Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday April 1.
Top 10 S&P 500 Stocks For the First Quarter: Netflix (NFLX), Best Buy (BBY), Hewlett-Packard (HPQ), H&R Block (HRB), Micron (MU), Celgene (CELG), Tenet Healthcare (THC), Marathon (MRO), Avon (AVP), Safeway (SWY). Other stocks mentioned: Microsoft (MSFT), Amazon (AMZN), Apple (AAPL)
Cramer discussed the best performers in the S&P 500 for the first quarter.
1. Netflix (NFLX) is up 100% since the beginning of the year, and in spite of its monster run, it has a strong chance of a repeat performance. Major producers of content are embracing Netflix. In some cases, the only way to catch favorite episodes is through a Netflix subscription. Cramer thinks NFLX would be an attractive takeover target for Apple (AAPL) or Microsoft (MSFT).
2. Best Buy (BBY) saw a huge run-up, but that was basically due to its avoidance of bankruptcy. The company is yet another casualty of Amazon (AMZN), and while it is showing improvement, BBY is liked only because it is the last man standing. Cramer would not buy Best Buy.
3. Hewlett-Packard (HPQ): After the debacle of a bad acquisition, the decline in its consulting segment, poor margins and an ailing PC industry, things couldn't have gotten worse for HPQ. The reason it has risen so much is the fact that it is still afloat. The company is making dramatic cuts, but it is no longer a growth story; "You can't cut your way to revenue growth," said Cramer.
4. H&R Block (HRB) doesn't have much of a reason behind its rally. Cramer would take profits.
5. Micron (MU) has suffered for its focus on DRAM, given tremendous competition and resulting pricing pressure. However, that has changed with intense consolidation. Two years ago, there were 7 players, and now there are only 3, with MU occupying the number two position behind Samsung. MU made a masterful acquisition of a Japanese company, and Cramer doesn't think the stock is done going up. MU reported a 38% rise in revenues from DRAM. MU is the best speculative stock in the whole group.
6. Celgene (CELG) has long been a Mad Money favorite. The stock rose 47% in the first quarter, and should see more upside with drug approvals expected in the fall and other drugs in the pipeline.
7. Tenet Healthcare (THC) rallied 46%. This stock should do well along with other hospital stocks, given President Obama's healthcare reforms.
8. Marathon (MRO) may not repeat its strong performance, since the transport of crude is improving. Marathon was benefiting Brent Crude's and WTI's price differential, which was high given the complications involved with transporting the fuel.
9. Avon Products (AVP) is a comeback story, since it faced a dramatic decline because of its disastrous and presently ousted CEO Andrea Jung. The stock many finish the second half of the year higher, but "Avon still needs time."
10. Safeway (SWY) may bring its subsidiary Blackhawk public, and this spin-off could be worth as much as the entire company. SWY instituted a significant buyback of 20% of its market cap. It is taking market share from Whole Foods with the introduction of organic products. The stock has had a 45% run, but it still trades at only 11 times earnings.
The "Don't Just Stand There, Do Something" Index: Hess (HES), Deckers (DECK), Manitowoc (MTW), Mine Safety Appliances (MSA), DST Systems (DST), Fortune Brands Home & Security (FBHS), Johnson & Johnson (JNJ), Alliant Techsystems (ATK), Bed Bath & Beyond (BBBY), Hain Celestial (HAIN). Other stocks mentioned: UnitedHealth (UNH), Sanchez Energy (SN), Tesla Motors (TSLA), Whole Foods (WFM)
"April is not the cruelest month," Cramer said, "It is the most bountiful." He noted that every year that stocks have been up in April, the market has finished the year in bull mode. The averages were down on Monday; the Dow fell only 6 points because good news from UnitedHealth (UNH) late in the day gave the average a strong finish. Cramer thinks HMOs might be the place to be with healthcare reform.
Cramer re-visited his "Don't Just Stand There, Do Something" Index, which he created on November 29th of last year. The index is a group of 10 stocks that he thinks will perform well regardless of the macro situation if they make substantial changes, like spinning off segments or merging with larger companies. The index, up 23.9%, dramatically outperformed the S&P 500, which rose only 10.2% in the same period.
Deckers (DECK) seemed hopeless last November at $38, down from its 2011 highs of $117. However, a cold winter and a decline in fleece prices gave it a 45% gain. Deckers has been an effective "fixer-upper" of brands, such as Timberland. Even though 30% of its stock is sold short, Cramer thinks Deckers could continue to win.
Manitowoc (MTW) rallied 33%. Cramer still thinks it should split up its segments, food service and cranes, which seem illogically combined into one company. With construction revving up, Cramer thinks MTW can go higher.
Mine Safety (MSA) rose 29%, and Cramer thinks it could get taken over.
DST Systems (DST) is another company that should be broken off into its segments or bought entirely. It is up 24% since November.
Fortune Brands and Home Security (FBHS) is up 22% and is ripe for a spin-off.
Johnson & Johnson (JNJ) is seeing a comeback with its new CEO. Cramer owns JNJ for his charitable trust, and thinks the company could benefit from splitting up its faster growing pharma business from its consumer products segment. Until then, it is worth holding for its 3% yield and solid balance sheet. The stock has risen 18% since November.
Alliant Techsystems (ATK) has seen a 16% gain, which is surprising, given worries over sequestration. A larger company could pick ATK up for as little as $3 billion.
Bed Bath & Beyond (BBBY) has risen 9%, and Cramer thinks it is likely to stay at this level until it gets a buyout offer.
Hain Celestial (HAIN) was the one laggard of the index, since the stock has not risen. Cramer has been bullish on Hain for a long time, but it is being punished for the fact it is levered to Whole Foods (WFM), which has not been performing well lately. Hain has a large number of shares sold short. Cramer thinks it should spin off brands and unlock value.
Cramer took a call:
Tesla Motors (TSLA) has been "clobbering expectations ... TSLA looks like the real deal ... for now."
Cramer discussed two orphan drug companies which specialize in creating treatments for rare conditions. Alexion (ALXN) is an $18 billion company, and the stock trades at $95. Most of its sales are from one drug, Soliris, which is a treatment for ultra rare and dangerous blood conditions. Soliris is one of the most expensive drugs on the market, with a $500,000 a year price tag. The drug generated $1.5 billion in sales for ALXN, up 33% from last year. Soliris has been approved for the treatment of a rare kidney disorder and is being tested for other indications. The company has a metabolic bone disease drug in Phase II trials. The stock has risen 183% since Cramer recommended it 2 years ago, but has recently dropped 19 points because it reported in-line numbers last quarter instead of beating estimates. In addition, the stock is down because of a problem reported at one if its factories. Cramer is confident that ALXN can resolve this temporary issue, and with a 33% growth rate to offset its apparently high multiple of 28, the stock is inexpensive.
BioMarin (BMRN) is smaller than Alexion; it has a $7.7 billion market cap, but has more drugs in the pipeline than many other orphan drug stocks Cramer follows. It is up 181% since he got behind it 2 years ago. BMRN produces enzyme replacement therapies for rare genetic diseases, and these drugs can cost around $300,000 per year. It partners with Sanofi-Aventis (SNY) for one of the drugs, and has to share royalties with SNY, but owns 100% of an additional treatment. BMRN has a treatment for Phenylketonuria and has other drugs in Phase II and Phase III trials.
Cramer took some calls:
ImmunoGen (IMGN) has a less than favorable royalty agreement for one of its drugs, but has "promising" ovarian cancer and lymphoma drugs in its pipeline.
With a pipeline eruption in Little Rock, Arkansas coming just days after an oil spill that resulted from a derailed train in Minnesota, some may wonder if pipeline stocks should be avoided. It is a wonder that oil and gas stocks did not decline dramatically from these news stories. Is it worthwhile to stick with stocks like Enbridge (ENB), given their aggressive growth, or would it be better to opt for a stock like American Water Works (AWK), a utility that deals with a much safer commodity? Water Works has slower growth than Enbridge, 7.9% compared to 12.6% respectively. It has a slightly smaller yield at 2.4% compared to 2.6% for ENB. The company is benefiting from increased privatization of the industry.
ENB is the lowest cost transporter of oil, and it controls half the crude imports from Canada. The company has visibility, because its contracts are made well in advance, and there is ever-increasing demand for pipelines. The company has raised its dividend 12% per year, and the reason it doesn't have a higher yield is because of the increase in its stock price.
AWK's multiple is 17.3 compared to its 7.7% growth rate. Enbridge's multiple is 22, and its growth rate is 12.6%. AWK trades for more than double its growth rate, which is a scenario Cramer would usually avoid. He prefers ENB to AWK, even though ENB carries more risk.
Cliffs Natural Resources (CLF) shed 50% of its share price after a devastating piece of research from Morgan Stanley discussed decline in iron ore sales. This was also bad news for U.S. Steel (X), since iron ore is an essential ingredient in steel manufacturing. Apollo Group's (APOL) apparent earnings beat was widely panned, and Apple has been caught in a non-stop tailspin.
Two S&P 500 losers could be winners again. Akamai (AKAM) reported a surprising shortfall, but it was followed by dramatic insider buying. Cramer says he doesn't usually see declines repeated when there has been such a high level of insider buying. Newfield Exploration (NFX) saw a 16% decline, but now that it is selling valuable assets, the stock is a bargain. Cramer is bullish on NFX.
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