Hey, I'm Cramer. Welcome to Mad Money. Welcome to CNBC America, my friends. I'm trying to make a little bit of money here. My job is not just to entertain but to educate you. So call me at 1-800-743-CBC. Tweet me at Jim Cramer.
Sometimes things just get out of whack with stocks at the beginning of the year. No worries. The market has an ability to correct itself right in front of you. It can look inconsistent, even crazy when it all happens. But it's all part of a natural order of rationalization you need to embrace if you want to be a successful investor. So, in a day when the Dow rallied 270 points, the S&P edged up 0.1%, and the NASDAQ declined 4.4%.
Let's go under the hood and figure out the method behind the market's madness. I'm going to start with two. It's a little cute, I know, but I'm going to give it a shot. Two big Constellations: Constellation Energy, the independent power producer, and Constellation Brands, the beer, wine, and spirits business.
The big hyperscalers are obsessed with clean energy. That's why they're in love with Constellation Energy, CEG, which is the nation's most visible nuclear-powered utility. It's as clean as it gets. If you want reliable electricity, Constellation's been loved to the point where the stock is up over 175% over the last two years. The stock seems invincible. It sells for 28 times this year's earnings, which was pretty darn pricey, especially for a utility.
Now, how about Constellation, the beer company, STZ? It's been one of the worst stocks in the entire market over the last years. It is down over 40%. This one's been a total parade of horribles. Beer's gone up a great deal in price. Call it labor in cans. Younger people no longer drink like the older cohort. And it's only going to get worse as the heavy-drinking baby boomers age out.
The company imports beer from Mexico. Very high packaging tax. And the president's policies hurt it. Their customer base leans Hispanic, which means those customers don't want to go out as often thanks to the immigration crackdown. And yes, the omnipresent GLP-1 weight loss drugs make beer taste like nothing. Expensive nothing.
So what's happening this year? Constellation Energy stock has already fallen from 353 to 322. I see no signs of this stock bottoming. To me, it looks dangerously expensive. As for Constellation Brands, I'm going to give you a full explanation later in the show, but let's just say that the stock is now at 13 times earnings and I think that may have overcorrected.
In short, the value of two Constellations got out of whack, and a company that makes liquor is certainly worth more, or at least something. We don't know what, than under 13 times earnings. That's too low, given that Constellation does make the beer with the most U.S. revenue. That's Modelo Especial.
Or how about Costco versus Walmart? Well, this is really interesting. See, last year was Walmart's year. The stock was up over 23% as the market recognized that this was the store of choice for cash-strapped consumers. Walmart even began to pull more customers from the upper middle class because CEO and now retiring, sadly, Doug McMillon made the stores more appealing while keeping prices low. Everyone loves low prices.
However, Walmart's price-to-earnings ratio, how we measure whether the stock's cheap or expensive, it skyrocketed to the 40s. That was incredible. How about Costco? The sainted Costco. Well, first it lost its long-standing CFO, Richard Galanti. He was there more than 38 years. He was the heart and soul of Costco. He knew pricing, knew merchandise, knew the customer like no other CFO and most CEOs.
Second, the renewal rates after a steady-as-she-goes upward march finally faltered, growing more slowly, certainly more slowly than the street was looking for. For that, we were paying more than 50 times earnings early last year. Come on. So, of course, this stock just got clobbered, becoming an almost permanent denizen on the 52-week low list by late last year. While the S&P 500 was up 16%, Costco stock actually declined 6%.
But since the new year began, oh, it's a different story. Walmart's done nothing. While Costco's stock has rallied from 862 to 915, including a monster 3.7% gain today after some good numbers last night. And I don't think it's done.
Earlier this week, I told you that Larry Williams, the great technician, said Costco is screaming buy. That number that they got last night, much better than expected monthly sales. I liked every single bit of it. The comparable sales accelerated in December with digital stepping up versus November. The year-over-year number showed a terrific gain. It was the best beat from the company that I've seen in quite a while. I think the estimates are now too low. I think we're going to see a host of earnings bumps and price target increases. Costco, I like it.
Or take Nike. Oh boy, the stock of Nike. What had it been? The house of pain. This thing spiked when they canned the previous CEO and put in an old hand, Elliott Hill. He's had to work fast with his Win Now initiative that includes returning the company to its roots as a sports-based business. Still, if you take a longer-term view, this stock has been a nightmare. Okay.
But late last month, three board members including Hill and Tim Cook, yes, the CEO of Apple, bought a ton of stock with Cook actually putting almost $3 million to work. Boy, talk about a hand-over-fist vote of confidence. Today, an analyst from Needham decided to downgrade Nike from buy to hold. I'm going to quote because I thought it was just, I thought it was kind of outrageous.
Quote: 'The turnaround is progressing slower than we expected. We're concerned about the recent level of selloff in the North American wholesale channel. China appears highly problematic and street numbers for the next 12 to 24 months look too high for us.' End quote. Did the stock get hammered in response to that incredibly negative sentiment? No, it closed up more than 3%. Were Nike's buyers simply mocking this bearish analyst?
Actually, it's a new year and there's a lot of value in Nike. North America has already turned. China is a disaster, but Hill knows it. He has a plan. I want to invest alongside Cook and Hill. I'm not dissuaded by what Needham says. Not at all. In fact, I'm cheered. When a stock goes up after such a sharp downgrade, you know, I think it's been immunized against the negativity. I predict analysts will come out from their foxholes, from their shelters, and say buy, buy, buy. Nike.
Finally, the homebuilders. Hardly a day goes by without an analyst downgrading these stocks, cutting the price targets, but today turned out to be a cut too far and the homebuilders actually bounced. Do I want to own them? I don't know. But I do want to own the stock of Home Depot. A leading indicator rallied 3% today. Lots of people have given up on the stock because it's so tied to housing turnover.
Something that would get a real boost, though, if the president can force investors that own single-family homes to dump them en masse. We own Home Depot for the Charitable Trust, proudly our only housing exposure, and I am beginning to feel pretty darn good about this situation which has been tough.
Now, some of these rebounds are because hope can spring eternal. Optimism tends to bloom at the beginning of the year. But that optimism does not come with new money. The cash to buy these things is coming from somewhere else. Today, these stocks were bought with gains from last year's winners, chiefly tech winners. These stocks have become sources of funds.
It's not by luck that the worst-performing MAG7 stock in 2025 is Amazon. It's the best-performing stock of the group so far in 2026. On the other hand, no matter what good Nvidia says, it's doing nothing. Nobody seems to care anymore. And that stock's being sold. And that's providing a lot of cash for all the other stocks I talked about.
I don't know how long this rotation from high-performing stocks to low-performing stocks will last. The valuations are shifting rapidly. I've seen this kind of early action time and time again in my 44 years of trading and investing. Can you believe that? Sometimes it lasts about five days. Other times I've seen it go for two weeks. Equilibrium tends to be reached by week three.
But the bottom line for now, brace yourself. It's Dylan time. D-Y-L-N kind. So keep your eyes open because the wheels still in spin for the loser now will be later to win because the times they are changing.
Jim in California. Jim, congrats Jim for your Eagles winning their division once more as the defending 2025 Super Bowl champs. Well, thank you. We do have a big game Sunday at 4:25 against the Niners. The line is giving four and a half to the Niners, but I'm going to be out in San Francisco missing the game. Why? Because I'm an idiot, but I'm also covering the JP Morgan Healthcare. So, what's going on?
Hey, I've also been enjoying the meteoric rise of the SoFi share price and we purchased it thinking that the fintech stocks would rise because of their expectations of falling interest rates, AI integration and their 100% digital model. Even though SoFi's share price has recently been punished with a recent funds raise, is this an opportunity to buy more at these lower levels?
I think actually, believe it or not, Jim, I think the stock has not come down enough. But I think the stock acts what I call heavy. There's a lot for sale. I want you to wait. I'm not going to give you the go-ahead to buy it. And by the way, I've liked the stock since five. I'm on record telling Anthony Noto, I think it was right. So, I've got some what I call gravitas. All right.
Anyway, I don't know how long the rotation is going to last. I want you to brace yourself because as the great Bob Dylan once said, the times they are changing.
I made money tonight. Several sectors stood above the rest in 2025. I'm going to reveal which areas outperformed the market and if they can continue their run in the new year. Then for every winner there is a loser. I'll run through the sectors that performed the worst in 2025, give you my take on which ones can rebound in 2026, and the aforementioned Constellation Brands, the beer kind, today after reporting a top and bottom beat. So are the stars finally aligning for a turnaround? I'm breaking down the quarter to find out. I want you to stay with Cramer.
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At the beginning of every January, I like to look back at the previous year to understand the character of the market because it's very hard to predict where we're going if you don't know where we came from. And that's why tonight I want to break down the performance of each major sector in the market for 2025. Now, there are 11 of them and they give us a real good sense of what worked and what didn't.
I'm going to start with the sectors that outperformed and then after the break I'll go to the underperformers. Like I said, there are 11 major sectors and last year only three of them outperformed the S&P 500. Communication services, that was up 32%. Information technology, up 23%. And industrials, they were up almost 18%. Those were the only groups that beat the S&P's 16.4% gain.
That's kind of remarkable when you think about it. Didn't everyone think there's like a real bull market here? Let's take them one by one. The communication services sector is a weird amalgam of companies that was created in 2018 because the old tech sector was getting too big and the old telecommunication sector was getting too small.
So MSCI, which is the keeper of these groupings, combined a bunch of telecom, media and entertainment companies as well as some other companies that we think of as tech companies. I know it's strange because it's Alphabet and Meta Platforms. These are really big companies into the hodgepodge sector now known as communication services. Probably confusing to you. It's always confused me. It's very artificial.
All right. That hodgepodge did great in 2025, led by Warner Brothers Discovery, which finished up nearly 173% after late-year bidding war that ended with the company announcing it's selling to Netflix. Although there's still a possibility that it might go to this Paramount.
Congratulations to Warner's David Zaslav for delivering phenomenally for shareholders. I got to tell you what a performance this thing was. At eight bucks when he told me, 'Listen, this thing's worth 30.' And boom, guess what? Probably get 30.
The fifth best stock in the group is Electronic Arts. That's also got a takeover bid. It jumped almost 40% because it's being taken private by a group of investors led by Saudi Arabia's sovereign wealth fund. The pin action from that deal boosted the other video game stocks like Take-Two Interactive, TTWO, which will be the only independent publicly traded game publisher after EA goes private.
Take-Two was up 39%. Great scarcity value there and a hope for a launch of the new edition of Grand Theft Auto in the works. By the way, it's the greatest performing entertainment property in history.
Apart from that, Alphabet was very strong last year, up roughly 65% as the outcome from its antitrust trials amounted to really just a slap on the wrist. While their Gemini 3 AI platform, don't know if you've tried it. I use it all the time. Although I don't use it authoritatively. I just use it as some way as a compilation. It compiles things for me. It's a home run and it's now threatening ChatGPT for mind share.
Then another media company, Fox, came in third place, up just over 50%, and Combat Sports King, TKO Group, that rallied 47%. We recently had them on the show. Meanwhile, the traditional telco carriers put up some positive action while the cable stocks and some advertising companies were really horrible. But it wasn't enough to drag down the entire group.
Next, there's the second best performing sector and that's information technology. The gains here were led by semiconductor stocks, especially the memory and data storage companies. Think SanDisk, Western Digital, Micron, and Seagate. Not the highest level of tech companies, but companies that had great scarcity value to their wares.
Each of these stocks more than tripled last year and then roared some more in the first days of 2026. Now they're cooling off, taking a much-needed breather after overheating. And let me just tell you, I don't blame anyone for wanting to ring the register on the memory stocks here. That's the responsible move. If you own them, please do what I call a schnitzel. Take a little off the table.
Plenty of other chipmakers and semiconductor capital equipment makers generated tremendous outperformance. Think Intel, which the president's been talking about. Had a meeting just the other, just now with the CEO of Intel, Lip-Bu Tan. AMD and Nvidia, which I know has been weaker, but as the chipmakers ended up being the AI winners with the most staying power.
Now some of the other data center hardware players did very well. Look at Corning, GLW, we used to call that glowworm, GLW, a key holding of the Charitable Trust, that leading maker of fiber optics, up 84% last year and I still think it may be one of the best performers for 2026.
Apart from that, retail favorites like Palantir and AppLovin stood out. Some cybersecurity stocks like CyberArk, I love that acquisition today into this privileged access management business. And I also like to see some big runs in old tech, that's names like IBM, which I think is still very inexpensive, and Cisco Systems, pre-trust, they were up 35 and 30% respectively.
Now not all tech did well last year. Many enterprise software companies had a bad year as I've mentioned before. Tech consulting firms like Gartner, Accenture, decent day-to-day, and CDW, they took a bath in 2025. These groups are being eaten alive by competition from AI. And then there were some one-off weak performers. Zebra Technologies, HP, Fair Isaac, and Skyworks Solutions. Okay, HP is HPE, you know.
Finally, let's talk about the industrials, the last major sector that outperformed the S&P 500 in 2025. As I've been telling you for a while now, the industrial cohort contained a number of subsectors, and you really have to be careful picking the right ones. Some subsectors, like anything related to power generation or aerospace, did incredibly well in 2025.
The second best industrial stock in 2025 was a Charitable Trust holding, GE Vernova, which nearly doubled, while the third and fourth best were Howmet Aerospace. We call that 'How I Met My Mother' because it's just something we do here and we have a lot of time on our hands, and GE Aerospace. Those names tell you everything you need to know.
Last year also surprisingly turned out to be a pretty great business year for the defense contractors. Think HII, that's formerly Huntington Ingalls Industries, that's a shipbuilder, finished up 80% last year. Good for fifth best among the industrials. Several others like RTX, L3Harris Technologies and General Dynamics had strong years too.
When the second Trump administration took over last January, there was a lot of talk about it fighting cost savings, especially in the bloated defense budget. As it happens, THAT WAS A TOTAL FAKE OUT. Just yesterday, the president said he wants to curb defense contractors from spending money on dividends and buybacks. Sent the stocks lower. And then after the close, he said the Pentagon should increase his budget by 50% to 1.5 trillion. That sent defense contractors up.
At the end of the day, if we're going to conquer Greenland, we'll need a lot more military hardware. Kidding. Kidding. I mean, how about snow plows?
What else worked in the industrial sector? There was some strength in heating, ventilation, and air conditioning, technically called HVAC. That was connected to the data center buildout. And the winner here is Comfort Systems USA. That's a name I don't know well enough, but the symbol's so great, FIX. It ended up being the best performer in the S&P 500 industrials 2025, up 120%. Others like Johnson Controls, JCI, did very well too.
There was some select strength in the transports. C.H. Robinson Worldwide and Uber Technologies both rallied. C.H., I got to tell you that C.H. Robinson, I think they kind of declared an end to the freight recession.
On the losing side of the industrial cohort were some housing-related stocks like Builders FirstSource, Masco, they make cabinets, and then Stanley Black & Decker. Like everything housing-related, these companies needed meaningfully lower interest rates in 2026 to make a comeback. They didn't get it.
Other economically sensitive names like Paychex, we have them all the time and people didn't like the last quarter. I thought it was okay. And Paycom Software, both of which are kind of odd to see in the industrial sector. Then UPS, that also underperformed. You know, I like FedEx most.
Overall, however, there were enough strong sectors in the industrials to pull up the performance of the overall group, which is why the industrials in the aggregate rallied 18% last year, outperforming the overall market.
Here's the bottom line. When you look at last year's big winners, they're concentrated in communication services, information technology, and certain industrial subsectors. As for underperforming groups, there are eight of them. I'm going to go through each one after the break. Mad Money's back after the break.
Coming up, Cramer is turning to the eight sectors that lagged the market in 2025 to diagnose what went wrong and whether it will change in 2026. Next.
Even though last year was terrific for the stock market, when you break things down by sector, only three groups outperformed the S&P 500. That was communication services, information technology, and the industrials. Of course, those sectors weighed in at 53% of the S&P, but what about the rest of the market? Let's go through the other eight sectors, the ones that underperformed.
Descending order, please. First, the financials were the fourth best sector in the market last year. They were up 13.3%. Now, there were some huge winners like Robinhood, that was up more than 200%. The big banks did very well. Citi, Goldman Sachs, Morgan Stanley, JP Morgan, Wells Fargo, they were up more than 25%. Capital One, major bundle too.
Now, we own Goldman, Wells, and Capital One for the Charitable Trust. And of course, you can follow along with our moves by joining the CNBC Investing Club. On the other hand, the insurance companies were merely okay, lagging the market. There are a ton of them. The publicly traded private equity firms got hit too. And the fintech names were down significantly.
For 2026, I say please just keep it simple. Stick with the banks. They're still cheap, especially the investment banks. Even after these moves, I really like them.
Fifth best sector is the utilities, up 12.7%. And we saw some real strength in the independent power producers like NRG and the aforementioned Constellation Energy, driven by all the electricity demand from, yes, the data center. And that strength has extended to some old-fashioned regulated utilities like American Electric Power, which acted like a growth stock, and Energy, big deal there with Meta, both up more than 20%.
However, there were also many utilities that put up middling performance and a couple of California-based utilities never really recovered from the wildfires early last year, had some big losses.
The sixth best sector and the only other sector to finish 2025 up double digits was healthcare, which finished up 12.5%. Coming into last year, there was a lot of worry about what the Health and Human Services Department might do to the industry under the leadership of RFK Jr. But when the worst of these fears failed to materialize, the healthcare stocks were able to make a big run into the end of the year.
Guess what was the best performer? CVS Health, up nearly 77% as the company recovered under new CEO David Joyner. And their top competitor Walgreens is shutting down a lot of stores. Joyner's money.
I'm looking for another huge year. The drug distributors continue to relentlessly climb higher. There's nothing, you know, people hate the pharma middleman. Even the president doesn't like about them. But I got to tell you, their stocks, they are juggernauts. Cardinal Health, Cencora, and McKesson, they were all up more than 40% last year. Cardinal is really the monster of that group.
The hospital stocks did well too. Some large-cap names stood out. By the way, in healthcare, J&J, Gilead Sciences, AbbVie, Amgen, still up more than 25%.
On the other hand, most managed care companies got obliterated, with Molina Health, Molina Health, I'm sorry, and UnitedHealth. They're both down 40 and 35% respectively. That's terrible. They all lost big money in their Medicare Advantage plans.
The MedTech and medical device stocks had surprisingly weak years. And then there were lots of sedate pharma stocks with meager gains. Mixed bag.
Hey, by the way, we're going to get a real deep dive into the sector next week when we go out to the JP Morgan Healthcare Conference in San Francisco. We got a huge slate of interviews with the top people including the CEOs of Pfizer, Regeneron, Amgen. You don't want to miss it.
Now, let's get to the more dramatic underperformers starting with the materials sector. That's up just 8.4% last year. Some of the precious metal stocks really roared thanks to the strength in gold. Look at Newmont up 168%. Freeport-McMoRan, largely a copper company with some gold, rallied 33%.
A couple of steel companies also did well, benefit from the new tariffs, and there were some one-off success stories like Albemarle for lithium and CRH for construction materials, but most of the chemical companies dragged the materials sector down. Dow and LyondellBasell both fell more than 40%.
The packaging stocks were mostly very weak too. That reflects weakness in what I've been calling the real world economy, meaning the non-data center economy, because the real economy needs lower interest rates to thrive.
Next, both of the main consumer sectors were soft last year. The stronger consumer discretionary group put up just 5.3%. That's a gain in the aggregate. So, you had some big winners worth pointing out. One that we've championed for a long time, Carvana, that was up 108%. Some big losers like Deckers Brands down 49% and Lululemon down nearly 46%. Ouch.
In addition to Carvana, we got nice gains from Tapestry and Ralph Lauren, both terrifically well-run companies. And General Motors, thank you Mary Barra, all up more than 50%. Expedia, Hasbro, Ulta Beauty, DoorDash, and Cramer fave TJX, because we own it for the Charitable Trust, also posted nice gains.
On the other hand, many consumer travel plays have middling performances even as they've recovered in the last few months. The restaurants in general were pretty bad. There's a lot of inflation issues there. Many home improvement retailers, think Lowe's, Williams-Sonoma, and Home Depot, lagged because of a weak housing market. I love the action in Home Depot today.
The homebuilders were downright awful. They look terrific today, but again, that was because they were down so much last year.
Next, there's the energy sector that finished up 5% for the year. Now, we got some major costs here. The refiners mostly did well and some natural gas-focused producers did fine. But the integrated oil giants that we all consider as the oils like ExxonMobil and Chevron, they underperformed. The exploration and production companies were lucky to manage low single digits.
Texas Pacific Land, a quirky story that we've been behind, was a huge gain or pullback in 2025, was down 22%. And ONEOK, the natural gas-focused pipeline play, was the caboose sector, down 27%. I mean, I talk about ONEOK and how to make money in any market. I think this is a great opportunity and I wrote this when I saw, but the chapter that included it included the fact that the stock was already down and I thought it was a great buy.
How about the plight of the consumer staples cohort? This was the second worst group in the market last year, is up just 1.3%. How about some standouts? The dollar stores, they did well with Dollar General and Dollar Tree checking off tariff worries to rally 75 and 64% respectively.
Monster Beverage also had a good year, up 46%, and the long-hated Estée Lauder mounted a recovery, up 40%. That just wasn't a dead cat bounce, but man, that stock had fallen way too low. Philip Morris International posted 33%. Again, Walmart, talked about that earlier, up 23%, beating the market.
You know, now I like the underperforming Costco and I accept that the dollar stores will just keep running. They are Wall Street faves, but the rest of the sector really awful. The packaged food stocks were mostly lower with some huge names down, just the big ones just down horribly, and some of that was GLP-1.
The consumer packaged goods stocks also drifted lower with even high-quality operators like Procter & Gamble down double digits. Now I recommended Procter here yesterday and it rallied $3.50 and I do not think it is done. Today, a weaker operator like Clorox tumbled 38%. Target was a one-off disaster, down 28%, and the alcohol companies, they were just eviscerated.
So, in keeping with what I said at the top of the show that they all had excellent days today, finally the worst performing sector of 2025 and the only one of the 11 major sectors to finish in the red was real estate, which ended the year down 0.3%.
The success stories here were few and far between. A pair of healthcare REITs, Welltower and Ventas, rallied 47% and 31% respectively. Real estate services firm CBRE Group had a surprisingly strong year, up 23%, and an old-time Cramer fave, REIT.
But overall, 24 of 31 real estate stocks in the S&P 500 finished in the red last year. 23 of those were REITs. There was real pain. The retail REITs and even some of the data center REITs were down double digits. Maybe they just have the wrong kind of data centers there.
Also one-off performers like Howmet, a lumber company that's been hurt by soft housing market, and Alexandria Real Estate Equities. Those guys own office buildings for life science companies. Stock was down almost 50% after the company was forced to cut its dividend.
There's really no need to overthink this one either, people. The real estate stocks mostly just need lower interest rates to do better. Looking at all the groups that underperformed last year, I think the financials will be the winners this year. I still like the utilities. I'm optimistic about healthcare after it rebounded late last year.
And one of the reasons, of course, I'm going out to California to cover the JP Morgan Healthcare Conference and all the major and minor drug companies will be there. If we get that lower rate, get the lower rates that I'm looking for, it'll be good for the materials sector, real estate sector, and the consumer discretionary cohort. Energy might benefit, too.
But I'm less optimistic there because the White House is so aggressive about boosting production, which is bad for pricing. As for the staples, the best thing I can say is that some of those stocks have just gotten cheap, cheap, cheap, and their yields look great. I just don't know if that will be enough.
The bottom line now you know why the 11 big sectors are positioned as the new year gets going. You know what they look like. You know how I feel they'll be. We can make predictions about where these groups might be headed based on what we saw last year. Let's go to Ned in Ohio, please. Ned.
Good afternoon, Professor Cramer. I hope you're doing well, sir. Doing well. Absolutely. Same to you, Ned. What's up? Well, I have a question I wanted to ask you having to do with short selling volumes and in particular I've been looking at Best Buy and last year their short selling volume was in the moderate to high range I think and I noticed today this stock is moving up. I'm wondering how do you use short selling volume or if or do you use it when making opinions about buying a stock?
If I think the company is crummy, I don't regard it as an issue. It's going to go the right to short it. If I think it has got a good dividend and has some high-quality management and I see a big short position like this one with 8%, I do take a look at it and I think it's valuable to look at because you might have a coiled spring. Hence that Best Buy does have a 5% yield, but you need lower rates for that one to work.
Out of all the underperforming sectors last year, I think the financials will be the biggest winner. And you know, I like Goldman, I like Capital One. Both of them are absolutely terrific. And Wells looks like I think it's going to go through par. Authentic Wall Street Jippers for 100.
And now that we reviewed all 11 sectors, I hope you had a good framework of where all these groups might be headed in 2026. Much from Mad Money, including my breakdown of Constellation Brands' latest earnings. The owner of Corona and Modelo saw its stock jump more than 5% today. So is now the time to say bottoms up to this beaten down name?
I'm sure I come out. Then it seems like President Trump is setting a new precedent by intervening in such a wide range of industries. But tonight, I break out the history books to tell you why this is nothing new from the White House. And of course, all your calls rapid fire in tonight's edition of the Lightning Round. So stay recorded.
Like I mentioned at the top of the show, last year was very tough for the alcohol. That's especially true for Constellation Brands, STZ, best known for its Mexican beer portfolio, Modelo, Corona, Pacifico. Stock was down 38% in 2025. June, that was the 15th worst performing S&P 500. This one's been a tragic underperformer for a while since mid-2024.
Now, some of that's thanks to the GLP-1 drugs. You know, they not only reduce cravings for snacks, they also reduce craving for alcohol. So much because younger people seem more health-oriented than their parents. So much because Constellation's big Hispanic customer base that's less willing to attend large gatherings during this immigration crackdown.
Doesn't help that there are tariffs on imported beer and the aluminum used for cans. Now, we used to own this stock for the Charitable Trust, but you know what? I finally threw in the towel last February. I really couldn't, I just saw nothing but pain in the future for the darn thing. Since then, the stock's down 20 to 30 points, and that's after a 20-point rebound from its November lows.
Today, though, the stock did shoot up more than 5% on a better-than-expected quarter. I got to tell you, Constellation Brands looks a heck of a lot more attractive here, down here, I should say, than a year ago. This thing was trading at about 20 times earnings when things started going wrong in 2024. Now, it sells for just 13 times this year's earnings estimate.
It pays a decent dividend now, and that wasn't because it was raised, it was because the stock went lower, 2.8%. So, is the worst over? Look, I'm open to the possibility, but I don't think we're there yet. See, just because a quarter is better than expected, that doesn't mean it's good.
Last night, Constellation reported better-than-expected numbers across the board. Although those expectations were really incredibly low. Still, a beat is a beat as certain as a rose is a rose. That's some great stocking advice from Gertrude Stein. Not sure what firm she's at.
The company's organic sales were down 2% year-over-year when Wall Street was looking for a 2.9% decline and they earned $3.66. Wall Street said $2.63. That's a nice beat.
Going business by business, Constellation's long-struggling wine and spirits division put up $213 million in sales. Look, that was a huge positive. Analysts were looking for $173 million, but it's still down 7% on an organic basis. Obviously not good in a vacuum. Much better than the previous quarter where it was down 19%.
Of course, it's the beer business that really matters here. It makes up roughly 90% of its sales. Beer revenue came in a little light, mostly driven by lower volumes, although that was partially offset by higher pricing. Now, you really want it to be the other way around. This one is down so much those numbers looked up to me, though.
Shipments from Constellation's breweries to distributors were down 2.2%, slightly better than expected, a 2.9% decline, while depletions, key measure, okay, and that's what their distributors sell to retailers, declined by 3%. That's a bit better than the 4% decline Wall Street expected.
That's enough though. Again, none of this is super encouraging. But I think it's good to see shipments so close to depletions because that means the wholesalers are no longer trying to lower their inventory. Very big positive in terms of branding. Modelo Especial and Corona Extra remain the number one and number five beer brands in the United States.
Hey, look, for what it's worth, some of Constellation's smaller beer brands, Pacifico and Victoria, managed to deliver positive depletions, up 15 and 13% respectively. Bill knows that Pacifico is now the number two brand in the state of California. He expected to replicate Modelo's previous success in moving from West Coast popularity to the rest of the country. There goes Longne.
As for profitability in the beer business, the operating margin actually ticked up 10 basis points year-over-year to 38% thanks to favorable pricing and lower depreciation expense. Now, Wall Street had been expecting a 35.4% operating margin for the beer division. Upside surprise.
Unfortunately, when you listen to the conference call, management's talk about margins was less optimistic. This is what worries me, which is why the stock gave back some of its gains after the call started at 10:30 a.m. this morning. First, Constellation CFO Gar Henson explained that Constellation's operating margins are under pressure in the current quarter,
which ends next month. Some of that's because the fourth quarter is Constellation's lowest volume quarter from a seasonal perspective, accounting for just 20% of full-year volumes. That means its fixed cost pressures will be amplified. Now, some of it has to do with the depreciation benefit from the third quarter becoming more of a headwind in the current quarter. And some of it, well, it comes down to tariffs, higher aluminum can prices.
Given those fourth-quarter headwinds, an analyst asked what that meant for Constellation's medium-term operating margin guidance from last April. And Henson said, quote, I'm going to quote it here, 'The guidance was given under a different set of macroeconomic conditions, and the macroeconomic environment has worsened since that time.' End quote. That's just bad.
He said he'd go into more detail next conference call in April. It's not encouraging. I would not stick around for it. On the other hand, there were some positives. Constellation Brands seems cautiously optimistic that the upcoming World Cup tournament can be a positive catalyst. So, this is a trading stock right now. CEO Bill Newlands called it a beer moment. I plan to start borrowing that terminology with my wife.
Eagles play at 4:25 against the Niners Sunday. Seems like a beer moment to me. Newlands also called out some new products that are resonating with customers, like Corona Sun Brew, which is more citrusy, and Corona non-alcoholic, which apparently is what the kids go for these days. The kids are not all right.
What else mattered on the call? Unsurprisingly, Constellation still not ready to give an all-clear for their Hispanic customer base. Even though many analysts tried to goad management into saying something more positive. When an analyst asked if lapping the initial shock of Trump's immigration crackdown last year could make things better, Newlands said, quote, 'We hope you're correct.' End quote.
But he went on, quote, 'With zip codes that have greater than 20% Hispanic representation, it still remains very challenging.' End quote. Overall, this was an encouraging quarter from Constellation Brands. Management is talking a lot these days about controlling the controllables and I think that's the right perspective because these guys have no control over tariffs. They have no control over immigration policy. I am glad they are not overpromising either.
So the bottom line, look, I'm not ready to pound the table on Constellation Brands again. I'd like to see their volume start rising before going positive, but I am open to the idea that this comeback can maybe be real and that you get a trade here. The expectations are low enough, the stock's multiple low enough, and the core business is stabilizing if not yet improving. Too soon for me, but I don't think you're crazy if you want to start a small position, trading or otherwise, in Constellation Brands, STZ. Mad Money's back after the break.
Coming up, Cramer takes your calls and the sky's the limit. It's a fast-fire lightning round next.
It is time. It's time for the lightning round. Start by sharing the sound. And now the lightning round is over. Are you ready? Skinny daddy. Time for the lightning round. Let's go.
Jeff, booyah! Jim, Apollo Group invested $1.2 billion in a convertible preferred in QXO. Is that a floor and is it a buy? I think it's a buy because it's Brad Jacobs. You can't bet against Brad Jacobs. They do have a 10% short position. I tell you, while I'm not just pounding the table because it's all the way up, I think it's a buy. Let's go to Joe in Iowa. Joe,
Big Jim, you and my spec are both going to be at the JPM conference this next week. My stock ticker, VKTX. VKTX. Oh. Oh. Oh. Viking Therapeutics. Okay. No, look. I'm an Eli Lilly guy. Okay. I'm going to stick with it. If I'm going to do Viking, I'm going to do Viking Cruises, right? Vik. That's the one you want to own. I mean, of the Vikings. I need a Viking horn. I want to have a Viking. Let's go to Jacob in Alaska. Jacob.
Hey, Jim. How's it going? Not bad, Jacob. Thank you for asking. How are you? I'm doing pretty good. It's minus 20 in Anchorage this morning, but I'm hanging in there. But on the business, the new aerospace IPO, Starfighter Space, has an incredibly volatile, it's had a volatile debut since listing is.
Here's what I want you to do. Here's what I want you to do. This is, as I say in my book, How to Make Money in Any Market. You have a spot for a spec. FJET is what I call an Uber spec. And there is room for an Uber spec. And that, Lindam, put it on the lightning round.
The lightning round is sponsored by Charles Schwab. Coming up, worried about the White House's recent interventions in industry, Cramer's giving a history lesson on how similar moves turned out in the past. Next.
Every time President Trump takes a more interventionist approach to the economy, it makes me feel ancient. Yesterday, Trump said he didn't want to see any more buybacks or dividends from the defense companies until they did better at their jobs. Then a few hours later, he talks about putting through a 50% increase in defense budget. Defense stocks, they got hammered and then they soared.
People act like this stuff is unprecedented, but it's only unprecedented if you were born after the Carter administration. If, like me, you lived through the middle of the 20th century, it's just retro and from a different party entirely. Let me give you an example from my childhood. In 1962, JFK was petrified that inflation could run rampant. And the steel industry was at the crux of those rising prices.
The president recognized that both the unions and the companies were at the heart of the problem, prevailed upon the incredibly powerful United Steelworkers of America to accept a contract with no wage increases. In exchange, the steelmakers were supposed to hold off on putting through new price increases. But literally days after the labor agreement, the steelmakers put through a 3.5% price increase right in the president's face.
JFK was enraged. He felt even double-crossed. So he held a highly unusual teleconference where he said, quote, 'A tiny handful of steel executives whose pursuit of private power and profit exceeds their sense of public responsibility can show such utter contempt for the interest of 185 million Americans.' Sounds like Trump, doesn't it? Maybe even more conspiratorial.
After letting people know that he agreed with his father, the former head of the SEC, who routinely called businessmen sons of, JFK told the Secretary of Defense to shift steel contracts away from the big manufacturers to smaller ones. And then he told the Justice Department, run by his brother, Robert Kennedy, to open an antitrust investigation into the companies that raised prices.
JFK basically extorted the entire steel industry and within days they rolled back the price increase. Very Trumpian, right? Maybe you think that doesn't count because JFK was a Democrat. Fine. How about Richard Nixon? He imposed wage and price controls in 1971. Like this, a blanket freeze on price increases in order to tamp down inflation. Very popular at first, even if the policy ended up being a disaster.
So, this stuff from Trump isn't unprecedented at all. It's just that we haven't seen it since the Reagan revolution. Now, the current trade-off for the defense contractors, a big budget increase in exchange for axing their dividends and buybacks, doesn't really appeal to me. I think the dividends and buybacks restraint may be more impactful than the president's ability to raise the defense budget. Something that needs to be authorized by Congress.
The president's other initiative yesterday, he wants to ban institutional investors from buying single-family homes. That's quite unorthodox. But you know what? There's actually a case to be made that if you kick these companies out of the housing market, it will put downward pressure on pricing because they'll flood the market with new homes.
Plus, the vacancy rate of homes owned by individuals is much lower than the vacancy rate of the homes owned by corporations. If you can force the sale of these corporate-owned homes, it could cause prices to drop. It would certainly change the psychology of homeowners who right now are too confident that prices will stay high and are unwilling to sell to beat any sort of decline.
Again, it's a highly interventionist policy, something you maybe expect from Bernie Sanders, not from Donald Trump. But when the public is angry about inflation, the government starts getting real creative. Nixon, the biggest anti-communist short of Joe McCarthy, went full command economy to get inflation down.
So before we dismiss these moves as radical, I urge you to read some history. When voters get mad about inflation, politicians of both parties tend to scorn the free market. Some of you just haven't seen it before because that's because from the mid-80s until COVID we had very low inflation in this country. Our leaders during that time never felt compelled to do anything crazy to get costs under control.
You know what? Maybe you just don't know how good we had it for so long. I like to say there's always more. My props are fine just for your Mad Money. I'm Jim Cramer. I'll see you tomorrow.
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