Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday August 20.
Clash Of The Casino Titans: Las Vegas Sands (NYSE:LVS), MGM Resorts (NYSE:MGM), Wynn Resorts (NASDAQ:WYNN), Caesars Entertainment (NASDAQ:CZR). Other stocks mentioned: Carnival Corporation (NYSE:CCL), Norwegian Cruise Line (NASDAQ:NCLH)
It isn't often that CEOs duke it out, even if only with words, but Las Vegas Sands (LVS) CEO Sheldon Adelson criticized MGM Resorts (MGM) and Caesars Entertainment (CZR) for driving down room rates on the Las Vegas strip so they could cover their substantial debts. Adelson said:
The sucking sound we hear is their room pricing and they are trying to fill up properties so they can do something to pay off their excessive debts. They don't have the business model we have to sell off core assets and pay down our debt.
Wynn Resorts (WYNN) and Las Vegas Sands appeal to higher-end consumers, and their CEOs resent the price competition. MGM CEO James Murren shot back at Adelson with harsh words, saying that Adelson must think people will listen to him "because he is rich," and "We know Vegas." Aside from the ad hominem attack, Murren does have a point that his company has more exposure to Las Vegas than Wynn or LVS. Despite its name, only 6% of LVS's properties are in Las Vegas. Most are in Macau and Singapore, and while China has slowed down, Las Vegas is turning around. MGM and Caesars stocks are up 48% and 146% for the year respectively, when LVS has gained only 23%. MGM has an occupancy rate in Las Vegas of 95% compared to LVS's 91% and Wynn's 86%.
Where Adelson made a mistake was putting CZR in the same category as MGM. CZR has excessive debt and depends on a comeback for Las Vegas to stay in business, while MGM has been paying down its debt, and should break even this year and turn a profit by 2014. MGM has an advantage of having a diverse offering of properties, some high-end, some less luxury oriented. The stock has risen 48% since Cramer got behind it in December 2012.
So who won the battle of the casinos? Cramer thinks it depends on what an investor is looking for. Those who want to play the Chinese turnaround should buy LVS or WYNN, and those who believe Las Vegas is going to come back full steam should buy MGM.
Cramer took a call:
"Everything in retail is about execution," said Cramer. To execute properly, a retail company has to have a strong hand at the helm. Few thought Best Buy (BBY) could come back, but it is up 13.2% in one day after a quarter that was so good it shocked the street. This turn was thanks to the leadership of Hubert Joly, who revived the ailing business. Richard Hayne, co-founder and now CEO of Urban Outfitters (URBN) delivered an astounding 38% yoy increase in same store sales for the Free People brand, and an average 9% increase in same store sales for all brands. Free People is a brand that inspires loyalty as is Anthropologie, which is a play on the housing comeback, given its housewares offerings.
Almost no one thought J.C. Penney (JCP) could come back from the dead after the disastrous tenure of former CEO Ron Johnson. New CEO Mike Ullman is showing the company has signs of life by bringing back old customers through promotions and fixing the housewares division. One reason JCP didn't rise on the news is that Bill Ackman, who owns a stake in JCP, has made some noises about selling. Home Depot (HD) reported a 10.7% increase in same store sales, but the street did not think it raised its forecast enough. However, CEO Frank Blake helped the company's stock rise 85%. Cramer thinks many of these stocks have more upside given their great CEOs.
Cramer took some calls:
Diana Shipping (DSX); "This turn is for real," and the stock is a play on world trade.
Opko Health (OPK) is one of Cramer's favorite specs, and it will continue to break new ground on its drugs.
The Red Hot Beer Bull Market: Boston Beer (NYSE:SAM), Anheuser-Busch Inbev (NYSE:BUD), Molson Coors Brewing Company (NYSE:TAP), Diageo (NYSE:DEO). Other stocks mentioned: Wendy's (NASDAQ:WEN), SodaStream (NASDAQ:SODA)
There is a red hot bull market in beer stocks, as sales are up double since this time last year. Boston Beer (SAM) reported an incredible quarter, with an 11 cent earnings beat and revenues that rose 22.9% yoy. Shipments were up 22%, and the stock made one of the single best one-day moves Cramer has seen this quarter: 14.6%. SAM is now too richly valued, with a multiple of 34 and a growth rate of just 15%, and Cramer would ring the register.
For beer, Cramer prefers Anheuser-Busch Inbev (BUD), which reported a 12 cent earnings miss, but revenues came in higher than expected and margins increased for the first time in 5 quarters. BUD's price increases have not been hurting demand, and volumes are high. BUD has acquired Grupo Modelo, owner of Corona, and the huge consumption of beer in Mexico should be a plus for BUD. The stock has only risen 10% so far this year, and it may be a buy on a pullback. Molson Coors (TAP) is more expensive than BUD and lacks a catalyst and international exposure.
For investors who want something stronger, Cramer recommends Diageo (DEO) on the comeback of Europe and emerging markets. The stock has risen only 8% so far this year because 40% of its business is in emerging markets and 22% is in Europe. Since these economies are showing early signs of strength, DEO should perform well.
Cramer took some calls:
Wendy's (WEN) has a pretzel bacon burger that is moving the needle, great salad offerings and wraps. Cramer thinks WEN is breaking out and would buy even if the stock doesn't pull back.
SodaStream (SODA) lacks a catalyst. Don't buy.
When will Tesla Motors (TSLA), Netflix (NFLX) and Amazon (AMZN) peak? The answer: when they fail to execute. For now, the three are cult stocks, which means any bit of good news is used to justify their lofty evaluations. Tesla received a high safety rating, Weinstein Co. is making a multi-year licensing deal with Netflix and Amazon is building its warehouses, but these catalysts don't justify the valuations. However, the same was said many points ago for each stock, and there may be more upside, but it might not be worth the risk.
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