Lal Karsanbhai, about the deal on Oct 11. But since then, shares of Emerson have sold off, causing Cramer to revisit what he deemed a savvy, forward-thinking transaction.
According to the terms of the deal, Emerson will spin off its two software divisions and merge them with Aspen. The company is also kicking in $6 billion in cash, in return for a controlling 55% stake in the combined company. The deal represents a 27% premium for current Aspen shareholders.
But while some have criticized the deal as merely financial engineering, Cramer thinks otherwise. He explained that Emerson is maximizing the value of its software operations by combining with Aspen, and they still control them. Better still, there are millions in cost synergies to be saved and potentially billions in cross-selling opportunities to be had.
In an environment where everyone is putting a premium on, well, the environment, as well as on subscription revenue, Cramer noted the Aspen deal provides Emerson with both.
Know Your IPO
In his “Know Your IPO” segment, Cramer dove into the recent IPO of On Holding ONON, the Swiss-based athletic footwear and apparel company that debuted on Sept 15. Shares priced at $24, opened at $35 and soared to over $40 before returning to Earth, where they now trade just over $29. Is the decline a buy opportunity? Or has something gone horribly wrong?
On the surface, On Holding has a fabulous business. What began as a specialty running shoe has ballooned into a full-fledged apparel brand selling in over 8,100 locations. The company derives 64% of its business via wholesale and also has a lucrative direct-to-consumer operation. In the first six months of 2021, sales grew 85% and On Holding even managed to turn a small profit.
So why are shares not flying to the moon? Two words. Supply chain. On Holding manufactures 100% of its shoes in Vietnam, a country hard-hit by the Delta variant that has shuttered many factories. On Holdings’ problems could get pretty ugly and we still don’t know how bad things can get for the company ahead of the holiday season. Some analysts are forecasting negative growth as a result of their single-source manufacturing process.
While On Holding has a great long-term growth story, it’s simply too risky to own in the short term, Cramer said, especially with shares still trading for 10 times sales and over 40 times projected earnings.
Executive Decision: Splunk
In his “Executive Decision” segment, Cramer spoke with Doug Merritt, president and CEO of Splunk (SPLK) – Get Splunk Inc. Report, the data and analytics company that’s currently hosting its 12th annual user conference this week. Shares of Splunk are up 6% in just the past week.
Merritt had many positive things to say about his company, including the tenth consecutive quarter of double-digit growth in its cloud business. He said cybersecurity represents 50% of Splunk’s business, but the power of its platform is its ability to reuse data in different applications.
One of the company’s newest features helps companies automatically redact sensitive and personally-identifiable information from its data as it’s being loaded into the Splunk platform. That way, companies and consumers alike can be assured their information won’t be leaked or hacked.
Merritt also noted that the government continues to be a key sector for Splunk, as it’s imperative that government agencies modernize and keep its data safe.
GameStop and Gamification
In his “No Huddle Offense” segment, Cramer opined on the publishing of the Securities and Exchange Commission’s report on what exactly happened when shares of GameStop (GME) – Get GameStop Corp. Class A Report wemt parabolic earlier this year.
The first rule of Mad Money has always been to “do no harm,” which means Cramer never encourages risky behavior. In that regard, he felt the SEC’s report fell short in warning investors the risks associated with taking investment advice from Reddit and blindly following memes.
Commission-free trading has done wonders in attracting new investors to the stock market, but companies like Robinhood (HOOD) – Get Robinhood Report and indeed, the industry at large, needs to do more to educate younger investors on how to invest responsibly.
Cramer has always advocated putting your first $10,000 into a low-cost index fund, reserving your “Mad Money” portfolio for funds you can afford to lose. Yes, stocks can go to zero, Cramer reminded viewers.
The problem with the gamification of investing is that there are no guard rails. Even actual gambling doesn’t let you bet with borrowed money, but for some reason, brokerages will let you invest with borrowed money. That, Cramer concluded, needs to change.
Here’s what Cramer had to say about some of the stocks that callers offered up during the “Mad Money Lightning Round” Tuesday evening:
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