Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday March 19.
The Car Rental Oligopoly: Avis Budget Group (CAR), Hertz (HTZ), Dollar Thrifty (DTG). Other stock mentioned: Ford (F)
Cramer continued his week-long series on oligopolies with a discussion of the rental car oligopoly. Ten years ago, there were 9 major rental car companies and competition was cut-throat. Over the past ten years, there has been such dramatic consolidation that there are only three major players left: Avis (CAR), Hertz (HTZ) and Enterprise, which is private. The 3 companies controlled 87% of the market 6 months ago, until Hertz announced the acquisition of Dollar Thrifty (DTG); now the big 3 own 94% of the industry. Even though HTZ paid double its original bid for DTG, the stock moved 11% on the news, and Avis rose 4%, since investors know what consolidation is good news for all players. Since the beginning of the year, Hertz has risen 38% and Avis is up 29%. Cramer thinks Hertz is the one to own. It was able to shrug off selling pressure when it issued a secondary offering, and the stock trades at a slight discount to Avis, with a multiple of 11 compared to Avis' 12. If Hertz rises to its historic multiple of 15, the stock could see a 38% gain.
Cramer took a call:
Ford (F) is going to go sideways. It is doing well in the U.S., but is still re-trenching in Europe.
Housing vs. Cyprus. Stock mentioned: Lululemon (LULU)
Cramer reiterated his belief that the crisis in Cyprus is not going to dramatically impact U.S. stocks, as demonstrated by the fact the Dow was wavering to close 4 points up. He pointed out many examples in the past couple of years of instances in which European woes did not necessarily damage U.S. stocks. The housing comeback is going to have a much greater effect on the U.S. market than what happens in Europe.
Cramer took a call:
Lululemon (LULU): Cramer says he is getting tired of the lack of execution at LULU.
What The Charts Are Saying About Bonds: iShares Barclays 20+ Year Treasury Bond ETF (TLT)
Cramer thinks stocks indicate that interest rates might be going higher, but he consulted the technical analysis of Carly Garner of RealMoney.com. While she feels that bond prices might be going down eventually, she doesn't see it happening for a few months. The TLT (TLT) is likely to be range-bound, but she suggests buying it if there is a pullback. While Cramer doesn't like investing in bonds and prefers high-yielding stocks, he concedes that bonds are an important barometer for measuring anxieties about the Fed's next move. TLT closely measures bond prices; if bond prices rise, interest rates go lower. The TLT has $114.59 as a floor of support. If it falls before that level, it could tip to $112.40. The RSI (Relative Strength Indicator) shows whether a stock is oversold or overbought. If the TLT goes below $112 then the RSI will go below 30 which means the TLT will be in oversold territory; at that level Garner would buy it. The TLT has been making a wedge formation and if it breaks out from $120, at the top of the wedge, it could go all the way to $127.
The 10 year Treasury yield has an inverse relationship with the price of Treasurys. The ceiling of resistance for the yield is 2.1%. Garner thinks that if it breaks above 2.1%, there is another ceiling right above it, with a floor at 1.7%. Looking at the latest COT report, traders were shifting their positions from long to short over the weekend, but the Cyprus crisis has caused bonds to rally, and the shorts have gotten burned. Finally, Garner sees a seasonal factor in favor of bonds. The Sept 30 bond contract bought around April and sold late August has been successful 70% of the time, so the strong season for bonds is coming.
CEO Interview: Dr. Francois Nader, NPS Pharmaceuticals (NPSP)
Shares of NPS Pharmaceuticals (NPSP) shot up 9% on news that NPS was buying back rights to its orphan drug to treat short bowel syndrome and another treatment for hypoparathyroidism, for a total of only $15 million. The stock has risen 7.7% since Cramer got behind it in October, but he acknowledged it has been a "wild trader." Things might be more steady for NPS, now that it has the rights to its drugs. The company specializes in orphan drugs, and even though they carry a high price tag, CEO Francois Nader said they save hospitals money in the long run. The drug for hypoparathyroidism has been approved in Europe, and may be approved by the FDA before the end of the year.
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