Stocks discussed on the In-depth session of Jim Cramer's Mad Money TV Program, Tuesday April 2.
Is Apple (AAPL) Bottoming?
Apple (AAPL) received much love from analysts during its upward climb, but needs to feel more hate before it bottoms. Goldman Sachs changed its rating on Apple from Conviction Buy to a simple Buy, but still there are too many analysts who emphasize positives about the stock, in spite of its earnings misses, losing share to competition and many apologies. While Apple products will be popular for a long time, and it might be a stock worth buying when it finally bottoms, the time has not come yet. The coast may be clear to buy Apple when many more analysts turn negative.
Who Is Spiking The Punchbowl? Clorox (CLX), Kimberly Clark (KMB), General Mills (GIS), Procter & Gamble (PG), Colgate-Palmolive (CL), Kellogg (K), Pepsi (PEP), Bristol Myers (BMY), Celgene (CELG), Biogen IDEC (BIIB), Humana (HUM), UnitedHealth (UNH).
The "puritanical bears" doubt the market rally because they think Fed Chairman Ben Bernanke has been "spiking the punchbowl" to prop up stocks. With the Dow up 89 points, Cramer thinks that many stocks, up double digits since the beginning of the year, are intoxicating. Cramer identified winners in consumer goods, such as Clorox (CLX), Kimberly Clark (KMB), General Mills (GIS), Procter & Gamble (PG), Colgate-Palmolive (CL), Kellogg (K) and Pepsi (PEP). Drug stocks like Celgene (CELG) and Biogen IDEC (BIIB) have been performing well. HMOs received a "virtual subsidy" from the government with a tax break, and Cramer thinks stocks like UnitedHealth (UNH) and Humana (HUM) are not done going up.
However, Cramer would not invite tech stocks, especially Apple to the party. Oils, copper and industrials won't be very much fun until China recovers. Many expect earnings from banks to be disappointing. The bottom line: Ben Bernanke isn't spiking stocks, but many stocks are spiking and will continue to rally.
CEO Interview: David Steiner, Waste Management (WM)
With housing stocks rallying, it is time to look for a stealth housing play that hasn't risen dramatically. Waste Management (WM) will benefit from the housing buildout, because where there is major construction, remodeling and new households, there is more garbage. WM has developed a product that is a "dumpster in a box" for individual families. It can be purchased for $29.99 at many big box retailers, and WM will pick up the garbage.
The company is shareholder friendly, with a yield of 3.76% and a generous buyback. WM is turning trash into energy with methane. CEO David Steiner pointed out that this is a profitable business, and WM alone produces 5 times more energy from garbage than the entire solar industry in the U.S. Steiner discussed the company's role in the wake of Hurricane Sandy; "Our response was spectacular ... our guys aren't just garbage men, they are heroes."
There has been talk that WM might become a REIT, since it owns significant landfill assets. While Steiner admitted the regulations involved with becoming a REIT are complicated, and are usually easier for rental businesses than landfills, he will consider turning WM into a REIT as a possibility if the regulations become "more friendly" to WM's business. WM has been instrumental in the promotion of natural gas as an alternative fuel. A full 90-95% of WM's truck fleet runs on natural gas. Steiner said the company's extra cash will be used to increase the dividend, pay back debt, invest in the business, and what is left over may be used for an additional buyback. Cramer says WM has given investors a "great return," and "the stock is not done."
Cramer discussed three speculative orphan drug biotechs that carry significant risks, but have great upside potential. Vertex (VRTX) is 11 points off its high and specializes in drugs for cystic fibrosis. In the U.S. 70,000 people suffer from this condition. VRTX has one major treatment on the market, but it is approved for only 4% of cystic fibrosis suffers. It is developing a new drug that is in Phase III clinical trials, which showed that it, in combination with Vertex's other treatment, can lead to an improvement in lung functioning. Management was overly optimistic about the results, and the stock got punished, falling from $65 to $50 and then to the $40s. Since then, shares have been crawling back up, and may shoot higher on an FDA approval. The new drug could potentially reap $6 billion in sales. The company also has treatments for Hepatitis C.
Sarepta (SRPT) is 8 points off its high, but gained 152% since September 21. The company is developing a drug for Duchenne Muscular Dystrophy. The stock spiked on dramatically successful trials that showed an improvement in the condition, while alternative treatments have been able merely to slow down the decline. The company is planning to skip Phase III trials and apply for FDA approval. The stock could roar, but if the company is delayed and is forced to do more trials, it is worth buying on weakness for its long-term story.
NPS (NPSP) has a drug for short bowel syndrome, which requires most patients to receive IV drips for much of the day. The company bought back international rights to the drug, as well as rights for its treatment for hyperparathyroidism. The latter drug has yet to be approved in the U.S. NPS has rallied 10% since Cramer recommended it in October, and should rise higher on FDA approval.
It is well-known that there is a natural gas glut in the U.S.; one of the reasons is that it is hard to export natural gas, which needs to be transformed into liquified natural gas before it can be transported. Another barrier is that it is hard to get government approval for export terminals. Cheniere Energy (LNG) had this sole privilege until it was announced early in the week that Dominion Resources (D), a utility company with huge natural gas storage tanks, is going to receive permission to build an import/export terminal in Maryland. The facility could be operational by 2017. Until then, the company offers a 3.8% yield, and CEO Tom Farrell says he expects a 5-6% annual revenue growth in the company's core business. The stock has risen 15% since Cramer got behind it on December 6. Farrell discussed pending permits and financing options, and was confident of success. He added that by 2025, the U.S. is likely to produce 10% more natural gas than it can use, so export will be a necessity.
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