Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday February 11.
Cash isn't always king when looking for good stocks. Just because a company has plenty of cash on its balance sheet doesn't mean it is a buy. Cisco (CSCO), Microsoft (MSFT) Intel (INTC) have plenty of cash, but tend to engage in reckless buybacks, and have purchased shares, even at relatively high prices. Wyndham Worldwide (WYN) is an example of a company that uses its cash to make prudent buybacks. Another thing to be concerned about are companies that blame customers for lack of orders. Juniper's (JNPR) management said that slower orders from Japan caused its lackluster quarter, when on further investigation, customers were buying from other companies and not from Juniper.
Cramer analyzed every trade he has made for his charitable trust in the last 5 years and noted the successes and the blunders. He recommends every investor go through their portfolios for the learning experience. One thing Cramer noted was times when stocks were clearly bottoming, and from that investors can see several signs that a stock is bottoming. One sign is when expectations are so low that the stock is de-risked. Another sign is when a stock fails to fall after bad news.
In 2009, analysts dramatically cut their estimates for Caterpillar (CAT), and it delivered an ugly quarter. However, CAT's stock barely reacted to the news, and that was a sign to buy it. In the wake of the London Whale scandal, JPMorgan (JPM) was expected to face a $6 billion loss, and then the estimate rose to $9 billion. However, the stock didn't drop. When it was discovered that the losses would indeed be $6 billion and not $9 billion, the stock rose from $31 to $50 over the next year.
Secondary offerings often get a bad rap, because many people find them dilutive and a sign that a company is in trouble. Sometimes good companies need to raise money, and secondaries are buying opportunities. This is often true of REITS, which issue secondaries for development and to pay off debts. The mortgage insurer, Radian (RDN) had a buyable secondary, and rose 50% in two months. MLPs use secondaries to fund expansion plans. Good MLPs include Kinder Morgan Partners (KMP), MarkWest (MWE) and Enterprise Products Partners (EPD). However, Cramer would be careful of high yielding MLPs in a rising interest rate environment.
When doing homework on a stock, it isn't enough just to gather information, but to pay attention to what metric is important in a specific industry. Cramer used the example of Devon (DVN), which was a holding in his charitable trust. The company kept beating earnings estimates, but the stock was sluggish because production growth, a key metric in the industry, was disappointing. Similarly, Cramer said he missed the bottom in Micron (MU), the semiconductor company, because, while it was reporting disappointing earnings, its key metric, average selling price was improving. It isn't enough to do homework, and investors need to know what to look for.
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