During the October Monthly Meeting , we took questions directly from Investing Club members. Here are Jim Cramer’s and portfolio director Jeff Marks’ responses. Their answers have been edited for clarity. 1. Why do rising interest rates have such a negative effect on technology stocks? (Rod) Jim Cramer: When the Federal Reserve started raising rates, we made sure to reiterate that we prefer companies that are profitable, generate cash flow, and return cash to shareholders because these characteristics help mitigate the risk of higher funding costs associated with higher rates. Mega-cap tech names have been holding up because they earn a lot of money. As an example, during the period when rates started to soar, Nvidia (NVDA) initially got hurt but the company proved resilient as it kept getting more orders from customers. Jeff Marks: It’s frequently viewed that the present value of a company is based on the sum of future cash flows discounted back at a certain rate – the rate often used to discount back is based on Treasury yields. The higher the interest rate, the lower the present value of each cash flow and thus, a low stock price. Funding costs also matter for growth companies, which are often in tech. If rates are higher, it becomes more expensive to borrow to fund growth and expansion plans if the company doesn’t have the cash. That’s why we made the change last year and said you have to own profitable companies that generate cash flow when the Fed starts hiking rates. 2. Why haven’t the stocks of oil companies risen at the same rate as the price of oil? Is this just a lag effect or are fears about a slowdown offsetting the higher oil prices? (Todd) Jim Cramer: I believe that the rally in oil was a short squeeze that is now over. I don’t think it deserved to be in the $90’s because it didn’t have the economic growth. President Joe Biden mistakenly did not refill the strategic petroleum reserve so he was not able to offload oil. I do think Russia ordered oil and sent it to China which kept it off the market. Our own producers surprisingly did not break ranks. What has happened is the artificial nature of the short squeeze engineered by traders and whole countries came apart when we realized that there were no bids and there was not enough oil in the market. We own Coterra (CTRA), our play on natural gas, which keeps edging higher. CEO Tom Jorden was right when he said that he was putting his bet on natural gas and he’s crushing it. If you don’t own Coterra, I think you’re making a mistake. Jeff Marks: I think the market sniffed out that oil was closer to making a near-term top and that’s why the stocks weren’t being priced like oil was making a run to $100. But if the price of oil stocks remains disconnected from the price of the commodity for long, then what tends to happen is you get some M & A chatter around one of the bigger fishes looking to acquire an independent. That’s exactly what played out last week when the story about…
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