Cramer's Mad Money - The Apple Barometer (10/28/08)

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Tuesday October 28.

The Apple (AAPL) Barometer

In his years of trading, Cramer has noticed there are some stocks that reflect the health of the market and might predict where the market is headed. Cramer thinks the current litmus test for the market is Apple, which recently beat earnings estimates by 15 cents, has sold 7 million iPhones and is constantly innovating new products. In spite of Apple’s strong fundamentals, the stock is trading at a mere 15 points from its 52-week low: impressive considering its 40-50 multiple. In addition, the company has $24.5 billion in cash, 30% of its share price. Strangely, The Street predicts no growth from Apple, in spite of the fact it has beat its last 4 quarters by an average of 10%. On Monday, Apple started the day up $3 and the market followed with a 889 point gain in the Dow. “When Apple goes higher, the rest of the market goes with it,” said Cramer.

If Obama Gets Defensive: AeroVironment (AVAV), Lockheed Martin (LMT), Northrop Grumman (NOC)

Most defense and aerospace stocks are nervous about an Obama victory, which according to the polls, may be on the cards. However, AeroVironment may not only survive, but is likely to thrive in an Obama Administration, in spite of potential cutbacks in military spending. AVAV makes small, unmanned airplanes called UAVs which are cheaper than regular planes. The stock has already risen 40% since its IPO in January 2007 and is competing well with larger companies such as Lockheed Martin and Northrop Grumman. As the only supplier of UAVs to the Ministry of Defense, AVAV may see its stock price fly if Obama is elected.

Bebe Comeback (BEBE)

Bebe has been hit hard, but Cramer thinks the women’s clothing company may be ready for a comeback. It seemed things couldn’t get worse for Bebe, partly due to its own errors including merchandizing and inventory blunders and partly because of a slowing economy and high gas prices. Its same-store sales growth plunged from 2.9% in 2007 to -7.6% in 2008. Although Cramer doesn’t usually recommend retail in a bear market, Cramer says Bebe’s bad news is priced in and the company may come back in style; estimates have been reduced to a reasonable level, the $7.22 stock has $4 in cash per share, Bebe has no debt and has announced a $30 million share buyback plan. Cramer thinks Bebe could beat its estimates next year and suggested in the meantime investors sit back and enjoy the dividend.

Mad Mail: Activision (ATVI), Avon Products (AVN), Lexmark Int’l (LXK), Toyota (TM), Affiliated Computer Systems (ACS), Lender Processing Systems (LPS), Honda (HMC)

Cramer told one viewer that while Activision has come down, the holiday season is going to be terrible because of unemployment. Cramer agreed with another viewer who feels Avon’s stock price is too low; during a time of high unemployment, more people will be looking for Avon jobs and the rising dollar will not put a major dent in international growth. A viewer who threatened to dress up as Cramer for Halloween asked him about LXK, TM and ACS. Cramer wouldn’t recommend any of these stocks, and while he doesn’t like autos, he would choose Honda over Toyota because Honda’s cars are more energy-efficient. Finally, Cramer said Lender Processing Systems is a good stock to hold on to in a recession.

 

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Comments

[.crazylegs..:]

"In spite of Apple’s strong fundamentals, the stock is trading at a mere 15 points from its 52-week low: impressive considering its 40-50 multiple."

Really, Apple has a 40-50 multiple? Try 7. The PE multiple is 7 when you net out cash and that's a historical, money in the bank number. Not a multiple to 2010 estimates. I have to believe this is a typo. If not, very poor reporting SA.

2008 Oct 29 09:41 AM

[Wil:]

Re: AAPL and the Market.

Based off of one day's correllation Cramer is touting AAPL as a beacon for the markets?

2008 Oct 29 09:52 AM

[bobthenoob:]

This is not the first time he turned positive towards AAPL, I remember his crap about how iChat was so revolutionary to pump AAPL so be careful about Cramer's real motives, he is pals with Balmer and biased against MSFT competition. Cramer only spreads misinformation and is not the best source for AAPL news or for any stock.

2008 Oct 29 01:02 PM

[brentstephe...:]

Can someone please tell me how cramer got the $4 cash per share figure for BEBE when there is only 123 mill in cash and 89 mill shares outstanding? if you use the float then it comes to over $5 per share. I did find an article from last year with someone saying the same thing and on there 2007 10-k they did have $4 cash per share. So either im missing something or cramer just used a year old stock recemendation with old facts.

2008 Oct 30 10:24 PM