The Dow pulled off a final-hour rally on Friday, closing up 10 points despite losing as many as 168 points intraday. What was the reason for this Titanic-turning-on-a-dime surge? Cramer said that the hedge funds finally stopped liquidating their positions, which in turn allowed stocks – at last – to trade on their fundamentals.
And, yes, those fundamentals these days seem to be sound. Investors may fear Europe’s debt problems, falling oil and gold prices, the rising dollar and the US jobs situation, but they should keep these figures in mind as counterpoints:
Of the 314 S&P 500 companies that have reported earnings so far this season, 74% have beaten their profits estimates and 71% have beaten on revenues. Also, between November and January, 47 S&P firms felt healthy enough to raise their dividends and only four cut them. In the same year-ago period, there were 40 raises and a whopping 21 cuts.
The takeaway here, Cramer said, is that the situation – in the markets, in the economy – is improving.
“Eventually the positive fundamentals always win out,” Cramer said. “And the fundamentals of companies trump the sell-off-inducing fundamentals of the money-management business.”
Remember, Cramer attributed Thursday’s losses to an en-masse exit by hedge funds who got stuck on the wrong side of their trades, following news that Greece, Portugal and Spain were overburdened with debt and concerns that Washington could make life hard for investors. As a result, these funds dumped their holdings and send stocks plummeting, sparking even greater fear throughout the rest of the market.
But a growing awareness of the actual strength of company fundamentals has righted the ship, so to speak. And Cramer said we could see a rally next week as investors shake off these past few days and focus on the positives: earnings this quarter and apparently a slight break for American workers.
Speaking of the coming week, Cramer also offered up his Game Plan for the next seven days:
On Monday, CVS Caremark , Vulcan Materials and Electronic Arts report. Cramer said he might be willing to recommend CVS, a cheap stock that he thinks could be undervalued, if the company gives us some good news. Vulcan predicted it would see stimulus spending in 2010, so the Mad Money host will be watching for that. And ERTS looks good given that the stock barely moved despite reducing guidance last month. Cramer likes that the bad news is priced in, and he’s also a fan of the company’s exposure to social-media gaming.
Tuesday brings earnings from Coca-Cola and The Walt Disney Co. , two Cramer favorites. But both stocks have enjoyed sizable runs, so he’s not willing right now to recommend either. However, if the market pulls back again and KO and DIS come down, investors should consider buying them.
L-1 Identity Solutions delivers its numbers on Wednesday. Cramer wants to the like the company – it’s a play on one of his big 2010 themes: counterterrorism – but ID hasn’t yet given him a solid reason to. He’s hoping to get one next week. Also on Wednesday, by the way, are Sprint Nextel and Discovery Communications . If Sprint shows signs of a turn, Cramer said he’ll go bullish on the stock. And he likes Discovery as a pure play on cable.
Marriott has earned favored status in Cramerica because the company reinstated its dividend. Cramer said he’ll be eyeing its report on Thursday. Treehouse Foods and FLIR Systems announce that day as well, and Cramer is expecting positive results from both. Then there’s Viacom , a cable stock similar to Viacom that Cramer thinks should be higher.
Thursday will be a day packed with earnings, actually, with Panera Bread , The Cheesecake Factory and Chipotle checking in as well. Cramer said he’s a fan of all three, though, like Coke and Disney, Panera may have run too much. He recommended using these reports to gauge consumers’ health. These restaurants qualify a bit more as discretionary spending, so good numbers will mean that consumers are feeling more confident.
On Friday, Cramer will turn his attention to Ultra Petroleum , a stock that has been weak lately though the company has typically been strong. He also likes the natural gas story, of course. This is the one play that he’s willing to recommend buying ahead of the quarter. If UPL is down on Monday, investors might want to scoop some up.
Cramer’s bottom line: The market may have struggled over the past couple of days, but this earnings season has been strong.
“I think the trend continues next week,” Cramer said.
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