Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday July 15.
Cramer discussed stocks the street had left for dead or at least neglected; in these cases, the analyst opinions were wrong. New CEO of Citigroup (C), Michael Corbat, is breathing new life into the bank by cutting costs. Tangible book value is probably "the real deal," and if this is the case, Citigroup is selling for less than it is worth. The so-called "bad bank" within Citigroup, CitiHoldings, has seen a 31% decrease from a year ago, and the sooner CitiHoldings disappears, the better for Citi. The bank has seen 11% year over year revenue growth and a decline in loan losses. Cramer thinks Citi can be bought.
Leap Wireless (LEAP) was a company misunderstood by analysts, until AT&T (T) made an offer for the company that is double the level at which it was trading last week. Even with this generous offer, AT&T may not be able to take over the company as competitors may jump into the bidding war. LEAP's recipe for success is Spectrum, and telecom companies want to get their hands on it.
Hewlett-Packard (HPQ) has made a major comeback; It had seen a 44% decline for 2012 and has risen 88% so far this year. Among many other positive changes in the company, new additions to the Board of Directors looks promising. Although HPQ is in the troubled PC market, it is benefiting from Dell's (DELL) problems.
Cramer took some calls:
Yahoo (YHOO) is probably going to $30. Cramer has faith in CEO Marissa Mayer.
Organovo (ONVO) has cutting-edge technology, but beware, it is a spec.
Microsoft (MSFT): Analysts are still too negative, but it has run from 27 to 36, so investors shouldn't expect an immediate move. The stock is undervalued; Cramer thinks certain segments are worth more than analysts realize.
IPOs have been hot so far this year. Cramer highlighted 3 companies coming public in the next 2 weeks. Since biotech IPOs have not merely been one day wonders, Cramer recommends selling part of a position in the biotech IPOs the first day and letting the rest run.
OncoMed (OMED) is an early stage anti-cancer biotech which has a revolutionary antibody technology to battle cancer cells. The company has 5 drug candidates, all in early phase trials, and crucial agreements with Bayer and GlaxoSmithKline (GSK). Those interested in getting in on the deal should call their brokers, since there aren't many shares available, and they are expected to be priced between $14-16. There is likely to be a strong first day pop, but Cramer would not sell the entire position into strength, but leave some on the table.
A similar IPO to OMED is Agios Pharma (AGIO). Like OMED, there are few shares available, so investors should call their broker and get in on the deal between $14 and $16. Investors may want to take some profits the first day, but should let the rest run. The company has a deal with Celgene (CELG) and it creates treatments that affect the metabolism of cancer cells. Its products are in even earlier phases than OMED's, so investors should be patient.
RetailMeNot (SALE) is the number one purveyor of digital coupons and has apps for the iPhone and Android. The company has contracts with 10,000 retailers and its net income rose 55% last year. One legitimate concern is that there aren't enough serious barriers to entry. Cramer suggests trying to get in on SALE below $24, but he would "take the money and run" after the first day spike.
NRG Energy (NRG) is spinning off NRG Yield (NYLD) as a dividend vehicle that will support a 6% yield, which is high, even for the utility sector. Utilities, along with other high-yielding sectors, have been punished lately, along with other stocks that are seen as bond equivalents. Cramer does not recommend buying NYLD in the current environment, but it is worth keeping an eye on this IPO to see if The Street has had a change of heart about high-yielders.
Kroger (KR) is another stock that is unappreciated by Wall Street. It is the second largest supermarket chain in the country and has 2,400 locations. Kroger announced a deal to acquire high-end Harris Teeter Supermarkets, (HTSI) to expand its locations in the Southeast, at a 34% premium. Kroger's stock rose 2.6% on the news, although when such deals are announced, the acquirer's stock often declines. In spite of the announcement of this deal, Goldman Sachs downgraded Kroger on weakness in the supermarket industry in general, and since the analyst believed KR is too expensive. While KR has risen 45% year to date, its competitors have also seen major gains for the year, and KR is best of breed. Cramer doesn't think supermarkets generally are given respect by The Street, except for organic supermarkets like Whole Foods (WFM) and Fairway (FWM). Kroger seems particularly vulnerable to the "regional snob factor," since Kroger caters to the Middle American consumer and is not located in the Tri-State area, where many of the Wall Street analysts live. Kroger has an added advantage that 27% of its products are private label; private label goods have gross margins that are 10-15% higher than regular products. Cramer would consider buying Kroger on a pullback.
CEO Interview: Martin Richenhagen, Agco (AGCO)
Agriculture is a long-term theme, given world population growth and the changes in eating habits in emerging market countries. Agco (AGCO) is a pure play in agriculture equipment. This global player is now beginning to expand in Asia and reported a strong quarter in April, but its stock is up only 11% for the year. AGCO is increasing its R&D spending to develop machinery that can use less fuel and cut down on the use of pesticides. When asked about possible cutbacks in farm subsidies, CEO Martin Richenhagen said that farmers have been preparing for this possibility, and he doesn't expect a large impact on AGCO. Declining raw costs and stable labor prices have enabled AGCO to improve gross margins, and Richenhagen says his target is for a 12% improvement in gross margins up for 8-9% this year. Cramer is amazed that a company that trades for a multiple of just 10 can be performing so well. "Agco is right."
Only One Eye on China?
Commodities lately have been hostages of economic data from China, but there may be an indication that China, if not bottoming, might have a less powerful grip on U.S. stocks. China's GDP number was 7.5%, a number that didn't upset and didn't thrill. While the Wall Street Journal described the number as indicating a "slump," this is old news, and stocks were not affected one way or another by the data. Cramer thinks that when China, like Europe, stops mattering so much to stocks, a bottom might be on the way. Soon, investors may only have to keep one eye on China rather than both eyes on China.
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