Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday April 30.
CEO Interview: Patrick Doyle, Domino's Pizza (NYSE:DPZ)
Domino's Pizza (DPZ) has been on a tear the last 3 years with no signs of stopping; "This may be the best international growth story in the entire restaurant space," said Cramer. The company has been expanding locations, but can grow even more before coming close to saturation in most areas. CEO Patrick Doyle notes that there are 225 Domino's stores in France, and the number can realistically be quadrupled. DPZ beat earnings by 4 cents on revenues that rose 8.6% and it reported a 6.6% rise in same store sales. The stock has risen 480% since Cramer got behind it in 2010 and 18% since the CEO appeared on Mad Money in February.
Doyle discussed the fact that 90% of the franchises are owned by Domino's employees who worked their way up; "The guys who came up through the system are what has made Domino's what it is." The company has been successful with social media, including apps for ordering. While commodity prices recently have not been a major problem for the company, and low fuel prices have helped DPZ, Doyle identified prices at the pump as a cost that affects DPZ. The company recently issued a dividend, and Doyle says he will continue to return capital to shareholders through a dividend or a buyback.
The Dow opened down but rallied right back to close up 21 points. Cramer thinks the secret behind this "up" market is the immense negativity surrounding it, which ironically, allows stocks to propel forward when the gloom is dispelled. This is the first time in the history of the index that the Dow has yet to post 3 consecutive down days by the month of May. This is the fourth straight positive month of the year, a phenomenon that only happens 18% of the time, and when it has happened, stocks ended the year in positive territory 14 out of 15 times. The "Sell in May" adage might not apply this season.
Cramer noted the tendency of analysts to be bullish on stocks all the way up, and then to cut price targets on the way down, without considering if the stock is ready to bottom. He noted this trend in Apple (AAPL), which received a plethora of downgrades after it had been crushed, and yet the stock rebounded 40 points on Tuesday. He observed that in the case of Best Buy (BBY), Chipotle (CMG) and Netflix (NFLX), analysts uncannily came out to slash price targets at the very moment when the stocks provided buying opportunities. Cramer thinks BBY, CMG and NFLX are buys.
Cramer took some calls:
There Is Nothing As Sexy as Warren Buffett. Stock mentioned: Berkshire Hathaway (NYSE:BRK.B)
On Wall Street, "Nothing is as sexy as Warren Buffett," said Cramer. He consulted the technical analysis of Tim Collins of RealMoney.com to see if Berkshire Hathaway (BRK.B) is a buy ahead of the company's annual meeting, which is the "Woodstock of Capitalism." Around 35,000 people are expected to congregate in Omaha, Nebraska this weekend. Should investors buy the stock now, or wait for a pullback?
After rising for four consecutive months, the stock has been trading sideways for a month. It is showing a flag pattern, which is a bullish sign. Collins thinks that if it breaks above the top of the flag at $108, it can go to $113 and on to $122. However, one concern is that the stock has been trading at a divergence from the Relative Strength Index [RSI]. Given the other positive signs in the chart, including a cup and handle formation, Collins believes that this divergence from the RSI is just a sign of the recent consolidation.
According to the weekly chart, Berkshire's move looks "parabolic," and paired with the decline in the Money Flow Index, the stock might see a pullback. It is possible that Berkshire could rise to $108 and decline before going higher. Cramer, given Berkshire's strong fundamentals, would buy the stock on any pullback.
Cramer often discusses companies that can create value by breaking themselves up or spinning off divisions. PerkinElmer (PKI) is another example. The company was formed from a merger and acquisitions and now has 2 units: a human health division and an environmental health segment. The human health division produces 56% of PKI's revenues and specializes in equipment to facilitate diagnostics and drug research. The company is similar to Life Technologies (LIFE), which is being taken over by Thermo Fisher Scientific (TMO) at a 15% premium. LIFE's stock ran up 50% on the rumors of the deal. The environmental segment, which specializes in detecting contaminants in food, water and air, is a slower growth, lower margin business that is cyclical. Weakness in this division was mainly responsible for PKI's disappointing quarter, while its human health business is growing faster than its peers in the industry. PKI currently trades at a multiple of 12, and Cramer thinks the stock could shoot to $35 and beyond if it spins off its human health division.
According to some CEOs, Europe might not be on the road to complete recovery any time soon, but it certainly isn't going to get worse. This sentiment was expressed by Chuck Bunch, CEO of PPG Industries (PPG). He went on to say that he thinks the first quarter for the European segment of PPG will probably be the worst quarter of the year. While Sandy Cutler, CEO of Eaton (ETN) said the business in Europe was "mired with molasses," he added that he doesn't expect things to get worse for ETN on the Continent. Howard Schultz, CEO of Starbucks (SBUX), made similar remarks. Good news from European banks may seem to validate these observations from CEOs of U.S. companies. After all, Cramer reasoned, if people felt Europe was ready to fall off a cliff in earnest, why are U.S. stocks performing so well, since so many U.S. companies have significant businesses in Europe?
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