Jim Cramer: We Preserve Aiming Greater … and Greater

We are raising the price target on Tesla (TSLA) : $750 to $1,000!

Time to bump our price target for JPMorgan (JPM) from $140 to $160. While we are at it, the price target for Goldman Sachs (GS) from $300 to $350.

Welcome to the world of the bull market, 2021 style, where brokerage houses routinely take up price targets each day, often of the same stocks, and the public laps it up.

I know it seems too good to be true, almost like alchemy, but almost every single time that a Wall Street analyst says a stock is going higher, perhaps far higher, it works. There are that many bulls out there. There are that many people who want to believe and become buyers.

This is an extraordinary moment, and it is not talked enough. Something that is by rote — a price target increase — is actually moving a stock even if it is completely self-fulfilling and has a lot to do with what happened almost a year ago when the Great Pandemic swept through the market causing havoc and crushing stock prices left and right.

If you go back to the big sell-off you will see that analysts across the board believed that the pandemic would take out every sector. We got gigantic estimate cuts and price targets slices for so many sectors: retail, drugs, auto, tech, travel and entertainment, because with a national lockdown, how could you not have a recession that would take every company’s estimates down.

Do you really want to own a heavy equipment company, when those are the first to get crushed by a slowdown? How about an auto company when sales always crater? You want a big home builder when no one can afford to build a new house? How about a railroad, when every single cargo line is plummeting? A restaurant chain when restaurants are shut? A cab company, when no one is taking cabs?

So we witnessed an immense, concentrated swath of estimate cuts and, more important, price target slashings that helped annihilate a gigantic number of stocks. It was what we call a vicious cycle down, business will go soft, so cut the price target ahead of the inevitable decline.

Yes, we did have a decline. Two extraordinary things happened, however, that almost no analyst counted on. First, Jay Powell, the Federal Reserve chairman and Steven Mnuchin, the Secretary of Treasury, along with Nancy Pelosi, the Speaker of the House, hammered out a plan that included brilliant guarantees and stimulus checks that kept businesses alive while putting money in peoples’ pockets to basically stay home, so that the pandemic could subside, until health care officials caught their breaths.

Second, despite endless Cassandra warnings that no vaccine has ever been developed in less than four years from inception — and that was for the relatively benign mumps — modern day science actually developed a bunch of them in less than a year, including two that are 95% effective. Even the congenital optimists were figuring that perhaps, just maybe, the vaccine could be effective 50% of the time.

The result? We didn’t get the myriad bankruptcies that you would expect and we didn’t get the total wipe out of industries that would normally be expected to go kaput if there could be no customers on account of stay-in-place directives.

So, instead of getting a continual vicious cycle down into the drain, we got a quick pivot and, now, what seems to be like a virtuous cycle all the way and then some, led by the endless, ready-made price target raises that Wall Street is so good at.

Let me give you some examples.

First, and most obvious, is Tesla. Its sales never took a hit, its China business benefited from the shutting down of Covid in warp speed — couldn’t resist — and Elon Musk made plans for an Austin pick-up truck and a Berlin factory. All of this happened as price targets were being slashed for the darned thing.

But then, when the stock started reversing, it was like throwing liquid oxygen on a fire. Bears, one after another, had to raise their price targets as the stock screamed ever higher. With the stock back on the warpath, after taking a one-day breather, because people were silly enough to think that its rivalry with Nio  (NIO) is some sort of zero-sum game, the stock jumped more than 40 points to $853.

If you are a Tesla analyst and you are using, say, an $800 target and you think that you had a one-day blip, tomorrow is the day to take your price target to $1,000.

Very few stocks were worse to own last spring than the banks, which were pretty much in free-fall, as the Fed determined that rates would be kept low as long as things were fragile. I used to come in every day and hear estimate slashes and price target bang-downs that were vicious and incredibly destructive.

But then we had a fourth quarter that brought to life trading, volatility, mergers and acquisition, fixed income and stock underwritings and commodities allowing all of these firms to make fortunes.

The problem for the analysts? Their price targets and estimates were through the floor.

Now, they are a little gun shy to raise earnings estimates ahead of the earnings reports that start this week, but they have no choice but to take up price targets. How else do you think the stock of Goldman Sachs just crossed $300 or JPMorgan, $140. It’s the virtuous cycle playing out writ large.

We are seeing it in so many industries that my head is spinning. When the pandemic made restaurants close, the stock of Darden (DRI) went from $121 to $33 with the price targets barreling down with the darned thing.

But when we got the vaccine, the parent company of Olive Garden saw its stock go to $127, with analysts chasing it and trying to get ahead of it, with price target boosts all the way.

We saw the same thing with Caterpillar (CAT) . Here’s a company with a stock that you would never want to own in a recession. But how about if rates are so low that we get a spark in housing like we haven’t seen in ages? How about if China comes back on line instantly and starts ordering machines again? What if the Democrats take control of both houses and we get an infrastructure bill? What if oil doubles off its lows and the oil companies start drilling again?

What if all of those things happen? That’s exactly what happened. And CAT’s never looked back,

Finally, the retailers. In the most grim moment I can recall in retail, non-essential stores got shuttered revealing no sales and high fixed costs that immediately eliminated the ability to pay what were pretty darned good dividends.

So down went Kohl’s (KSS) , Nordstrom (JWN) , Macy’s (M) . Why not? If it takes four years to make even the most simple of vaccines, now long can those stores really be closed?

Now, though, with the vaccine getting injected by the hundreds of thousands and soon the millions, these stores will be able to regain their viable status, especially with still one more set of stimulus checks on the way.

Raising price targets: Kohl’s, Nordstrom, Macy’s.

Oh, and one more thing. The wiseguys all bet that vicious cycles would never end and got short so many stocks. Now they are seeing the impact of the virtuous circle, and they are following the analysts as their stocks traverse their way higher.

It’s a nightmare for the bears, but a jubilant time for the bulls, especially with the government now pushing for people age 65 and up — the real baby boomer crowd — to get jabbed.

Vicious cycle? Nope, Virtuous circle inspired target boosts, the best kind of fuel a bull has ever seen.

(JPM and GS and are holdings in Jim Cramer’s Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)