Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday May 4.
10 Sectors to Buy in a Buffet of Horrors: Caterpillar (NYSE:CAT), United Technologies (NYSE:UTX), 3M (NYSE:MMM), Apple (NASDAQ:AAPL), Pfizer (NYSE:PFE), Merck (NYSE:MRK), Abbott Labs (NYSE:ABT), General Mills (NYSE:GIS), Perrigo (NYSE:PRGO), Inergy Holdings (NRGP), Atlas Energy (NYSE:ATLS), National Fuel Gas (NYSE:NFG), Duke Energy (NYSE:DUK), Dominion Resources (NYSE:D), Nike (NYSE:NKE), Starwood Hotels (NYSE:HOT), Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST), Sprint-Nextel (NYSE:S), Motorola (MOT), 3M (MMM), Boeing (NYSE:BA), Dupont (NYSE:DD)
With the Dow dropping 225 points and the S&P 500 shedding 2.4%, the bears are predicting the eve of destruction and are preparing for investors a buffet of horror scenarios. Cramer made list of what is on the menu.
1. The Chinese government is not so generously inflating the economy now, and the Chinese asset bubble might deflate.
2."The endless drumbeat of contagion in Europe."
3. Mining tax in Australia
4. Decline in oil prices; this affects 12% of the S&P 500.
5. Bank reform
6. Rotation out of industrials; Caterpillar (CAT), United Technologies (UTX) and 3M (MMM) reported good quarters, but there is concern they are overvalued. This fear was emphasized by Emerson's (NYSE:EMR) terrible quarter.
7. Terrorist threat in Times Square
8. Apple (OTC:APPL) anti-trust woes.
9. Impression that restaurants and retail have risen too fast.
10. End of housing tax credit.
To respond to the 10 horrors plaguing the market, Cramer came up with a ten-point strategy of what to buy right now.
3. Dividends: Inergy Holdings (NRGP) with a 7.4% yield.
6. Nike (NKE) on Wednesday morning, ahead of its first analyst meeting in 3 years.
7. Hotels: Starwood Hotels (HOT)
9. Speculative: Sprint-Nextel (S), Motorola (MOT)
The "sick men of Europe" are going to create "endless dips" and buying opportunities, especially in sectors that have been winners lately. One sector that has "risen from the grave" is housing. Even with the end of the housing tax credit, Cramer thinks the sector is a winner as sales and prices rise and inventory falls. Cramer made a bold prediction; "I am now this week calling for a housing shortage… yes, a housing shortage by December 21st of 2011."
He discussed DR Horton's (DHI) "amazing beat" of 5 cents a share, with revenues up 16% over last year, backlog up 38% and orders up 55%. Lumber company Weyerhauser (WY) is Cramer's favorite play in the sector with 80% of its sales from housing. Although it reported a 7 cent loss, the loss was 18 cents smaller than The Street predicted, and revenues were up 11% for the year. The technicals show a reverse head-and-shoulders pattern, which indicates it might have already made its move in April, but Cramer disagrees with the charts in this case in favor of the fundamentals. The 4% pullback provides a good entry pont and the biggest driver, timberland assets, earned $82 million for the company; this was double The Street's estimates. In addition, Weyerhauser wis going to convert into a real estate investment trust by the end of the year, and Cramer would buy the stock ahead of that event.
Cramer asked why Dominos "got a beheading" of 13% when it reported an upside surprise on Tuesday. It beat estimates by 2 cents a share, revenue was up 18%, and same store sales increased 14.3%. One factor is the stock has run up 36% since January, in addition to the general bearish mood on Tuesday.
Patrick Doyle was not concerned about the decline in stock price: "Look, it was a down day in the market today. At the end of the day, who cares. The stock market reacts and we are going to sell more pizza."
While there were concerns that the company's ad campaign admitting that its pizza used to taste like "cardboard" would evoke only ridicule, Doyle says it was a "success" and noted that 75% of Dominos' customers like the new recipe. Dominos is currently the fourth largest internet play in the world and has the highest same store sales growth in the restaurant industry.
When asked if he is concerned about raw costs, Doyle responded;
"At the end of the day commodities go up, they go down. You deal with it and over the long term it does not make a difference. And you put up 14% (same store sales increase), it does not matter what cheese costs." The CEO predicted Papa John's (PZZA) was going to be "flat" the next quarter.
"That's a share take for you," Cramer asked.
"Absolutely," replied Doyle.
Cramer is bullish on Dominos Pizza.
CEO Interview: Russell Goldsmith, City National (NYSE:CYN)
Cramer revisited his play on the turnaround in California, City National (CYN) which has seen its stock price rise 9% since it was featured on "Mad Money" last month. Cramer discussed the bank's "terrific upside surprise," with a 12% decline in non-performing assets and an asset under management increase of 2%. On its conference call, management discussed an increase in business confidence, renewed demand for loans, and a "growing sense that the economy has bottomed out" in California.
Russell Goldsmith said he welcomed the resurgence of "jumbo loans" which are the bank's "bread and butter." These loans of between $1 million and $5 million have attracted no defaulters and the bank has only had to foreclose on two such homes in a decade. Goldsmith discussed the process of taking over laggard banks in California with the help of the FDIC:
It was a good geographic fit for us, and the way that the FDIC structures these things. They make it work for you. We use our balance sheet to fund their loans. We have the deposits. We have the people. We have the systems, so we were able to step in and manage this for the FDIC. The depositors are in good shape and life goes forward.
Cramer asked Goldsmith how the bank can hope to compete in New York, and the CEO responded the company has had significant success through word-of-mouth; currently, 40% of Broadway shows bank with City National. Cramer reiterated his recommendation on the bank.
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