Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday August 27.
Who's Next in Biotech? Amgen (NASDAQ:AMGN), Onyx Pharamceuticals (NASDAQ:ONXX), Gilead (NASDAQ:GILD), Novartis (NYSE:NVS), Johnson & Johnson (NYSE:JNJ), Medivation (NASDAQ:MDVN), Seattle Genetics (NASDAQ:SGEN), BioMarin (NASDAQ:BMRN)
Amgen (AMGN) announced it is buying Onyx Pharmaceuticals (ONXX) at a 50% premium, and the deal is a win-win for both companies. AMGN's stock rose 7% on the news and those who held ONXX saw huge gains. Two years ago, Gilead (GILD) announced it was buying Pharmasset for its Hepatitis franchise at a 90% premium. The street panned the decision, but since then, GILD has risen 226% thanks in good part to the Hepatitis business.
Novartis (NVS) announced it was willing to spend $10 billion on a new acquisition, and many major drug companies are trying to expand their offerings. Which biotech could be the next takeover target? Cramer discussed 3 possibilities:
Medivation (MDVN) is a $4.2 billion company that has a drug for castration resistant prostate cancer. The condition has a high fatality rate, but studies show that patients survived 4.8 months longer with the drug and had a 37% survival rate. The drug is seen as superior to Johnson & Johnson's (JNJ) version, because it eliminates the need for steroids. MDVN also has a breast cancer drug in the pipeline.
Seattle Genetics (SGEN) is a $5 billion company that has targeted cancer treatments. It has rallied 68% since Cramer got behind it in December. SGEN has a Hodgkins lymphoma drug, the first of its kind in decades. It might not be bought for $10 billion, but Cramer thinks it could ask for $7 billion.
BioMarin (BMRN) is a $9 billion company that creates orphan drugs for rare diseases. It is a more conservative an investment than the other two, and is likely to be valued at $11 billion or $12 billion on a takeover bid.
The Dow plunged 170 points, mainly on worries about the conflict in Syria and possible U.S. involvement. When Iraq invaded Kuwait in 1990, oil prices soared and a recession followed. Cramer doesn't think that the Iraq scenario will play out in the markets, but caution is advised. He suggests buying defensive stocks like Bristol-Myers (BMY), and oils, which are likely to rise higher. He would stay away from banks, given the uncertainty about the mortgage market.
Cramer took some calls:
PulteGroup (PHM), like other homebuilders, has seen an initial move, then some backsliding. There can't be a second move for homebuilders until interest rates go to a level where they aren't hurting home sales. Right now, homebuilders sound confident, but there won't be a bottom until their managements admit that things aren't so rosy, given rising interest rates.
BlackBerry (BBRY) is worth no more than $10 as a takeover target. Cramer wouldn't "touch it."
CEO Interview: Kevin Reddy, Noodles & Company (NASDAQ:NDLS)
Noodles & Company (NDLS) had its IPO a few months ago, and rose 100% on the first day of trading. Since then, it rallied 15% and has pulled back slightly on its guidance, which was only in-line. Its other numbers were impressive: Noodles beat earnings by 6 cents, reported an 18% rise in revenues yoy and a 4.4% increase in same store sales. NDLS, however, was punished because the street expects a high momentum growth company to raise guidance dramatically. CEO Kevin Reddy, however, has substantial expansion plans, and aims to bring the store count from 350 to 2,500.
When asked about competition from the likes of Chipotle Mexican Grill's (NYSE:CMG) Shophouse, an Asian noodle concept, Reddy responded that Noodles' dishes are so complex and offer such diversity that competition is not a concern. There are healthy dishes under 500 calories and offerings for those who want to indulge. The company pays competitively and does not rely on or encourage tipping. "We have a world of flavors under one roof." Despite the pullback, the stock trades at a multiple of 77 with a 21.4% growth rate. Since his rule is to recommend stocks that trade at multiples less than double the growth rate, Cramer would wait for a pullback.
Netflix has tripled since the beginning of the year and its multiple of 84 seems a bit rich. The company has revolutionized video content and is a "cult" stock, meaning it has strong devotees and plenty of people betting against it. Bob Lang, technical analyst at TheStreet.com, thinks NFLX can go even higher, and he made accurate calls about tech stocks and the casinos recently.
According to the chart, NFLX has broken above a ceiling of resistance on strong volume, and NFLX made a bullish crossover. The Williams oscillator shows that NFLX is in overbought territory. This would usually signal a "sell," but with hot cult stocks, Lang often says the oscillator is "embedded," meaning that it is stuck in overbought territory and people will continue buying it. Cramer says it has been a long time since he has seen a stock that has been so overbought for an entire year, and that doesn't necessarily mean a drop, but it might well remain overbought. The stock has been showing a very large cup and handle formation since 2011, a bullish sign, as well as a golden cross, when the 50 day moving average crosses over the 200 day moving average. Netflix, in spite of its huge run, is showing classic bullish signals in its chart. While many would still be uncomfortable buying Netflix, the message is clear, "Don't bet against a cult stock."
Cramer took some calls:
Priceline (PCLN) can go higher and is a buy on fundamentals and technicals.
Yahoo (YHOO): Cramer is a believer in CEO Marissa Mayer and is confident she can turn around Yahoo.
Pandora (P): "I'm getting nervous about Pandora .... it has had its day."
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