Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday April 8.
What Will General Electric (GE) Buy Next? FMC Technologies (FMC), Chart Industries (GTLS), Clean Harbors (CLH), Core Labs (CLB). Other stocks mentioned: Lufkin (LUFK), Westport Innovations (WPRT), Cummins (CMI), Schlumberger (SLB), National Oilwell Varco (NOV), Kinder Morgan Partners (KMP)
General Electric (GE) rose 37.6% on news that it is paying $3.3 billion for Lufkin (LUFK), a company that makes technology that enables companies to pump oil and gas out of the ground. Cramer thinks that GE is likely to make another acquisition in the oil and gas space. In spite of criticism of the industry, Cramer pointed out that 9.6 million jobs could be generated by the sector, and for every one oil and natural gas job created, there are 2.7 jobs in other sectors that are dependent on it. Demand increases for natural gas engines produced by Westport Innovations (WPRT) and Cummins (CMI). Some oil and gas stocks have fallen lately, because of a statement from Schlumberger (SLB) management that drilling efforts are facing intense competition. Cramer thinks GE is likely to buy another company in the space, and discussed which ones are the most likely candidates:
1. FMC Technologies (FMT) specializes in subsea production and fluid control. These businesses complement GE's pump segment. While FMC technologies has a market cap of $12 billion, GE has the balance sheet to afford it.
2. Chart Industries (GTLS) makes equipment that liquifies natural gas. The market cap is $2.3 billion.
3. Clean Harbors (CLH) takes care of spills and recycles waste. The market cap is $3.3 billion.
4. Core Labs (CLB) develops the technology that allows companies to map shales and make finds. The market cap is $6 billion.
Cramer took some calls:
National Oilwell Varco (NOV) is a Buy, but is a wild trader. Cramer would wait for the earnings report. If the stock drops, it might be a time to buy.
Kinder Morgan Partners (KMP) is a domestic fuel play with a generous 5.5% yield. For investors looking for dividend stocks in this sector, KMP is a good choice.
Many are mystified by the upward movement of stocks, in spite of last Friday's very disappointing employment numbers. However, there are many reasons stocks are going higher. The departure of unsuccessful J.C. Penney CEO Ron Johnson, a CEO who Cramer says has destroyed more value for a company in a shorter time than any other he has seen, may be good news for JCP's stock, if the company can be rescued. A slowdown in hiring and spending might have been caused by the dire statements made by President Obama last fall about the consequences of sequestration. However, Cramer thinks the results might not be as dire as expected, and Obama might have been using harsh words to put pressure on Congress so it would make a deal. While there are a lot of government layoffs, sequestration hasn't seemed to have affected the private sector dramatically, at least not yet.
With the instability of banks in Europe, particularly in the wake of the Cyprus fiasco, many wealthy Europeans might not want to trust banks with their money, and may deposit funds in American banks instead or invest in real estate in the U.S. The same is true in China, which seems to be on the verge of bottoming. Japan is inflating the yen to such an extreme degree that the Japanese are once again, as in the 80s, flooding the stock market, but this time, putting their money into ETFs and REITs and high dividend stocks. Cramer thinks American investors should not have an inferiority complex about the domestic market and should look at what is working.
Cramer took a call:
Yum Brands (YUM), like other stocks with large exposure to China, has been hurt by the outbreak of Avian flu in China. Cramer said he sold his position for the charitable trust, and might consider buying it back in the low $60s, but Yum is not a stock to buy right now.
Johnson & Johnson (JNJ)
High yielding stocks are good choices for investors, given low interest rates and economic uncertainty. Johnson & Johnson (JNJ) yields 3.3% and has a strong balance sheet. JPMorgan downgraded the stock because analysts feel it has risen too far, too fast. Cramer called the downgrade "premature." JNJ might be yet another company that can unlock value by splitting its steadily growing pharma business from its consumer product and medical device segments. JNJ was not well-managed until Alex Gorsky became CEO. Since Gorsky took over a year ago, the stock has risen 27%. Gorsky inherited some problems caused by former management, including recalls that tarnished the company's image. There are still lawsuits ahead concerning JNJ's artificial joints. Many of JNJ's drugs went over the patent cliff and have generic equivalents, but the company once again has a robust pipeline with cancer drugs approved, Hepatitis C, Leukemia and arthritis drugs in Phase III trials, and many more developments. Cramer would wait to buy JNJ until it reports next week on April 16th. If the price falls, Cramer would buy, although currently the stock is not expensive, and trades at a multiple of 15.
2012 was a great year for IPOs, and 2013 is shaping up to be an even better year. Looking at the stocks of 31 IPOs since January, the average increase has been 18%. Cramer discussed two IPOs, one deal to get in on and one to stay away from.
Intelsat (I) is one of the largest operators of satellites worldwide. The company generated $2.4 billion in sales last year, has a market cap at a similar level to its sales and expects to trade between $21 and $25. Cramer would stay away, because Intelsat is not profitable, even though the company has been around for many years. It has $16 billion in debt, and the satellite industry is risky. Around 25% of its revenues come from the government, which is also a negative.
Taylor Morrison (TMHC) builds and sells homes and is expected to be successful like many other housing IPOs. The company works in areas of the country that are turning around dramatically, and it increased orders last year by 43%. TMHC has been profitable for 3 years in a row. It is expected to trade between $20 and $22 and is selling at a discount to other homebuilders.
Some investors believe that airlines and mortgage insurers, two themes Cramer has gotten behind lately, have risen too much. Cramer, who refused to recommend airlines for 30 years, finally recommended the sector on the US Airways (LCC) and American Airways merger, because consolidation has reduced the competition in the industry. Cramer cited research from Deutsche Bank that said Delta (DAL) would rise 42% in the coming year, Southwest (LUV) would see a 22% gain and US Airways would increase 22%. The same research predicted a doubling of operating revenues for the year.
Radian (RDN), a mortgage insurance company has tremendous earnings momentum, and is rolling off bad mortgages and increasing good mortgages. There used to be many players in this space, but now the industry is lean. The government, Radian's largest competitor now, is reducing its involvement in mortgage insurance."
These stocks (mortgage insurers and airlines) should be "bought here and bought aggressively," said Cramer.
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