At this point in the business cycle, every company wants to be seen as a secular growth stock, Jim Cramer told his Mad Money viewers on Wednesday. Indeed, with rising interest rates, no one wants to be considered a cyclical security. But investors should approach such actions with skepticism, as not every company can make such a successful transition.
Many companies have gone from being a cyclical producer to a secular producer, but none have been as successful as Micron Technology. (MU) – Get the report from Micron Technology, Inc.. For years, Micron was just a commodity memory chip maker, beholden to boom and bust cycles of uneven supply and demand. But then the company changed its stripes, branching out into a premium chipmaker for all of today’s hottest markets. Micron hasn’t been able to completely shake off its past though, which is why shares rose on strong earnings on Wednesday morning, only to fall 3.5% at the close as investors feared a slowdown in its forecasts.
Devon Energy (NDV) – Get the Devon Energy Corporation report is another company that has managed to become a secular growth stock. Oil producers were notoriously unruly, until Devon instituted a variable dividend and pledged to return more money to shareholders. Now the company can offer its shareholders stable growth, regardless of the current level of oil prices.
Even companies like Deere & Co. (OF) – Get the Deere & Company report have risen from the boom and bust of agriculture to reinvent themselves as a supplier of high-tech agricultural equipment.
This is not the case for high-end furniture retailer RH (HR) – Get the HR report, which is always at the mercy of consumer demand. This is also the case for automakers, which will soon suffer as auto financing shuts many buyers out of the market. Only Tesla (TSLA) – Get the Tesla Inc report seems capable of reversing this trend and continuing its trajectory as a secular growth company.
Executive Decision: Paychex
Macroeconomic data can only tell you a lot about what is really going on in our economy. For the rest of the story, you need to check with Marty Mucci, President and CEO of Paychex PAYX, the payroll processor that takes the pulse of small businesses.
Mucci said Paychex just achieved its third consecutive quarter of double-digit revenue growth thanks to its growing suite of payroll and HR offerings. He said most small businesses are still alive and well thanks to a combination of strong demand and government assistance.
Paychex has teams of professionals ready to respond to new programs and regulatory changes as they arise, Mucci added, and that’s how they’re able to help businesses stay ahead of the game. to attract and retain the best employees for their companies.
While it’s true that Paychex makes more money as interest rates go up, they make even more money by offering new services, like health plans, 401K plans, and other employee benefits.
Asked about the state of the economy, Mucci noted that the South and Southwest continue to be trouble spots. That’s where people are, he said, and that’s where they’re seeing the biggest increases in wages.
Avoid after-hours trading during earnings season
Today, Robinhood (HOOD) – Get the Class A report from Robinhood Markets, Inc. announced it was extending after-hours trading from 7 a.m. to 8 p.m., but Cramer warned that after-hours trading is the Wild West and should be avoided at all costs, especially during the summer season. results.
Why is after-hours trading so dangerous? Cramer cited three recent examples. The first was Micron, which reported a strong quarter that sent shares up $82 to $85 in after-hours trading. But after the company’s conference call, which included warnings about Chinese blockages and Russian sanctions, shares gave up all those gains and lost another 3% at the close on Wednesday.
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Next up was Lululemon Athletica (LULU) – Get the report from Lululemon Athletica Inc, which announced a gain of 10 cents per share and a $1 billion share buyback. Pretty cool, right? That was until confusion over the company’s same-store sales numbers created a flash crash in after-hours trading. If you had used a market order during those 15-20 minutes, you could have lost big through no fault of your own.
Finally, Cramer noted RH, the furniture giant which also recorded a beating in profits. However, RH shares were on an after-hours roller coaster, trading as high as $410 per share, only to fall back to $350, rebound to $390 and settle at $370 per share.
If you’re trading after hours, when volumes are light and volatility is high, you’re “playing with fire,” Cramer warned.
Executive Decision: Tellurian
For his final “Executive Decision” segment, Cramer also sat down with Charif Souki, president and co-founder of Tellurian (TO SAY) – Get the report from Tellurian Inc., the authority on liquefied natural gas (LNG) and the state of energy in the world. Shares of Tellurian rose another 6.2% today as the company announced the start of construction of its first LNG export terminal.
Souki reiterated that the United States has over 100 years of natural gas, more than enough to share with the EU and other countries in need. The United States can supply all of Europe’s natural gas needs, he said, but only if we have the will to do so.
Souki added that Tellurian does not need government assistance to bring up to 120 million tonnes of natural gas export capacity online, as they are already authorized to do so. Demand and the economy are supporting their business model, he said, and it’s mainly labor and other shortages that will slow them down.
“Russia got everything wrong” when it invaded Ukraine, Souki said. Russia could have been one of the biggest economies in the world, he said, but instead it sent itself back to the dark ages.
Cramer was bearish on Olin (OLN) – Get the report from Olin Corporationfangs (CROSS) – Get the report from Crocs, Inc.canopy growth (GCC) – Get the Canopy Growth Corporation report and JD.com (J.D.) – Get the report from JD.com Inc..
Nothing solid to chew
In his “No Huddle Offense” segment, Cramer said time was up for pet supply retailer Chewy (CHWY) – Get the Class A report from Chewy, Inc.because investors have run out of patience for companies that don’t make money.
Shares of Chewy plunged 16% on Wednesday on another quarter of the company spending more to attract new customers as it loses tons of money on those it already has. Investors were willing to pay for growth last year, but that all changed when the Federal Reserve started raising interest rates.
Cramer said he much prefers Petco’s stock (FRAME) – Get the Class A report from Petco Health and Wellness Company Inc.which combines pet supplies with all the things Chewy can’t, including veterinary services, grooming, community, and even pet insurance.
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