Sooner or later, this selloff will end and finally give way to a Santa Claus rally, Jim Cramer told his Mad Money viewers Tuesday. But until then, investors need to get used to shrinking valuations, as money managers prepare for rising interest rates.
Tomorrow’s Federal Reserve meeting will be a make or break moment for the stock market. We all know higher interest rates are coming, we just don’t know how hard the Fed will be hitting the brakes on the economy. Those details matter a lot for stocks like Williams-Sonoma (WSM) – Get Williams-Sonoma, Inc. Report, which sells a lot of high-end, discretionary home goods.
Over on Action Alerts PLUS, co-portfolio managers Bob Lang and Chris Versace talk to their investment club members about their comprehensive thematic investing approach. Get in on the conversation and learn more about the AAP portfolio, up 24.82% so far this year — ahead of the S&P 500.
Just a few weeks ago, Williams-Sonoma reported terrific earnings and was trading at 15 times earnings. Cramer felt the company’s earnings were so good, he was expecting its multiple to expand to 20 times earnings. Fast forward just a few weeks and those future earnings are now worth just 12 times earnings, as shares have plunged from $250 to just $170.
Nothing has changed at Williams-Sonoma, the market is just willing to pay less for their earnings. And that says nothing about the recent wave of IPOs, most of which don’t even have earnings. Some of them are years away from even having sales. Money managers aren’t willing to take that gamble.
So if you’re deciding between Starbucks (SBUX) – Get Starbucks Corporation Report or Dutch Bros (BROS) – Get Dutch Bros Inc. Class A Report, consider that Starbucks is expected to earn over $4 a share this year, while Dutch Bros. is expected to match Starbuck’s current earnings by 2037. The choice of which stock to own in a finicky market should be obvious.
Executive Decision: Bumble
In his first “Executive Decision” segment, Cramer spoke with Whitney Wolfe Herd, founder and CEO of Bumble (BMBL) – Get Bumble, Inc. Class A Report, the woman-focused dating app with shares that have been cut in half in recent weeks, despite the company having great growth and earnings.
Wolfe Herd said that Bumble should not be looked at as a COVID stock or as a reopening stock. People need love and connection no matter which COVID variant is circulating. Whether the economy is locked down or reopening, Bumble adapts to the changing conditions and their users shift between online dating and in-person events as their area allows.
The Internet can be a dangerous place, Wolfe Herd added, which is why Bumble was built with accountability, trust, respect and inclusivity for all members. They lean into machine learning especially to deliver a safer, better experience than other platforms.
Video chat is also integral to Bumble, and users are utilizing this feature to vet prospective dates and, if needed, to have entire dates if the parties can’t be together in person.
Cramer said Bumble is a great story.
Off the Charts
In his “Off The Charts” segment, Cramer checked in with colleague Carolyn Boroden to see what’s in store for the market as we head toward the end of the year.
Boroden first looked at a weekly chart of the Nasdaq 100 Index, one of the hardest-hit groups in recent weeks. She noted that the index bottomed at 15,553 and based on symmetry, would be expected to rally and hit a target of 17,500.
For confirmation, Boroden looked at a daily chart of Amazon (AMZN) – Get Amazon.com, Inc. Report, noting that while the stock hasn’t shown a buy signal yet, it’s getting close. Amazon’s decline in May was $426. The stock’s current decline in December is currently $423. Many of Borodon’s timing cycles are lining up for a change of direction, but she hasn’t yet seen a crossover in her favorite 30-minute period chart. She’s waiting for the 8-period exponential moving average to cross above the 34-period exponential moving average.
Finally, Boroden noted that the weekly chart of the Russell 2000 small cap ETF shows support at the $211 to $212 level and the index’s last decline mirrors this one at three weeks in length.
Executive Decision: Bausch Health
For his second “Executive Decision” segment, Cramer also spoke with Joe Papa, chairman and CEO of Bausch Health (BHC) – Get Bausch Health Companies Inc. Report, the healthcare company that’s trading at just six times earnings. Next year, Bausch will be splitting into three companies, one for eye health, one for pharmaceuticals and a third for medical aesthetics, in an attempt to unlock value.
Papa said over the past five years he’s been able to reduce the debt at Bausch by $10 billion, resolve their legacy legal issues and most importantly, return the company to organic growth. Splitting the company into three great companies is the next chapter for Bausch.
Bausch will begin the split within the next 30 to 60 days, Papa said, market conditions permitting. Each of these three companies has a great story to tell, he added, and investors will begin hearing a lot more about them soon.
Cramer said Bausch is exactly the type of company investors should be looking for.
Elon Musk’s Time Award
In his No-Huddle Offense segment, Cramer discussed Tesla (TSLA) – Get Tesla Inc Report CEO Elon Musk’s interview as he accepted Time magazine’s “Person of the Year” award.
Cramer said Musk came across as the soft-spoken genius that he is and had many heads in the crowd nodding in agreement. Musk showed no love for Facebook (MVRS) – Get Meta Report, a platform which he said inspires anger. Musk did show his love for rockets and space travel, however, especially for non-astronauts.
Read: ‘Very Well Paid Army Of Publicists’: Twitter Reacts To Elon Musk Being Named Person of the Year.
Finally, Cramer noted Musk spoke of the urgent need for autonomous driving, which will ultimately end up being orders of magnitude safer than human driving. Every year, tens of thousands of people lose their lives in auto accidents, yet every autonomous driving mishap makes front page news.
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