Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Thursday December 18.
Three factors brought a decline in the Dow on Thursday. First, President Bush’s ambiguous position on autos caused fears of a GM bankruptcy to emerge once and again. Second, questions concerning the credit rating of General Electric, the largest company in the U.S, sent stocks tumbling. Third, oil’s continuous decline is bad for oil stocks and has many worried. While lower gas prices may give the consumer more ready cash, the down side of declining oil means falling production and shipping. With oil down 59% for the year and 75% down from its peak, the economy suffers, and especially hard-hit are Chevron and Exxon which together comprise 14% of The Dow. Perhaps Research in Motion could rally on Friday, but Cramer isn’t holding his breath.
Lower oil prices and the declining dollar are good for chemical companies, but today, Cramer is telling viewers not necessarily to go with the most familiar names in the sector. He prefers PPG to Dow or Dupont, because of its diversity of products, safe dividend and good valuation. PPG has only 4% exposure to the failing auto industry compared to Dow’s 10%. PPG’s diversity is impressive; it makes coatings for ships, planes and windmills and has 18% of the market for prescription glasses lenses. Cramer thinks PPG’s 4.6% dividend is safer than Dow’s and Duponts and thinks Dow is too exposed to the downside of the commodities cycle and is still handicapped by the expensive Rohm and Haas acquisition. While not as much a household name as it larger competitors, PPG is the better stock, according to Cramer.
While Cramer likes chemicals, he would not touch DuPont, even though the rest of the sector is benefiting from the low dollar and falling oil prices. A staggering 59% of the company is exposed to economically sensitive sectors such as housing and autos, and only DuPonts agriculture business is seeing gains. DuPont’s pensions are costing the company dearly; 45 to 58 cents of next year’s earnings could be sucked up by pensions. These problems make DuPont’s dividend unsafe, according to Cramer. In any case, the stock has already had an undeserved move after its poor earnings report in early December. Cramer would buy PPG instead.
James Sinegal does not choose between customers and shareholders, but in spite of a difficult economy, he is able to keep profit margins steady while delivering value to customers. “Whatever we do for the consumer is going to come to the shareholder eventually,” Sinegal said. One of Costco’s secrets to success is saving money, which is important, since the CEO admits the market is the most uncertain he has ever seen. He sees customers buying cheaper items. Costco’s house brand, Kirkland is thriving and even premium brands, such as Waterford crystal, continue to sell. Cramer says Costco and Wal-Mart are the two stocks to watch in retail.
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