Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday January 16.
Dollar Store Debacle: Dollar General (DG), Family Dollar (FDO), Dollar Tree (DLTR). Other stocks mentioned: Wal-Mart (WMT), Target (TGT), CVS Caremark (CVS), Five Below (FIVE), LeapFrog (LF), Cabela's (CAB), MasterCard (MA), eBay (EBAY), Apple (AAPL), Cirrus Logic (CRUS)
Dollar Stores were doing well since the recession, but since December, they have taken a hit. Family Dollar (FDO), Dollar General (DG) and Dollar Tree (DLTR) are down 18%, 11% and 25% respectively. The companies have been reporting sluggish same store sales and poor gross margins. FDO reported a 6 cent earnings miss and issued downside guidance. Managements of all three companies have blamed the weather, uncertainty over the fiscal cliff and economic troubles, when this sector should have performed better in a slow economy, since consumers trade down to dollar stores when times are hard.
The rising payroll taxes should hit low income shoppers at these stores especially hard, and they are likely to keep tightening their belts. The dollar stores are facing increasing competition from Wal-Mart (WMT), Target (TGT) and CVS Caremark (CVS). As a result, the dollar stores may have to enact dramatic discounts to compete, a strategy that will further cut into gross margins. While multiples for the sector are low, there are no catalysts to drive these companies. For those who want to invest in the discount space, Cramer recommends Five Below (FIVE) which has doubled since its IPO in July. Given the amount the stock has jumped, Cramer would wait for a pullback in FIVE before buying.
Cramer took some calls:
LeapFrog (LF) has disappointed too many times, and is not likely to be leaping soon.
Cabela's (CAB) could be a good investment long term, but with the gun control controversy, it could see some headwinds.
CEO Interview: Mike Sutherlin, Joy Global (JOY)
When Joy Global (JOY) CEO Mike Sutherlin appeared on Mad Money on September 13, 2012, he called the bottom in China, according to Cramer, when he noted a turn in the country's electricity demand. Since then, the stock has risen 20%, and reported a strong quarter, with a 21 cent earnings beat on revenues that rose 19.4%. Cramer thinks the current estimates for JOY are too low, and the company could beat them again. CEO Mike Sutherlin said that every metric in China is going strong, from export orders, up 14%, to steel demand. The Chinese have exhausted much of their coal supply, and demand will continue to increase. Sutherlin is confident about a comeback, but cautions that it may not happen immediately, perhaps by the latter half of 2013. In the U.S., coal had been losing market share to natural gas, but now that natural gas prices are rising somewhat, demand for coal is slowly increasing. The 7% decline in coal production "may be behind us," as coal supply in the U.S. dwindles, creating further demand. Cramer agrees that Joy Global is likely to see significant upside by the latter half of the year, and thinks the stock is a buy.
Goldman Sachs (GS) may be headed back to brighter days, since numbers are good in all of its segments. Return on equity was up 15%, double the expectations. With the decline in compensation costs, GS is likely to return more capital to shareholders. The company is brimming with cash, and it deserves to trade 20% higher than its book value. Cramer thinks GS could go up to $160 in a straight line, and it is worth buying now.
JPMorgan's (JPM) many complex problems seem to be behind it. Almost every number was good except for its interest margin, but Cramer thinks that number is a blip rather than an Achilles' heel for the bank.
Jim Cramer's Action Alerts PLUS: Trade right alongside a Wall Street pro! Start your 14-day FREE trial today.
Get Cramer's Picks by email - it's free and takes only a few seconds to sign up.