Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday April 11.
3 Cheap Sectors That Have Not Rallied Yet: KeyCorp (NYSE:KEY), First Horizon (NYSE:FHN), First Niagara Financial Group (NASDAQ:FNFG), Cisco (NASDAQ:CSCO), Intel (NASDAQ:INTC), Microsoft (NASDAQ:MSFT), Markwest Energy (NYSE:MWE), Linn Energy (NASDAQ:LINE)
While many sectors are in bull mode, Cramer discussed three segments that have been sitting out of the rally so far.
Banks: "I can't believe where banks are trading," said Cramer, especially since many banks, especially regionals, have healthy fundamentals. His favorites are KeyCorp (KEY), First Horizon (FHN) and First Niagara (FNFG).
Tech: Many of the big players in tech trade with the same multiples as food stocks, but with much more growth. While some of these names are levered to the declining PC industry, there is hope for innovation. Cisco (CSCO) is worth buying, as well as Microsoft (MSFT) and Intel (INTC). Apple (NASDAQ:AAPL) may see a bottom soon.
Bubble, Bubble Toil and Trouble: Bristol Myers (NYSE:BMY), Merck (NYSE:MRK), GlaxoSmithKline (NYSE:GSK), Alliant Techsystems (ATK), Smith & Wesson (NASDAQ:SWHC), Health Management Associates (NYSE:HMA)
With the Dow rising 63 points on Thursday, the chatter continues that the stock market may be in a bubble. Cramer thinks those who don't believe in the current bull market are either perma-bears or people who look at only the big picture instead of individual stocks. The market is trading at about 15 times earnings, which is not a bargain basement, but not expensive either. Dividends still represent great value, but investors should beware of overpaying for dividend stocks.
There are some sectors that have gotten a bit frothy. Utilities hit their 4.5 year highs, and Cramer doesn't think this is sustainable; he would not consider buying a utility stock unless it yields at least 3.5%. His charitable trust sold long-time Mad Money favorite, Bristol Myers (BMY) because it trades at a multiple that is 2.2 times higher than its growth rate (Cramer's rule is that a multiple should not trade at more than double the growth rate) and it yields less than 3.5%. While companies like BMY still have great fundamentals, he would only consider buying BMY again if it declines following earnings. However, he notes that some stocks his charitable trust has sold have kept going higher. Instead of BMY, Cramer would consider buying Johnson & Johnson (NYSE:JNJ), GlaxoSmithKline (GSK) or Merck (MRK).
Cramer took some calls:
Health Management Associates (HMA) has gone up too much and has too much risk, and not enough reward.
Cramer prefers Alliant Techsystems (ATK) to Smith & Wesson (SWHC), because the former has defense contracts "that are not going to go away."
For the past few weeks, Cramer has been covering Pharma and biotech stocks that might be worth buying. One former winner to avoid now is Teva Pharmaceuticals (TEVA). Cramer's charitable trust sold Teva a few years ago, and it has fallen further since. Underperformance in the stock may not be over, because it has problems in both its segments: generics and patented drugs. Teva used to make a killing by profiting from the patent cliff faced by Big Pharma. It was quick and savvy at getting approval for its generics. However, many other companies have caught on, and while Teva is still the leader in generics, with 25% market share, the business is commoditized and there are few barriers to entry. Teva attempted to make its business more proprietary with a new acquisition, but this hasn't delivered results for the company yet.
Teva's patented drug segment generates 47% in sales, 19% of which are produced through its main drug for MS, Copaxone. It looks like Teva is getting a taste of its own medicine, because this drug will lose patent protection in 2015, and there are other generic alternatives already lined up to take market share; "Teva is now on the other side of the patent protection game."
Teva sells for only 7 times earnings, which seems cheap, but is a sign of a value trap, since sales and earnings are expected to decline. A turnaround in Teva might be possible, but it will take too long and is far from certain. Cramer would avoid Teva.
Cramer took some calls:
Walgreen (WAG) "really has it going" with brand new stores and a new acquisition. "The stock is going higher, not lower."
Boston Scientific (BSX) is at an "okay level," but is not best of breed. Cramer prefers other stocks in the sector.
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