CNBC’s Jim Cramer was thrilled when he saw that the U.S. economy added 223,000 nonfarm jobs in May, far overshooting estimates and driving unemployment to an 18-year low.
“You want to know what the perfect economy looks like, at least from the perspective of the stock market? Honestly, it looks a lot like this one, where we have fabulous job growth and very little inflation,” the “Mad Money” host reflected on Friday.
To Cramer, Friday’s report seemed to challenge a longstanding theory: that as the economy strengthens, the Federal Reserve will be bound to raise interest rates, potentially causing the economy to overheat.
Instead, the Labor Department’s report showed that inflation was being kept at bay, with average hourly wages rising by only 8 cents despite the job boom.
“Not only that, but this economy is generating job growth where there ain’t been no job growth,” Cramer said.
The only surprisingly weak sector in terms of growth was health care, which only added 29,000 jobs. But Cramer argued that health care was the one area that could afford to be weak.
“Health care has taken up a larger and larger share of our gross domestic product over time, and while there are some good reasons for it — we can cure diseases that would’ve been lethal a generation ago — it’s the one sector that’s really not tied to the strength of the broader economy,” he explained, listing the other beneficial side effects of a strong labor market.
After stocks withstood the spike in Italian bonds and the Trump administration’s tariffs on steel and aluminum, Cramer started to get more bullish on this market layout.
“Then we got today’s amazing employment report and the market showed its true colors,” he said on Friday after the major averages locked in healthy gains.
“As I’ve been telling you for years, the single most important data point for the market is the Labor Department’s nonfarm payroll figure, and this one was nothing short of spectacular,” he continued.
With that in mind, Cramer turned to his weekly game plan to explain how stocks might fare in light of the strong report.
Next week’s slate includes earnings reports from cybersecurity leader Palo Alto Networks, Jack Daniels maker Brown-Forman and technology giant Broadcom.
“The employment number’s got a rosy hue and it’s going to color the reaction to all of these reports. Because of that, you can take on more risk despite all of the political insecurity,” Cramer said.
In times of volatility in the stock market, Cramer looks for secular investments that tend to remain unaffected by global turmoil.
That’s why he came up with the “cloud kings,” a group of stocks including Adobe and Salesforce that has seen huge gains in 2018 despite the market’s swings.
“When the averages got slammed [on Thursday], most of these cloud stocks barely got dinged,” Cramer said. “Some of them, like Adobe, even managed to churn higher. But it’s not like the kings are the only way to play this powerful secular growth trend.”
So Cramer decided to zoom in on Coupa Software, a cloud provider that helps companies manage their spending and spot cost-saving opportunities.
“Coupa may be too small to be a cloud king — it’s a $3 billion company — but it’s certainly a cloud prince,” the “Mad Money” host said.
In April, a caller asked Cramer about the stock of EPAM Systems, a software product development and platform engineering play.
And, after doing some homework, the “Mad Money” host confirmed that business is strong at EPAM, which has seen consistent revenue growth in the last three years.
“We know that enterprise software is one of the strongest areas out there right now, and EPAM has proven to be a very valuable partner for its clients,” Cramer said. “And even though EPAM’s been growing its earnings at a steady clip of around 20 percent, the stock simply isn’t that pricey.”
Trading at 24.5 times next year’s earnings estimates, this under-the-radar stock could be a solid investment for those seeking a steady software play, Cramer said.
“Given the company’s outsized sales and earnings growth, I’ll gladly recommend paying a small premium for the stock right here, right now,” he told investors.
In Cramer’s lightning round, he fired off his take on callers’ favorite stocks:
Packaging Corp. of America: “I love the packaging and paper industry, but I would not recommend PKG, not when we can own a stock that I’ve been telling club members to buy which is really, really great which is WestRock. That’s the one to own and it’s come down a lot from its high. I would pull the trigger.”
Celgene Corp.: “[The outlook is] very tough. I think it can bounce up a couple of points, but then I think it is going to be dead money. I worry about the Revlimid franchise and nothing else is there to really replace it.”
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