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Macy’s And Micron Ignite A Rally – Cramer’s Mad Money (5/16/18)

Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Wednesday, May 16.

Can just two stocks ignite a rally? They can. Case in point – Macy’s (NYSE:M) and Micron Technology (NASDAQ:MU) on Wednesday. The market had been engulfed with macro news and tensions of rising oil prices, rising interest rates, US-China relations, North Korea. “In this situation, we can actually care about individual companies and what they have to tell us, provided that these companies are important enough to their sectors that they can give us tremendous pin action,” said Cramer.

Micron Technology was considered to be a commodity company in an industry with high competition. Micron was upgraded by RBC with an $80 price target. This led to pin action in the semiconductor group that led other semis to rally. “The semiconductors are a powerful leadership group, and today they took their rightful place at the front, all because of these Micron recommendations,” said Cramer.

The retail group was led by Macy’s, which reported better than expected earnings and lifted profit guidance. Just six days before the earnings, Morgan Stanley had downgraded the stock. CEO Jeff Gennette is leading an incredible turnaround. “Gennette did so much good here, like creating a team of merchants and technology experts that have melded brands with e-commerce and private label to produce some incredible results,” added Cramer. This led to pin action in other retail stocks.

The important thing to note is that both these stocks were under pressure as the street had given up on them and they ended up surprising the market.

CEO interview – PayPal (NASDAQ:PYPL)

PayPal will hold its investor day next week. Cramer interviewed CFO John Rainey to find out what lies ahead.

Rainey said at the next investor meeting they will be talking about their separation from eBay (NASDAQ:EBAY) and their capital allocation plans. Splitting with eBay was always on the cards and they represent 13% of PayPal’s business and will be an integral part of the platform.

PayPal’s strong cash flows allow them to acquire for growth and return capital to shareholders. Commenting on future growth, Rainey said that there are 2B people around the world without a bank account and 70% of them have mobiles. They would like to have accounts, loans and mortgages and this is a tremendous opportunity for PayPal.

PayPal was also one of the first companies to let merchants accept cryptocurrencies. “Because of the volatility of the cryptocurrencies, the merchants were seeing swings in crypto that threatened the viability of their businesses. If you’re a merchant and you have, let’s say, a 10% margin on a product that you sell and you accept bitcoin, for example, and the very next day it moves 15%, you’re now underwater on that transaction. So what happens, or what was happening, is they were immediately moving that to a more stable currency,” added Rainey.

Defense stocks

If someone liked defense stocks like Lockheed Martin (LMT), Northrop Grumman (NYSE:NOC) and Raytheon (NYSE:RTN) before the earnings, they should like them even more now. All these stocks reported good earnings but have lost momentum.

Lockheed Martin posted good earnings and guidance but fell after cash flow comments on the conference call. Northrop Grumman too reported good earnings and guidance but did not rise as much as expected. Lastly, Raytheon reported a modest earnings beat.

Cramer said defense stocks are being traded on daily headlines and hence peace talks with North Korea led to a selloff in defense stocks. Defense stocks should instead trade on military spending and with rising tensions in the Middle East, the governments across the globe are buying defense equipment. The weakness in these stocks is a buying opportunity.

CEO interview – Tableau (NYSE:DATA)

The stock of Tableau went up on Q1 revenue beat and analysts upgraded the stock. Cramer interviewed Adam Selipsky to hear what lies ahead for the company. Tableau is up 34% in 2018.

Selipsky said that users spend 80% of the time preparing the data and 20% analyzing it. Their new platform Tableau Prep flips the equation and uses smart algorithms to perform tasks like combining columns automatically so data can be prepared easily for analysis.

The company has partnered with Charles Schwab and about 50% of the company employees are using Tableau on a daily basis not just for financial planning, but other back office functions too. They also offer cloud services like deployment options, including on-premise and fully managed solutions to help companies transition to the cloud.

Viewer calls taken by Cramer

Boston Scientific (NYSE:BSX): It’s a great company and Cramer is sticking by it despite the 60 Minutes report.

Lennar (NYSE:LEN): It is a terrific company and it is down due to rising interest rates. Cramer thinks it doesn’t deserve to go down.

Discovery Financial Services (NYSE:DFS): It’s cheap versus bigger banks. It’s a buy.

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Cantor's CoinDesk Consensus Conference Takeaways

Cantor Fitzgerald analyst Joseph Foresi attended this week’s Consensus 2018 blockchain conference in New York and released a note on Wednesday discussing the investment implications of blockchain.

Early Stages

Foresi said blockchain technology is still in its embryonic phase, with few limited functional applications. However, he said there are many promising ideas, particularly in financial services. A recent Deloitte survey found that 43 percent of companies are calling blockchain a top five strategic opportunity.

At the same time, Foresi said the cryptocurrency hype associated with the Consensus conference was bigger than ever this year, with attendance tripling to 8,500. Still, with more than 1,900 cryptocurrencies out there, Foresi says the future of crypto remains up in the air.

“It remains undetermined whether crypto is reliable, can hold value, and how credible the promises are for future issues,” he said.

Regulatory Pressure

Foresi said cryptocurrencies must compete with the U.S. dollar and face an uncertain regulatory future.

From an investing standpoint, Foresi said IT Services stocks such as IBM (NYSE: IBM), Accenture Plc (NYSE: ACN) and Cognizant Technology Solutions Corp (NASDAQ: CTSH) could benefit from a rise in blockchain projects.

Foresi said merchant acquirers and payment processors could potentially have their business disrupted by blockchain tech in the long-term. These stocks include Global Payments Inc (NYSE: GPN), First Data Corp (NYSE: FDC), Paypal Holdings Inc (NASDAQ: PYPL) and Square Inc (NYSE: SQ).

Foresi also said core bank processing and accounting could also be impacted by blockchain technology, but he doesn’t see any material threat to those businesses at this time.

Related Links:

Today In Cryptocurrency: Circle Raises $110 Million, Blockchain ETF Launches

Blockchain, Blockchain, Blockchain! Your Guide To This Week's Crypto Conferences

Can Alexa Take on Venmo?

Venmo, the person-to-person payment app owned by PayPal (NASDAQ:PYPL), has been the payment provider’s rising star since it was acquired along with Braintree in 2013. Venmo is extremely popular with millennials, who find the app particularly useful for splitting shared costs like a restaurant bill, rent, and utilities. The app has become so popular it has achieved verb status, with younger users saying, “just Venmo me.”

Last year, Venmo’s payment volume increased 97% year over year to $35 billion.That success has attracted a wide variety of potential competitors, the most notable beingSquare Cash, Apple Pay Cash, and Zelle, a payment method floated by a consortium of 30 major U.S. banks.

While each of these offerings made inroads, Venmo’s biggest challenge may be yet to come.

The Venmo app on a smartphone with Chinese takeout in the background.

Amazon is on the hunt, with Venmo in the cross hairs. Image source: PayPal.

The big leagues

E-commerce juggernaut Amazon.com(NASDAQ:AMZN) is reportedly mulling a person-to-person payment feature using its Alexa-powered smart devices as a starting point, according to a report in The Wall Street Journal (paywall). The company is considering a number of options that would allow customers to send money to friends using its digital assistant, which acts as the software to the Echo’s hardware.

If true, this would be the latest move by Amazon to enter the realm of personal finance. After initially adding a store-branded credit card, the company has expanded its initiatives to include its own digital wallet — Amazon Pay. The company has since introduced the Amazon Payment Global Partner Program, which allows online merchants to offer Pay with Amazon at checkout.The company has also been in talks with big banks to offer its customers a checking account-like product.

The voice-activated Echo has proven to be a boon to Amazon. Customers that own the smart speaker spend 66% more, on average, than those without the device.Amazon claims that subscribers to its unlimited streaming music service have doubled in the past six months, driven by two interrelated factors: the expanding number of members of it Prime loyalty program and the exploding popularity of voice-activated Echo smart speaker.The ability to send payments could make the device even more useful to its customers.

White Amazon Echo Dot on a table next to house keys.

Is Alexa a match for Venmo? Image source: Amazon.

PayPal has cracked the code

While the popularity of the platform among younger customers is undisputed, there were no charges to users for their peer-to-peer transactions — so until recently, PayPal hadn’t made any money from Venmo. That changed late last year when PayPal rolled out Pay with Venmo, which allowed its users to pay merchants using the Venmo app. Merchants accepting the payment method will pay the standard transaction fee to PayPal, which will provide the company with a largely untapped revenue stream.

The amalgamation of payment service and communal platform has captivated millennials, who have grown up in the era of social media. The ability to transfer money, include payment descriptions, and top it off with an emoji may seem frivolous to older consumers, but the intersection of financial utility and social interaction make it a perfect fit for younger users. This combination, and the entrenched nature of the app among friends, is part of the appeal for these consumers, and why it will be difficult to unseat Venmo as the app of choice — at least for now.

Two hands holding a smartphone typing a message into the Venmo app.

Millennials prefer the social aspect of Venmo to other payment apps. Image source: PayPal.

David and Goliath

While Amazon has been enormously successful in many of its endeavors, the company isn’t invincible. If you have any doubts, consider the company’s foray into smartphones, the Fire Phone, which is likely Amazon’s biggest flop to date. The devices were so unpopular that the company took a $170 million charge for the unsold phones just three months after they debuted.

Another great example is Shopify Inc.,an e-commerce company that helps small- and medium-sized businesses set up and manage an online store. After competing for a time using its Webstore platform, Amazon shuttered that business and threw its support behind its former competitor, sending its users to Shopify.

It’s also worth noting that Amazon debuted a similar payment service back in 2007 called WebPay, which allowed customers to send money to friends for free — sound familiar? That service failed to catch on, and the company discontinued it in 2014.

For now, this is merely supposition and rumors. Amazon could introduce a competing payment service, but even if it does, there are no guarantees it will succeed.While the situation certainly bears watching, I don’t think PayPal investors having anything to worry about — at least not for the foreseeable future.

Dont Worry: The Square Inc Stock Rally Is the Real Deal

In today’s market, Square Inc (NYSE:SQ) is an anomaly: a technology firm that’s performing very well. On a year-to-date basis, Square stock is up nearly 42%, a resounding triumph amid a sea of disappointment. In contrast, competitors in the payment apps industry, such as Paypal Holdings Inc (NASDAQ:PYPL) and Apple Inc. (NASDAQ:AAPL), are decidedly muted.

Naturally, investors wonder if such momentum can last. I’m cautiously optimistic that it will. Unlike Apple, which has multiple and disparate businesses, SQ stock is a substantially more focused investment. And while PayPal is the dominant player in the online payment app arena, Square has the edge in providing a comprehensive solution for small businesses.

Of course, I don’t want to discount the pain in the broader markets, which has negatively impacted Square stock. For instance, the entire tech sector softened from mid-March due to several pessimistic catalysts, most notably the Tesla Inc (NASDAQ:TSLA) and Uber driverless technology controversies. In Square’s case, shares are down nearly 15% since the March 20 close.

At the same time, investors pushed up SQ stock for a reason. In fact, every indicator existed to run away from the markets, even from solid names. That just didn’t happen for SQ, which tells me that the positives outweigh the negatives.

Importantly, it’s not speculative optimism after which Wall Street chases. Small business sentiment is one of the bright spots this year, with entrepreneurs expecting more revenues and growth opportunities. Also, they’re reporting less difficulty in obtaining financing.

Naturally, this rising trend is a big boost for Square stock. But I’m even more intrigued with the finer details.

Square Stock Deserves Its Winning Ways

As I mentioned previously, the biggest advantage to using Square is its comprehensive platform. For signing up, you get a free credit card reader, which makes in-person transactions a snap. Along with that, you receive inventory management programs, as well as other administrative applications. It’s easily the best choice if you run a traditional business.

While rival PayPal maintains the edge for online businesses, the reality is that older generations are more entrepreneurial. small business owner demographics, Square stockinvestorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-768×487.jpg 768w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-200×127.jpg 200w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-400×254.jpg 400w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-116×74.jpg 116w,https://investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-100×63.jpg 100w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-197×125.jpg 197w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-79×50.jpg 79w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-78×49.jpg 78w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock.jpg 956w” sizes=”(max-width: 300px) 100vw, 300px” />Sure, the hoodie-wearing hipster is the commonly portrayed image of the modern business owner. But the actual statistics state that 33% of small business owners are between 50 to 59 years old. Hoodie-wearers, or those between 18 and 29, represent a mere 4%.

It’s not much of a stretch to assume that older business owners prefer SQ. After all, these are folks that actually want to talk to their customers – not text them emojis. Square has the tools, comprehensiveness, and simplicity that most small entrepreneurs crave. We shouldn’t be surprised, then, how dominant Square stock is in the markets.

Also unsurprising is that in-person or traditional businesses are rapidly adopting mobile payment apps. According to an October 2017 survey, small business owners were more likely to integrate in-person mobile payments than they were to integrate online payment processing platforms.

This trend contradicts the common perception that companies are exclusively focusing on the online experience. Since most small business owners are older, Square has a much more viable market than analysts give them credit for. Again, chalk that up as a win for SQ stock.

Technicals Confirm the Fundamentals

Sometimes, we encounter situations where a fundamentally sound company experiences market distress. Perhaps investors haven’t quite digested the organization’s true potential, and share prices lag as a result. This is not at all the case with SQ stock.

Since the early summer of 2016, SQ has formed a consistently rising bullish trend channel. In addition, the 50 day moving average has supported the overall price action. I expect this trend to hold up, especially because the fundamentals are so strong.

With that said, my main caveat is the broader market weakness. It could continue to pressure even solid companies with great fundamentals, which is why I’m not completely gung-ho.

Ultimately, though, the longer-term picture is what you want to focus on. Consider initiating a small position in Square stock now, and start building up should prices decline. In a year or two from now, you’ll be glad you did.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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Where Is Paypal Holdings Inc Stock Headed? Just Look at the Blockchain!

As I’m sure my readers have figured out from my cryptocurrency articles, I’m not the stock market’s “fanboy”. However, some companies truly pique my interest. Paypal Holdings Inc (NASDAQ:PYPL) is one of them. With its powerful hold on the sharply rising digital payments industry, Paypal stock is a no-brainer investment.

For starters, the Wall Street-friendly digital wallet is performing extraordinarily well out the gate.

Yes, it’s way too early to start prognosticating 2018 performance based on a few trading days. However, it’s also a fact that Paypal stock is up over 7% year-to-date. That bullishness simply can’t be ignored and, more importantly, it’s only the beginning.

PYPL is really one of the few elite companies that is virtually guaranteed an upward growth curve. We talk often about the Internet of Things. IoT is a catch-all term to describe the integration of smart devices into our daily lives. Think what you want about it, but IoT is happening — and will continue to happen. You can either adapt or you can die.

In a similar vein, digitalization of financial transactions is both the present and the future. I’m not just referring to the blockchain and cryptocurrency phenomenon. Rather, we can look at the topic mundanely. When was the last time you conducted a transaction in cash?

From what I can gather, the only time kids use cash today is at old school pizza joints and for their “pharmaceutical representative” at a poorly lit intersection.

Still, I understand the hesitation to buy Paypal stock right now. I loved PYPL early on, back in December 2015. Since my initial write-up on the company, it’s soared over 119%. Surely, the valuation is stretched at this point?

People Are Embracing Digital Payments

I can’t imagine anyone preferring to buy a publicly traded company when it’s already enjoyed a tremendous rally. But, on the other side of the coin, I’m sure many people questioned Amazon.com, Inc. (NASDAQ:AMZN) at $700. Today, those “questionable” shares have nearly reached $1,250.

Moving forward, investors can trust Paypal stock. Based on the company’s most recent third-quarter earnings report, the bullish thesis hasn’t changed a lick. PYPL has yet to outright disappoint investors in its quarterly reports and Q3 was no different.

As InvestorPlace‘s Karl Utermohlen noted: “One of the strongest segments of the quarter for PayPal was Venmo, the popular payment method where you can transfer money to friends and family at the click of a button. The business processed $9 billion in payments in the quarter, twice as much as in the year-ago period.”

The takeaway here is that an investment in Paypal stock isn’t just about payment services for small businesses. Yes, that’s an important component, but digital payments are being incorporated everywhere. This is no clearer evidence than in the current dynamics surrounding cryptocurrencies.

At the time of this writing, all cryptocurrencies are worth over $750 billion. However, bitcoin’s market share has deflated from 100% at the beginning of the journey to 34.3% today. Many reasons exist why this is the case, but a significant factor is practicality. Long story short, bitcoin can’t scale up to its current demand.

Right now, bitcoin is traded as a store of wealth, which is perfectly fine. But does that explain the reasoning for the other 1,385 cryptocurrencies? No. For instance, the offshoot bitcoin currencies market themselves as the faster, more efficient version of blockchain, not the better store of wealth.

In other words, people are participating in the blockchain for its functionality, not just its profitability.

Don’t Overthink Paypal Stock

Investors shouldn’t overanalyze Paypal stock. Businesses spend years attempting to spark demand; rarely does demand come to them. But in PYPL’s case, the public is hungry for the payment revolution.

The beautiful aspect working in the company’s favor is consumer sophistication. As we see with the enormous crypto diversity, you can no longer have people by solely highlighting blockchain. People must have a compelling reason to use or invest in the product.

For Paypal, its competitive advantage is its years of experience in the digital payment sphere. Through its time under eBay Inc (NASDAQ:EBAY), and on its own, Paypal has amassed a perhaps insurmountable moat.

Finally, the cryptocurrency craze is unlikely to negatively impact Paypal stock. Although the blockchain is a groundbreaking innovation, many people prefer the security of major institutional backing. Naturally, consumers trust the Paypal brand name, and the company provides many of the services offered in blockchain platforms.

As of this writing, Josh Enomoto is long bitcoin and bitcoin cash.

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