Welcome to the bull market of 2021 — when price targets get raised almost daily, Jim Cramer told his Mad Money viewers Tuesday. This moment is a nightmare for the bears, but it’s also nirvana for the bulls. Cramer said some stocks have become self-fulfilling prophecies, with analysts raising estimates, only to see those estimates come true as investors are eager to own every great story.
How did we get here? Well, the euphoria started at the onset of the pandemic, Cramer explained, when things looked very bleak. Back then, analysts slashed estimates on everything from restaurants and retail to the rails. But the subsequent decline didn’t last long, after Washington delivered a monster stimulus and vaccines were developed in record time. Since then, the analysts have been chasing stocks higher, raising estimates only to see their target beaten in days or weeks.
This has been the case with Tesla (TSLA) – Get Report, which was never hit that hard by the pandemic in the first place. Investors have been chasing Tesla higher, including a 4.7% rally Tuesday. The same applies to Darden Restaurants (DRI) – Get Report, up 1.6%, and shares of Caterpillar (CAT) – Get Report, which are betting on infrastructure spending.
The banks have also moved higher now that mergers and acquisitions have returned. Retail has been roaring, including Kohl’s Stores (KSS) – Get Report and Macy’s (M) – Get Report. And Cramer favorite Plug Power (PLUG) – Get Report soared 22% Tuesday as investors cannot get enough alternative fuels in their portfolios.
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Off the Charts: Amazon
With 2021 is starting off just as crazy as its predecessor, Cramer checked in with colleague Larry Williams in his “Off The Charts” segment for a technical take on which stock might be leading the averages.
Williams first noted that in years when the first day of trading ends higher than the close three days prior, the market heads higher 88% of the time. Under that pretext, Williams felt that Amazon (AMZN) – Get Report would likely lead the market higher.
Looking at the seasonal patterns of Amazon, Williams noted that now is historically the time to buy Amazon, when shares typically trade sideways. Williams also overlaid Amazon’s chart with interest rates, which confirmed that in this environment, Amazon is a go-to choice for many institutional investors. Finally, Williams looked at a long-term weekly chart of Amazon, which also confirmed his bullish thesis on this e-commerce giant.
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Last year was a monster year for Chinese IPOs, Cramer told viewers, but even then, these stocks underperformed their U.S. equivalents.
Cramer has foe years warned investors away from Chinese IPOs. He said these companies don’t play by U.S. and the odds are stacked against you that you will see gains that match their hype. Last year, 12% of all IPOs hailed from China, with four of the 20 largest deals being Chinese. These included Lufax LU, KE Holdings BEKE, Li Auto (LI) – Get Report and Xpeng (XPEV) – Get Report.
But while the average Chinese IPO from 2020 gained 66%, the average American IPO rose 80%. But Cramer cautioned that averages don’t tell the whole story. Looking at the median, most Chinese IPOs only rose 29% and a full 35% of the total are trading below their IPO price.
Last year’s Holding Foreign Companies Accountable Act aims to add transparency and help investors avoid big losses, but Cramer said the regulations will take years before having a substantial impact.
Executive Decision: KAR Auction Services
In his first “Executive Decision” segment, Cramer spoke with Jim Hallett, chairman and CEO of KAR Auction Services KAR, for a read on the roaring used car market.
Hallett explained that his company began transitioning to digital auctions years ago. In 2019, nearly 60% of their business was digital, he said. With the pandemic however, they made the remaining two to three years worth of transition in about three weeks.
KAR’s new digital auction platform is more efficient and safer than the in-person model, Hallett explained, and sellers have access to more buyers than ever before. The digital transition, along with the company’s acquisition of Backlot Cars for $425 million, puts KAR in a strong position for 2021.
Hallett noted that the transition did cost about 5,000 jobs at KAR, but he said his company is already adding digital talent so they can continue to innovate with their new marketplace.
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At the time of publication, Cramer’s Action Alerts PLUS had a position in AMZN.