Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday April 3.
With the rally in Netflix (NFLX), this might not be a good time for the company to be taken over, but on a decline, Cramer pondered a hypothetical scenario of which company should buy Netflix (NFLX). Cramer thinks Apple (AAPL) is an obvious choice, but finds the company too proud to do so; "Apple can apologize to the Chinese, but it doesn't apologize to shareholders for its hideous decline." Microsoft (MSFT) might have more humility, since it lacks social, mobile and the "cool" factor. The integration of NFLX would be easy for MSFT and the acquisition would allow MSFT to fix its balance sheet. Maybe Netflix can help Microsoft get its groove back.
With the Dow dropping 112 points, mainly on worries about hostility from North Korea, Cramer discussed two stocks that are an indication of what is happening with the market. Caterpillar (CAT) was downgraded by Goldman Sachs from a Buy to a Hold because of slowing demand for commodities. The industrial cohort was taken down along with CAT, which has already declined 5% for the year. ConAgra (CAG) reported a disappointing quarter, but hardly dropped; the stock is up 18% for the year. These stocks represent two choices for investors, depending on their tolerance for risk and appetite for reward.
ConAgra demonstrates the current strength of defensive stocks and the belief shared by many that commodity costs will remain low. However, for those who feel that commodities are going to turn and that China will improve, Caterpillar may be worth buying. The last time Caterpillar saw a dramatic decline, it roared back 70% in 6 months. During the same period, Cramer thinks CAG might gain, at most, 7%. Cramer would not buy Caterpillar yet and cautioned viewers to expect more downgrades, but when it bottoms, perhaps around the high 70s, it might be a Buy for those with sufficient risk tolerance. ConAgra is a solid, stable stock for those who want to sleep at night. The two yields are at similar levels: Caterpillar at 2.5%, higher than expected because of the stock's decline in price, and CAG at 2.9%, lower than expected because of price appreciation.
Cramer took some calls:
Cramer prefers Vale (VALE) to Rio Tinto (RIO) because the former has a better restructuring program. While he admits Vale has been a "House of Pain," it will recover more dramatically when iron ore rises in price and has less downside than RIO.
CEO Interview: Gary Evans, Magnum Hunter (MHR)
Magnum Hunter (MHR) is a stock Cramer recommended in February, but it is down 39% since then. While it is seeing 137% production growth, the company has been beset with problems. It had to reduce production last year in one of its natural gas wells because there was not enough processing capacity. The company has had accounting errors and carries substantial debt. MHR missed numbers, and its latest 10k filing will be delayed beyond its due date. With all of these headaches, could MHR recover?
Fortunately, MHR made a sale of substantial assets in the Eagle Ford. CEO Gary Evans says that most of the money from this sale will go to paying down MHR's debt; "The liquidity question will be off the table." Evans said the company hopes to produce 20,000 barrels a day for the next year, and said "We are on a fast growth path." Cramer asked if the sale of the Eagle Ford assets will reduce MHR's exposure to oil at a time when natural gas prices are low. Evans admitted that the company will be producing more natural gas, but noted that the price of the fuel, while still historically low, has doubled from its lowest point of $2 to $4 per barrel. Its assets in the Utica shale are mostly natural gas, but Evans said, "I can't express how excited we are about the Utica ... we are bullish about where natural gas is going to go long-term." He explained that the company makes more money from its Utica assets than it did in the Eagle Ford, which is one reason MHR is spinning off the Eagle Ford assets. Concerning oil, the company is hedged for 2013. Cramer admitted he made a mistake recommending MHR in February, but thinks the company may see a comeback.
Isis Pharmaceuticals (ISIS), Alnylam (ALNY) and Sangamo (SGMO) are small-cap biotechs that specialize in technology to affect the RNA or DNA of patients suffering from rare diseases. Isis has rallied 78% since Cramer recommended it six months ago and Alnylam has risen 24% since the beginning of the year. Isis is developing a treatment to lower the LDL cholesterol in patients who have a rare and potentially fatal form of unnaturally high cholesterol. With FDA approval, Isis is more likely to gain approval for its other drugs under development. It has 20 other treatments in the pipeline and 5 which may get FDA approval in 2017. Isis has risen significantly, so Cramer would wait for a pullback to buy.
Alnylam (ALNY) was a $35 stock in 2008, but has fallen to $22. It has 5 products in late stage development, and which may receive FDA approval in 2015. Its treatment for ATTR, a disease that causes the body's proteins to stick together, could be a $1.5 billion drug if approved and will mean a substantial gain, since the company's market cap is just $1.75 billion. This stock can be bought at its current level.
Sangamo (SGMO) is an extremely speculative stock that is finding ways to treat rare conditions through altering the patient's DNA. It is developing a treatment that will make cells impervious to HIV infection. Bulls think that this treatment alone could be worth $13 a share, when the stock trades at $9. However, this stock has 5 points of upside potential and 5 points of downside potential, so Cramer is not pounding the table on it.
Cramer took some calls:
Merrimack (MACK) is a super speculative stock. Cramer thinks the risk is 3 points of upside, and 3 points of downside.
Arena Pharmaceuticals (ARNA) is "controversial." Cramer says he is not so interested in the obesity sector, given the intensity of the competition. "Arena is not right for most of our viewers."
Retail-oriented REITS have been on fire lately, along with Kimco (KIM) the largest owner of shopping centers in the U.S. It yields 3.74%, has a 93.9% occupancy rate and has seen 11 straight quarters of revenue increases from the same properties, thanks to its ability to raise rents. The stock has seen a 16% gain since Cramer last talked to CEO David Henry in November. California has been particularly strong for KIM, given the barriers to entry because of the many regulations challenging the building of new shopping malls. Cramer asked about KIM's "controversial" investment in one of its clients, Supervalu (SVU). Henry replied that the company has a "small bucket of opportunistic investment" in retailers. The company is able to sell properties in South America and Mexico, not that real estate prices there are higher. Cramer says KIM is "a great place to be," and "one of our best recommendations."
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