Jim Cramer s 2015 Year-End Forecast

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Branden Bailey
5 years ago
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2 Originally published 6/10/2015 All of the stocks I am about to talk about are catalyst-filled and are right for this environment. But before we get down to the individual stocks, I want to give you my outlook for the second half of the year and six stocks that fit like clockwork into the forecast. Let me give you three points about what will define the next six months for our stocks and bonds and those around the world. FROM KING DOLLAR TO ROOK DOLLAR First, in any market, there s one true pillar that needs to stand for an advance to occur. Given that stocks go up or down on whether they beat expectations and then raise them that part of the conference call right after the flowery depiction of how the company is faring we need to know what can impact the earnings more than any other factor. That s the pillar and THE pillar right now is the end of the advance of the dollar versus all other currencies. So, point number one if we are going to advance: We need a dollar that doesn t, say, get to parity versus the euro, one that can start buying fewer yen not more, and one that has a decline versus the real and even the peso, all of which are hurting our companies earnings. Jim Cramer is one of America s most recognized and respected investment professionals and media personalities. He is the Portfolio Manager for the Action Alerts PLUS Charitable Trust. In 1996, Jim founded TheStreet, one of the most visited financial media websites for individual and institutional investors. Jim also writes daily market commentary for TheStreet s Real Money premium service and participates in video segments on TheStreet TV. He also serves as the host of the Mad Money television program and co-host of Squawk on the Street, both on CNBC. Jim graduated magna cum laude from Harvard College, where he was president of The Harvard Crimson. He went on to earn a law degree from Harvard Law School in From there, Jim joined Goldman Sachs, where he worked in sales and trading. In 1987, he left Goldman to start his own hedge fund. While still managing his fund, Jim helped start Smart Money for Dow Jones.

3 I see that peak in the dollar coming for the second half. I don t expect a strong rally in any currency against us, but the ascent can have reached its height, which means that 2016 earnings, which we will soon be focused on, can be up year over year. All the dollar has to do is stay at around 110 against the euro, the key proxy you should measure it by the FXE in your screen where an increase is good and a decline flat out bad for the rest of the year to be a good one. Since I think we have peaked, my bias is to be bullish but every time you see that euro break down, it will take our stock market along with it. Do not be confused by the noise. King dollar must be relegated to rook dollar I am not asking for pawn dollar for my forecast to work and I think the king is stripped of that skyrocketing status. I wish we could go as lowly as bishop or knight dollar, but that would require the cooperation of our trading partners and they are all too defensive and weak to let their currencies float that high. Why do I think that we could have such a dollar toppling? The first reason is we will have a resolution in Greece no matter what. I believe it will be a stretch-out of payments with a reward system that diminishes its onerous nature as Greece improves or puts it on a definite collision course with an expulsion if it doesn t. Why is this important? Because we know that other countries that have put through plans of austerity, namely Spain and Ireland, have managed to make quick comebacks. Greece could be the same. I don t want to overthink this, though. We get a resolution of any sort a kick out or a stretch out then the euro will go higher and it will take our stock market with it. Second reason the dollar might be peaking? We are going to get a stronger China in the second half of the year. I believe we are seeing, with the slowdown of the decline of the Baltic freight index down to the 600 level a far more accurate gauge of the Chinese economy than any of the various PMIs and certainly of the Chinese stock market that China s rate of growth deceleration is bottoming. A turn in Europe where 25% of Chinese exports go could be very meaningful for China s accelerated growth. Finally, our economy can t sustain any sort of momentum with the dollar this strong

4 because our exports and our tourism industries and their ancillary impact on our retail sales won t generate enough economic activity to keep the currency from getting even more super-freakin expensive, as I say on Mad Money. Earnings revisions upward will be routine if the dollar has indeed peaked. So point number one in my lukewarm but positive outlook is that the dollar won t be able to take out those highs that we created earlier this year. However, I do believe those highs will be challenged because the Fed will raise rates in its September meeting, which will cause a run up in the currency and a short-term decline in stocks. While we are wrong to focus endlessly on Greece, the rate hike is nothing to sneer at because so much money will be thrown off course when it happens. So, within the overall context of a muted advance in stocks for the second half is the setback I expect in September when the Fed increases rates by a quarter of a percent. Why does the Fed have to do this? Because while the Fed can be none too happy with all sorts of indices of economic activity, it is surprised and sanguine about employment growth and now wage growth, so it feels it has no choice to raise. When they do raise, we will be in official Fight the Fed mode. That s going to make the universe of stocks that will go higher much smaller than our current crop of advancers. We know, for example, that the financials are the current leaders, but I think that once we start raising rates, the spread between the short-term rates and the five- and ten-year treasuries will narrow, making it so the banks will not get the kind of net interest margin gains that everyone seems to be banking on. I believe that group will be stopped hard in its tracks when the Fed hikes. Which brings me to six big-cap stocks that I think must be bought on that hike. Why these six? Let s go over them.

5 BEST STOCKS FOR 2ND HALF OF 2015 First, Disney (NYSE: DIS) can rally because it has not one but two catalysts: Star Wars and Shanghai Disney. With these two entries, you have two large estimate bumps ahead, something I can t see occurring for any other large capitalization name. As is so often the case, the money will gravitate to what can win in this environment and all others will be regarded as too hard to own into a rate hike. I would buy this stock on any weakness. Second, Snap On Tools (NYSE: SNA) has put into place a plan that can cause its stock to rally simply because it is going to receive more and more support as the 35% of sales that it generates overseas turns more positive. I like this under-the-radar stealth technology stock because it is lacks the kind of shortswing money that will bedevil other industrials. There will be a tremendous scarcity of companies with 35% overseas that will maintain a strong domestic performance because it is a play here on the aging car population as its tools help keep a 12-year-old auto population on average as fresh as possible.

6 Why? Because older cars are all about diagnostics as they are complicated electric machines and only Snap On has the right tools to dissect them. Third clockwork stock? Henry Schein (NYSE: HSIC). Here s another stock that s off the radar screen that is a beneficiary of an incredible consolidation in dental equipment, a steady business owing to the aging baby boomer cohort.

Schein splits this business with two other companies, Patterson Dental (NYSE: PDCO) and Sirona Dental (NYSE: SIRO) and the margins here are extraordinary. Talk about a benign oligopoly.

7 Schein splits this business with two other companies, Patterson Dental (NYSE: PDCO) and Sirona Dental (NYSE: SIRO) and the margins here are extraordinary. Talk about a benign oligopoly. This stock, like Snap On, is blessed with very little attention, something that is integral to the second-half strength I envision. No wise guys betting against it. Both Mallinckrodt (NYSE: MNK) and Actavis* (NYSE: ACT) are inverted companies they got in under the change in laws and are free to continue to buy companies that can automatically be accretive. They are the best at it save Valeant (NYSE: VRX) but, candidly, I do not trust Valeant because once a company is bought by that acquirer it is lights out on R&D, meaning that the sustainability is definitely called into question. When MNK and ACT make acquisitions, they do so with the idea of increasing the moats around themselves. They still stay at a dramatic discount to the market multiple but are the only two large-cap GROWTH pharmaceuticals out there and will, therefore, be adopted by portfolio managers who need more oomph than Merck (NYSE: MRK), Johnson & Johnson (NYSE: JNJ), Eli Lilly (NYSE: LLY), GlaxoSmithKline (NYSE: GSK), Pfizer (NYSE: PFE), and even Bristol-Myers Squibb (NYSE: BMY) can provide.

8 Finally, there is Regeneron (NYSE: REGN), which I think is about to produce the greatest selling drug of all time, its anti-cholesterol agent that can be taken with any or all in the category to further lower bad cholesterol and can also be taken on its own. You have seen this stock percolate for ages and the reason why I feel confident that the $55 billion Regeneron will go higher is that if the drug is a success but the stock doesn t go up, then I suspect that Sanofi (NYSE: SNY) will backstop you with a takeover bid as

9 the company is already a 22% holder and can increase its stake at any time. No, I am not concerned about the recent noisy FDA panel approval. Hundreds of millions of people could end up taking this pill one day and Sanofi will buy out partner Regeneron to get all of those earnings if it has to. So there you have it, Disney, Snap On, Henry Schein, Mallinckrodt, Actavis*, and Regeneron, six clockwork stocks to buy when we get that first rate hike. These are six clockwork stocks that fit my slow growth universe worldview. WHAT NEXT? You ve just learned about six clockwork stocks that I think must be bought on the impending Fed rate hike, and now you understand my outlook for the second half of But there s plenty more to learn. Which stocks am I tracking for my portfolio? What positions am I trimming and increasing? What sectors am I following most closely for the second half of this year? To get my full analysis and the rest of the stocks in my portfolio, just sign-up for a 14-day free trial to Action Alerts PLUS! ACTION ALERTS PLUS I WANT TO INVEST ALONGSIDE JIM CRAMER

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10 Action Alerts PLUS is the perfect choice if you want the profits that come from a marketbeating investor taking control of a blue-chip stock portfolio. With Action Alerts PLUS, I show you exactly how I buy and sell stocks in my multi-million dollar Charitable Trust. Each trade is executed with real money, so I weigh each decision carefully and always tell you why I m adding to a position, taking profits or just sitting tight. So you can make every move with confidence, knowing I m investing right alongside you. And I even let you make every trade first, before I do! When you join, you ll receive all the tools to turn my moves into your profits: a a a a Advance notice of every buy and sell decision in the portfolio so you can reap the maximum gains A complete portfolio strategy that will balance reward with risk so you re never overexposed to market corrections or crashes Constant coaching about what the latest news and earnings mean for our portfolio stocks, what to watch out for and where our next winners will come from Five valuable FREE bonuses four of my most popular special reports, plus my latest, best-selling book, Get Rich Carefully. Tell me more about Action Alerts PLUS! Tell me more about Action Alerts PLUS! *June 15, Actavis plc announced that the company has adopted Allergan plc (NYSE: AGN) as its new global name.

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