Mad Money w/ Jim Cramer 12/9/24
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Hey, I'm Kramer. Welcome to Mad Money. Welcome to Kramerica. I'll do my friends. I'm just trying to help you save a little money. My job is not just to entertain, but to explain. So call me at 1-800-743-CNBC or tweet me at Jim Kramer. It used to be a big deal to reach the hundred billion dollar club. Most companies will never, ever see that market capitalization mark. It requires a tremendous amount of hard work and drive to get there.

But given how buoyant the market's been lately, despite days like today where the Dow dipped 241 points, S&P declined 0.61%, and then asset loss 0.62%, the $100 billion level means a lot less than it used to.

As of last Friday's close, we had 18 companies that joined the club this year, 18 companies that are now worth more than $100 billion. And they perfectly captured the zeitgeist of the moment. So let's parse through and figure out what the heck's going on. It could tell us a lot. First, we know there's an umbrella that's changed things here. It's the umbrella of NVIDIA.

Here's a stock that's up 180% year-to-date. I know it doesn't echo right now. Please, okay? It was at $48 at this time last year. It's at $138 change today. When you have that trillion-dollar cover, you can't sneer at companies that put on a lot of points in 2024. NVIDIA allows people to justify paying almost double what they paid last year, or in some instances, a lot more than double. Plus, stocks like everything else faced a battle of inflation, I think we'll call it. It's still a problem. Well, I don't know.

It's there, though. So let's go through the biggest gainers that have joined the $100 billion club with all numbers as of Friday's close. The biggest move, and I know you're going to think this is inflationary, is the staggering 907% windfall that comes from Applovin, which makes software that helps app

app developers grow their reach and monetize their apps. It's gone from $13 billion at the end of last year to $121 billion, although it was a lot higher on Friday, $142 billion. Today, the stock got clobbered, down 15%, because it wasn't added to the S&P 500, something many traders were expecting, anticipating gambling on. Apple offers adapting and stripes...

And leaning in and pivoting and using its learnings there worked in all the key buzzwords to become an early stage e-commerce play that could be wildly successful. They're so good with their mobile gaming technology that they've decided to go all in with video game advertising. These are free mobile games that make their money by showing you ads.

Is that worth an almost tenfold gain? The short answer is no. You don't rally that much in a simple line extension. But what if the same technology could be used for all of e-commerce? Now, that's a much more exciting story, and it's one being told right now. I can't fault anyone for suspending the rigor and believing there may be something very big here. Who cares if it might be pure magical thinking? Certainly not the investors.

Just look at how the stock roared last week when lots of speculators swooped in, betting that Apple of them would be out of the S&P 500 after the close Friday. Now, by the way, that's another thing that tends to happen. A stock's worth north of $100 billion. It didn't happen. Now they're getting clobbered. Next up is the enterprise software company Palantir, which exploded on the scene this year with some big contracts and some big growth. Palantir came public via direct listing in 2020. It kind of hung out doing nothing until its sales finally took off. And then, man, this thing was just a rocking show.

Palantir is the brains behind much of the military that we don't know about. They've been rallying against the big five military defense contractors. They don't like that gang. They think it frustrates everybody else. The firm uses advanced data analysis and artificial intelligence to help the Pentagon see patterns, process data, lightning speed.

Again, though, I think Palantir's love because it's trying to upend the defense department, potentially saving tens of billions of dollars and saving the lives of those who might be on the front line, such as precious pilots and very expensive jets. Buyers think that Palantir will reinvent our entire defense budget, which is entirely possible because these guys are tight with President-elect Trump.

Third, no one talks about the meteoric rise of Spotify, the audio subscription company with popular figures like Taylor Swift, The Weeknd, Bad Bunny, Chapel Roan, and Billie Eilish, as well as a host of famous podcasters, including the influential Joe Rogan.

Spotify at value 165% year to date. Joining the $100 billion club as of Friday's close. Why did it suddenly take off? Simple. The market loves subscription models because they're sticky. Netflix, Amazon, Costco, all subscription businesses. They're raving successes. And now Spotify is.

Next is Apollo Global, a private equity firm that rallied 93 percent for the year, joined the $100 billion club as of Friday's close, just like fellow corporate raider. No, we don't really want to call them that. The KKR up 91 percent. That's outstanding performance from two firms that truly know how to make money. It's odd to think that they could have such good years without ringing the register bell.

by taking their portfolio companies public. Maybe holding on to positions isn't such a bad move. That these two private equity firms are part of a trend that allows startups to stay private longer internally because the process of coming public is brutal with a lot of pressure from regulators and then from money managers. Well, I mean, this is a great way to go. Formerly, these companies had to tap the public market for capital. Now they tap outlets like KKR and Apollo.

We are having a tough time getting IPOs to market, which means the ones we do get tend to be priced too low, thanks to a paucity of buyers. And that's what I think happened with the stock of Arm Holdings, the semiconductor architecture company that's partnered with NVIDIA for all sorts of gizmos. And it's all over the cell phone and servers, too. Arm's growing incredibly fast, and CEO Rene Haas has steered the company's stock to an 87% return, joining the $100 billion pantheon.

There's a risk to networks, which provides hardware and software that monitors data and provides solutions for the big data center companies. No wonder it's stocked for 83 percent. Yet it remains relatively unknown, in part because it's invisible. It makes so-called white boxes. So what? So what?

The money's not invisible. You can call it this one. Next, we have Progressive. Now it's up 60%. This auto insurer is known to use more AI in pricing than any other company. It's joined by Chubb Limited, the property casualty insurance kingpin, which was up 26%, not to mention insurance broker Marsh McLennan. That's up 20%. The insurance business is on fire, and we know from these egregious CPI numbers that when it comes out this Wednesday, they just keep raising rates.

These three are winners for certain. Now, it's a big cluster with gains in the mid-50s. First up is Fiserv, the transaction processing company. You know there had to be one fintech here, right? Then there's Eden, Charitable Trust Holding, makes electrical components for the data center. Then there's automatic data processing. By the way, that's a company synonymous with growing payrolls.

Isn't that an oddity when the Fed's cutting rates? Finally, there's Boston Scientific, which makes minimally invasive medical devices. We've been in the morning mostly for the heart. Someone say it just builds a better mousetrap. Crude and somewhat denigrating, but true. A superior company. You want an anomaly? Hey, how about Citigroup with a total return of 45%? Enough to finally sneak into the $100 billion club.

bad as part of a failing of banks that are finally getting their due. Last but not least, we've got a cybersecurity company that CBC Investing Club members know all too well called Palo Alto Networks, up 37%. Micron Semiconductors does high bandwidth, 18%. Analog Devices, that's Internet of Things, up 11%. Big deal for Palo Alto. A huge journey undertaken by CEO Nikesh Arora. But both Micron and ADR are well off their highs, so the whole thing might be a bit of a comedown for them.

I know we're experiencing a heightened market with expectations really running so hot that you can't believe that a presidential rally or, let's say, an end-of-the-year rally and a stock shortage rally are all in play at once. Many of these stocks got clocked today as part of a sell-off that seemed to infect the year's best performers. I don't know how long it'll last.

Maybe some great buying opportunities already. But the bottom line, when you get this much money coming in, you can see how all these companies can reach $100 billion, creating a huge amount of wealth, at least on paper. One more reason why it wouldn't be so bad if some of the winning investors in this market took something delicious off the table. Let's go to Dave in Illinois. Dave.

And Dr. Kramer, my mad short-term S&P oscillator watching friend, how are you? Dave, I am fine. I'm glad you called. Let me help. What's going on?

Jim, this $55 billion NASDAQ 100 listed company operates an observability, easy for me to say, and security platform for cloud applications. It enjoys a high institutional ownership and has already achieved a 52-week high last month. Of course, I'm talking about Datadog. Up some 30% or so.

Datadog is such a winner. I think there's a lot of companies that wish they had bought Datadog when it was still private. It's up substantially from then. And I'm going to throw in MongoDB, which reported tonight, and it also has a lot of the juice you're looking for. Dave, once again, always explains things to us. Maybe it has something to do with Illinois. Okay, let's go to Craig in California. Craig. Booyah, Ski Daddy, the Chill Master Jay. All right, what's happening, my friend? What have we got going?

I've had my eye on the stock here for a bit here. Beverage behemoth there. It seems to be pulled back about 13% in three months, trading below its 10-year average P.E.,

has a very juicy, tempting 3% dividend. I'm wondering, is it a good time to take a position in Coca-Cola long-term right here? I think it is. As soon as you got the 3%, I was going to come out and say, you know what, that may be it. That may be the level you can buy. Let's say you want to buy 100 shares. Buy 25 here. Buy 25 at 60.

20 and then maybe by 2558, it probably won't get there. And then 25 around 55, you get a great average. That's the way you want. You want to bet that a stock will come down to your level. So that makes you feel more positive as it gets hit while you build a better possession with a very good dividend. All right. We've got a bunch of different rallies, types going on right now. I wouldn't blame anyone, though, if they wanted to take a little off the table because, boy, we've got some heightened expectations.

All made money tonight. Can airline stocks squeeze even higher? I'm seeing if they could gain attitude for the long term, though. Then I'm taking a look at some signs of complacency in this market. Don't miss the clues I'm uncovering from the VIX and from the junk bond spread. And later, are pet stocks still treats in this tape? I'm breaking down the post earnings performance from two of the sector's top players. So stay with Kramer.

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We need to talk about the remarkable run in the airline stocks over the past few months. After spending much of the year just trading sideways, the U.S. Global Jets ETF has rallied an astounding 53 percent from its lows in early August, come to a three-year high over the course of four months. It's an extraordinary run, people.

And that's just the average performance. Delta Airlines, one of what we consider the best of breed, has thrown nearly 70 percent of the same period. United is up an astounding 159 percent. Even some of the all-Saran majors have made great moves. American Airlines turnaround projects never shot up nearly 90 percent from its August lows.

Well, I generally like the airlines. I've been constructive for much of this run. I always say that these typically make better trades than investments. They're very different. So after this kind of run, my gut tells me maybe to ring the register before the music stops, the lights come on. But I'm also open to an idea that maybe things can change. If there's reason to believe that the airlines are suddenly less cyclical, less boom and bust, then maybe this time really is different.

So let's consider why these stocks have gotten so hot, whether the move is truly sustainable. This one's been fueled by a couple of things. Earlier this year, the airlines were weighed down by worries about the consumer. Those worries aren't necessarily gone. But with the Fed cutting rates, well, they're going to be diminished.

Sure, people are less willing to spend than they were a year ago, but there are still places where they're willing to spend. And travel seems to be one of those areas that remains strong. Plus, when you look at the statistics, consumer sentiment's been improving for the past few months. For example, the University of Michigan Consumer Sentiment Index, that buyback rate is still high.

in july it's been trending higher ever since at the same time it's not just about the consumer we're finally seeing a major return of the business traveler post pandemic oh boy that's fantastic for the airlines because business travelers are way less price sensitive they like first class they also tend to travel more regularly but those are all cyclical factors that hide to the health of the border economy that's not why i find the airlines intriguing here that's boom bus

I'm much more impressed by some big structural change in the industry that many people aren't noticing. The single most important positive element for the airlines over the past few months is the fact that domestic airline capacity has stopped going up as much as in previous years.

See, after COVID, we're still only gradually getting back towards pre-pandemic capacity levels. But as the revenge travel boom happened in 2022 and 2023, the airlines quickly started to add more and more routes to take advantage of the moment. Historically, that is precisely why the airlines have been such bad investments. When business is booming, they add too much capacity. Then when business tapers off like it did earlier this year, they've got too many seats and that crushes their pricing power.

But we've seen a big shift in that dynamic as we've gone from the first half of 2024 to the second half. In the first half of the year, capacity grew roughly 7% or so, which was above expectations. Not good.

But while the numbers are still being tallied for the third and obviously fourth quarters, it looks like capacity growth will be in the low single digits for the second half. Mellius Research Analyst Connor Cunningham, who's been all over the airline resurgence, read about this in late October. Entering this year, he expected about 6% or 7% capacity growth in every quarter of the year. And capacity growth came in above his expectations in both the first and second quarters.

But now he's slashing capacity estimates for the final two quarters of the year. He even thinks we'll be exiting this year with domestic capacity growth barely in positive territory. And he's cut his capacity estimates for 2025 to, oh, so bullish. It's kind of am right. Let's consider the case of United Airlines' best performer. When a company reported second quarter results in July, they noted that the capacity had grown 8% year over year that quarter, reflecting industry-wide trends. But they also said that they believed that that trend was ending.

United explained that the industry would be removing unprofitable capacity in the second half of the year, especially in the fourth quarter. In October, United reported a blog quarter. CEO Scott Kirby said, and I'm going to very proudly said, I'm going to quote it. The inflection we spoke about on our last call has happened, and we're seeing unprofitable capacity begin to exit the market, leading to the expected domestic yield improvement, end quote. The company's chief commercial officer, Andrew Nocella, then added, quote,

United's domestic capacity in 2024 was shaped with the expectation that the industry would remove unprofitable capacity in earnest in Q4. As a result, United expanded slower than most during the first three quarters of the year when capacity dynamics were less favorable. But importantly, our timing is right, tilting our growth to the quarter where the industry conditions would be the best. End quote. I can't believe that these guys are saying this stuff.

So the airlines are thriving because they actually kept their word and collectively cut back on new capacity. That gave them all more pricing power. But why did that happen?

Well, some of it's because the low-cost carriers are struggling. Spirit Airlines drastically reduced its number of available flights after the regulars blocked them from merging with JetBlue. Well, that's what you'd expect from an airline that filed for bankruptcy last month. Southwest is also under fierce pressure from activist investors to improve profitability. These lower-cost airlines, they've been a major source of supply growth over the past two decades. But

they're no longer adding to the industry's oversupply as much as they used to, largely because they can't afford to. Otherwise, I bet you they would. Otherwise, I mean, I got to tell you, they've wrecked pricing over and over again. Not this time. Plus, Boeing's inability to consistently produce new planes, well, that's created another major supply bottleneck that we didn't see coming. At the same time, the election was seen as a huge positive for the industry because Trump's antitrust regulators probably won't block deals like the Sprint-JetBlue merger. We can't expect a

budget airline to go bankrupt every year. But we could see the same type of impact if a couple of these low-cost carriers merge. So can the airline stocks keep running? I'd say the strength can continue for however long the capacity discipline does. How long will it be? I'm not sure. But for now, these companies are all saying the right things, and that's the first time I've all seen them come together like this.

Plus, even though these stocks have now had huge runs, United just trades at 10 times this year's earnings estimates. Delta, a little over 10 times earnings. Inexpensive is less than half the S&P 500's pre-E multiple. And if the industry can continue to exercise discipline when it comes to adding new planes, the estimates might end up being way too low.

In the end, the airline stocks have been white hot for months now, in part because the economy is doing better, but mainly because the industry stopped adding new planes willy-nilly, and it finally gave them pricing power. The bottom line, as long as the airlines don't add too many new flights, I think the major carriers like United, Delta, and American, they can keep on flying. Buy, buy, buy! Mad Money's back after the break.

Coming up, has the market's recent run created too much complacency among investors? Kramer spotting some warning signs to be on the lookout for. Next.

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So come and live the diamond life. Desert Diamond Casino. An enterprise of the Thawna Audem Nation. We all know we've had a rip-snoring post-election rally on top of an already good year, which is why I've started urging you to be a little more cautious, calling out areas of excess that are bubbling up in certain corners of the market. And they worry me.

I love a big rally, but it never pays to get complacent, people. And unfortunately, I'm seeing a lot more complacency than I'd like. People are taking their gains for granted, and that rarely ends well. Where is this coming from? Well, let me give you some empirical data so you know what I'm talking about. First, there's the CBOE Volatility Index, which is the VIX for short, also known as the fear gauge. It measures market expectations for near-term volatility based on the action S&P 500 options.

When investors expect volatility, they pay more for options. That sends the VIX higher. That's widely seen as a sign of fear and uncertainty. When the VIX is low, it reflects a lack of fear, confidence. And right now, the VIX is pretty darn low. Even though it jumped today, it's still reading roughly 14. And look, before today's spike, it had basically been cut in half versus what was trading at the end of October and was at its lowest level since early July.

Again, not great. Now, normally when the market's rallying, the VIX is supposed to go lower. There's nothing abnormal about this. But I certainly take notice when the VIX goes gets this low because it shows that investors aren't thinking much about what can go wrong. They're only focused on what can go right.

Now, we're going to have more on the VIX later this week, where the resident options and volatility expert marks a fashion. But for now, let's get to another measure of complacency that's less widely followed, but I'm going to try to do my best to explain to you, and that's called the junk bond spreads. Full disclosure, I'm a stock guy. I haven't dabbled much in the junk bond market, but this issue of junk bond spreads...

was put on my radar by someone I trust. And when you dig into it, well, you do see some truly worrisome signs. Signs that I hope other people pick up on that we're talking about tonight. See, junk bonds are corporate bonds issued by companies that are more likely to default than the highest quality borrowers. Typically, the cutoff is a BBB rating from Standard & Poor's. Anything at BBB or better is considered investment grade, whereas anything below BBB is junk or more charitably high-yield.

So let's say two companies issue new debt. Same principal amount, same terms, same basic details. All else equal, a company with a junk rates credit rating should pay a higher interest rate than another company with an investment grade credit rating. Just like you might pay a higher interest rate on mortgage or an auto loan if you've got a suboptimal credit score. Makes sense, right?

When we talk about junk bond spreads, that's the difference between the junk bond rate and the current yield curve for treasuries, which are considered risk-free. Junk versus risk-free. Basically, the junk bond spread is the amount of extra interest that lower quality borrowers have to pay to account for the fact that they're more likely to default.

Now, in order to get a market-wide view of what's going on with junk bond spreads, you typically need to find an index that aggregates a wide variety of junk bonds into a single number that serves as a proxy for the whole class of securities. When we were alerted that something interesting was going on in junk bond spreads, well, what we did was we went to the ICE Bank of America U.S. High Yield Index Option Adjustment Spread. I know.

Big mouthful. But you can find it going to St. Louis Fed's economic data repository. I think that their data is the best of all the Feds. So what does it show? Very, very low spreads for junk bonds right now. Specifically, the spread between treasuries and junk bonds has now fallen to its lowest level in the past five years, even lower than during the speculative mania in 2020 and 2021. In fact, if you take a longer term perspective, this index is at its lowest level since the summer of 2007.

And you never want to be analogous to 2007. In other words, in the corporate bond market, investors aren't getting compensated as much for taking on the additional risk that comes with investing in lower quality junk bonds. The person who flagged this to me believes it's a sign that risk is not being priced correctly in the market. Again, this is about the bond market. So sure, you could say, hey, Kramer, who cares about corporate bonds? Come on, stick to stocks. But, and I get that, I get that. But the common thread between the low VIX reading and the low junk bond spreads is exactly

is again complacency. Right now, investors are willing to buy higher risk bonds without adequate compensation. That's complacency, just like they're willing to be long stocks without adequate protection from the S&P 500 in options. A little protection, little puts, maybe a lot more cash. And I'd argue you should also care about these junk bond spreads, because just look at what happened when we've gotten to these low levels before. Before

Before this recent dip to 17-year lows, the ICE Bank of America high-yield option adjusted spread was at its lowest level since 2021, just before the big market-wide pullback in 2022, which saw the S&P 500 fall nearly 30% peak to 12. Before that, it was 2018, just before the big roughly 20% fourth quarter pullback that year. And then there's the big one, 2007. Right now, this measure of junk bond spreads is at its lowest level since the summer of 2007, right before the financial crisis kicked off.

It was in August of 2007 when I ran it that the Fed knew nothing. They knew nothing about warning signs going into the banking space. Now, that was a very different situation back then. Back then, I wanted the Fed to cut rates because they didn't see that so many banks were struggling or about to go under and needed cash. They needed an infusion for the Fed. These days, I want them to avoid cutting rates too aggressively. I hope the Fed's watching these junk bond spreads. If Wall Street's so in love with making risky investments,

Maybe J-PAL can afford to hold off on more rate cuts for the moment. People are taking too much risk.

Too much speculation. I actually do think that the Fed's watching measures like this and might begin to slow play its rate-cutting plans, perhaps as soon as its meeting next week. The market still expects the Fed to cut rates next week for the third consecutive meeting. I like that. But even if that's the case, they could talk down the number of rate cuts we'll get next year. And I think that would cause a huge sell-off in stocks, albeit one that might be viable given how strong corporate profits are. But no one's looking for it right now. Here's the bottom line. When you look at the volatility index at

Trading at low levels and junk bonds spreads, getting their lowest interest rate premium since 2007. That's right. The junk bonds, the lowest interest rate premium. It is clear we've got an overabundance of complacency in this market. I am not saying that's the end of the world, people. I just want you to keep in mind if something does go wrong, it's going to hit especially hard because no one seems to be looking out for potential negatives. Let's take some callers. Let's go to Susan in Texas. Susan.

Hi, Jim. Hi, Susan. How are you? I'm a longtime listener and really enjoy your show. Oh, thank you so much. Thank you. My question is, with all the tensions between China and the U.S. and the upcoming tariffs, do you think it might be a good time to sell some Apple products?

Well, I am a big believer in owning Apple, not trading it. I happen to think that Apple is expensive historically, but that tends to be when it comes out with some nice surprises to make it so it's not expensive. As far as China goes, let's take a look. Lululemon had a great number out of China. We know that China is going to do some stimulus. We just don't know the size of it. Right now, I am betting that Apple gets through this period. I know that that's not what's happened with NVIDIA today.

But I also want to own NVIDIA and not to trade it. Let's just hold on to our Apple here. Let's see what happens. How about Bill of Massachusetts? Bill.

Jimbo, first I wanted to thank you and your daughter for Reddit. You got me in real cheap. I'm ecstatic. Thank you so much. Oh, thank you. Yeah, that was my kid's fifthly one daughter who really just said, Dad, you've really got to start following this. Give her a hug. Oh, I certainly will. I certainly will. Thank you. Tell her she made a club member very, very happy. I will do that. Thank you.

I just wanted to ask, is there any salvation in Intel's foundry part of the business? You know, not now. Let's just wait, Bill. You know, I don't want to get you in a situation that I think is not necessarily bottomed yet. So let's hold off. But I want to thank you for those kind comments. And my daughter's going to thank you, too. Hey, let's go to my homestead of Pennsylvania, Sam in Pennsylvania. Sam. Jim, how are you? I'm doing good. How about you, Sam?

I'm all right, Jim. You know, listen, in this bull market, it's kind of tough to find value. But one of the companies that I was looking at that could be a good way to play the strength of the American consumer is Estee Lauder. The company did $15 billion in revenue last year. It's trading at $28 billion. I know they've got some issues with the Chinese consumer, but with that kind of working itself out in the next couple of quarters, I'm curious what you think about Estee Lauder here at $80. Look, I think that I actually would prefer to own Elf.

I know Elf seems expensive, but I think that their products are cheaper. I think Estee Lauder overplayed its hand in terms of how much it costs to shop.

They do not realize that the consumer around the world has changed and is far more interested in value than they used to be. And I don't think they see a lot of value in Estee Lauder's products. It's a tough judgment, but that's what I have to conclude, given the fact that the stock has performed so poorly for so long. Right. Guys, there's a lot of complacency in this market, and it does concern me.

So if something does go wrong, it will be harder to recover because no one seems to be looking out for the negatives. I have to keep them in front of you so you don't get too bullish. Maybe cool down a little. Hey, more mad money ahead, including my latest look at the post-pandemic humanization of pets thesis. Plus, where do I stand on today's ad agency merger announcement? I'm giving you my take fresh off the headlines. And all your calls rapid fire tonight's edition of the Lightning Round. So stay with Kramer.

What the heck happened to the pet space? For the longest time, I've been a big believer in the humanization of pets. The people are treating their cats and dogs

Less like animals and more like members of the family. That's especially true with all the pets people bought during the pandemic. COVID may be gone, but Fido still likely has a good eight years left, and that's eight years of food, toys, and medication and living in your bedroom. But in the last week, we've heard from two major pet plays, Chewy and Petco. Stocks reacted in very different ways. Chewy got slaughtered. Petco soared.

Dan Petko gave up most of his gains today. So what's going wrong here? I mean, could we be looking at the dehumanization of pets? Let's take one by one.

Chewy reported last Wednesday, and at first glance, it looked like a pretty good quarter. I mean, nice sales speed, strong earnings for interest, tax appreciation, and appreciation, in part because this online pet food store has rapidly growing ads business. Isn't that what Walmart did? That's what Amazon did? Management even raised their four-year forecast. So why the heck did the stock plunge 7% in response? Well, unfortunately, Chewy's stock came in what we call hot.

It was up more than 23% in the month of November, anticipating exactly what happened. So investors were looking for any excuse to ring the register. In the end, Chewy sold off because of the guidance that management didn't give. While they raised their full-year EBITDA margin guidance, that forecast implies fourth quarter margins will be between 3% and 3.8%. Uh-oh, Wall Street was looking for 3.9%.

It seems like a finicky reason for such a sharp sell-off. But given how much Chewy had run in the quarter, you could argue the stock was priced for perfection. That's a term you better get used to. You hear a lot of it. Of course, when you dig into the quarter, there were a lot of positive signs, signs that make me want to recommend Chewy to the sweetest. For starters, the implied guidance for the fourth quarter only seems soft because of the timing from advertising investments. With the company's

We'll be right back.

It still represented yet another record high for the company, plus truly raises active customer outlook. I don't know. To me, that is all very encouraging. Even more encouraging for humanization of pets. These management noted they're seeing normalization in the industry. Pet adoption growing in the high single digits to low double digits. Clearly, young pet owners are sticking around and not just pointing their pets off on their parents.

If that wasn't enough, management also called out a strong cyber week for their business and noted the competitive environment is trending in line with expectations, meaning the strength isn't just a product of Chewy slashing prices. Chewy's vet clinics business also continues to show some promising signs. Now, there are six open. They might add two more by the end of the year. These clinics are exciting because they're bringing in customers who are new to Chewy. They come in via the vet clinics.

These new shoppers are exceeding internal expectations, buying a lot more from the website if they visit the clinics. In fact, more than half these new customers leave the vet clinics and place an order on Chewy's site. It's working. Oh, and that's an improvement from last quarter. It's working even better. Very good sign. Meanwhile, Chewy's expansion to Canada remains on track. Company increasing selection, brand awareness, including a partnership with the Toronto Maple Leafs. Hey, so what if they're currently in the midst of the longest Stanley Cup drought in

They were number one on the CNBC NHL valuations list. Isn't that as good as a cup? I don't know. So even though Chewy sold off Hart, I think it's in very good shape. What about Petco Health and Wellness, which has one of the best tickers on the market? Woof! Woof! Woof! Woof!

Triple buy for Wolf. Wait a second. Petco reported after the close last Thursday, and the numbers were better than expected, causing the stock to jump 7% response. The company delivered a nice revenue beat with 1.2% growth, up from 0.5% shrinkage in the previous quarter. Whoa, big switch. They said trends accelerated sequentially across all major categories, especially consumables and services. Petco, same sort of sales group, by 1.8%. The antisocial looking for 0.7%. That's also up from minuscule growth in the previous quarter.

However, also similar to Chewy, there were some concerns surrounding the guidance. Petco's revenue target for the current quarter was a bit below the consensus estimate. Meanwhile, their EBITDA guidance also came in light, as did the implied EBITDA margin range from 5.8% to 6.1%, substantially less than 6.6% the analysts wanted. However, that wasn't enough to offset the other positives from the quarter, which is why the stock initially soared.

Now, when it comes to pet adoption environment, Petco was also a little more subdued in their commentary, stating that they're seeing the market as more flat, but admitted that they're in a self-help situation and aren't looking to rely on the market for near-term profit improvement. Now, as CEO Joel Anderson relatively knew later on the call, any market improvement will just be, quote, icing on the cake, end quote. Now, there's probably a better pet metaphor to use.

But that's not what they pay him for. Management also remains excited about the recent launch of their Welcome to the Family program designed to help first-time pet parents find success with booklets, shopping checklists, and discounts for services and essentials.

So Petco seems strong, but out of nowhere, the stock got obliterated today, giving back all of its post-quarter gains and then some. Some of the wild action here might simply be because Petco's a single-digit stock, currently trading at less than five bucks. Those are inherently volatile. One reason I'd much rather bet on Chewy, which is far better business by any metric you can care to name. Not speculative, but you should like it anyway.

Bottom line, as we look at these results from Chewy and Petco, I think it's safe to say that the humanization of pets thesis, I think it remains very much intact. If you actually want to buy one of these, I think you're better off with Chewy. It's higher quality, better balance sheet, much better balance sheet, and certainly more sure-footed management. Mad Money is back after the break. Coming up, Kramer takes your calls and the sky's the limit. It's a fast-fire lightning round. Next.

It is time for some of the lightning round. And then the lightning round is over. Are you ready? Let's get it done. We're going to start with Bo in North Dakota. Bo. Mr. Kramer, thank you for everything you do, sir. I appreciate it. And I'm sure lots of people do as well. Thank you.

Got a two-parter for you if you don't mind. I'm trying to explain to my son the negative rhetoric that buying and holding is not so bad. It can be a great thing. Yes, it can.

On the stock I have is Alliance Entertainment, A-E-N-T. Oh, you know what? We've got companies like Live Nation, L-Y-V, that we spend a lot of time with that I think are a much better choice. Even longer term, I totally agree with you on buy and hold, but I think live, we spend a lot of time with them. It's at $133. That's the better buy. Really, really lucrative. You buy some here, and then you put a little weight for the boy. That's the way to do it. Let's go to Nick in New Jersey. Nick.

Booyah, Jim calling about Nebius. N-B-I-S. Big investment from NVIDIA. Plenty of cash on hand. Do I buy the dip? What do you think? Okay. Look, I've got to tell you, I think that we are in for a bit of a shakeout on these ones that aren't making money. I'm starting to see it already. I can't get behind Nebius. If I want AI, I will go for NVIDIA as it comes down. Let's go to Ken in New Jersey. Ken.

Yes. Thank you for taking my call, Jim. Of course. Of course. A big booyah to you, Jim. Thank you from Lavalette, New Jersey. Ah, Lavalette. Okay, let's get down there. I have my friends from Summit are there right now probably. What's up? There you go. What do you think of Novavax?

No, I'm not a fan of Novavax. I got an Eli Lilly that announced a gigantic $15 billion buyback. They're doing so many things right. Let's stay with the highest quality imaginable in what could be a little choppy moment for this market. Let's go to Jim in Texas. Jim. Hello. Hello, Mr. Kramer. Thank you for your education. I have a position...

InnoData, I-N-O-D. I've tripled my original investment almost. Time to pull the trigger and take some profit, or can I hold? I think you should. These are consulting companies, and you know what? This is now a very expensive stock, and I just think if you take a little off the table, you can always get back in. Why don't we just, you know, I'm calling it prudence. Let's go to Brian in Colorado. Brian. Happy holidays, Jim. Same to you.

Hey, wanted to ask you about an American small cap that got hammered after earnings last week. Is it a buying opportunity or buyer beware for Smith & Wesson SWBI? You know, I think it's actually I'm quite surprised. I did not think it was that bad. It yields four and a half. Not my cup of tea, but I don't think it's a bad level to get involved. It's not expensive. Let's go to Rebecca in New York. Rebecca.

Hello, Mr. Kramer. I really love your show. I enjoy it very much. Thank you very much. Sure.

I bought Oval Nation thanks to you. Is this a good time to take some profit? No, it only sells at 10 times earnings. The average stock in the S&P sells for around 20. Well, you can say some people say 25. Some people say as high as 26. This is 10 times earnings. It represents a bargain to me only because the Fed's easy. Now, if the Fed weren't easy, then I would say no to that. Let's go to Sokol in Pennsylvania. Sokol. Hey, Jim, how you doing? I am doing well. How about you?

Excellent, excellent. Hey, I appreciate you taking the call, and my question is UPS.

Boy, this thing has gone down so much. It's been such a disappointment. You're going into the holiday season. Now, typically, there's even more trepidation going into the holiday season. I think you just get the 5% yield. Now, the 5% yield did not stop Dow from going lower. It might not stop this from going lower. I still think this stock is too expensive going into the holiday season. Wow. Let's go to Fred in Massachusetts. Fred.

Booyah, Jim, from Braintree, Mass. Oh, fantastic. Braintree, that's like PayPal. What's happening?

I want to ask you about AI. A lot of AI stocks have moved nicely recently, in particular ticker BBAI, Big Bear. Do you see the run continuing through New Year's? I don't want to recommend a stock in the AI category that's losing so much money, that's up so much. I'm sorry to be so charry about it, but I have to be. And that, ladies and gentlemen, is the conclusion of the Lightning Round!

The Lightning Round is sponsored by Charles Schwab. Coming up, Kramer's sounding off on a potential deal in the ad industry and why it could be a sign of more mergers to come. Next. Before the election, if you were to suggest to me that we could see Omnicon try to merge with Interpublic Group, two of the largest advertising agencies, I would have laughed in your face. Here's two companies that have competed head-to-head for years. They're ferocious competitors.

The question is, are the old school agencies friction or are they valuable?

Will too soon to be irrelevant entities come together as one under the roof of Omnicon, which we learned this morning is offering 0.334 shares of stock for every share of IPG? Is this the kind of deal you'd expect the Biden antitrust department or this Biden FTC to go over with a fine-tooth comb before likely trying to block it? Or maybe they just block it almost immediately as a show of force. After all, Omnicon and IPG are two of the top four ad agencies. You put it together, you don't have enough competition. It's a

4-3 deal. That's a big no-no for the regulars. Easy to shoot down. They think this merger could drive out those who want to start advertising agencies and stifle their innovation while price competition comes down. And don't forget, these guys tried to stop a merger between two handbag companies, claiming it would crush the competition at the department store level. So imagine what they'd have to say about eliminating a key competitor in a major, larger situation. However, in reality, you know what?

I don't think this four to three situation is all that dicey because the ad agencies aren't what they used to be.

Just go back to the last Meta Platforms conference call, the old Facebook. Go listen to what Mark Zuckerberg said. The founder and CEO said that he sees strong uptake from advertisers for his own generative AI-powered image expansion. Much of that conference call had to do with disintermediating the advertising engines, cutting them out of the equation, because now advertisers can go directly to Meta for everything they need. You write them a check. They place the ad where it should be. Better placement than any ad firm can give you because Meta has all the data on your customers and on you.

But before you write a check to Meta, maybe you should write one to Google, which also has its own data store, or even Arch's competitor Trade Desk, which has spent more time trying to understand who should be seeing what to upend the old paradigm. Or maybe, just maybe, you go to Shopify and do what Harley Fickleston tells us to do last week. Remember we had him on? It's to let him handle the whole advertising thing. Shopify knows how to reach even the most micro of groups.

Now, you may think, oh, come on, Jim, the companies you're talking about, the potential clients that are so small, it really doesn't matter. But that's something you think of only if you're focused on the short game. John Wren, who's been CEO of Omnicon since 1997, knows all about the long game. And he may see that at the pace, at least the current pace things are going, there isn't much future for what now are very small companies in a highly competitive ad industry.

One day, those smaller companies who use Shopify or Google or Meta or Trade Desk, they might go back to the old way of paying for advertising, traditional big firms. But they can only do that if the ad agency still exists. If they can't merge, they might well go the way of the dinosaurs. It's more than likely, though, that these clients never go back because they've never been.

One thing's for certain, the now-departing Biden regulators hated thinking about the future. For example, they don't consider Costco or Walmart or Amazon a threat against Kroger, a grocer that once desperately emerged with Albertsons. If they knew more about the business, they'd know that the threat from Costco, Walmart, and Amazon is existential to the supermarkets.

Gotta hope that the new administration will realize that big tech is an existential threat against little Omnicon and Littler IPG. That would be good for everyone, especially the customer who needs a robust ad agency business just to keep everybody honest. I like to say there's always a bull market somewhere. I promise I'll find it just for you right here on MadMoney. I'm Jim Cramer. I'll see you tomorrow.

All opinions expressed by Jim Cramer on this podcast are solely Cramer's opinions and do not reflect the opinions of CNBC, NBCUniversal, or their parent company or affiliates, and may have been previously disseminated by Cramer on television, radio, internet, or another medium.

You should not treat any opinion expressed by Jim Cramer as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Cramer's opinions are based upon information he considers reliable, but neither CNBC nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such.

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