Cramer's Mad Money - Whoever Loses The Dell Bidding War Is The Winner (3/26/13)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday March 26.


Dell (DELL) is a company in secular decline, and yet it is attracting suitors. CEO Michael Dell discussed taking the company private, but Dell is attracting bids. Cramer wonders why anyone would want to buy Dell. Its acquisitions to expand into consulting have not met with success, it is seeing declines in earnings, margins and revenue. Dell has no mobile, social or cloud exposure; it looks like a tech company from the 90s. Cramer wonders what kind of magic Michael Dell can work privately that he hasn't been able to publicly. Why is the company valued at $14 billion publicly, but some seem to think it is worth $26 billion. Ultimately, the winner will be the one who doesn't end up with Dell. Cramer thinks Michael Dell should sell Dell to the highest bidder, take the money and run.

Don't Build, Profits Will Come: Wyndham Worldwide (NYSE:WYN), Starwood Hotels (HOT), Blackstone (NYSE:BX), Toll Brothers (NYSE:TOL), Lennar (NYSE:LEN), Hertz (NYSE:HTZ), US Airways (LCC), HollyFrontier (NYSE:HFC), Cheniere Energy (NYSEMKT:LNG), Hovnanian (NYSE:HOV), Boeing (NYSE:BA), PulteGroup (NYSE:PHM)

With the Dow roaring 112 points higher on Tuesday, Cramer discussed one trend that is moving stocks higher. Many industries seem to be operating on the principle; "Don't build, the profits will come." There is currently a rise in housing prices, as demonstrated by the Case Shiller report of higher home prices in 20 cities. The slowdown in building houses is responsible for this; companies like Toll Brothers (TOL), Lennar (LEN) are profiting from this housing shortage. Blackstone (BX), which has significant real estate assets, is also seeing significant upside.

Airlines, like US Airways (LCC) are performing better than they have for decades because of consolidation in the industry and the fact that new airports are not being built. There are capacity constraints in the rental car industry, especially in the wake of Hurricane Sandy; Hertz (HTZ) is a major beneficiary. Refiners also faced stiff competition and shrinking margins until recently. Given the price differential between Brent and WTI, and the fact that no refinery has been built in the U.S. in 40 years, making barriers to entry high, refiners should continue to see a growth in profits, especially HollyFrontier (HFC). Cheniere Energy (LNG) has been successful in creating export opportunities for cheap, plentiful natural gas.

There is a Catch 22 involved with this trend; as long as there isn't significant building going on, new jobs are not created and the economy's growth will be stunted. Eventually, the building will begin again, people will be hired and the economy might come roaring back, but when this happens, people will be worried about the Fed raising interest rates. "There is a zero sum game between employment and profits," said Cramer. That is one reason why optimism concerning one aspect of the economy is accompanied by pessimism from another side.

Cramer took some calls:

When a caller asked about Hovnanian (HOV), Cramer replied he prefers Toll Brothers, which is high-end and best-of-breed, Lennar, which reported a great quarter and PulteGroup (PHM), at the low price of $20, to HOV.

Boeing (BA) is headed to $100, despite negative headlines. Cramer thinks the problems with the Dreamliner are going to be fixed faster than expected, and demand for airplanes is high and is going to grow. Cramer believes the aerospace cycle is going to last for several years; "I wish our charitable trust owned Boeing."

Off the Charts: Diana Shipping (NYSE:DSX)

Shipping stocks have been hit so hard in recent years, that many investors have the feeling that they can't get any lower. Dan Fitzpatrick, technical analyst at agrees with this assessment; he identified the bottom for Diana Shipping (DSX) in July, and while the stock has been trading sideways, it is gradually making its way higher. Fitzpatrick noted what is called a Dragonfly Doji pattern, which is the reverse of the candlestick pattern. That week in July, DSX was volatile, and its price ranged 13% from its lows to its highs. Finally, the stock reached a bottom and since then, it has been making higher highs and higher lows. The stock broke above its 40 week moving average and surged 17% in a single week.

In addition, DSX's daily chart shows a bullish crossover pattern, when the 50 day moving average crosses above the 200 day moving average. The stock roared 20% higher last week on heavy volume. In spite of the fact the stock has risen significantly, both Fitzpatrick and Cramer think DSX is a buy at its current level. Fitzpatrick thinks that if it breaks above the $10.53 level, it could be headed for $14. Cramer tends to focus on fundamentals rather than technical analysis, but he noted that bottoms are usually seen in the charts before they show up in the fundamentals. The upward movement in the Baltic Dry Index supports the thesis that shipping stocks are moving higher, and Diana is best of breed.

Gilead (NASDAQ:GILD), Bristol Myers (NYSE:BMY), MannKind (NASDAQ:MNKD)

Gilead (GILD) is a leader in the treatment of HIV and has a revolutionary treatment for one of the most aggressive and prevalent illnesses on the planet: Hepatitis C. It is estimated that 4 million Americans have Hepatitis C, and many more millions around the world are also infected. The current treatment requires 6 months of injections, and has a success rate of only 50%. GILD's drug is taken orally, requires only 12 weeks and is showing success rates of 78-100% when used in conjunction with GILD's other Hepatitis drug.

Critics of GILD believed the company overpaid for its $11 billion acquisition of Pharmasset; the stock took a 9% hit the day the deal was announced. However, the contribution of Pharmasset's technology could produce a Hepatitis drug that could generate $7.8 billion in revenue every year. GILD received FDA approval for use of its four HIV medicines used in combination. The combined medicines called "Quad" could generate $3.8 billion in revenue in the U.S. and $1.6 billion in Europe by 2017. Cramer also likes Bristol Myers (BMY), but points out that Gilead is cheaper, with a multiple of 16 compared to BMY's multiple of 18, although GILD has a higher growth rate. Cramer is bullish on GILD.

Cramer took a call:

MannKind (MNKD) is not a stock Cramer recommends, when Gilead and Bristol Myers are better stocks to buy; "We don't need to go down the food chain."

CEO Interview: Monty Bennett, Ashford Hospitality Trust (NYSE:AHT)

Ashford Hospitality Trust (AHT) is a REIT that owns hotel properties and yields 3.9%. The company had to cut its dividend during the recession, but Cramer thinks AHT can gradually return to its 6.9% yield level because of the increase in revenues per available room. CEO Monty Bennett discussed the disconnect between private and public market value; AHT is worth more than it appears to if one looks at private market value. When asked about the dividend, Bennett responded that since AHT was very reluctant to cut its dividend, management is going to be cautious about raising it, and will take gradual rather than dramatic steps. Cramer asked Bennett why the company doesn't call the preferred shares; "We own mainly the common shares, but we are going to leave the preferred where it is." Bennett discussed the success of the Highland acquisition and noted that good deals are increasingly hard to find, given the turnaround in the industry. Cramer believes in AHT because of the strength in the hotel industry.


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