Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday April 20.
A classroom of seventh graders can express the mood of America more eloquently than the pundits. Or at least that's what Cramer discovered when he went to a charter school in Brooklyn to promote Teach for America and was prepared to impress a room of 13 year olds with the wonders of the stock market. Instead, he was greeted with some pretty tough questions. "Why should I invest in the stock market when it is rigged." or "Isn't the stock market controlled by rich people?"
On Mad Money, Cramer answered these questions. Even though there is corruption from time to time, no, the stock market is not rigged. Stocks beat bonds and are certainly a better investment idea than leaving money in a bank account or inside a bed mattress. What can protect investors from manipulation and fluctuation? The answer is dividends, because "dividends, unlike people, do not lie."
In the last five years, the S&P 500 is down .9% and the Dow is up 3.4%. Looking at the same indexes from the perspective of dividends, the S&P is up 10% in the last 5 years and the Dow has risen 17.8%. In the last 20 years the S&P 500 is up 244% and the Dow is up 301%, while according to dividends, the same indexes are up 425% and 529% respectively. Dividend increases are usually a good sign that business is good and a stock is likely to roll higher, so looking at yields, in this sense, provides a double benefit.
Even when a stock drops, its dividend can rise significantly. Eaton (ETN) at its lowest point last year yielded 5.1% and its stock price has since doubled. Chevron's (CVX) dividend was 4.7% when it dropped, and has since climbed 82 points. Emerson's yield was 5% at its low point, but has rallied 109% in the last year. "Dividends cannot be manipulated," Cramer emphasized, "Because they are cold, hard cash."
Cramer credited a young student in the class who said World Wrestling Entertainment (WWE) was a great stock , and Cramer added what makes WWE great is that it is going higher and it yields a fat 8%.
After Apple's (OTC:APPL) "unbelievable" quarter, it shouldn't come as a surprise to anyone that the mobile internet is here to stay. But there's one problem; Apple's iPhone and iPad are clogging up broadband. "We need more tech behind Apple’s phones and Ciena (CIEN) has it."
Cramer recommended Ciena in December 2008 at $6 as a speculative stock, and it has tripled since then. He doesn't think Ciena is finished. Analysts worry about Ciena's purchase of Nortel's (OTCPK:NRTLQ) bankrupt optical networking business, but Cramer sees a combined company that will be the third largest equipment player with 18 to 25 of the largest telecom companies as clients and with a 10-12% growth rate. Although Ciena will take on quite a load of debt, Cramer feels certain the company can more than pull it off, and spoke with CEO Gary Smith about Ciena's prospects.
Gary Smith spoke about the importance of the acquisition:
Well, Ciena before was a really specialist player in basically facilitating the internet. As you say, sort of the circulatory system for the internet and the mobile networks. Now, with this acquisition it gives us global scale. And we are the number one in North America. As you say, number three globally. It gives us the ability to invest and to scale the networks up for our customers.
Smith dismissed worries about debt through the acquisition, because the company currently has a large cash position and a clean balance sheet. The mobile internet revolution is at the early stages and the main task ahead is to improve bandwidth. Smith concluded:
Really now you have got a business model where people are making money on the internet, for sure. And you people are paying for real capacity, where before it turned out there was not real capacity being used by users... The business models have matured and I think that is the difference now.
Cramer commented after the interview: I am proud that at $6 when everyone else ran away, I went all in… and you know what? At $18 I am still holding.
Pier 1 Imports (PIR)
With a "shock full of positives" from its earnings on April 8th, Pier 1 Imports (PIR) is up 507% since last year, and although it disappointed by a penny on its report, Cramer thinks Pier 1 is showing signs of a turnaround. The company is closing underperforming stores, revamping old ones and is benefiting from the return of the consumer who "shops for things he doesn't need."
Technical analyst Tim Collins of The Street.com doesn't think that Pier 1 Imports is a buy at its current level. Collins sees low volume trading as a sign the stock will drop, and he would pick it up at $7.40, because he sees it reaching at least $10 by the end of the year.
However, Cramer thinks there is no guarantee that Pier 1 is going to return to that level and sees too many reasons for the stock to rise further. Therefore, Cramer would not wait, but would go ahead and buy the stock at its current level, given the brilliance of the company's CEO, Alex Smith, who has been closing underperforming stores and improving merchandise by paying attention to changing trends.
Smith has moved away from higher ticket, slow-moving items to smaller, fast-moving items like Accent tables and Papasan chairs. Smith is also giving Pier 1 a new look and the company's same store sales were up 6.5% in the most recent quarter. Customer traffic increased along with gross margin. The balance sheet is clean and the tone of the conference call was upbeat. The bottom line, "I don't think you are going to get that pullback," Cramer said.
Cramer responed to a viewer's question about Bucyrus (BUCY):
If this stock has one of those intra-day pullbacks of 3%, 5%, that sometimes we see… or if it is down for a couple of days… yes, yes, I want you back in… this is like the big shovel company for China… I think the company has got multiple years ahead of it that is good… I am going to throw in Joy Global (JOYG) because you are a good man.
Another viewer was looking for a play on hybrid vehicles and Cramer said he likes Sociedad Quimica Y Minera de Chile (SQM) for its lithium, but cautioned that because of the earthquake in Chile, the stock may take some time to move.
Cramer told another viewer that he very much appreciated South Park's parody of him in their "Mad Friends" episode. "I took it as an endorsement." He added that the South Park episode about The Great Recession "Was the single best show about the economy I have ever seen."
Final Remark: Apple
It is hard to fathom exactly how unbelievable Apple really is… the gross margins were gigantic, the revenues were out of control; obviously this company is firing on all cylinders blowing out the numbers for the iPhone… (they) do not even include the iPad yet. But here is what is most important, you still have not missed anything… back out the cash, the stock is still cheap.
Jim Cramer was up 31% in 2009. Click here now to trade alongside him.
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