Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Wednesday, October 22.
Recession Pick - Eaton (NYSE:ETN)
"This recession has only just begun," Jim Cramer warned. He told viewers this is the worst market he's ever seen and advised them to sell into strength and stick only with the right stocks for this environment. He told investors they should look for stocks with a sky-high dividend yield and management which can handle a recession. One company that fits that bill is Eaton, he said. After sliding from a high of $99 a share, Eaton has slid to $39 a share and sports a 5.1% dividend yield. That slide is just too far, too fast, said Cramer. The company now trades at where it did in 2003, but it is a completely different animal. Since 2003 Eaton has nearly doubled its revenues, improved its margins and raised its dividend 117%. The company has also prepared itself for a recession by diversifying out of autos, which accounted for 41% of the company's sales five years ago to 27% today. The company now focuses on electrical and fluid power systems, making components for a wide array of industries and applications. Cramer reminded viewers of the power of reinvesting dividends by noting that reinvesting Eaton's dividends would double investors' money every 14 years, even without any stock appreciation. He advised buying Eaton on a scale as it trends lower and selling portions if it trends higher.
A Bright Spot - Panera Bread (NASDAQ:PNRA)
Few people look forward to a recession, and it's not like Panera Bread Chairman and CEO Ronald M. Shaich does, but he did tell Cramer Wednesday that a downturn helps his business. "A recession is actually a good thing for a company like Panera," Shaich said. Panera Bread is a stock which he called one of the bright spots of a horrendous day. The company reported its earnings Tuesday, beating estimates by two cents a share and reporting better-than-expected comparable store sales and gross margins. Cramer last recommended Panera on July 23 on the premise that the company's input costs have been falling. Since then the stock has fallen 13.6%, but Cramer said the company is still enjoying those cost savings. Shaich called the impending recession a good thing for Panera, and one that the company has been preparing for over a year. Panera plans to take market share by offering higher-quality food that consumers are willing to pay up for even though their wallets are lighter than normal. He said the company has high customer satisfaction, a strong cash position and no debt on its balance sheet. Shaich said he does not see the recession affecting Panera in a big way. He said while their customers may trade down on a car purchase, they will still eat at Panera on average three times a month. Shaich admitted that the commercial real estate market is in a period of transition, with some developers delaying or pulling back on projects, but he called the market a great opportunity for strong companies. He said the company sees no need for a stock buyback program and instead has chosen to use the money to expand its operations.
Outrage of the Day - Sandisk (NASDAQ:SNDK)
Cramer added Sandisk CEO Eli Harari to his Wall of Shame list of the worst executives, for his rejection of Samsung's takeover bid. SanDisk rejected Samsung's bid, a 93% premium to where SanDisk was trading just prior to the announcement. Harari called the offer "significantly undervalued SanDisk" and "an opportunistic attempt to take advantage of SanDisk's current stock price. As Cramer's said before, in this market, you just don’t turn down premium takeover offers. So because Harari broke this cardinal rule, he's been added to the wall. "Any CEO who rejects a deal like the one Samsung made for Sandisk is looking out for himself," Cramer said, "not his shareholders."
Am I Diversified?
First portfolio included:
- Microsoft (NASDAQ:MSFT)
- Kraft (KFT)
- Wells Fargo (NYSE:WFC)
- Reynold's (NYSE:RAI)
- Proctor & Gamble (NYSE:PG)
Cramer said this caller is doing everything right, and was not concerned with the partial overlap of Kraft and P&G.
Second portfolio included:
- Clean Energy (NASDAQ:CLNE)
- Huntington Bancorp (NASDAQ:HBAN)
- Salesforce.com (NYSE:CRM)
- CBS (NYSE:CBS)
- National City (NCC)
Cramer thinks National City and Huntington are both banks and that is just too risky for this market.
Third portfolio included:
Cramer identified three of a kind with ABB, KBR and Quanta in the engineering field. He said this portfolio needs a defense contractor or a financial stock.
Cramer told a viewer that he's worried about Genuine Parts, and thinks that Monro Muffler is the better auto parts play.
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