Cramer's Mad Money - The Ultimate Stealth Rolling Bull Market (11/10/09)

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Includes: AAPL, ABT, APA, AVP, BNI, BP, CSX, ED, HLF, JNJ, KO, MO, MSFT, NTRI, OXY, TUP, UNP, XTO
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday November 10.

The Ultimate Stealth Bull Market: XTO Energy (XTO), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Apache (NYSE:APA), Occidental Petroleum (NYSE:OXY), BP (NYSE:BP), Burlington Northern (BNI), CSX (NYSE:CSX), Union Pacific (NYSE:UNP), Altria (NYSE:MO), Coca Cola (NYSE:KO), ConEd (NYSE:ED)

"This is indeed the ultimate stealth rolling bull market," said Cramer. Instead of the entire market rallying at once, the action has been characterized by an upsurge in one sector at a time. In the spring, bank stocks led the way, doubling and tripling in value, followed by a rally in semiconductors. Tech soon followed, with Apple (AAPL) and Microsoft (MSFT) as the leaders of the pack.

Natural gas saw 15-20% gains, particularly in XTO Energy (XTO) and Apache (APA) prior to oil's rally; now Occidental Petroleum (OXP) is up 10 points and BP has risen 10%. Warren Buffett's now-famous purchase of Burlington Northern (BNI) galvanized transports, particularly CSX (CSX) and Union Pacific (UNP). There was a rally Tuesday in defensive stocks led by Altria (MO), Coca Cola (KO) and ConEd (ED).

Cramer would play this trend through buying stocks in sectors that have rested the most, starting with banking, then tech and oil and so on. Cramer thinks the rolling sets of bull markets tend to "mask the true power of this entire move," and the move is going to be a "relentless run higher."

Abbott Labs (NYSE:ABT), Johnson & Johnson (NYSE:JNJ) Off the Charts

The charts and the fundamentals agree: Abbott Labs (ABT) is a better stock than Johnson & Johnson (JNJ). Abbott has moved up 20% between August and October and broke its 200 day moving average. It has pulled back, but only on low volume. Abbott is seeing higher highs and lower lows and is rising on high volume. Johnson & Johnson's chart tells a different story. While it did rally in the spring, Johnson & Johnson has been stuck in the same range since July and it appears that investors are selling into strength rather than buying into weakness. High volume selling in October brought Johnson & Johnson's stock price down and it seems to be headed even lower.

Johnson & Johnson's fundamentals are just as bleak. Three of the company's drugs: Floxin, Remicade and Velcade are about to lose patent protection and Risperdal already has. There are no new products in the near future to replace these drugs. Johnson & Johnson beat its earnings estimates, but only by eliminating jobs and cutting back on research and development. The company intends to cut 6,000-7,000 more jobs.

Abbott is growing through increased revenues, not through cutbacks, and has the highest growth rate in big pharma, 11% compared to Johnson&Johnson's 7%. Sales of its rheumatoid arthritis drug, Humira, is up 24%, Xience, a drug-eluting stent, is also performing well. Abbott's nutritional products division has grown by 10% and its acquisition of the European firm Solvay will translate into strong earnings.

For all of its advantages, Abbott sells at only a slight premium to Johnson & Johnson; a multiple of 12.6 compared to JNJ's 12.4. "Abbott is clearly the stronger player," commented Cramer.

CEO Interview: Michael Johnson, Herbalife (NYSE:HLF), Avon (NYSE:AVP), Tupperware (NYSE:TUP), Nutrisystem (NASDAQ:NTRI)

Cramer admits he judged Herbalife (HLF) too hastily; on his negative view of its business model, he made bearish statements about the company in June, only to see the stock price increase 44.5% since then. Herbalife, which sells nutritional supplements and personal care products is often viewed as just another pyramid scheme, but the company recently beat earnings estimates by 16 cents a share and offered better-than-expected guidance. Compared with other multi-level marketers, Avon (AVP), Tupperware (TUP) and Nutrisystem (NTRI), Herbalife, which trades at 11 times earnings, is the cheapest in the group and has returned 148% in five years, second only to Nutrisystem's 155%.

Michael Johnson says the company is benefiting from the weak dollar, since 80% of its sales are overseas. Herbalife has just expanded into Vietnam, a country of 87 million people who are ideal customers for its products. Johnson says the company is finding ways to help its distributors in a difficult economy by offering deeper discounts. Cramer likes Herbalife's clean balance sheet, its $250 million in cash and says Michael Johnson is "money in the bank."

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