CNBC’s Jim Cramer on Wednesday explained why his charitable trust owns the stock of Citigroup, which is down about 11 percent in the last year and a far cry from its all-time highs in the $500 range last decade.
The head and heart don’t align on the security, but the stock is “ridiculously cheap,” he said. It’s one that investors should own for the tangible book value, which Cramer called the most important metric for bank stocks—how much its worth if the business was shut down, liquidated, and proceeds returned to shareholders.
But Citigroup isn’t closing up shop any time soon, he said.
“In other words, it’s illogical to sell the stock of Citigroup,” the “Mad Money” host said. “Emotionally, it’s very tough to own, but nobody should rely on their emotions to make money management decisions.”
The stock is trading at about a $3 discount to its book value, and Citigroup plans to repurchase 8 percent of its shares, Cramer noted. In defense of Citi CEO Michael Corbat, the bank stocks are all trading awfully, including Goldman Sachs, he said.
Cramer also pointed out that Keycorp, the parent of Keybank, has a safe dividend, higher yield, and same earnings multiple as Citigroup. With 1,100 branches in 15 states, Keycopr would make a compelling case for an acquisition, but no major bank or hedge funds have shown willingness to buy because some long-term interest rates have fallen below short-term interest rates, he said.
Many investors fear a recession is around the corner because of that inverted yield curve.
“I think the recession fears, people, are totally overblown, but the simple fact is that there’s no real catalyst for the bank stocks, unless the Fed decides to cut interest rates several times and I don’t see that happening,” Cramer said. “As logical as it is to own Citigroup here, maybe we’re sticking … because of an irrational fear that the stock will finally start rallying the moment we decide to sell.”
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Investors should expect high-growth technology stocks to be sold off as investment funds free up cash to buy into the wave of new initial public offerings, Cramer said.
A few companies slated for IPOs this year include ride-hailing apps Lyft and Uber, hospitality platform Airbnb, data intelligence company Palantir, and workspace operator WeWork.
Cramer noted that there was weakness particularly in the Nasdaq as big institutions reconsider their stock allocations with the looming Lyft IPO.
“You need to be prepared for many more not so hot days like today. In the end, the stock market is like any other market— it’s controlled by supply and demand,” the “Mad Money” host said. “With all of these big IPOs coming … these deals will push the rest of the market down until the tide goes out with a whimper, not a bang.”
PVH, the parent of recognizable fashion labels Calvin Klein and Tommy Hilfiger among others, is trying to get back in the groove.
Since reaching $170 in June, the stock tanked to $86 in December and has since rebounded to $110. Cramer pointed out that PVH put together a good fourth-quarter earnings with better-than-expected revenue and a better-than-expected 2019 forecast.
CEO Manny Chirico told the host that he promised the company would learn from its mistakes and not make them again.
“A lot of the fashion directions that were off, I think, we’ve got them back on track,” he said. “And I think you’ll really see the benefit in the second half of 2019.”
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“What I’ve always found [is] when there’s a certain amount of uncertainty, there’s a challenging environment, that’s the time to act,” he told “Mad Money’s” Jim Cramer in a one-on-one interview. “That’s when it’s the best opportunity: Nobody’s watching, nobody’s expecting it. You take a play that makes sense.”
The host noted that investors have begun selling off health care stocks, along with a range of other securities. Health insurer shares also tumbled on Tuesday after the Trump administration began making moves that seek to get rid of the remaining parts of the Affordable Care Act.
More on the Centene-WellCare merger here
Paychex, the payroll and human resource outsourcing business, delivered an earnings beat and met revenue expectations in its quarterly report on Wednesday. The stock is up more than 21 percent in 2019, and Cramer said he thinks the stock could run more.
CEO Martin Mucci said the company’s small- to medium-sized business clients have been asking for self-service programs that allow employees and customers to troubleshoot issues on their on, such as through an online live chat box.
“A lot of things can be answered by a chat box alone, which is an automatic response that’s very quick and can take the client right to what they need to do,” he said. “Over 45 percent of our chats now are done by the chat bot they’re done and resolved right there. It helps the client quickly resolve what their issue is without ever having to talk to anybody. Much more efficient for everyone involved.”
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In Cramer’s lightning round, the “Mad Money” host sprinted through his reaction to callers’ stock picks:
SVMK Inc.: Dynamite. Fabulous quarter. A lot of people didn’t react to it correctly at the beginning. When they dug down, they liked what [CEO] [Zander Lurie] had to say, and I did, too. The stock came too cheap. It should never have been down where it was.”
Sprint Corp.: “No, no, no. We’re sellers [of] Sprint. If you wanna play that, you gotta play T-Mobile, which is the one I’ve been behind the whole way. [CEO] John Legere knows I’ve been behind it even when he’s wavered, I’ve been there.”
American Water Works Co. Inc.: “It’s been fine. I’ve liked that forever. I mean, I never had a problem with that one. It’s just a good stock, it’s slow growth. slow and steady wins the race.”
Disclosure: Cramer’s charitable trust owns shares of Citigroup and Goldman Sachs.
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