Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday November 26.
Black Friday, Bleak Monday. Stocks discussed: iShares FTSE China 25 Index ETF (FXI), Nike (NKE), Yum Brands (YUM), Joy Global (JOY), CSX (CSX), Norfolk Southern (NSC), JPMorgan (JPM), Goldman Sachs (GS), Wal-Mart (WMT), Macy's (M), Costco (COST), Apple (AAPL)
Stocks performed well on Friday, and that day "represented everything that could go right," with the market. Monday’s session, with the Dow down 42 points, added a dose of bleak reality. Friday’s rally was partly caused by strong numbers out of China, and there is some indication that the Chinese government is taking steps against inflation and is creating growth. The ETF FXI (FXI) is worth buying on a possible turn in China. Other stocks that will improve with the fortunes of the Middle Kingdom include: Nike (NKE), Yum Brands (YUM), Joy Global (JOY), CSX (CSX) and Norfolk Southern (NSC).
Industrials and international U.S. banks like JPMorgan (JPM) and Goldman Sachs (GS) rose on hints that there might be an agreement over Europe’s economy. Initial returns from Black Friday retail sales were strong, including those of Wal-Mart (WMT), which despite labor disputes, raked in huge sales on Friday. There was a Day of Good Feelings regarding a compromise preventing the fiscal cliff disaster.
However, much of this optimism was reversed on Monday, when headlines indicated the problems with Greece were getting in the way of European financial reform, and there was no easing of Chinese interest rates. Hardliners who do not want to compromise on the fiscal cliff voiced their strong opinions over the weekend. Although sales from Macy’s (M), Apple (AAPL) and Costco (COST) were strong, a few skeptics expressed doubt that the strength in sales can be maintained throughout the holiday season.
The bottom line: if there is a compromise on the fiscal cliff and if China remains strong, Cramer thinks stocks can go higher. However, if no agreement is reached, the U.S. might join Europe and face a slowdown.
Ross Stores (ROST). Other stock mentioned: J.C. Penney (JCP)
While sales on Black Friday were strong, there is some skepticism about the health of the retail sector because of the impending fiscal cliff. Cramer recommends buying retail stocks, like Ross Stores (ROST), that tend to do well even when the economy isn’t. During the last recession, Ross Stores managed to hold up, and since 2005, has reported only one quarter (in the depths of the recession) of declining same store sales. Since Ross Stores sells discounted items, it is the go-to place for consumers who are looking for bargains. The stock has declined to $56 from its late summer high of $70. Part of the decline was due to fiscal cliff worries, and partly due to the very high expectations of analysts from ROST going into the quarter. Some were worried about deceleration of same store sales and weak guidance. Cramer pointed out that ROST had challenging comps, and still has high single digit same store sales. ROST is being conservative on guidance, because it plans to under-promise and over-deliver.
ROST is a regional-to-national growth story with several discount concepts to fit various demographics. The business model is a good one; ROST buys up inventory at a discount, because retailers are desperate to get rid of it. J.C. Penney’s (JCP) pain is ROST’s gain, and the latter is taking major market share from the "disorganized, dysfunctional JCP." The stock yields just 1%, but it has a generous buyback program, and has retired 25% of its shares in the last seven years. ROST has a multiple of 14.5 and a growth rate of 13%.
FedEx (FDX) vs. UPS (UPS). Other stocks discussed: Skullcandy (SKUL), Sears Holdings (SHLD)
As online sales rev up for the holiday season, there is one thing all of these e-commerce orders have in common; they have to be shipped. FedEx (FDX) and UPS (UPS) are beneficiaries of this trend. While Cramer likes UPS, he prefers FDX, because it is cheaper and because it is cutting costs and restructuring. The number of online shoppers for the holidays has increased to a number of 129 million expected consumers over last year’s 122 million. Online sales for November to date are up 16%.
FDX has had several disappointments, including a quarter of missed earnings even on lowered expectations. Although FDX’s international express business was the cause of the lackluster quarter, ground shipping was strong. Expectations are now so low for Fedex, that Cramer thinks the stock can go higher. FedEx is carrying out a major restructuring, is reducing its headcount and streamlining its operations. FDX is consolidating its ground and express shipping segments to make them more competitive. Since 30% of FDX’s revenues are from Asia, a comeback in China will be good for FDX. Currently FDX has a multiple of 11, 20% lower than UPS. Cramer would buy UPS at its current level.
Cramer took some calls:
Skullcandy (SKUL) has a product that can easily be imitated, and is vulnerable to competition.
Sears (SHLD) is very close to becoming a wasting asset. Cramer would stay away.
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