Jim Cramer: 00:00:00 Welcome all, the February edition of Jim Cramer Unplugged. Otherwise, known as the actionalertssplus.com conference call, where I give you some actionable insights, and put into context key rules developed over a lifetime of trading and investing ... That's very important. So, you can learn and profit from them. Of course, we know it's a club call day because the market's been dropping furiously, right. Isn't that what always happens?

Today we're going to cover ten rules that protected us during the insane level of volatility we saw during the final weeks of December. Those awful weeks where we had to re-adjust on the fly, always the hardest thing to do. In order to come out whole, and then some, when the selling was over. We're going to demonstrate how they worked for us, then, because with the market up 70%, almost straight line; you do have to expect that a pull-back is in the offing. I hope it's not something that's happened today, because we'll be in here doing the call.

I do not know if you saw last night's Mad Money off the charts segment, I do it quite regularly with people from Real Money. We used our own Carley Garner, she's one of the favorite technicians. It is very much simpatico with my belief that we can still go higher. Nevertheless, I am growing wary that you can only go up so much in the same theme as a benign fed, a shutdown aversion, and a trade deal, before we run into an unforeseen thicket. Unforeseen being the abscess that's least expected.

By this time, you all know that I think there will be a China pact, although we don't know the time frame. It certainly won't be as soon as some of the bulls think. I do think there will be plenty of people who will view it as a sell the news event; I'm not one of those people. That's because the presumption in the fourth quarter of 2018 was that 2019 would be a down year. Both in earnings and growth, because of the fed. The bear market of 2019 actually happened to fall in the final three months of 2018. When the fed took its foot off the brakes, the bear market dissolved at Christmastime, then went on to a relatively, merry way.

Fortunately, for our sake, with a lot of stock on the books, because of how and why we buy things for the trust. Our bulletins are the real-time diaries of that moment. I hope you get a lot out of them. More on that later, in the call. What happens with a trade deal, even one that has been negotiated harshly? Every time, frankly, and over time. From the tough guy Navarro and the Lighthizer camp, I know Peter very well, I don't know Lighthizer well.

A trade deal would reignite the world growth. It would send oil up, maybe five to ten dollars, initially. One of the reasons I think the market is rolling over a little bit here, is that oil is starting to come back down. That's always the barometer. You can always tell about how the talks are going. We get a deal, it goes up five to ten dollars. You know, that's what the market keys on. While there would be a lot of sloshing of money out of the safety stocks back into the cyclicals and the techs, many large cap stocks would be able to return to their pre-October highs when Jeff and I talk about that later, and our five stocks that we think tat you should buy right now, if you just joined the club. You'll hear that as a theme.

Now, it would be a very good thing to have a trade deal, one that would fuel so many of the more trade-oriented funds who are setting up short for the trade deal, or haven't participated in this ramp, because it was simply not credible to them. Or they didn't have time to position themselves more positively after the big Christmastime sell-off.

What I wanna do before we get to the live-action display of the power rules, in an unruly bear market, is give you five themes I'm going to be focused on during the remaining portion of the first quarter of 2019. These are five themes that I'm going to fall back on, on days like today, if we roll over; in the coming period during the trade tensions. Themes that are infused by what happened so far with earnings during this difficult earning season. Difficult, maybe because a lot of people thought this was going to be bad, and it hasn't been that bad. And, what will happen with rates, again, that was a wildcard. The fed, not as much of a wildcard, now. World trade, obviously a hostage to the China talks, and how much we'll pay for stocks, that's that price to arrange multiple ... the magic elixir, given the sales and earnings progressions I see.

Most important, these are back of my mind ideas that are going to the forefront after this club call. You will have advanced look at them now, but you will be hearing about them, as time goes on.

Theme number one: The sales earnings are a lot better than you would have expected. Given that we just went through a bear market of extraordinary proportions, even if it was in a compressed time period. That's because there was no actual reason for the bear, except that feds simply relied on old, hack rules ... Phillips curve. A paltry amount of homework, I called more people than they did; to develop a thesis that said we are at full employment, so we will soon be at full inflation. That was their thesis, that's the Phillip curve. How embarrassing that it chose that course, just as the consumer price index was going negative, and the economy was cooling. It was a total misread of the scenario at hand.

Fact is though, it caused a huge pause in the economy, pretty much end-to-end; which allowed perhaps, the most important behind the scenes transformation to occur, that no one is talking about. The system got lean. There are lower inventories across the board, in pretty much every industry. Sometimes you get these events that are crystallizing, and they put things into context. Yesterday, Under Armor, yes Kevin Plank's company ... I've gotta tell ya, the more that I talk to Kevin, the more I realize that Kevin day-to-day is ... he's very involved. But, Patrik Frisk, a very good COO, is calling a lot of the shots there. Things are working, but their quarter put everything in perspective for me. They reported a not do hot quarter. Most important, they signaled that inventory was down dramatically year year. They're up double digits the year before now, now it's down.

I think that's emblematic of the moment that brings me to the crux of theme number one. You can buy the retailers again without much work. Especially now that we will have gotten to some sort of trade deal. This group has been suspect going into this reporting season for three key reasons, and one not that important. One, worries about high rates. Two, exposure to Chinese goods. Three, amazon. Four, this is a little more controversial; the debacle that was Macy's. I'll dismiss that in a second, this is really three things and a last thing.

So, what happened? Rates have had a dramatic decline, right? While the stocks have gone higher, that was reverse-day wealth effect that had gone negative. No one, when they came up with this thesis, though that rates would go lower, right. Rates were supposed to go higher. By pushing off the trade deadline, something that will most likely happen again, the president has given business more time to shift supply chains out of China. It's not usually done, because it's a two-step process. First, you have to find some more factories, or even build them, then, more important, you have to have a steady chain of logistics that gets the goods from the factories to the ports. Which, has proven to be the real sticking point that has hindered the change.

Three, is Amazon. Good article in the Wall Street Journal, today. Amazon turned out to be less potent than we thought, given that it has chosen to not use Whole Foods to ignite price wars. Prices are up. That's helped all over the place. Particularly the ones that we own, CVS and Kohl's, but also, Target and Walmart. Certainly more than we thought. More on that when I invite my colleague, Jeff Marks up to speak. Then, just to lump that in, on January 10 of this year it's going to be a day that lives in retail infamy. That was the day that Macy's announced a truly horrendous finish to its quarter. Other retailers reported excellent results that day; including Kohl's. They raised their forecast. Target raised their forecast big. But, the ETFs and the general stupidity and thoughtlessness of many managers caused Macy's to be extrapolated incorrectly. Look for reversal of fortune in that group.

We have Walmart in the bullpen, and after the bounce back of stocks like Stanley Black & Decker, Masco , and Sherwin Williams. Also, Louisiana Pacific, today. I'm sorely tempted to add Home Depot to the actual portfolio, which is still a staggering 30 points from its highest. Please take note, right now, we're adding it to the bullpen. It's too good. That does not mean that at the end of the day we're going to buy it, but I'll tell you if the market keeps going down ... You've got to recognize that we are fluid because the market's fluid.

Alright, theme number two: The government shutdown has created an overhang of large IPOs that will be the real challenge to fang and company. Now that the SEC is back to work, I need you to look for an avalanche. And avalanche of new supply coming out of the IPO chute. If you look at the incredible amount of looming merchandise from the likes of Uber ... Which, I suspect could actually be a hundred billion dollar deal. GE Healthcare, which I had hoped would be sold to a big company, but is now looking to be an IPO that could be about the size of similar traveler Danaher, a good comp, at 77 billion.

WeWork in exciting black hole of a company, cyber security company Palantir, I think that's about to come public. That's driving some money out of Palo Alto. It's pressuring it, and we're going to talk about that later. Airbnb, which could surprise in its size to some sort of 50 billion dollar balloon. Lyft, not as daunting in size as Uber, but still up there in exuberance. DoorDash, Postmates, Reddit. And, now, just this morning, Levi Strauss. Wow. Chip Bergh, that's going to be a very hot deal.

There's a host of players to be named later, and you know there is no way this market can handle this level of supply. No way. Certainly, without new money, and I don't think there will be any. Money's still going to treasuries, for heaven's sake. Therefore, we will have to have an adjustment down from where the tech stocks stand, because most of those companies are tech stocks. When the onslaught begins, no matter how strong earning is going to be. You have to recognize, of course, that tech stocks are the drivers here, or not. They're the swing factor.

If you were to ask me what the single biggest worry I have going into the next two months would be, it would be the supply. This monumental tsunami of new stock, that will have to be paid for by selling, usually that fangs, as well as, for that matter, some of the socks, again, that we really like. The Cloud kings. And here, you're obviously, it's Salesforce and company, when you think about that. Salesforce was up nicely. This is very interesting, Salesforce was up big for the opening. Now, it's down to a dollar fifty. These are telling, and I this it's in large part because of this. But, also because Twilio is going down. I think Twilio is going down incorrectly, but we have to take note of everything, don't we?

I think the supply will, initially, be greeted surprisingly well, but they're tricking you. The welcome will wear out relatively quickly. The reason why they go well initially is that the first deals will be priced tight. That's to bring people and accounts in, to juice the pipe, I used to call it. But, things will get progressively more sloppy, until the market is overwhelmed and ratcheted down. I am moving this worry from the back of my mind to the front, as we speak.

Theme number three: The bank stocks are going to have an unprecedented level of merger activity, but no one's really going to care. That's a mistake. The cost take outs in an economy that is in momentum will bring about some bountiful investments ... Here's something you'll want to write down. I think companies like U.S. Bank Corp, First Horizon, Comerica, and most importantly, Key. You remember Keycorp, because we had a fantastic investment in Key. Let's see where that is, right now. We can stay up with things. Key is at $17.12 yield's about 4%. Let me tell you something, that's on a red-hot griddle now that SunTrust and BBT are getting married. That's been helping both their stocks,. We're going to have to adjust accordingly. These stocks are just too cheap, given their yields in a declining rate environment. The cost take outs that are now possible in a digitized banking economy.

These moves, more than anything else could actually impact Goldman Sachs, which will be able to profit from the M&A. By the way, there was just a story floated today, that happened after I wrote this script last night, about Goldman's was looking at William Blair last year. This is what I think I going to happen, they need to get their earning up. By the way, M&A, is there anything better for Goldman's earnings profile than M&A? Maybe yes. All the different IPOs, because they've been a winner in the IPO market. I gotta tell ya, as long as it stays below tangible book value, right around here ... remember, we bought more just a few days ago. It remains one of our favorite stocks. Yes, Key could be added to the bullpen. I say could be, because we've done some work, but I've got to go back and look at exactly how Key ... The quarter seemed fine to me, but the street didn't like it. That matters. We gotta do more work. That's part of the process.

Theme number four: Be ready to rotate back into the soft goods stocks in any real pull-back. The untold story of the PepsiCos ... It reports Friday, I think is could be good. Don't know, but I think Coca Colas gonna determine that. That will be tomorrow, and it makes me say that that's going to be good, because I think Coke's going to be good. I also like the Procters and the Cloroxes, and even the low-end Kimberlys, they had a bad quarter. But, it's the price increases. See, the price increases were brought about by rising raw-costs and transportation logistics, and bottle-necks ... The prices that they put through, they're sticking.

I had Benno Dorer on recently, from Clorox, and they're sticking. At the same time, here's the story that's not being told, the inputs are plummeting. At the same time. That's bountiful. Whether it be the collapse of oil and the pricing of everything from the bottles tot eh cans, the ingredients in them. To the adoption precision railroading, and the peak in trucking, to the amazing influx of new truck drivers that Uber Freight will usher in ... spend some time with them, this winter ... will usher in by quarter four. We're going to see unprecedented margin expansion in this cohort. No one is looking for this, people.

We'll be ready, when this all occurs, and we may have missed Estee Lauder, maybe it can come back, Fabrizio Freda is just a magnificent manager. But, it could come around in time. I like the teams at Colgate, PepsiCo and Kimberly, they're all new teams. Fresh perspective. It would be a gift to Procter & Gamble, whatever comeback they have. This stock's up 25 straight points.

Finally, theme number five: Apple will continue its alleged Achilles heel status to the market, with Amazon a close second. The two 800 pound gorillas. Is Apple down yet? Yep. The two 800 billion dollar gorillas ... Amazon down? No, still hanging there ... Are weighing on the tape. We own both, you know that. We don't trade the former, we don't trade Apple, we own it. And, we are reluctant to trade the latter. But, I fear they will be the principle sources of plunge for the supply avalanche. Why these two? Apple, because we can't get a handle on the channel, and we don't know what the Chinese government's going to do to favor Huawei over Apple. No matter what happens. Strictly as a way to strike back from the indignation, the indictments, and the cordoning off of this gigantic company by the combined forces of multiple branches of the U.S. government.

I keep insisting that the way around this, for Apple, is to bulk up that service stream. Especially with healthcare, via the watch. But, it isn't happening fast enough to make it to the people thinking the company is anything other than a cell phone company. Amazon, I think the distracting divorcing Bezos saga, replete with a monster amount of supply overhang from his soon-to-be-ex-wife, will cloud that story. It will instill a constant worry that will produce selling on every advance. I think, in the end, both with Apple and Amazon, the fundamentals will out. But, you just heard what I said. I am very concerned that Apple can't seem to hold its stock alone. It's only up a few percent since the year began, and what really worries me about Apple ... just again, so we know, is that this is a stock.

When we did a fantastic series of pieces about Huawei on the street, in real money. Huawei is a persecuted company, Apple's at bay. The Chinese don't want their chief Telco company to be persecuted by our country. How else would you better get away than to sanction Apple? So, there you have it. Five themes to watch. Untold, as the second half of the first quarter begins.

With that, I wanna show you haw ten rules we live by let us handle and adapt to the volatility, and the fourth quarter bear, when we get too exuberant over any bit of good news. Obviously, because we have a lot of cash, we have 9%, we're ready for a potential sell-off. It typically does begin during these calls. Sorry to be so graphic about it, but when you get over exuberant about any bit of news, a spike in oil, a break int eh trade talks, or the soon-to-be staple rumors that the feds going to raise on a series of good job reports, because the trade talks have gone well. You can't win. You can't win. The trade talks go well, the fed moves; the trade talks go badly, the market goes down. We gotta be ready.

They say you have no friends in a bear market, they say that nothing works. Not one. You're destined to lose money. That there are no rules that can get you through. These truisms, like most truisms, are somewhat true. It is almost impossible to cash in on a bear market, unless you are a short seller. As a former hedge fund manager, I understood it was my job to make money, whether it was a bull or bear market. Fortunately, I was able to profit in five of the six bear markets. I experienced as a professional money runner, by shorting and buying put in the midst of them. I can't do that now.

We run a charitable trust, not a vast hedge fund pool, and we have created a club, where we share our ideas with you. Teach you what we think is the right thing to do. We want you to learn. Teach a man to fish, right? When I started the trust 14 years ago, I did so because I wanted to show you how to best handle your own money, and become a better client or a better investor. I knew a lot of people in the world would like me to run that old hedge fund. People would like to give me money, that happens all the time. You might have wanted to be in it. But, when I gave up the hedge fund business, I vowed never to return, because I could have no life whatsoever outside the office and regretted how I lived back then.

If you don't know why I gave it up, all you have to do is read "Confessions of a Street Addict", the book I wrote when I moved over to thestreet.com full-time in 2001. Being a hedge fund manager almost destroyed me. It let a lot of personal flotsam and jetsam in its wake ... No need to talk about that here. Suffice it to say that I vowed to teach a class on investment at any university that would have me. Well, I labored on Kudlow and Cramer for three years, with my old pal Larry Kudlow, who's now the president's Chief Economic Advisor. That was a fun show to do. It was a mixture of politics, which I don't care for, and policy, of which I got to play the same role I do today. Case by case-centric.

Politics is different from the way it was then. It's now toxic. Another thing you don't need me to talk about. But, I am the same person who ran the hedge fund, at least when it comes to stocks and picking stocks. So, I endeavor to find rules and thoughts based on my experiences since my first investment in 1979, when I opened my first trading account at Fidelity. It's been a long time since the end of 2000, when I retired from the fund, and I learned a lot. I didn't want those lessons to go to waste, so I decided I would give actionable long-sight ideas as part of my realmoney.com blog, and call them actionalerts.com.

When thestreet.com was in one of its periodic downturns, I decided to offer in-depth commentary about those alerts, which were flagged along with a red arrow. Suddenly, we had color on the web. Red arrow on the site. It was called actionalertsplus.com, hence the clunky name that we're now stuck with. We've evolved mightily sense then, I didn't have a television show about stocks called Man Money, let alone Squawk on the Street. When I conceived to getting actionalertsplus.com, the reasoning of the move, for the move of a stock, or to buy sticks for the trust. I didn't have a staff to help me then, a staff that has included some really amazing people, including Jeff Marks, who you'll hear from the later in this call, Zev Fima who works with Jeff. Now Ari Fima, Zev's brother, who is here to help the ever-growing club. Make it more interactive with you.

The rules that I have to play by are so strict these days that the trust itself, while not an afterthought, is not able to do anywhere near effects of what I tell you to do. The rules are too prohibitive, restructure is totally disabling. But, I'm a rules player, I always will be. So, we evolved into a club where we try to help each other with ideas, and tell you far more often what we would do than what we actually can do. That's what makes the trust performance so hard to calculate. I regret that, because I can't do most of the things I want you to do. I often invest with both hands tied behind my back. You can learn, even if the trust can't profit from it.

I know that you would think that a charitable trust would be able to do anything I want, but that's not the way the rules work, and I'm not gonna flout them. Witness the fact that we almost never roll out a new name, or even a bullpen name, and are then able to put the money to work in them, because the rules rarely let us do so. As I have most likely been queried about the names in one of my shows. We specifically save names for the bullpen and take action usually just around his club call, after making a heroic attempt to freeze the stock in mt television venues. So, it's not talked about for the days leading up, or after that matter.

From time to time, the team pleads with me to not mention some of our stocks in passing, on my shows. So that we can maintain some degree of flexibility. But, it usually fails in my morning show, because I never know what's going to be asked about me, and I can't stop the show to say "Listen, you can't ask me about that." That's not how I works. We've checked our trading at the door, but we have never let you pass up on something that we can't do. We haven't checked our brains at the door, we are just more limited than you are. Nor, does it mean that we have checked our rules at the door, especially the 25 rules that I wrote when I retired as a hedge fund manager. Rules that were meant for home gamers, rules that I felt would come in useful, no matter what the market does.

I out down a host of helpful hints in many a list in a half dozen books, but the core strictures first outlined in the book 'Real Money' are the ones that I fall back on time and again. It's no coincidence 'Real Money' was a distillation of the handbook I gave people joining the fund. Problem is, while we use them constantly for the club, do you know that I've never shown you how they come up so handy so often. How they stand the test of time. How they can help you preserve and grow capital in good times or bad. I've never shown you how we live with them day-by-day. But, they do suffuse all our thinking. Many of them actually refer to what to do in corrections for bear markets, hence what I said at the top of the section. That you can profit from them, or at least preserve as much capital as possible if you can't short and you can't buy puts.

Again, I repeat the trust is not a hedge fund, and I am in no position to say 'I would buy puts on this one." or, "Short this stock now." Or, for running a fund or blogging or being on TV, say "I am short this stock" or, "I see a lot of put action, and I hate that stock, so I'm betting against it." If I were to do that, I would have to quit the club and go back to what almost destroyed me. Or, at least the 210 pound, angry as all get out, self-proclaimed meanest man in a particularly unattractive and unforgiving valley. Yes, indeed, the club gets the worst in all, doesn't it?

You never know when the bear is going to strike next. You do know, empirically, that he has to strike, because that's the nature of the beast. You go back in 2018, I would say, this bear market that struck in October when Jerome Powell made his reckless comments about the need to tighten four times to contain the economy, maybe not to overshoot to do so, and then, when Vice President Pence declared a cold war against China, just like in 1947 against the Russians. He did that on October fourth. Two events that presciently flagged here, to you, as near disasters for stocks. That forced us to raise cash. This bear was not foreseen by anyone. To put it another way, we knew it was bad, but we didn't know how bad.

We even knew we had entered into a bear market. This particular bear, like any bear market has incredible unpredictability to it. Just like at the end of the day, after Christmas, when Powell clearly signaled that he recognized he lacked prudence. More accurately, recognized he has derailed the economy almost single handedly. There had been so many warning signs of slowing away from employment and of course, we know that he didn't do the homework.

In that sense, the sell-off was a bit like the 1998 sell-off, that I chronicled, again, in 'Confessions'. I'm not trying to sell any more books, I'm just trying to show you what happens when the fed gets it wrong, and then gets it right. What can happen when it does. Back then, fed Chairman Greenspan misread the harm that a foolish hedge fund, giant one though, long -term capital was causing the financial system. One October third, he spoke openly about the need to tighten, to raise rates because the economy was so good. A few days later, he learned about how horrendous the long-term capital situation was, on October eighth he held an emergency meeting to cut rates. To save the system from being brought down.

When he switched directions, the bear morphed into a bull. Literally in moments. That afternoon, a scene that caught me by surprise. But, not Karen Cramer, who urged me to switch directions within an hour after Greenspan switched directions. In the end Greenspan was like a hedge fund manager, he had no shame about changing his mind. He had done the homework. He had blown it. He went for redemption. Fortunately, Powell revealed a similar proclivity after a mutually destructive moment.

While I established my rules all through my trading, from my dorm, my time, first laboring and then teaching at Goldman Sachs, then again at my hedge fund. Where, fortunately, I was able to grow our capital 24% after all fees, versus 8% for the S&P. It was that trying 1998 period that really infused much of my thinking about the rules that applied to sell-offs, corrections, bear markets, et al. Okay, that's all well and good, but I have never truly put the rules in some sort of digestible context. That's what I'm doing right now.

What I want to do is demonstrate how these rules turned what could have been a disastrous investment for us into one of our better gains ... Or, at least, I should always say, some gain, and we haven't taken things off so I know that you can only say gain, not taken. One of our better wins, how about that? Demonstrating the impact on our Palo Alto PANW position. The company has some of the best cyber security technology in the business. I have long admires Mark McLaughlin, who ran Palo Alto until June of last year. Someone who had been on the show so many times. Regular guest after each quarter. That's when he passed the baton off to another exec I like very much, Nikesh Arora, the man who built Google Europe ... How much is Google down? It's up six, it was up twelve earlier.

He ran Google Europe, and made it the powerhouse that is what it is now. Before moving on to another position, executive role at SoftBank. I've long been intrigued by the cyber security space, because the villains are voluminous, and there are very few companies who are adept at stopping them. Foremost of which is Palo Alto. It's one of the oldest secular growth themes of the era, and I like many of the stocks in the cohort. I interviewed Nikesh the year before he took the Palo Alto job, and thought that he was one of the most knowledgeable and able executives I'd ever met. He knew about all sorts of technologies, however, lots of skeptics believed that Nikesh wouldn't know enough about cyber security to follow up on Mark's legacy. Others believed him to be a big-deal guy who would try to turn Palo Alto into something well beyond stopping cyber terrorists.

I had more faith, especially when Nikesh plunked down 20 million bucks of his own money to buy stock in the open market, upon getting the job. We didn't learn about this amazing buy until the beginning of June, when the stock had run from 208, until it had soared to the teens. Then, we added to the bullpen in August, when it traded back to 210, which is a buck below the average transaction price Nikesh paid for stock. We wanted to be patient, hoping it would go below where he bought it, and help up buying, only watch the stocks soar to 239, September of last year. One of our most important rules, rule number six, is do your homework.

We kept up on the research about Palo Alto as it soared, as well as learning that Nikesh was going from investment house to investment house, meeting research departments who had been skeptical about his intentions. He wanted to explain to them that he was going to build on Mark's legacy. He didn't rule out acquisitions, and I think he's got one ... I think he's always got in the back of his mind, but the acquisitions would be in cyber security, he would learn the segment. One by one, he's convinced analysts that he would not reinvent the company into something else and had no grand budget busting ambitions. It was not going to be a Nikesh vehicle of self-aggrandizement. Not if you put down 20 million bucks.

We made a mental note to stay close to the company, but also, that we didn't want to jump the gun. We intended to wait until the stop dropped back to where we could buy it near the 209 level, where Nikesh made his gigantic buy. Remember, insiders sell for a host of different reasons, state planning, moving on, divorce, whatever. They buy for only one reason; to make money. Why didn't we go ahead and buy the stock anyway, if we thought it was so god? Because of rule number ten, expect, don't fear corrections. I've always believed that you will have no ideas when a correction will strike, but you have to expect that they will. After all, do you know well in advance when it will rain? No. But, you presume it will rain some time, don't you?

Corrections, like rain, can be good if you're ready. They allow your portfolio to grow, if you're patient. The point of a bullpen list is that we expect a correction at any time. So, why not just wait for one to buy the stock? Why not be patient, okay? And see if we can get the stock cheaper than where this new CEO paid for it. We know the stock peaked on September 13, at 239, about a month later, because of the bear Pal-Pence market. We got our wish as it took out where Nikesh bough with both hands. We took our first swing at 212, 17 points from the high. Right about that fabled insider buy.

Now, another rule, number three came into play. Don't buy all at once. Even though we were buying the stock below where Nikesh purchased his stock, we always leave room. I have to tell you that in the old days, companies used to split their stocks regularly when they got above 100. But, the big institutions have convinced CEOs that because they pay commissions per share, the splits make the commissions too expensive. Ten times a commission, if you do a ten for one, twice if you do a two for one. You know what, when you don't split the stock you get these big dollar amounts, it creates a ton of low liquidity. The CEOs don't seem to understand that. I've tried to explain it to them. The ton of low liquidity, let's just say it adds a lot of needless volatility. As befits a $200 stock.

We bought small knowing that the trading of stock can be erratic and we didn't need a statement buy. One that says "This is it, we're buying right here, because it isn't going any lower because that's where Nikesh spent 20 million of his own money to buy shares of the company he now runs." That's just stupid, that's what jerks do. I know it is tedious not to buy at one level. I also know, by the way that brokers tend not to like it, because they just want to get the order done. Listen, I was a broker, it was exhausting. But, it's right. I used to drive brokers cray with my insistence that we aren't going to take the big swing. But, who's the client? Me. Never forget that.

Thank heavens we stayed patient, because the stock broke down rapidly, went well through our initial purchase level. Always horrifying. We were thrilled though. We were thrilled we had waited 17 points, and we didn't expect the stock to sink like a stone right through Nikesh's monumental buy. We bought more in a staged fashion, as you know we like to do. It's not by rote, but we try to buy with a wider scale, that's what we call it when the market looks awful. A judgment that I made considering both my experience, and my own two eyes. I can see what an awful market looks like.

How do we arrive at the stages? Well, the brings me to rule number ten. Never subsidize losers with winners. We bought only when we could sell losers to fund the purchases. We didn't want to put new money unless the market was falling hard, until we felt better that the market was stable. So, we provided that the scale was wide enough to make it so we would not get bushwhacked if the market kept going lower. How did we know it was a loser versus winner? How did we know which one in the portfolio was a loser versus winner? Great question.

The answer is found in rule number eight; own the best-of-breed. I know this now sounds like a thicket of rules, so let me give you another analogy. The old circle the wagons analogy. When you are trying to figure out how you can raise capital so you have a cushion to buy more stock, you need to figure out which stocks are better than others. That's how we rate stocks, remember? What stocks are better than others? Let's compare the realities at that moment when the market was truly breaking down into bear mode.

We liked Palo Alto because we had done the homework, and the homework had led us to believe that it was the best to breed in the space without a doubt. Yes, I know some people felt firewalls, which is what they do, were out of date, that's not true. It's just not true. When we looked at our other stocks though, we kept coming back to Textron, it's a company we liked for recovering business jet cycle, we got that. Up until it reported a not so hot quarter and a non-aerospace related segment and nosedive. We did not want to fund the buy of an actual loser Textron with a potential winner Palo Alto. I don't wanna be too simplistic, but we had so many stocks that we liked at that moment, the we knew we were going to have to sell something we liked less than some other positions, even if the stocks were down.

In this case, the battle of ideas did come down between Textron and Palo Alto, because both were falling fast. We owned Textron for both their earning surprise, and a possible take-out, we owned Palo Alto because it's the best-of-breed. That always trumps possible take out earnings spots. That meant dumping Textron, because management had executed poorly. The idea that it would be taken out in a negative environment seemed fanciful. Did we feel good about it? No. Nobody likes a loss. Take a loss, these are awful. But, Textron, unfortunately was not a bet-of-breed situation. It was a situation where we got an outside surprise early in the year, and wasn't nimble enough to take the gain. Then, got a downsize surprise, and got gaffed.

We had violated another rule; turning a gain into a loss. We didn't expect the gain to evaporate as quickly as it did, for heaven's sake. I mean, it was extraordinary. When we published our alert that detailed our plan to circle the wagons around our strongest names in November, as repositioning effort I am proud of, as it protected against further declines in December. It allowed us to mightily participate in 2019's market recovery. We just viewed Textron after that as a source of funds to be applied to the stock of a best-of-breed situation that was Palo Alto.

We wanted to lower our bases in PANW, and needed the Textron cash to do so. That's just what we did. Sure, we could have just kept going in both, buying some Textron and Palo Alto on the way down, but that would have violated another rule. Rule number nine; he who defends everything defends nothing. As tempting as it was to buy a little Textron and a little Palo Alto on the way down with our precious cash, you can't defend everything. You will most certainly run out of money. You gotta choose what you will defend. And we chose Palo Alto over Textron.

Remember, these rules were developed by me, because you almost always have the same set of dilemmas at every sell-off. If you defend everything you run out of cash. The rules keep you from trying not to take a loss when taking a loss is the right thing to do. What you don't want to do is just say "Listen, I'm not taking a loss." What do my rules say? The rule says you've got to take a loss on Textron in order to have enough money to buy Palo Alto as it comes down. But the pain wasn't over. Palo Alto's stock kept cascading. It was shedding points faster than my hair started falling out at the age of 28. Huge clumps of points.

A while new set of rules comes into play when you the kind of really horrific situation that developed in November, and then, in December, around Christmastime. First you have to decide whether you have a damaged stock on your hands, or a damaged company. When a stock falls really fast, believe me, you start thinking it's a damaged company. Rule number four on the list is you gotta figure this out. Given the precipitous nature of the sell-off in Palo Alto stock, believe me, it was hard to tell. Nevertheless, we stuck through the stock through its declines, and even bought more on November nineteenth; the day Palo Alto closed at its lowest level since February 2018. One-sixty-three, what an odyssey. I mean to trade a little bit lower, what was the exact bottom of Palo Alto? One-fifty-three. Wow. That is tough stock.

Okay. Anyway. That was of course, early in the spring. The stock has been up and down, up and down. One of the few breaks we got during this period of intense pain, though came when the company actually reported, on the 29th of November. It was a legitimate blow-out. Truly exceptional quarter. It proved beyond a shadow of a doubt that there was tremendous demand for the Palo Alto firewall defense from cyber intruders. That allowed us to be able to conclude that Palo Alto itself wasn't damaged, just the stock. Allowed us to buy more with greater conviction.

In contrast with Textron, which gave a very weak report and suffered self-inflicted damage in its industrial division that couldn't seem to fix it. Because of our confidence that came from the great quarterly report, we bought more with the assumption that if it's down 60 points from its high, there could be a respite in selling. You could argue that we had no way of knowing if the stock would keep sinking, and what would then be the alternative? I would disagree though. The quarter was very good. With had the money from the sale of Textron, excess money. We could afford not to buy yet another ... Rule number 20, giving up on value is always a sin. Giving up on value is always a sin. Remember, the list is on our homepage at TheStreet, if you're wondering; well geez, where did they get this list? I think this is important for you to know.

We didn't need to give up on value. We had chosen to defend only the good ones. The best-of-breed companies that weren't damaged. Stocks like Palo Alto. Even better, had it gone down more, we were ready to average it at better prices. Notice the thinking: We didn't mind if the stock went down, because we had done our homework, we had the best-of-breed, we didn't subsidize the loser with Palo Alto proceeds, and we didn't defend every stock. We defended what we knew wasn't damaged. Textron was damaged. The rules saved us, because the next thing you know, one of the most compressed bear markets ends.

  1. Pal recognized how reckless he was to strangle the economy. It still was producing plenty of jobs, he only looked at jobs. The end of the year liquidations were past us, and the stocks of good companies like Palo Alto, they took off. We were so glad that we banked on rule number 20. Giving up on value would have been such a sin. We are thrilled that we didn't subsidize he loser by keeping Textron, which has barely climbed out of its hole, with a winner like Palo Alto that's been pretty unstoppable on the way up. It's a classic reminder of the value of rule number seven; no one ever made a dime by panicking.

Can you imagine if we had panicked back at the 160s, something that happens when you haven't done your homework, and didn't own the best-of-breed? Or decide to try to own everything and run out of money and have to sell everything, which is the course. Talked about that in 'Confessions'. This is why I always say that panic never mad any one a dime. Given that we had bought Palo Alto stock all the way down, when the stick finally climbed back up to near where we made our first buy, we were able to trim some of the stock to keep it from being a gigantic position. How could we not, after that run? After all, as rule number one says: Bulls make money, bears make money, and pigs get slaughtered. Only a few months after the bottom was reached, we felt we were indeed pigs for all that we bought at such low levels.

Now we were back in the driver's seat. Now we had trimmed the stock a tad in a best-of-breed company, because it would otherwise be in conflict with the bulls, bears, and pigs philosophy. Thank heavens we never gave up on value, never panicked. We had sold the bad to fund the good. We had the capital to constantly buy more of the damaged stock of an undamaged company. I hope that elongated lesson ... probably sick of Palo Alto by now, but I had to use it. I had to use it, because it just worked. I hope that elongated lesson based on ten of our rules of action is not lost on you in the coming weeks. If, let's say the talks with the government break down, shutting it done. The trade talks fail. The fed starts making noises about raising rates because February's employment number was too strong to stay pat. Or, because we got a trade deal.

With that, I'd like to discuss a couple of stock ideas. That we've been itching to talk about with you. One that we will buy right now ... I told you, I don't know if you heard the call this morning ... I do the fabulous stuff with Katherine Ross on the floor. She's great to work with. The one I'm gonna buy right now, again, in small fashion as we are won't to do. The one you would probably express more concern about than anything that we own ... I'm just checking what we're about to just buy. Just a sec. I like these. It's a secret.

Oh, come on. This is Cramer unplugged for heaven's sake. Alright, so it's up a little.

Anyway, of course, we'll get to your questions in a moment, but first, let's bring in Jeff Marks, my colleague. To show you, once again, how we think about stocks, and how to put money to work.

Jeff, welcome back.

Jeff Marks: 00:37:38 Thank you.

Jim Cramer: 00:37:39 Well Jeff, why don't you cut to the chase and tell us about our new name?

Jeff Marks: 00:37:45 A bullpen name we added recently, we've been waiting, waiting, waiting for it to come down. It hasn't yet, so we'll stay patient. But, the name, sorry is Lam Research. As a leading supplier of wafer fabrication equipment, and services to the global semiconductor industry; Lam Research develops innovative solutions that help customers build smaller, faster, more powerful, more power efficient electronic devices.

They're basically, going to act as the building block to the data economy, right? Everything that needs D-RAM, NAND, memories, semiconductors; that's gonna be Lam who's going to be the supplier of the equipment who makes that. If you think about the industry right now, just from a long-term demand perspective, you have rising data center spending. You have autonomous vehicles, which essentially act as a server on wheels with the amount of content that they need. You have healthcare. You have robotics, which J&J is getting into earlier, and we're gonna talk about J&J in a little bit too. Smart homes, smart industry, everything like that. That's gonna be Lam on the demand side.

We think the timing, right now, is great too. Of course, it's all about timing.

Jim Cramer: 00:38:59 Okay, so stocks up two bucks.

Jeff Marks: 00:39:02 You know, it actually ... Earlier this morning, I think it was flat to down. Now, two bucks. That what happens.

Jim Cramer: 00:39:09 That's what happens. This is the real world. That's one of the reasons why we don't just stand there and buy it all at once, like I told you about Palo Alto.

Jeff Marks: 00:39:16 Exactly right. But, I think that, longer term, where Lam Research is in its cycle; I think two bucks is only the beginning. Obviously it's round two, but I still think it's only at the beginning. Right now, what we're seeing from an industry dynamic is that to save salvage profits, save free cash flow, you're having D-RAM and NAND providers, they're cutting back on their capex.

Jim Cramer: 00:39:16 Right .

Jeff Marks: 00:39:42 Right. So, they're cutting back on cap backs and it's creating an industry cycle where the supply side is growing slower than the demand side. It's getting tighter. That's happening right now, in the first half of this year. But, that's gonna create a very beautiful set-up in the second half of this year, where the industry gets tighter, prices are gonna inflect, and you're gonna see an inflection in Lam's earnings.

Jim Cramer: 00:40:08 Now, it's important, a lot of you have asked me "What do you think about NVIDIA, Micron?" NVIDIA I think is probably ... the stock fell so much. Micron keeps ... Two firms downgraded Micron in the last ten days. The stock didn't go down. That's a perfect tell of what Jeff is talking about. Micron, D-RAM. You got some flash, and the fact that the stock's not going down on the downgrades tells me that people are beginning to understand that the cycle is going to turn. Why don't you talk about how prescient this company has been about the cycle, and what it does to show you.

Jeff Marks: 00:40:46 Yep. Also, just to add on that point, what did NVIDIA say? They need to flush out their inventory channel for a couple quarters, so again, this is the perfect timing that we're seeing. We were talking about, we're big fans of history. Lam Research, very prescient. Back in 2016, we're gonna go back in stages right now.

Back in 2016, the firm saw a very similar trend to what they're seeing right now; in the first half of 2016, that was. Just according to their plan, pricing and supply and demand dynamics started to reflect positively in mid-2016. Look at Lam Research, look at what the stock did from about 2014 to the beginning of 2016 period. Then, look at that ramp that it went on in 2016.

Jim Cramer: 00:40:46 Extraordinary.

Jeff Marks: 00:41:31 Huge. We're talking very powerful earnings power that's coming its way. Ten, again, we're gonna go back even further in time to Novellus, which is where the CEO came from.

Jim Cramer: 00:41:41 Right.

Jeff Marks: 00:41:42 Tim Archer.

Jim Cramer: 00:41:43 They were bought. Lam bought them.

Jeff Marks: 00:41:45 Right, they merged. Again, a very similar call we were looking back. October 29, 2007, Novellus announces a one million dollar -

Jim Cramer: 00:41:45 One billion.

Jeff Marks: 00:41:56 One billion dollar addition to the buy-back. Their share count, at that total was 122, the stock was around 32 bucks. By the end of 2008, they reduced their share count from 122 million shares outstanding, to 98 million. Big decline. About 20% decline there. Meanwhile, the stock fell, but it was right before the inflection.

Jim Cramer: 00:42:19 It's brilliant.

Jeff Marks: 00:42:19 Right before the inflection.

Jim Cramer: 00:42:21 Rick Hill was running it, and Tim Archer is his protege, Tim Archer now, because Martin Anstice left. It was an unfortunate situation, he left Lam. So, the disciple of Rick Hill, immediately what did he do when they reported that quarter?

Jeff Marks: 00:42:38 He announced five billion dollar share buy-back program, when they reported earnings, back in January. I mean, they had plenty -

Jim Cramer: 00:42:46 Let's remember, it's a 27 billion dollar company.

Jeff Marks: 00:42:49 Exactly.

Jim Cramer: 00:42:50 It was 22 when he announced it.

Jeff Marks: 00:42:51 Right They can easily fund this. They have a pledge to return 50% free cash-flow back to shareholders. So, they have a dividend now too, and that yields about two-and-a-half percent.

Jim Cramer: 00:43:04 Yeah. That's gonna be a nice cushion if it starts coming back done.

Jeff Marks: 00:43:06 Exactly. And, it's compensation for this imminent inflection period. I think, if you look longer term, just the way you see the way data is being analyzed, and more and more things are gonna need memory semiconductors ... their earnings power is going to be incredible. Right now, Lam management, they're expecting between 23 to 25 non-gap earnings calendar year 2021. I think the analysts are conservative, right now, on that estimate. But, if you think about it, say 24 bucks, you give it, even a 14 multiple below market ... we're talking well over $200 [$330] stock.

Jim Cramer: 00:43:49 Right . I know people could say, wait a second guys, the stock was substantially lower, it was traded 122. But, it's $53 from its top, and like we said, we're not buying all at once. We're gonna leave plenty of room. We have plenty of cash.

Jeff Marks: 00:44:03 Right, exactly. You know, if something sparks up on trade, we'll be in there buying the bulk. AMAT reports tomorrow, so say that they do something where the number isn't good and Lam falls in sympathy -

Jim Cramer: 00:44:18 What a chance.

Jeff Marks: 00:44:19 That's a buying opportunity. That's absolutely a buying opportunity.

Jim Cramer: 00:44:22 Again, you've got time to buy it.

Jeff Marks: 00:44:26 Yeah

Jim Cramer: 00:44:26 As the club works. The club is about you making more money than us. It's alright. I give the proceeds to charity.

Jeff Marks: 00:44:32 All trades, we don't do them until 45 minutes after you do it. Just so you get -

Jim Cramer: 00:44:37 That's important for new club members. It's really important, again, to understand when I started it, it was never about the trust making more money that you. Then, it became not about the trust itself, it became about the club, given the fact that ... It was really hard, even to restrict, meaning don't buy ... Talk about Lam. I was with my friend Stephanie, who did what Jeff's doing. Stephanie was in the trenches with me for a very long time, here, and she said she liked Applied Materials, then there was unusual option activity in the shares. Talk about Applied Materials, so it was just kind of, like the elephant in the room. But, I wanted you to have a chance to buy Lam. Now, Lam's up a couple since then, but that's okay.

So, that covers Lam. And, we will buy in 45 minutes after you. The stock we wanna talk about next is, I think the one that confounded the most people that we own, and that's CVS. Why don't you take the lead on this and talk about what we're ultimately looking for both short and long-term.

Jeff Marks: 00:45:39 I think, right now, CVS is probably the most overlooked stock in this market.

Jim Cramer: 00:45:44 Certainly the cheapest in our portfolio.

Jeff Marks: 00:45:46 Certainly cheapest. I mean, since we've bought it, it's been one kind of headline after another. It was ... The timing of the CVS merger was ... Is the judge gonna haul its integration, then it was pill-pack noise. Walmart leaves, Walmart comes back a couple days later. You know -

Jim Cramer: 00:46:03 Rebates.

Jeff Marks: 00:46:05 Rebates. It's all this.

Jim Cramer: 00:46:06 Job, it's job. It's supposed to be j-o-b.

Jeff Marks: 00:46:10 But, there's certainty coming, and that certainty is going to come on February 20th, when the company reports earnings. All during this time, the question has been what are the headwinds going to be at, at the company in 2019? More importantly, what are earnings gonna look like? I think, short-term that event is goin to act almost like a clearing event for the stock.

What I think it's going to be like it's going to be like when Palo Alto reported. As you said earlier, it's not as bad as it was, and it's going to give you greater conviction to buy. Right now, the consensus estimate for 2019, is $7.35. I wanna share a couple scenarios that Morgan Stanley did ... Who does great work on the stock, just to give a level of what could happen when they report. What they're saying, remember consensus $7.35, is that, even if they guide in the range of $7.00-$7.30, which is a guide-down.

They see the stock, they give this 60% probability, by the way ... They could see the stock going to 68, 72, on the news because it was not as bad as feared. The headwinds aren't as bad as all this noise that we were talking about, the integration, the rebates. Which, is going to be about a 14 cent headwind for 2019. Again, better than feared, the stock goes higher.

Jim Cramer: 00:47:34 Right. There was a piece this morning about Lisa Gill, my favorite analyst of the group which talked about anything north of seven is gonna be a win. Obviously, we're gonna stay close to it. If they guide down to 6.80, we're gonna recalculate how aggressive we wanna be, but we think that this is ... I've never seen CVS at this discount, when it should be at a premium because Aetna is such a better business than a drugstore business.

Jeff Marks: 00:47:58 Exactly. Simple arithmetic, you look at AAetna, which is going to be about a third of this new company, if we're just going to compare against UNH; UNH has about an 18 multiple in 2019 earnings. Then, if you just keep in mind the brick and mortar business, compare that to Walgreen's obviously, two-thirds of the company. Walgreen's has an 11 times multiple in 2019 earnings. Simple math, you're looking at 13 multiple stock. Give it a little discount because it does have the debt, which they can pay off, but we're still talking about a $90 stock, just off of that.

Jim Cramer: 00:48:32 And, just because it is a club, a lot of times what we do is, we're trying to show you what happens behind the scenes. This is what happens. We'll kick an idea, say "Listen, Jeff, this CVS is ridiculous, Larry Merlot's a good manager -"

Jeff Marks: 00:48:45 Going up to 3%.

Jim Cramer: 00:48:46 Right, let's look at the dividend, and let's look at Aetna, I happen to like Aetna very much. We kick it around. We say that we want to buy it and talked about all those things that were thrown at it, but look at the stock. It's not going down all that bad news. That's a very, very positive sign. That is, what we say, is our favorite stock to buy at this moment. We're gonna leave some room, like always, but we have some others.

I mean, a lot of times people say, what are the stocks you would buy right now? I just joined the club, and you got all these stocks, and you've got the bullpen. Just give us a hand. Give me the top five. I always think that's very reasonable, because you know you can't own all these. So, we've identified five that we think you can buy right now, in the call, and even if the market goes down maybe wait. 'Cuz we're doing a call. It means the market's going down. I'm being a little facetious, but it does seem like that. Let's use CVS.

Jeff Marks: 00:49:40 CVS one, Alphabet another. I mean, the stock got hit. It was a good quarter, the cost per clicks, the supply grew so much. Supply meaning the advertisement supplies. I think it was about a 9% decline in cost per clicks. That's nothing. Marginal.

Jim Cramer: 00:49:55 David Faber and I were talking this morning about how it's probably ... We love a subscription economy, you know that. By the way, I like that Spotify too, I just point that out, it's not on our list. We love a subscription economy. I think the cheapest subscription video is Google, and YouTube.

Jeff Marks: 00:50:10 Yep, through YouTube.

Jim Cramer: 00:50:11 There's a lot to like. Could you imagine if the decided to bid on the NFL? I think that the outfit of these fang stocks ... As I mentioned, I'm worried about the fang stocks because of the onslaught of selling that we're going to get in order to fund for the IPOs. But, remember, that's damaged stock, not damaged companies. Alphabet is well down from it's high.

Jeff Marks: 00:50:35 They have their autonomous driving business -

Jim Cramer: 00:50:35 Waymo.

Jeff Marks: 00:50:38 Waymo.

Jim Cramer: 00:50:38 I used one of those Waymos, I said "Listen, get me to the best pizza parlor." All the meant was it got plugged in, best pizza parlor, but it worked.

Jeff Marks: 00:50:44 Yeah. It's simple as that. Then you have Verily too, which is in a moon shot, you know, they're a life sciences business. The reason why their compensation expense grew last quarter was because the valuation on Verily is exploding. It had two rounds of investments, a lot of money coming in. You know, when you look at Alphabet's valuation on the side, it's like it's not even in the stock. I like it for those reasons, advertising juggernaut, best artificial intelligence.

Jim Cramer: 00:51:13 Just in real interaction. Zev just sends me a Lam Research over Applied Materials. It's cheaper, and we don't know AMAT's numbers, at this point. I'm sorry to interrupt, just real time.

Jeff Marks: 00:51:25 It's nice to have the certainty of the quarter. Next sock, I like Johnson & Johnson. They were in the headlines the last two days. Yesterday, esketamine which you should know, as a club member is our favorite drug in the product in its pipeline for its potential. Life saving qualities. Fits an unmet need, right now, in the medical world. That is treatment resistant depression, very serious drug, but very serious revenue potential in the future. I've seen estimates where it could be a billion dollars in annual revenue at peak. It's good to see that moving along the pipe.

Jim Cramer: 00:52:06 I do want to talk about that for a second. It's not going to prove ... But, there was a panel, they had to the 14th to approve it. The first time you say it, it didn't work for older people. That's not the plan, this is a trial that ... The one that was successful was the trial that goes you have to be 62, or younger. The drug is ...

Alex Gorsky is very committed to stopping suicide. Remember, suicide number one cause of death for teenagers. This is a moment of inception spray, it's not as good as the drip. But, a moment of inception spray to keep you from taking action when you're ideating. This is an ideating drug, and the people that thinks it's only gonna be ... I think that the FDA wants to rush it through, and I think it's going to be a billion dollar drug much faster than people realize.

And, I think that's how conditioned today. Directly competitive intuitive surgical. I've, unfortunately, had to have it. New York at HHS, and it's remarkable.

Jeff Marks: 00:53:06 Snd if you look at the stock of ISRG, that thing has been a complete horror. It's nice to see then, getting on their turf.

Jim Cramer: 00:53:15 Isn't it?

Jeff Marks: 00:53:15 Than, you know, just looking at J&J as a whole, you still have a pharmaceuticals franchise that's growing above market, you have a consumer business growing above market. They're showing re-commitment to grow that medical device business, which as you know, from Abbott Labs, medical devices is a very strong growing sector within healthcare. Fantastic balance sheet. They're paying 3.4 billion for this deal. They just announced a five billion dollar buy-back, back in December.

Jim Cramer: 00:53:47 On Mad Money.

Jeff Marks: 00:53:47 On Mad Money, when you interviewed him.

Jim Cramer: 00:53:48 On Mad Money, that was because of the talc. I looked at this talc thing on a Sunday. It ruined a Sunday, as a matter of fact. I spent days on it, and I think that the exposure to talc is far less. But, the plaintiff's bar help the journalists one-two punch lawyer New York Times. Knocked the stock down from the 140s to the 120s, we were able to pick some up.

Jeff Marks: 00:54:09 As serious as the issue is, J&J completely re-routed their narrative away from talc defense. Again, great balance sheet, great name to own.

Jim Cramer: 00:54:20 I just think, I can't emphasize enough, they did a really terrific ... You know I like this Apple service stream. Afib, and the watch are very important, and I do think that it is one of those stocks as they used to say at Goldman Sachs; no one ever got hurt by J&J.

Jeff Marks: 00:54:35 If the dollar weakens, you're going to see tailwinds from that as well. A lot to like there.

The next one is actually a stock we bought earlier this week. That's going to be Goldman Sachs. Now, we've been saying below tangible book, below tangible book. Before the call, I know the stock valued above tangible book. I haven't seen where the price is, yet, but I still like this name. They're doing a lot of great things moving to a more fee-base for current revenue structure. Taking away that volatility from their trading platform. Improving ROEs, return on equity, which is gonna ultimately be that driver of a premium to its price to tangible book ratio. A lot to like there. Any time it comes into the TBV, that's gonna be a buy.

Jim Cramer: 00:55:23 Yeah.

Jeff Marks: 00:55:24 And right here, as well.

Jim Cramer: 00:55:27 I just seen this interview with Solomon, I spent a lot of time with Solomon. To get comfortable about the Malaysian situation. I'm quite confident that it will not hurt their balance sheet and if necessary, the partners will pay out a lot of money. There's dispute about whether they should have known, given the high fee that they got on the bond deal. I would have thought they should have, but at the same time, the government was corrupt, and the government gave them assurances that the money was going to be used for the proper thing. So, if they did, they checked all their ... The dotted the i's and crossed the t's, but it wasn't enough. I'm confident that when the stock dropped to 160-170, we will buy that.

Jeff Marks: 00:56:06 When Solomon was able to actually publicly comment on it on the conference call, back in the fourth quarter conference call. I think he handled it exceptionally well.

Jim Cramer: 00:56:16 He handles it great. My own background checks have indicated, I feel quite confident. Doesn't mean stock can't go lower. We saw that it did before. Doesn't mean that something can't go wrong. You know, Goldman's up at about 62, it's up five from where we bought it. Just be aware that we are in one of those situations where we feel quite confident about it.

Jeff Marks: 00:56:33 Then, the last one we like, and this is going to be with or without a resolution to trade, but especially if we get one. It's going to be Honeywell, which is going on a nice run since it reported last. I man, you're gonna have ties to aerospace, you're gonna have ties to warehouse automation. So, when you hear Amazon increasing their investment spending in their warehouses, to make it more efficient so that they can manage their own costs; that's going to be Honeywell. That's a huge client of theirs.

Jim Cramer: 00:57:04 Remember, you saw Boeing, the secular increase ... meaning it's not cyclical. The secular increase in aerospace is incredible.

Jeff Marks: 00:57:14 Huge backlog, so tons of visibility for long-term growth.

Jim Cramer: 00:57:17 And the climate control is good too. Darius Adamczyk is very adept. And I've met him a bunch of times, had dinner with him and Dave Cote, who was my next door neighbor, he's since left ... Sold his house way too cheap. I think he really ruined the value of my neighborhood, for heaven's sake. But, I don't think it hurt his balance sheet. He's a great guy.

Jeff Marks: 00:57:36 Speaking of Honeywell's balance sheet, Honeywell has one of the best balance sheets in the business.

Jim Cramer: 00:57:41 Yes they do.

Jeff Marks: 00:57:41 Tons of balance sheet optionality to engage in MNA, they've been very patient waiting to strike a deal. There's been a lot of expectations. The deal could come this year, if not, plenty that they can buy back stock for.

Jim Cramer: 00:57:55 Terrific. Alright, well thank you Jeff. I always try to ... I know I try to get it done in an hour, Jeff.

Jeff Marks: 00:57:55 Yeah

Jim Cramer: 00:58:00 It always ends up being about an hour and ten.

Jeff Marks: 00:58:02 We still have the Q&A, so we gotta answer those questions.

Jim Cramer: 00:58:04 I'm gonna rip through the Q&A. Why don't you stay here for the Q&A, just in case there's anything going ... okay.

Can the market still go higher without trade being resolved in a civilized way? This is from Elad. I think it can. Because civilized is a term of art. I think that, if you get it the Navarro way, which is to stop intellectual property theft, and to try to blunt to 20/25 plan then, I think that's a big win. But, there could be Apple retaliation, which is what I do worry about.

Jeff Marks: 00:58:30 Sure, but you also have to keep in mind that Powell pivot to more of a pausing stance, is gonna be viewed as accommodating for the market. That should help things out.

Jim Cramer: 00:58:40 Dan O. says, is there any hope for the banking sector? The mergers, yes. It's nice to see a little bit of a move today. But, look, this is a group that is disliked. I've spent a lot of time with the management team at Bank of America, they had the best quarter by the way. They had the best quarter, and it still couldn't move. So, it's mergers that we need, and it's digitization. But, in the end, I don't ever want to pick a group that I say "Now's the time it's gonna go" ... but, I did give you that key.

Jeff Marks: 00:59:03 You mentioned the IPOs earlier on here. That's going to be good for the [crosstalk 00:59:09] fees.

Jim Cramer: 00:59:09 It's going to be good.

Alan R. writes, you've discussed the difference between an up stock and a down stock. Are there any reasons to buy a down stock like Disney? Alan R., you're right. We're going to have a big analyst meeting where it's always entirely possible ... One of the reasons Disney's going down you gotta read Doug Kass excellent stuff in Real Money Pro ... It's going down because people feel that Bob Irish can do a very big guide down, because all the money that has to be spent for the over-the-top ... The Disney Plus, the ESPN Plus. I am confident that the stock is being softened. It is a down stock, but it's being softened, in a sense that there are a lot of people ... Like we said with CVS, a lot of people are going to expect the big decline. I do believe he's gonna give us one, it's just a question how big. I think that he's got enough in the pipe, and I value his judgment.

Jeff Marks: 00:59:52 And you know they have a terrific film slate this year. Real quick, I actually got this from a club member who e-mailed in, so I apologize for forgetting her name, but I thank you for the e-mail. Did you know that the timing of the Disney investor day, in April, coincides with a huge Star Wars celebration?

Jim Cramer: 01:00:12 I didn't know that.

Jeff Marks: 01:00:13 I think there's gonna be a lot of excitement going into that event.

Jim Cramer: 01:00:15 Hasbro too. Here's a really interesting one that I've been working on all morning while I've been doing the call. Also, all morning talking around. Number four, this is from Rick M. in Fairport, New York. With PayPal trading close to our $94 target, what's the current plan for the stock?

We came in this morning, and I said, I don't know, maybe we should sell it. We were talking about it, but the word is ... The reason PayPal's been going higher of late ... You make your calls, you do your checking. Really kind of interesting. Now for it to seize protection, banks for protection over talc lawsuits, oh man I gotta go work on that. There's a lot of coal buying in PayPal. JNJ is down on talc, I've gotta do work on that.

The coal buying is about the possibility that either Alphabet or Facebook buys them. Dan Schulman will certainly not want to sell to Facebook. I just think it's very ... J&J just reversed because that decision by some firm to seek protection from bankruptcy from talc. We'll do work on it.

Jeff Marks: 01:01:15 Of course, we'll be out with a note.

Jim Cramer: 01:01:17 Right, but I don't know. It makes me think let's give it a little more run.

Jeff Marks: 01:01:21 I mean PayPal was ... We viewed it as a winner when we talked about circling the wagons back in November. It climbing back to its all time high is a big reason why we stopped selling it.

Jim Cramer: 01:01:34 We had that fantastic teach-in. I hope you go to the teach-ins, we spend a lot of time on those ... with Dan Schulman. It was an hour and a half, the stock was in the 70s, and I asked him about ... remember I asked him about the Bank of America and Erica ... That guy doesn't matter, I like that. He was dead right.

Okay. I know, I'm conscious of the time, and it's your lunch time, and you're working. Here's number five, Brian in Boston says: I've been a holder in DowDuPont, what's the play in the upcoming break up? Hold all three?

We're gonna ... I'm actually gonna sit down with some of the management team in the next two weeks. First of all, I was talking with Stephanie Link about this, she goes "Jim, you're so down on yourself, you keep beating yourself up with Dow." Just when you're probably at the bottom. So, I do feel that the crop protection business is going to be good, a strong business. The plastic business is tough because oil ... It trades, even though it shouldn't. As oil goes up, it goes up; as oil goes down, it goes down. The material science business is pretty good.

Jeff Marks: 01:02:27 We'll watch the de-stocking process as the spin offs occur, and then, we'll make a judgment on what we want to own.

Jim Cramer: 01:02:31 Okay. Number six, Ryan K. Salesforce has a history of running up in earnings, dipping because it becomes priced to perfection, then pushing back higher. With the company set to report earnings on march fourth, what should our approach be ahead of the event?

Jeff Marks: 01:02:43 That's a great question.

Jim Cramer: 01:02:44 My wife and I, Lisa, had dinner. We were sitting next to Mark and Lynne, Mark and Evelyn Benioff. Of course, no one started from me, I don't do that, because life is too short. But, there's Keith Block, who's the co-CEO, who is really really terrific. Here's my problem. If I could be as nimble as I was at hedge fund, I would probably ... What I would do is I would go something like long call short comm or something. We don't have time.

Jeff Marks: 01:03:10 It's too hard. It's too hard.

Jim Cramer: 01:03:12 Too hard. We've been long Salesforce. It's terrific.

Jeff Marks: 01:03:14 If you try to go in it now, the stock's ... What is it at its all-time high? [crosstalk 01:03:17]

Jim Cramer: 01:03:17 What are you like, you're one in ten for that, trade it in per day? No, we gotta think longer term. You're all working, you've got stuff to do. I'm sure there some hedge fund managers on this darn thing, but, you know. Lat's just say, life's too short.

Number seven, this is from Ken S., in Atlanta. One of my best friends' kid just got into Emory, he's going to Atlanta.

Jeff Marks: 01:03:37 Yeah it's a good school.

Jim Cramer: 01:03:39 Do you think the time had come to buy NVIDIA? Well, you know, NVIDIA, obviously is ... We were talking about DowDuPont being a down stock. NVIDIA's now become an up stock. My problem is that ... Well, Apple's a down stock too. Damn things down. The problem with NVIDIA, is we are very close to the gaming situation. They've got this touring chip, and it's not been written for yet, meaning that the game room companies, they all wanna write for it, but they have other stuff in the pipe. We've got the crypto inventory that we can't get a line on. That data center that we can't get a line on. We got machine learning that's good, artificial intelligence that's good. We're kind of defaulting to buying Lam. We want something in the space, but NVIDIA, we don't have confidence in.

This could be one of those things where it turns out the inventory was done, like I mentioned the inventory for retailers at the top. I don't have the conviction.

Jeff Marks: 01:04:28 And it's been right to be patient, which we said we have, since we sold it back around its all-time highs. If you look at the way the gaming industry is moving, it's these battle royale games. They don't really need to current NVIDIA chip. Sometimes you have to follow the trend in gaming, and right now they don't need it. There will be a time when they need it because it's that type of ... It is fad-driven. Games on the NVIDIA platform will become of use again, but for now we can be patient, and prefer Lam. Because, that's going to have that earnings power -

Jim Cramer: 01:04:28 Dividend.

Jeff Marks: 01:05:06 Dividend buy-back.

Jim Cramer: 01:05:08 Cheaper.

Jeff Marks: 01:05:08 You're gonna have analysts fighting price target after price target as they take their earnings estimates off. That's what you want in an up stock.

Jim Cramer: 01:05:14 Again, real-time because the club is about you. Giant J&J did reverse, it's one of the five we mentioned, because of the Imerys, I-m-e-r-y-s. This company that I've gotta do more work on. It's on file that they filed protection for talc. It's entirely possible that there's bears in talc. Bears will attack and J&J will come out and start chattering and send it lower. You've got some time on that.

We've got a question from a Dan in Wadsworth, Ohio, close to home. Number eight. I initiated a small position Viacom last week, at what percentage lower would you recommend buying more? We look at this every day.

Jeff Marks: 01:05:47 Yep.

Jim Cramer: 01:05:48 It's an inexpensive stock.

Jeff Marks: 01:05:49 Very inexpensive. One of the cheapest ones in the group. Pays a dividend. They're paying down debt, as well. I really like the Pluto TV acquisition, I like how they're getting this DTC infrastructure to put all their content on though this deal. Very good notes on the conference call by CEO Bob Bakish on that.

Jim Cramer: 01:06:10 I like Bob.

Jeff Marks: 01:06:12 Of course, another way to win will be if they merge with CBS.

Jim Cramer: 01:06:16 It sure makes sense, there is no permanent CBS CEO, and I also think that that's how you get a really explosive move. We'll win either way.

Jeff Marks: 01:06:23 Yep.

Jim Cramer: 01:06:24 Here's one from Laura C., is a portfolio with a 34% weighting in technology simply too much tech? Tech is, let's say 20%-21%.

Jeff Marks: 01:06:24 Right (affirmative).

Jim Cramer: 01:06:34 I think it ... I'd like to see that be around 30, but one of the things I learned as a portfolio manager ... At various times Action Alerts had been waffling on this. If it's 30% and it's great, then it's great.

Jeff Marks: 01:06:46 I think it also depends on its composition, right?

Jim Cramer: 01:06:49 Yes.

Jeff Marks: 01:06:50 Maybe, don't be all in one group. Meaning social media stocks, Cloud, some other areas ... chips. You can have that diversification, and then, I think 30% can be fine. This is where the growth is coming. We're talking about people are fearing this earnings recession, what are the companies that are producing year over year earnings growth? A lot of its tech.

Jim Cramer: 01:07:13 Remember also, like I said at the top of the club call, this is where the pressure from the IPO's gonna come.

Jeff Marks: 01:07:21 Yes.

Jim Cramer: 01:07:21 I just want you to be aware, so when it happens you say: Geez, why didn't Jim and Jeff say, look, there's all this Palantir and this Airbnb ... Well it's gonna hurt those stocks. Also, by the way, this group's being hurt by Toledo, down eight. I told people buy some then wait, then buy some. I like Toledo, just be aware. I don't think that there's anything really substantially wrong with it, I think it's a good opportunity.

All right, number ten, this is from Ron M., in Sarasota, Florida. Why don't we see stock splits anymore? I'll take this one. What's happened is that the big institutions have gone to firms and said, Listen, we can't compete with these index funds, because their fees are so low. By the way, S&P, I had Doug Peterson on from S&P Global.. He's playoff guy though.

Jeff Marks: 01:08:08 Cut from the NFL.

Jim Cramer: 01:08:10 We're both uniquely Philadelphians. I do feel that what's happened is that they've saved 150 billion dollars on fees. That kind of makes it so that the big money managers are under pressure to contain fees. So, if you pay ten cents a share, let's use that as an example. If you don't split the stock, obviously you have a thousand dollar stock, you're certainly going to pay ten cents a share is a lot less than if there's a stock that, say a hundred dollars. The splits make it so there's more shares.

Like Centene I just went through this with Marc Neidorff, and what's interesting is that he did split the stock. It's got much more liquidity, it really helps the situation. But, that is not how people think anymore. They don't care, they just -

Jeff Marks: 01:08:56 TJX is a recent one, as well.

Jim Cramer: 01:08:56 Yes. Those are good managers, they're more oriented towards you, and it does matter. I want managers to be oriented towards you.

Here's one from Anne S., I have several stocks that became trade because I never got a full position as stock. How do I know when to exposition? We are doing this right now. We actually had a kind of back and forth on Five Below.

Jeff Marks: 01:09:14 Yeah.

Jim Cramer: 01:09:15 I like retail, as I told you, is quickly trying to move to of China, but again, I gave you that logistics hit. For the last thirty minutes I've been wrong, but I wanted to keep some.

Jeff Marks: 01:09:27 I mean, it's one of the best growth stories in retail period. The way they're expanding from a regional to national story. And each new store acts as a profit engine, because the payback period is less than a year. It is rather remarkable, it's in a sweet spot with the consumer. Appealing to products five dollars and below. It's a winner from Toys R Us going out of business.

Jim Cramer: 01:09:53 Yeah (affirmative) he was saying ...

Jeff Marks: 01:09:55 There's reasons to own it.

Jim Cramer: 01:09:57 Yes. There's reasons to own it. Toys R Us is ... The inventory went to Ollie's, for the most part. I had Joel Anderson on, who is the CEO, and I have to tell you something. Money's not personal. It's not about friends, it's about money. My mom sold women's lingerie in the Lit Brothers' building, and his headquarters is the Lit Brothers. A beautiful iron-cast building in Philadelphia on Eighth and Market. I just get a kick out of the fact that he even said, if we have to, we'll go to 550 and below. But he recognized it. They are really remarkable out there.

Jeff Marks: 01:10:33 So, just back to the question though. It really has to go back to how you value the stock. What is its growth? How is it doing versus peers? If you still think the stock deserves to go higher, then it's worth keeping.

Jim Cramer: 01:10:50 Absolutely. Last question. This is from John W., in St. Louis, Missouri. What are your current thoughts on the cannabis stocks? Constellation stopped today, STZ. They had that big stake in canopy growth, the more ... There's a Morgan Stanley note saying ... the word I'm searching for I forget, but it was a total misperception that it's a once in a lifetime opportunity, blah, blah, blah.

We don't own ant cannabis stocks. My problem is this: When I look at what's going on ... Lam Research is presenting at the Goldman Sachs call we're talking about, so that's why.

Jeff Marks: 01:11:22 Good things, I'm sure.

Jim Cramer: 01:11:24 When you look at what's going on with Constellation, I'm very close to this. Why? Morgan Stanley says too cheap. We're actually at Bar San Miguel in Brooklyn, which I always hope you come by on. I see a lot of action orders people there. We sell a lot of Corona, Modello. Corona and Modello are actually the only beer that's responsible for the total advance of the beer category. It's all but Constellation. So, you've got that, but beer is growing a six now, it used to be growing much faster. Canopy's not able to ramp the way people will buy it.

Jeff Marks: 01:11:55 We had Constellation, too back in 2018, made some money on that position.

Jim Cramer: 01:11:58 Really good move. My take is this: Canopy's the best, the group just had a very big run. Cronos just had a gigantic run. Let's hold off on those now. Remember, we're not traders. I'm just giving that. My friend Deb Borchardt used to work with me here, she's got a green market report; very, very good studious work. But, I do like the stocks. I do believe this is a 250 billion dollar opportunity. I had Shopify on last night, they're selling cannabis, they're based in Canada. That is a better way to play it too.

All right, thank you Jeff.

Jeff Marks: 01:11:58 Thank you.

Jim Cramer: 01:12:29 Before I sign off, I wanna reiterate how today's call was at the heart of what actionalertsplus is about. Our mission is to provide education with real portfolio management decisions, like what you just saw. I don't bring Jeff on idly, it's just what we do. Clash of ideas. So, that you, the home gamer can make informed investment decisions on your own with our help. At its core our service teaches our subscribers what is means to run money. Bringing you behind the scenes, giving context into no only the what in our day-to-day trading, but, more importantly, also the why. Every decision we make is articulated with analysis that supports our decisions, helping subscribers make sense of the immense amount of moving parts in the day-to-day environment. To help inform all of our investment decisions.

Well, I made it in one hour and thirteen minutes. What do I do? I'm trying hard. Thank you so much, second call of the year. Look forward to seeing you again. Pay attention to our bulletins. We're going to advance a bunch. There'll be a J&J bulletin you'll get off of this talc problem, that's not, I think conducive. We got Lam is up three. Oh well. We wanna own it. Thank you so much.