Cramer's Mad Money - How to Trade Earnings (9/11/09)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday September 11.

How to Play Earnings: Kroger (NYSE:KR), Best Buy (NYSE:BBY), Adobe (NASDAQ:ADBE), Palm (PALM), Apple (NASDAQ:AAPL), Salesforce (NYSE:CRM), Ralcorp (RAH), Treehouse Foods (NYSE:THS), Wal-Mart (NYSE:WMT), Carnival (NYSE:CCL), Discover Financial (NYSE:DFS), Oracle (NASDAQ:ORCL)

Cramer said he will be using next week's earnings reports as an opportunity to test his bullish thesis. He has disagreed with the media about the health of the retail sector; while there has been talk about a lackluster back-to-school season, Cramer thinks retail has been fairly strong and Best Buy's quarter will decide who is right. He is also going to pay attention to Best Buy's call to see if Wal-Mart is taking market share. Cramer is also interested in Carnival and Discover's calls, since the companies represent discretionary spending and consumer credit respectively.

Cramer says Adobe's call might influence his willingness to reiterate his bullish call on the mobile internet group, but he would not be fazed if Palm does poorly, since it is the laggard in the group. If Palm announces a bad number, there may be a buying opportunity for good stocks like Apple. He also suspects Oracle may use its call on Wednesday as a means of talking down its competitor, and if Oracle succeeds in this endeavor, he would buy Salesforce at a discount.

Kroger's conference call is a good chance to gauge the health of private label companies like Ralcorp and Treehouse Foods.

Finally, the housing starts number on Thursday will indicate whether inventories are low enough for companies to consider building again. However, Cramer would not buy homebuilders on a decent number, but Bank of America on reduced home prices and mortgage rates around 5%, since BAC is the leader in mortgage lending.

American Tower (NYSE:AMT), Crown Castle (NYSE:CC) and SBA Communications (NASDAQ:SBAC), Harris Stratex Networks (HSTX), Ceragon Networks (NASDAQ:CRNT)

Cramer has called the wireless revolution a secular trend that will last for years. However, one major obstacle is the data bottlenecking at the cell towers. One logical solution is to build more cell towers, which means more business for American Tower, Crown Castle and SBA Communications. However, another issue is microwave backhaul radios. Backhaul is the communication that goes on between a cell tower and the wireless network. Currently only 20% of the backhaul is done through microwave, but Cramer thinks this percentage is going to increase.

Two pure plays on microwave backhaul are Harris Stratex Networks and Ceragon Networks, both of which are speculative stocks. Cramer likes Stratex's balanced exposure; the company controls 12% of the industry, derives 33% of its revenues from North America and the rest from overseas. While its previous quarter was poor, the stock is up 15% and has a generous amount of cash. Ceragon is mainly a play on the Indian-Chinese wireless buildout, has a clean balance sheet and a lot of cash. Cramer reminded viewers that, since these stocks are speculative, to do homework first and use limit orders when buying.

Dow Chemical (NYSE:DOW), Owens Illinois (NYSE:OI), U.S. Steel (NYSE:X), Owens Corning (NYSE:OC)

Cramer again addressed the issue of the adoption of natural gas as a bridge fuel, and cited the advantages of the cleaner, abundant fuel; natural gas produces 40% fewer emissions than coal and would create thousands or even millions of jobs. The biggest potential job creator would be producing natural gas-fueled vehicles; workers would be needed to build special equipment and to create and man filling stations. Diverse companies including Dow, Owens Illinois, U.S. Steel and Owens Corning depend on natural gas for their production needs and would be affected by the increased use of natural gas.

How to Prosecute Lehman and AIG (NYSE:AIG)

Since the feds "have a great track record of dropping the ball when they come after people" Cramer decided to give them some leads which would guarantee a "slam dunk case" against Lehman and AIG. Concerning AIG, Cramer suggested looking at an analyst meeting in early December 2007 during which the head of the financial products division, Joseph Cassano, made remarks which now seem "suspicious." Cramer also noticed that Lehman made many contradictory statements about its inventory and simply looking at statements in April, May and June "would do them in."


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