Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday December 18.
Citi's 2 Lamentable Calls On Apple (AAPL)
Citigroup recently downgraded Apple (AAPL) from a Buy to a Hold; however, this downgrade was announced when Apple was 22 points below its current level. Cramer went over the anatomy of this downgrade. On November 25, Citigroup rated Apple as a Buy with an expected return of 20%, after Apple had seen a 28% correction. The Citi analyst believed there would be an upside in tablets, but was worried about gross margins, which were referred to as "growing pains." Apple traded up 11 points following this call. The analyst had a "growing confidence in the quarter" after a survey of Apple Stores indicated that Apple would not face the supply constraints that caused problems in the past. Eighteen days later, Citi downgraded Apple with a target of $509. Apple traded at $500 before the market opened. The analyst said the previous call was "trading oriented," and didn't think the near term rally would be strong.
Basically, the Citi analyst was saying that Apple was a Buy on November 25 because there were plenty of iPhones available, but didn't like the stock on December 16 because there were too many iPhones. "This is trading, not research analysis," said Cramer. Apple now trades at $534, and Cramer said the lesson to be learned from these "two lamentable calls" is to listen to Wall Street Analysts "at your own risk." Cramer says he liked Apple more at $509 than he did at $571, "Because I like to buy low and sell high."
What the Heck? Financial Select Sector ETF (XLF), Bank of America (BAC), Wells Fargo (WFC), J.P. Morgan (JPM), Citigroup (C), SPDR Gold Trust ETF (GLD), Coca-Cola (KO), Peabody (BTU), Joy Global (JOY), GlaxoSmithKline (GSK)
With the Dow roaring up 160 points amid macro economic uncertainty, Cramer thinks investors are right to ask "What the heck" is happening with this market. While a deal to ease the fiscal cliff doesn't seem likely before January 1st, the rancor in Washington seems to be cooling a bit in the aftermath of the Connecticut school shooting. Transport stocks and financials are breaking out of their ranges. Financial Select Sector ETF (XLF) is finally making a move to the upside. Even though the ETF has run to $16 from its level of $14 in June, it is half of where it was before the recession. Bank of America (BAC) has seen gains, and Cramer thinks Wells Fargo (WFC), J.P. Morgan (JPM) and Citigroup (C) can go higher. Cramer predicts interest rates are going to rise in 2013, and it is a good idea to buy a home now before rates rise. Spending should increase in 2013, because many businesses held back hiring and spending over uncertainty about the fiscal cliff. Gold has declined, another sign that interest rates may go higher, but Cramer still thinks SPDR Gold Trust ETF (GLD) is worth owning.
Cramer took some calls:
Coca-Cola (KO) is the ultimate defensive stock, and is unlikely to rally in an environment when the economy is expected to pick up. Cramer thinks GlaxoSmithKline (GSK) is a similar kind of stock. It might not rise radically, but it is a solid holding that allows investors to sleep at night.
Peabody (BTU) is not a stock to own as long as coal is in secular decline. For those who want to invest in coal, Joy Global (JOY) is a better option, because it has more international exposure than BTU, is cheaper and is likely to be acquired.
Off The Charts: Goldman Sachs (GS)
Goldman Sachs (GS) is up over 40% year to date and is just a point off of its 52 week high, but it might have even more room to run, at least according to its chart. Cramer thinks GS is "ready to come back with a vengeance," since it is significantly lower than it was 2 years ago, and financials seem ready to make a comeback. Robert Lang, technical analyst at RealMoney.com, thinks the charts indicate that GS could rise from $125 to $140 and eventually to $170, a 33% gain. The stock had a major rally over the summer, but moved sideways for 3 months. Now GS has broken up over its 200, 50 and 10 day moving averages. The MACD Indicator, which measures momentum, is showing a bullish crossover pattern, a pattern which has preceded rallies in the stock in the past. While GS gapped down from $126 to $122 following the November elections, it has filled in that gap. From a fundamental perspective, Cramer is bullish on GS and has been buying it for his charitable trust. The stock sells at a mere 0.9 times book value, has a strong balance sheet and may buy back stock early in 2013.
Cramer thinks Goldman Sachs is "the best investment banking still has to offer."
Get Ahead Of The Profit-Takers: Catamaran Corp (CTRX). Other stocks mentioned: Cigna (CI), CVS Caremark (CVS), Express Scripts (ESRX), Workday (WDAY), Salesforce.com (CRM), Nam Tai (NTE), Skyworks Solutions (SWKS)
Cramer revisited one of his speculative picks from December 2011. Catamaran (CTRX), formerly SXC Health Solutions, has run 75% since Cramer recommended it last year. CTRX is a pharmacy benefits manager or PBM with a healthcare information segment. Its main competitors are CVS Caremark (CVS) and Express Scripts (ESRX). CTRX acquired another PBM (which led to the change of its name and stock symbol), and because of the acquisition, it now has the scale and size to compete against ESRX and CVS. The industry will benefit from a flood of patent expirations, and CTRX is one of the largest prescribers of generic drugs.
However, there is one major headwind that CTRX might have to face. A client that generates 10% of CTRX's sales, HealthSpring, was recently acquired by Cigna (CI). As a result of the takeover, it may be possible that HealthSpring's contract with CTRX will not be renewed; news about the contract is expected in the first part of 2013. The potential loss of this client might lead to a downgrade for CTRX. While Cramer thinks this stock's story is still good, he would ring the register on all or part of a position in CTRX and buy it back lower.
Cramer took some calls:
Cramer thinks Mine Safety (MSA) is a great stock to buy on weakness as a defensive stock. Even in a sluggish economy, companies do not usually cut back on safety, and with increasing government regulations, they may be required to purchase more safety equipment. In spite of its name, Mine Safety does not just provide equipment to miners, but also fire fighters, law enforcement officers, soldiers and many others. Cramer thinks MSA may be a takeover target for Honeywell (HON) or Dupont (DD), which are increasing the safety segments of their companies with acquisitions. Cramer predicts a company could pay up to a 30% premium for MSA, based on similar deals. The reason MSA's stock has not moved up is its 24% European exposure, but with economic conditions potentially improving in Europe and MSA's strong gross margins, it might be an attractive takeover.
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