Your personal views on the stock market don’t matter, Jim Cramer told his Mad Money viewers Thursday. Wall Street has a playbook for when the Federal Reserve starts raising interest rates and that means “Don’t Fight The Fed” and “Don’t Fight The Tape” need to be your mantras.
The reality is that interest rate hikes could take years to affect the entire economy. The industrials, for example, will likely be safe for a while. But according to the playbook, the first groups to go are high-multiple tech stocks. Any stock that trades on sales, and not earnings, is going to see some tough times ahead.
The next group to get hit by rising interest rates are the housing stocks, which is closely followed by high-multiple retailers. If you own any of these stocks, you need to re-evaluate your positions.
Not everything is a loser when the Fed is not our friend, however. The universe of potential winners is just smaller. The financials are winners. Cramer suggested Morgan Stanley (MS) – Get Morgan Stanley Report and Wells Fargo (WFC) – Get Wells Fargo & Company Report. Investors can also add some consumer staples like Clorox (CLX) – Get Clorox Company Report, which rose 1.1% Thursday. Pharma is also a good choice, according to the playbook, and that means stocks like Eli Lilly (LLY) – Get Eli Lilly and Company Report, which was up 1.3% by the close.
“Don’t fight the Fed,” Cramer concluded, it’s time to start switching gears for the new year.
Both Sides of the Wayfair Story
The bulls and the bears are fighting it out over the stock of Wayfair (W) – Get Wayfair, Inc. Class A Report, which received a buy rating from Needham with a $280 price target, while at the same time receiving a sell rating from Bank of America with a $175 price target. Shares responded by falling another 8%.
Analyst face-offs like this are great for investors, because you get to hear both sides of the argument. In the case of Wayfair, Needham points out that while there may be short-term weakness, the company’s CastleGate fulfillment service is the company’s hidden gem. Meanwhile, Bank of America cites that Wayfair is up against tough comparisons and it doesn’t think the company can deliver as people begin to travel more and spend less on their homes.
Shares of Wayfair are off 16% for the year, but Needham felt the stock is worth 1.6 times sales. Bank of America felt 1.2 times sales is a more realistic valuation. According to Cramer, they’re both wrong.
The Fed is no longer our friend, Cramer reminded viewers, and that means the market isn’t going to pay up for a stock like Wayfair. Using 2023 estimates, stocks like RH (RH) – Get RH Report trade for 19 times earnings. Williams-Sonoma (WSM) – Get Williams-Sonoma, Inc. Report trades for 11 times earnings. Wayfair trades for 32 times their 2023 estimates and that’s simply way too high.
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