How to Cut Through Market Gloom
It has gotten to the point where a skeptical market draws no distinction between companies performing well and those that aren't, Cramer said during Tuesday's Mad Money. By the numbers, it's hard to know just what to do.
Take for example home-improvement retailer Lowe's, which after reporting disappointing first quarter results yesterday saw its stock fall by 5% while the S&P closed up 0.1%. This morning, Atlanta-based Home Depot reported great first-quarter results, but it closed down 2.9%. Both of these companies aren't down because they're simply not good stocks, Cramer said. They are being driven by negative market mentality.
"Good, bad, ugly. The sellers couldn't care less," Cramer explained. "That's how cynical this market is."
In actuality, however, Cramer said, Home Depot is the one that took a hit because of the skepticism of the markets. Lowe's is down due to "poor execution."
"The key thing here is guidance because, as investors, we care much more about what's going to happen than what's already occurred," Cramer said.
Home Depot raised its full-year earnings guidance from $1.79 per share to $1.88, and once the company completes a $2.5 billion buyback this year, earnings could rise to $2 per share. While Lowe's also raised its full-year earnings, it cut its guidance for the second quarter to between 57 cents and 59 cents when Wall Street analysts were looking for 63 cents. That means Lowe's expects the next quarter to be difficult and is reliant on an economic recovery to accomplish their goals in the second half of the year.
In terms of same-stores sales growth, Home Depot is again outperforming Lowe's. That means it’s doing better on a store-by-store basis and effectively handling inventory, Cramer said. Their inventories were up 0.4% on a 4.3% increase in sales. Meanwhile, Lowe's inventories jumped to 9.8% on total sales of 4.7%.
From stronger earnings and revenues to leaner inventories, many of Home Depot's recent successes are because of CEO Frank Blake's leadership, Cramer acknowledged.
Sooner or later, investors won't be distracted by European market woes and will differentiate between companies doing well and those performing poorly, Cramer said. When that time comes, he thinks you'll want Home Depot.
Cramer’s charitable trust owns Home Depot.
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