Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday April 9.
CEO Interview: Allen Wilson, McCormick (NYSE:MKC)
Cramer has long been a fan of McCormick (MKC), a steady growth stock which, since it tends to decline after its quarterly report, provides investors with buying opportunities following earnings, only to march higher almost every time. The 1.9% yield is "deceptively low," since the stock price keeps rising, and Cramer would use pullbacks to get into this steady grower, which is usually immune to macro economic shocks. Those who bought MKC 5 years ago have seen a 113% gain, and in the last 20 years, the stock has performed twice as well as the S&P 500; "That is the most important thing you need to know about MKC," said Cramer.
CEO Allen Wilson discussed how management maintains strong performance by "weeding and feeding the categories." The company constantly replaces brands that are not working with those that carry significant demand and customer loyalty. MKC is also a trade down play, since it has significant market share in store branded spices. Emerging markets are a driver of growth, and generate 15% of sales. Wilson predicts that in a decade, the majority of MKC's sales will come from overseas. China's demand for the products is "resilient," and the consumer segment is constantly improving in the Middle Kingdom. Some analysts don't believe that MKC can maintain its growth without more industrial clients. Wilson says he expects more business from restaurants this year. "This is a terrific, rewarding stock and a great company," Cramer said.
A Glimmer Of Hope From China: Alcoa (NYSE:AA), iPath DJ-UBS Copper Total Return Sub-Index ETN (NYSEARCA:JJC), Nucor (NYSE:NUE), US Steel (NYSE:X), Vale (NYSE:VALE), Caterpillar (NYSE:CAT), Cummins (NYSE:CMI), Freeport McMoRan (NYSE:FCX) BHP Billiton (NYSE:BHP), PPG Industries (NYSE:PPG), Chevron (NYSE:CVX), EOG Resources (NYSE:EOG), Intel (NASDAQ:INTC), Wynn Resorts (NASDAQ:WYNN), Apple (NASDAQ:AAPL)
The Dow gained 60 points on Wednesday, not on domestic news, but from better-than-expected inflation data from China. From that one data point, the stocks that haven't been participating in recent rallies, industrials and materials, climbed higher. Alcoa (AA) validated the good news from China. Not many people expected to hear anything positive from AA, but management discussed double digit growth in China and increasing demand. In response, the copper ETN, JJC (JJC) gained 2%, Freeport McMoRan added $1.34, and steel stocks, Nucor (NUE) and US Steel (X) went higher. Vale (VALE), a holding in Cramer's charitable trust, rose 5%.
It seemed that most companies with significant Chinese exposure, such as Cummins (CMI), Caterpillar (CAT), Wynn Resorts (WYNN), BHP Billiton (BHP) and PPG Resources (PPG,) had a good day on Wednesday. A strong China bodes well for oil, and EOG Resources (EOG) and Chevron (CVX) performed well. While the economy in China doesn't seem to have dramatic bearing on tech stocks, Intel (INTC) may see significant gains, since a large part of its business is in the country, and given China's importance to Apple (AAPL), it isn't inconceivable that this former tech giant may finally bottom and head higher.
Merck (MRK) has lagged other big Pharma stocks, and is up 6%, while peers have seen double digit gains since last year. MRK has been kept back by negative headlines, but may seen a turnaround. In December, a promising cholesterol drug release was canceled because of negative trial results, and even after it had been approved overseas, it was pulled from the market. February brought a delay of MRK's osteoporosis drug, and there was news that Merck's diabetes drugs may carry the risk of pancreatic cancer. The last news item has been known for a long time, Cramer noted.
There are many reasons to believe that MRK might see better days soon. The stock yields 3.8% at a time when investors are increasingly focused on dividends. MRK has fewer drugs about to lose patent protection than any other major Pharma. It also has 35 drugs in Phase II or Phase III trails, the second highest number of any Pharma. Its merger with Schering-Plough has been a boon, and might create $3.5 billion to $4 billion in savings. The company has an animal health division worth $3.5 billion; it could spin this segment off just as Pfizer (PFE) did successfully with Zoetis (ZTS). Its diabetes drugs generate $5.8 billion, and MRK has a growing vaccine segment. It is producing what could be a revolutionary anti-psychotic drug that could prevent the dramatic weight gain commonly associated with similar drugs. MRK could have up to 5 drugs approved this year for various conditions. It trades at a multiple of 12, much lower than its peers, but Cramer thinks MRK could rise to 15 times earnings, which would mean a 31% gain for investors.
Cramer took some calls:
OraSure (OSUR) is down an astounding 55%. Cramer admitted that he made a mistake recommending the stock. The over-the-counter HIV test looked like it would be a blockbuster, but it didn't work out in the end.
Energizer (ENR) is not a stock Cramer would recommend purely on takeover speculation. In fact, he emphasized that he only recommends takeover targets if the stock would perform well without a deal.
Online travel stocks have pulled back of late, but Robert Lang, technical analyst at Explosive Options and TheStreet.com thinks they will venture higher. Lang correctly called a turn in Boeing (BA), and most recently, in casino stocks, and Cramer thinks he is also right about online travel.
Priceline (PCLN) is Cramer's favorite in the sector and is a best-of-breed player, especially since it acquired Kayak (KYAK), which expands its exposure to mobile. PCLN saw a giant move in January and has been consolidating since, trading sideways. The MacD indicator is flashing a powerful Buy signal; "Priceline could be ready to roar."
Expedia (EXPE) is smaller than Priceline, but is the second-best choice in the online travel space. The stock is $6 off its high, and has been forming a floor of support at $60, $2 below where it is now. Lang thinks that as long as EXPE holds this level, the downside is limited. The MadD indicates that it could also break out.
Orbitz (OWW) has tripled since its November lows and is rallying at high volume. The stock stalled in Mid-March and has been trading sideways. Lang thinks it could rally a second time.
Cramer doesn't consider TripAdvisor (TRIP), which provides reviews and sells advertisement, as an online travel play, and believes it is more of an internet advertising business. Lang included it in his analysis and noted it has found a floor of support. He would buy the stock even if it falls below its floor of support, since he believes the stock is going higher.
Cramer would consider buying Priceline, and only after that, Expedia and Orbitz. He doesn't trust the online advertising business enough to recommend TripAdvisor
Retail same store sales data is going to be released just a few days after the dismissal of former CEO Ron Johnson from J.C. Penney (JCP) was announced. Cramer recommended stocks to buy on a possible decline in the sector on Thursday following the release of the data. He also looked at the companies that are most likely to take market share from JCP, which is unlikely to see a turnaround, because it is bringing back its unsuccessful former CEO, Michael Ullman, and because it is difficult even for the most gifted CEO to pull off a turnaround in retail.
Concerning the same store sales data, Cramer noted the best companies don't report monthly numbers anymore, so the information will be from the worst-of-breed. Given that and the fact that March was soft for retail, there is likely to be a pullback in the retail sector on Thursday. Macy's (M) is a beneficiary of JCP's downfall, especially since JCP is likely to lose a lawsuit with Macy's over the Martha Stewart brand. Wal-Mart (WMT) is at a 52 week high. Those who used to go to JCP might decide to go to Gap (GPS). Kohl's (KSS) might seem like an obvious equivalent to JCP, but the company has lost its way. The stock Cramer would buy in the sector is TJX (TJX) because of its strong performance, and because its stores are likely to attract JCP shoppers. If retail gets hit, TJX is the one to buy.
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