Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday March 20.
CEO Interview: Ken Powell, General Mills (GIS)
General Mills (GIS) reported a strong quarter with a 7 cent earnings beat, revenues that rose 7.5%, and raised guidance. The stock rallied 3% after earnings; it is up 18% since the beginning of the year. Last week, GIS raised its dividend by 15% so that it now yields 3.2%. Cramer says CEO Ken Powell "is the most bullish I've heard him" in a long time. Ken Powell explained that last year GIS had to face commodity inflation and had to raise prices; these price hikes cost GIS market share. With commodity prices lower, GIS has been able to lower prices to attract market share. Strong categories for the company have been frozen foods, soups, yogurt and Haagen Dazs; "We've got a lot of ways to win," said Powell. Cramer asked Powell about competition in the cereal space. Powell explained that after 5 years of market share growth in cereals, last year was a bit weaker. Powell discussed finding the right price points for various items and taking back market share; "We are seeing market share in cereals improve." Investing in advertising and renovating older brands has also been beneficial. Powell discussed GIS' plan to buy back shares and its commitment to raising the dividend. Cramer said GIS is the kind of stock that can make investors a lot of money over the long term, especially if they reinvest dividends.
The Economy Has Two Faces: Caterpillar (CAT), FedEx (FDX), Lennar (LEN), Williams Sonoma (WSM), Oracle (ORCL)
The Dow moved up 56 points higher, thanks in part to Fed Chairman Bernanke indicating that he will stay the course on interest rates. In earlier Fed Meetings, Bernanke said he would wait until unemployment falls to 6.5% before he considers raising rates. Cramer applauds this move and says to do otherwise would be to repeat the mistakes of 1937, when the U.S. was emerging from the Depression. The Fed at that time worried about inflation, and raised interest rates; the result was a ruinous recession in the middle of the Depression.
The economy seems split down the middle, and while there is significant good news from sectors like housing and retail, with strong earnings reports from Williams-Sonoma (WSM) and Lennar's (LEN), there are other things to worry about. Caterpillar (CAT) reported a 12% drop in North American machinery sales, and FedEx (FDX) said that overnight orders were declining. Oracle's (ORCL) poor quarter does not bode well for IT spending. While the rest of the world seems to be doing much worse than the U.S., it is not yet time to raise interest rates.
CSX (CSX), Norfolk Southern (NSC), Union Pacific (UNP), Berkshire Hathaway (BRK.B), Kansas City Southern (KSU). Other stock mentioned: General Electric (GE)
With natural gas prices almost doubling, up to the highest level in 18 months, utilities might consider reversing or slowing down the switch from coal to natural gas. This would be good news for railroads, which have large exposure to coal. There are 4 different railroads that dominate the U.S. market: CSX (CSX), Norfolk Southern (NSC), Union Pacific (UNP) and Burlington Northern [owned by Berkshire Hathaway (BRK.B)]. These four railroads are located in different areas of the country, and since they do not have duplicate routes, they do not compete with each other. Another railroad company Cramer likes is Kansas City Southern (KSU), which mainly transports goods to and from Mexico; it transports oil from the Bakken to Mexico, and autos from Mexico to the U.S. Cramer likes KSU, but it has already rallied 40% since Cramer got behind it in December.
The best way to play the comeback of coal thesis is with Norfolk Southern (NSC) which has a 26% coal exposure and stumbled when natural gas prices fell and coal was out of favor. Now its coal shipments are down just 2.5% compared to a 14% decline previously. The stock has risen 20% so far this year, so Cramer would wait for a pullback to buy.
Union Pacific (UNP) has risen 11% so far this year, and has been held back by softness in coal, which comprises 20% of its shipments. It also could perform well if there is renewed interest in coal, and since it also transports timber, UNP could be a beneficiary of the aggressive homebuilding projected for this year.
CSX (CSX) has been hurt by weak coal, but its traffic is strong. The company now transports oil and is able to make price increases.
Cramer took a call:
GE (GE) is going to go up substantially. Cramer thinks it represents tremendous value.
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