Jim Cramer discusses how rate hikes impacted Builders FirstSource Q1 numbers

My mission is simple. To make you money. I’m here to level the playing field for all investors. There’s always a home working somewhere, and I promise to help you find it. May have money. Starts now. Hey, I’m Kramer. Welcome to May. Have money. Welcome to Kramer. I’ll be able to make friends. I’m just trying to make you a little money. My job is not just to entertain, but to educate. To teach you. So call me at 1800 and 743 CBC or tweet me at Jim Cramer. Get this. We are at a very tricky moment in the business cycle. It’s the gut wrench time where the brown shoots we were looking for turn into the compost of an economic slowdown. It has to happen. And you know what? It’s actually going to end up being good news because it means the Fed can start cutting rates sooner than expected, but it still hurts. That’s why I want to walk you through the pain you’re going to experience. If you had that diversified portfolio and if you watch me have money, I know you do, we can provide you with some novocaine, there’ll be anesthesia and yes, there’ll be updates like today where the Dow gained 32 points has to be advanced .13%, NASDAQ dip point 1%. But you need to expect and anticipate vicious intran day sell offs like we had today as the Fed plays coy and we await their next move. Pretty simply, the Fed needs to cut rates because the economy’s running out of gas and that changes the kind of stocks that can work here, at least in the short term. And some very good companies will be left behind taking their stocks down with them today. For example, one of the single best performing stocks, one we’ve been monitoring for a long time because it’s incredible several years now. It’s a company called Builders First Source. They just built one in Brooklyn. It’s Dynamite. They dropped the bomb on shareholders today and sent the stock down 19%. This is a major supplier to the home builders. So the story they pulled on their earnings call wasn’t great. It always is. So this was a shocker. Listen to this and I’m quoting early momentum in single family has slowed as persistent inflation has cooled. Short term expectations for interest rate reduction, Let’s see what are they really saying you’re slow down alert, there’s more quote low existing home inventories in pent up demand provide an environment where growth is continued to build. Builders across the board are having to navigate affordability issues and challenges with the regulatory environment, land development and infrastructure End Quote. OK. Now on the surface you’re thinking what is Kramer talking about that couldn’t this couldn’t have possibly knocked the stock down 19%? There’s nothing in here that could do that, correct? Wrong. Because the language is all in code. So let’s break it down. Let’s parse it. I’ll do the code breaking first. Early momentum in single family homes slowed. You know what that means? It means there are a lot of sales when people thought interest rates were going down. But then the economy surprisingly went on a hot streak. Long rates rebounded and home builders pulled back from buying goods and builders force that they needed to build new homes. Next, persistent inflation has cooled. Short term expectations for interest rate reductions. This is key. Remember a couple of months ago people were wondering if the Fed stopped raising rates too soon because inflation was still too high. As long as inflation doesn’t come down, we’re not going to get the rate cuts. Until last Friday’s weaker employment number, there was a budding consensus that the Fed may even have to raise rates. Gets worse. Builders across the board are having to navigate affordability issues. Translation, our customers, the home builders, have raised prices too high unless rates come down. And since rates haven’t come down, there’ll be less construction, less construction, less business for builders. As for the challenges in the regulatory environment and land development infrastructure, that’s boilerplate. The home builders need to deal with these problems all the time. It just hasn’t mattered for a while because mortgage rates were low enough that the industry didn’t need to care. So now let me give you the full builders first. Source translation. Last quarter we had to deal with the fact that inflation which we fought was dead, remains very much alive. Our customers, the home builders, put up too many homes when they expected rate cuts and these houses might not get sold until rates come back down. And that’s what obliterated the stock. That’s what took it down 19%. But when you see this kind of weakness, you have to ask yourself what would happen if that were to suddenly start cutting rates. Well, I’ll tell you what, this stock would soar. Put it on your shopping list. But that’s why I say it’s crunch time. Today’s sellers are reacting to 1/4 of a long rates spiked and the Fed didn’t cut short rates, but that’s now in the rearview mirror. The moment it looks like the feds going to cut, guess what? This becomes the number one buy. Now let’s talk about my favorite steel company, New Core. Because of all the infrastructure spending and data center build out and even the strength the orders you New Core stock has just been a horse. Yesterday though we learned that one grade, just one grade of hot of steel, it’s called hot rolled steel fell from $825 per ton to $760 per ton. That’s what happens at the top of the steel cycle. That’s how it starts the roll over the brown shoes for steel because this kind of steel goes into autos, energy, AG, machinery, heavy equipment and transportation, steel pricing had remained strong frasers no more. That datapoint confirms why this stock is falling from 203 to 171. Makes sense, doesn’t it? Sure, but only until the Fed comes to the rescue. But until then, even as I think that Nucor the company is sensational, I know the stock is going to be hostage to steal price cuts and therefore maybe even more cuts from you core stock. Disney Disney stock crater today was awful. It’s pointed down 9.5%. Why? Oh, I can give you all sorts of nonsense, but I’m going to cut right to the paragraph that did it and I quote as it relates to demand, while consumers continue to travel in record numbers and we are still seeing healthy demand, we are seeing some evidence of a global moderation from peak post COVID travel. End Quote. Ow, they basically said the post pandemic travel boom might be ending. You know what? Last week Booking Holdings reported and they said the same same thing about the US traveler. Now Dizzy’s being hurt by it. No wonder the stock can’t catch a break. Is it a buy? Chapel Trust owns it. We sold a lot higher. We’re debating whether to buy it back now. Sometimes it’s so hard to see through this stuff because the code is so thick. Ferrari, one of the great stocks of this year right symbol race, can’t beat that quarter to quarter to quarter. That is, until today, when the car company gave tepid guidance. Why? One word, normalization sounds neutral, but it’s code for something that is very ugly. When Ferrari said their forecast is for normalization, it means that things were really smoking, the company’s over earning and that was now over and business was booming and now it’s not. It’s going back to normal normalization. Where else did we see that? WK Kellogg, This cereal company listened to this quote. Shipment volume also benefit from an increase in retail inventory versus last year, which we expect to normalize in the second quarter. Normalized translation, the stores are stuck with a lot of cereal, so we aren’t going to be able to make our Frosted Flakes numbers until they work off the excess inventory or in real terms. We missed the next quarter. Now there are two ways to approach this particular moment, and I’ve been in this moment many times in the last 40 years. One is to ride it out knowing that the Fed cavalry will be coming. It’ll probably be here sooner than we think because the brown shoots are sprouting everywhere now. Another way though is to find the stocks with growth stories that don’t depend on the border economy and overweight them for the moment. I’ll give you a couple because I’m a nice guy. I like Merck and now Pfizer for their anti cancer franchises. Merck’s about Keytruder, perhaps the greatest selling drug of all time. Pfizer is now beginning to get stuff out of C Gen. the old Seattle Genetics. Plus you got that nice shield. Or you know what? Just go by Eli Lilly. It’s got the GOP dash ones and it can make all that you want. What was that with the Amgen the other day? I forget, this is the way the charitable trust is playing it, by the way, in terms of secular growth, stick with the big dogs. Please don’t overthink it. People always want to overthink it. It’s NVIDIA. It’s Amazon. It’s Outfit, Meta and Apple and Video reports the 22nd. I’m really shaking. He’s all very good. Stories that don’t rely on rate cuts from the Fed, maybe consider Reddit, By the way, after tonight’s beautiful set of numbers, we talk to CEO. And if you feel like I do, maybe that’s the one to buy. For people who want to ride through the valley of the shadow of the Fed, I suggest you on some stocks that will soar with rate cuts, meaning they’ll be agonizing to own until JPL rides to the rescue. At the same time, take some laughing gas with Amazon, Alphabet, Apple, Meta, or NVIDIA, and some general anesthesia with the drug stocks, because but they’re the kind of stock equivalent of Xanax but not Seroquel. If you put all your money in stocks that need rate cuts to win, you will be slaughtered. But if you go all tech and drugs, you’ll be left in the dust when the Fed finally starts cutting. So let me give you the bottom line. I’m not telling you to relax. I don’t do that on this show. Not with the averages so close to all time highs. Therefore, it’s a little precarious. I’m just saying we are going to the valley of the shadow of death here. And you should fear no evil as long as you have a balanced portfolio. Ralph in New York. Ralph. Yeah. Hi. How you doing? I was just thinking, you know, Nikes down around 45% from the top of the last three years. They should, they should wake up and take over a little 11. I know it’s fallen by around 1/3 down. Looks like a discount to me. How about you, Jim? Well, Lululemon’s still expensive and I know they want to stay independent. You know, it’s kind of an interesting idea. In a kind of a perfect world that would happen. But we’re not in a perfect world In the world we are in though, I think Nike is very cheap. How about that? OK, let’s go to VJ in California. VJ, good afternoon, Jim. This is VJ. I’m calling regarding Exxon Mobil. I have 3400 chairs. Pioneer Natural was the one I was invested in. It got bought out and I got 3400 shares. They’re giving a dividend on 5/14. 5:15 is record date, 5/16 I can sell it. I’m wondering if I’m making the right decision if I sell Exxon Mobil and buy ETMPLX or Halliburton. Oh, you make it so hard on me because the first two, you know, I like those dividends. ET and MPLX have fabulous dividends, but you know what? Here’s what you’re going to do. You’re going to sell a quarter of the Exxon and put it in ET and 1/4 and NPLX. Don’t do the hell you don’t Get the dividend. Keep the other half with Exxon and you’re going to do terrifically. And thank you for the call. We are walking into the valley of the shadow of the Fed. But you should fear no evil as long as you have a balanced portfolio. Oh man. Tonight Palo Alto Networks is hosting a conference focus on the intersection of artificial intelligence, cybersecurity and Canna reefs. I’m hearing how the company continues to innovate for a rapidly changing landscape. My excuse with the CEO then Logitech’s bounced off its recent lows. I don’t know. We got to cover this one. Yeah, I love their toys, but may remember, they’re much more than toys. Let’s get the latest from the company’s top brass and Reddit. Now how about this first publicly traded quarter? They gave me the quarter I thought I would get a year from now. So ask me anything. And am I one of those? Never mind, let’s dig into all the numbers. Stay with Kramer. Don’t miss a second of Mad Money. Follow at Jim Cramer on X. Have a question? 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