Last week, Jim Cramer reviewed latest earnings from some of the top retailers and consumer companies in the US and analyzed how Americans are reacting to the ever-increasing pricing pressures. Cramer said that looking at the earnings reported by some retailers so far, it's clear that if you are going to keep prices elevated, you will "lose customers." Cramer said that there are very few retailers who are willing to accept that prices are just "too darn high."
Retail: "The Ugly Ducking"
Jim Cramer thinks retail is the "ugly duckling" when compared to travel and leisure because "people don’t want to spend money on physical items unless they have to." However, the inflation crisis has forced people to be more "frugal" according to Cramer, even if it means getting a "lower quality hamburger or a latte."
"If you acknowledge it without doing anything about it, you are setting yourself up for disappointing numbers going forward," Cramer warned retailers.
In a separate program last week, Cramer said that in the current environment, where many tech stocks are "treading water," investors wonder whether they should sell their current positions and invest in "passive" sectors like healthcare, industrials or banks.
Cramer Recalls His "Brutal" Hedge Fund Days
Cramer said back when he was running his hedge fund, he had to review his portfolio "three times a day" and defend his stock picks to his then wife Karen Cramer, who was also a half owner of the now-closed Cramer & Co, Cramer's hedge fund.
Cramer said that he had to incorporate rate cuts, analyst reports, negative news or valuation concerns while adjusting his portfolio on a daily basis.
It, according to the CNBC host, was "brutal" but "necessary" because Cramer and his wife were managing other people's money and they were "looking over their shoulders."
Cramer recalled that his ex-wife always insisted on selling "dead money" stocks, advocating investing in other stocks that could "win."
Cramer Does Not Want You to Sell Your Stocks Based on Market Chatter
While all of these practices "served" him "well," Cramer said that's not how he manages money at his Charitable Trust. Cramer said without constant criticism on your every move, you can afford to invest in companies that you believe in and "stick with them as long as the facts don’t fall apart on you." However, Cramer noted that sticking to stocks when they are going down is difficult in the short term, but emphasized that stocks suffer selloffs for "all kinds of reasons."
Cramer said that as long as the basic thesis holds, you should always resist selling your positions no matter what the "billionaire class" or "hedge fund managers" say.
Jim Cramer Talks About 10 Consumer Stocks As Americans Push Back on High Prices
Last week Cramer talked in detail about some consumer stocks, including retail and restaurant companies, and analyzed how inflation is affecting these companies. We picked 10 of these companies and mentioned Cramer's comments about them. With each stock we have mentioned hedge fund sentiment. Some top names in the list include McDonald's Corp (NYSE:MCD), Starbucks Corp (NASDAQ:SBUX) and Chipotle Mexican Grill, Inc. (NYSE:CMG). Why is it important to pay attention to hedge fund sentiment? Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
Jim Cramer mentioned Brinker International, Inc. (NYSE:EAT), the parent company of Chili's restaurant, as an example of consumer companies managing to grow business despite inflation pressures. According to Cramer Brinker International, Inc. (NYSE:EAT) executed a "barbell" strategy offering lower price items for more value conscious consumers and premium items for affluent customers.
"That was a good idea, this stock keeps going higher," Cramer added.
Jim Cramer highlighted that Tyson Foods Inc's (NYSE:TSN) Prepared Foods business has seen about 20% accumulative inflation over the past three years, and it has now become "too pricey" for many Americans. In another program earlier this year, Cramer called Tyson a "horrendous" stock but still recommended investors to buy.
He said at the time that the stock was “about to go up.” Cramer said while input costs in the chicken industry are doing down, we are “about to have a chicken price explosion.”
When asked why doesn’t he like Tyson Foods Inc (NYSE:TSN) when its margins are going up, Cramer reiterated that he’s actually recommending people to buy the stock; he just wants Tyson Foods Inc (NYSE:TSN) to lower chicken prices.
In addition to TSN, Cramer is also talking about McDonald's Corp (NYSE:MCD), Starbucks Corp (NASDAQ:SBUX) and Chipotle Mexican Grill, Inc. (NYSE:CMG).
Jim Cramer said kitchenware and home furnishings company Williams-Sonoma, Inc. (NYSE:WSM) reported some "excellent" numbers. Cramer said while Williams-Sonoma, Inc. (NYSE:WSM) is not a cheap retailer as it's regarded as a "high-quality brand" and "that's what people want."
ClearBridge Sustainability Leaders Strategy made the following comment about Williams-Sonoma, Inc. (NYSE:WSM) in its Q3 2023 investor letter:
“In a strong showing for the Strategy’s consumer discretionary holdings, Williams-Sonoma, Inc. (NYSE:WSM), which sells kitchenware and home furnishings, was the top contributor in the quarter after its August earnings report showed exceptional profitability and the company raised its full-year guidance. Shares jumped further in September after a private equity firm increased its stake, suggesting recent weakness was overdone. The company’s high-quality fundamentals make it a good defensive fit for an uncertain environment: it generates significant free cash flows, has no debt and the liquidity to invest in the business first and then return excess to shareholders.”
When it comes to Yum! Brands, Inc. (NYSE:YUM), Cramer said the stock got hit despite the fact that Yum! Brands, Inc.'s (NYSE:YUM) Taco Bell brand offered very cheap options. Some other segments of Yum! Brands, Inc. (NYSE:YUM) were not able to offset inflation-related headwinds, though, according to Cramer. In November 2023, Cramer highlighted that the market was focusing too much on Pizza Hut and ignoring KFC and Taco-Bell, which he believed are Yum! Brands, Inc.'s (NYSE:YUM) strengths.
Like YUM, Cramer is also talking about McDonald's Corp (NYSE:MCD), Starbucks Corp (NASDAQ:SBUX) and Chipotle Mexican Grill, Inc. (NYSE:CMG).
The company in its Q1 earnings call talked about guidance and the state of business:
"With the KFC UK deal behind us, our cash balance will return to a normalized rate of around $400 million, excluding the unrepatriated Devyani proceeds. Thereafter, with no significant debt maturities in 2024 or 2025, we plan to use our excess free cash flow primarily to fund share repurchases, absent accretive investments we choose to make. I will reiterate that our capital priorities are guided by maximizing shareholder value. This includes investing in the business, maintaining a resilient balance sheet, offering a competitive dividend and returning excess cash to our shareholders. Subsequent to the quarter end, we renewed our pro rata credit facility, including our revolving credit facility and Term Loan A. We were pleased to renew the $2 billion facility with the same pricing and terms that we achieved in 2021 while also increasing the revolver from $1.25 billion to $1.5 billion.
Jim Cramer said he finds Macy's, Inc (NYSE:M) as the "most intriguing" stock in the retail stock universe. Macy's, Inc (NYSE:M) has added two new board members to avoid a proxy fight with Arkhouse Management. Cramer wondered whether this appointment would thwart the $24 bid to takeover Macy's. Cramer said he's "guessing" that Macy's, Inc (NYSE:M) would be given time to "work its magic."