Even though anti-competitive mergers tend to be bad for customers, they tend to stack the odds in Wall Street’s favor, CNBC’s Jim Cramer said Wednesday.
“I love the stocks of companies that have somehow found a way to legally give themselves a seemingly unfair advantage. That’s the best kind of advantage,” the “Mad Money” host said as stocks recovered from their post-Thanksgiving rout.
Consider the case of The Linde Group, an industrial giant formed when chemical-gas companies Linde AG and Praxair merged in October. The deal essentially made the industrial gas space an oligopoly, taking the number of major players from four down to three, Cramer said.
“What’s good for an individual company may not be good for the broader economy, let alone the whole country or the entire world,” he explained. “I think the Praxair-Linde tie-up is very good for the three largest companies that are now left in the industrial gas business, but I bet it will be sub-optimal for their customers over the long-haul.”
If Cramer was a federal regulator, he may have even blocked the deal, he told viewers. But as a stock-picker, he chose to focus on the positives for investors.
“The new Linde is now the largest player in the secularly-growing industrial gas space, so it has the most to gain now that the group’s gone from four major players down to three, and between the synergies and the buybacks, there’s a whole lot to like here,” Cramer said. “You know what? I’d be a buyer. I’d be a buyer right here right now.”
Stocks soared after Fed Chair Jerome Powell’s Wednesday speech, in which the central bank chief said interest rates were “just below” neutral, a reversal from his October stance that they were “a long way” from the Fed’s goal.
But for Cramer, there’s a more complicated hurdle that “we need to jump to reach the bullish promised land,” he said.
“We’ve checked off the Jerome Powell box. He won’t be the cause of the major slowdown, not after today,” he said. “However, we still have the G-20 summit — China — and this is actually a much tougher nut to crack.”
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Qualcomm and Apple — perhaps the closest the technology sector has to corporate “frenemies” — are “on the doorstep” of resolving their ongoing issues, Qualcomm CEO Steve Mollenkopf told CNBC on Wednesday.
“We do talk as companies,” the CEO told Cramer in an exclusive interview on “Mad Money.”
Apple and Qualcomm have been embroiled in legal battles in recent weeks, with Apple accusing Qualcomm of illegally demanding a cut of each iPhone and Qualcomm accusing Apple of illegally stealing and bartering its trade secrets.
Mollenkopf attributed the back-and-forth to “activities that are consistent with” what he called “the fourth quarter of the game, and not the first quarter.”
Click here to read more about the Qualcomm-Apple dispute, and to watch Mollenkopf’s full interview.
Mollenkopf also said that Qualcomm is in a winning position when it comes to the fifth generation of cellular service, more commonly known as 5G, and the shift to 5G communication will come as soon as 2019.
“The entire world is going to transition to 5G,” Mollenkopf said in the interview. “We think it’s a big opportunity for us. We think the first mover gets the advantage, and we’re going to be it.”
Click here to read more about the Qualcomm chief’s view on 5G, and to watch his full interview.
Fed Chair Powell may have “blinked” in his Wednesday speech, saying that the Fed had “no preset policy path” for interest rates, but his work is far from over, Cramer warned as stocks popped on Powell’s speech.
“What’s the biggest risk to the system right now? After listening to Fed Chief Jay Powell, who made a lot of sense today, I’d say it’s non-bank lending,” Cramer said Wednesday.
In the speech, Powell characterized non-bank lenders as imprudent and a potential problem for the credit markets and the broader financial system. Still, he noted that after the 2008 financial crisis, federal regulators took measures that “have reduced the risk that key non-bank parts of the system would freeze up in the face of market stress.”
Even so, Cramer thought the rapid-fire rise of institutions like Quicken Loans, PennyMac and LoanDepot, three of the largest non-bank lenders, posed a near-term threat.
Click here to read his full analysis.
Analysts may be sticking with the stock of DXC Technology after the information technology provider’s latest earnings report, but Cramer isn’t as convinced about the stock’s long-term prospects.
“Sure, maybe DXC can give you a short-term bounce like it did today, thanks to some relief from the Fed or its own monster buyback, but long-term, I am very worried about these guys,” he said, referencing the enterprise company’s $3.3 billion share buyback authorization.
The issue with DXC — which was created when Hewlett-Packard Enterprise spun off its enterprise services segment and merged it with Computer Sciences Corp. in 2017 — is that the company “made a habit of massively beating Wall Street’s earnings estimates,” said Cramer, whose charitable trust sold its position in DXC in early April.
Using cost cuts as fuel, the DXC kept issuing upside surprises until May 2018, when, despite a small estimate beat, management lowered its forecasts for the next fiscal year. While DXC’s August report was intact, its most recent earnings report, issued in early November, showed signs of real weakness, with sales falling nearly 19 percent year over year.
“Bottom line? There are tons of tech stocks that have sold off dramatically for no particular reason. DXC Technology is not one of them,” Cramer said. “The thesis here was all about cost cuts, but now it seems like the cuts may have gone too far, to the point where they’re hurting DXC’s ability to get new business in a tough environment. That’s could be a self-defeating strategy. I want no part of it.”
In Cramer’s lightning round, he zoomed through his answers to callers’ stock questions:
F.N.B. Corp.: “The problem is the regional banks themselves have been a nightmare to own. I don’t think the Fed’s actions today necessarily make me feel better about them. I’d rather see you in J.P. Morgan. I think that’s a better situation.”
Berkshire Hathaway Inc.: “I think it’s a great idea. I think that [CEO] Warren Buffett’s great. I also think there’s a bench strength there and you should pull the trigger.”
Disclosure: Cramer’s charitable trust owns shares of Apple and J.P. Morgan.
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