Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday December 9.
It has been a choppy season for retail, especially apparel. Phillips-Van Heusen (PVH), known for its dress shirts, Calvin Klein and Tommy Hilfiger brands, reported a 5 cent earnings beat on light revenues, and management maintained guidance, but did not raise it. CEO Emmanuel Chirico admits he is unhappy with the Calvin Klein jeans business, which is down double digits and has been struggling since before the Warnaco acquisition. Improvements in the quality and design are underway, but "it won't be overnight," admitted Chirico.
The holiday season, according to Chirico, is "competitive and highly promotional." However, there are some bright spots. The Tommy Hilfiger brand has seen a 15% increase in sales in Europe, Calvin Klein is strong in Asia and Latin America, and with the exception of the jeans segment, has gained 8% in North America. J.C. Penney (JCP) reported a 10% increase in November sales, which was good news for PVH's Izod brand. Chirico predicts that Calvin Klein will turn around later in 2014. Cramer thinks the stock will decline for the remainder of 2013, but should see an uptick in the coming year.
Goldman Sachs initiated coverage on Masco (MAS) with a "sell" rating. Credit Suisse reiterated its "buy" rating. Who is right, the bulls or the bears? Cramer owns Masco, the leading homebuilding products company, for his charitable trust, and he is on the side of the bulls. The stock generated 78% of its sales from the U.S. and is up 29% year to date. Masco tends to move with housing stocks, so if Toll Brothers (TOL) reports a strong quarter on Tuesday and rises, Masco may be a buy.
The Goldman Sachs analyst was concerned about the state of residential housing, which is not as strong as non-residential, and since Masco is associated with the latter, the bears think it will decline. In addition, Goldman Sachs is worried about Masco's insulation and cabinet segments, which have been weak. The bears think the strength in Masco's repair and remodeling business has already been baked in the stock. Masco gets 40% of its sales from Lowe's (LOW) and Home Depot (HD), a situation the bears argue could limit its margin expansion. Finally, Masco is unlikely to make acquisitions or return cash to shareholders because of its heavy debt.
To counter the bearish argument, November home sales were strong and may continue to improve. Only 15% of Masco's business is in the weak insulation segment, and it has made cutbacks in its cabinet business. As the employment numbers continue to improve, the consumer will spend more money on his or her house, and Cramer predicts margins for Masco could improve by 40%. Masco, as the leader in the industry, has pricing power, it has plenty of cash and should increase cash flow in 2014. Goldman Sachs has a $20.50 price target for Masco, a dollar below its current level, while Credit Suisse's target is $25. Masco trades at a multiple of 19, below its historic valuation. Cramer predicts Masco could grow earnings at a 44% clip next year and still believes the stock is a buy.
Cramer took some calls:
American Realty (ARCP) has been "killed" along with its cohort over concerns about interest rates. When the 10 year Treasury yields 3%, it might be time to buy ARCP. The fundamentals of the company are sound.
CEO Interview: Ed Heffernan, Alliance Data Systems (ADS)
Alliance Data Systems (ADS) benefits from the explosion in loyalty programs and store credit cards issued to retail customers. ADS has seen a 70% run so far this year. CEO Ed Heffernan said, "We are behind the scenes, and we put our clients first." He added that as more companies want to keep tabs on their customers' preferences and spending habits, demand for ADP services is going to increase. He expects a healthy holiday season, and ADP takes a multi-channel approach of reaching customers online and in actual stores. Heffernan discussed the strategy of growing the topline and shrinking the share count. "We should see a nice acceleration in earnings per share."
Why Many Stocks Are Going Higher: Sysco (SYY), Linn Energy (LINE), WhiteWave Foods (WWAV), US Airways (LCC), Micron (MU), Celgene (CELG). Other stocks mentioned: AutoZone (AZO), O'Reilly Automotive (ORLY), Noodles & Co. (NDLS)
Cramer discussed some trends that are bringing stocks higher. Many companies, such as Sysco (SYY), WhiteWave Foods (WWAV), Linn Energy (LINE) and Micron (MU), are making smart acquisitions to reduce competition and increase market share. The merger between US Airways (LCC) and American Airlines is good news for shareholders, but Cramer warned of short-term profit taking in US Airways. Celgene (CELG) received some positive data about Revlimid, which is likely to become a first-line treatment. The refiners had been in decline, but are on their way up again, since crude prices are falling.
Cramer took some calls:
Noodles & Co. (NDLS) should not have issued the secondary offering, but Cramer would not sell the stock.
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