Following is an exchange between Mad Money host Jim Cramer and his researcher Nicole Urken about the fiscal cliff.
From: James Cramer
Sent: Monday, October 22, 2012 3:18 PM
To: Nicole Urken
Subject: No Huddle
We talk a lot about the fiscal cliff on the network, and we should because on conference call after call we are hearing CEOs say that uncertainty in Washington over the budget is casting a pall on their own businesses.
From: Nicole Urken
Sent: Wednesday, October 24, 2012 12:07 PM
To: James Cramer
Subject: Re: No Huddle
Hearing this from EMC today—From conference call: "These economic and political uncertainties are affecting business confidence, and this is affecting IT spending rates." What we've also heard from IBM/NTAP/others previously.
Third quarter results and fourth quarter outlook have been tainted by uncertainty over fiscal cliff negotiations, something that has of course dominated airwaves. But what is an investible way to play a resolution (whether it be before year end or early next year)?
Answer: The QQQ, the ETF based on the Nasdaq 100.
It is a play on capex cycles for enterprise if we see some normalization on business underspend that has persisted this year. Tech has been out of favor since the end of September but has recently caught a bid on changing sentiment.
Following are some of the key components of the QQQ:
First there's Cisco (CSCO), Oracle (ORCL), Microsoft (MSFT), and Intel (INTC).
- Cisco just held its analyst day, and it is focusing on evolving from being a leading communications equipment supplier to a #1 IT vendor. This one has more juice in it, with M&A remaining key to future growth not to mention returning cash to shareholders. That said, would look for a bit of a dip for entry point
- Oracle reports next Tuesday and while it is running into the quarter a bit, valuation remains reasonable with expectations muted. The driver of course is software, and once we get a return of enterprise spending, this name will benefit. After all, companies do want to spend to increase revenue growth and improve productivity, but we need certainty before they outline their budgets
- If you want to try to catch a trade in two laggards? Look no further than Microsoft and Intel. Microsoft is down and out on very muted expectations for Windows 8 and the surface tablet, but at these levels, we could see an interesting entry point.
Intel has been a dog, down 15 percent year-to-date as it has dug in its heels on Moore's law. But with a CEO transition forthcoming and potential upside in corporate spending, you could see an interesting January effect trade for this one. Read More: Microsoft Kicks Up Its Surface Tablet Offerings
- Next page for more
Also there are momentum names: Amazon (AMZN), Apple (AAPL) and Google (GOOG).
- Google remains off its highs since its disappointing quarter in October despite improved stats (particularly over Black Friday weekend). While investors are skeptical on its mobile potential, we are seeing Facebook gaining traction in this camp… and if they can do it, Google can too! This stock is one of our "anointed ones" on Mad Money as sultan of search (over 70 percent of search budgets!)…So this is an increased corporate spending play too!
And the latest cost per click (CPC) stats for the company have improved—hitting 63 percent of desktop CPCs (up from 50 percent in recent quarters). Don't forget that Google is building an ecosystem of its own (one of the key reasons we have liked Apple) with its Android devices!
- Amazon seems to do no wrong, with the market giving it the benefit of the doubt despite high spending and mediocre earnings. That said, this e-commerce play has much runroom ahead and margins will begin to improve as spending needs wane
- Apple: This has become the true pulse of the market and has become one of the most technically-driven name. At this point, remains strong for the long-term and the direction of Apple should aid the QQQ. Read More: Apple Testing TV-Set Designs: Report
What's the bottom line?
Keep an eye on the QQQ and its key components. It may be an interesting trade into the end of the year and for 2013.
Nicole's Random musings
In addition to a shift into tech, we are also seeing a shift into the industrials space—some positive data from names out this morning like Dupont (DD), Joy Global (JOY)—on optimism for global cyclical recovery (China GDP growth along with Europe stabilization).
Follow Nicole Urken on Twitter @nicoleurken
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