Cramer's Mad Money - The Huge Wild Raging Bull Market in Trucks (6/2/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday June 2.

Cummins (NYSE:CMI), Navistar (NYSE:NAV), Paccar (NASDAQ:PCAR), Wal-Mart (NYSE:WMT)

A general bear market usually has within it a lot of mini-bull markets, and one example is the "huge wild raging bull market in trucks." Cramer says the truck cycle is where autos were last year. Truck companies have under-produced for three years, and with prices increasing and demand revving up, it is worth buying truck-related stocks while they are still cheap.

In the last three months, prices for trucks have increased 20%. Deteriorating road conditions wear down vehicles quickly, and given that most truck fleets in America are an average of 20 years old, it's high time most companies replace their fleets. Even cost-conscious Wal-Mart (WMT) is restocking its vehicles, and other companies are likely to follow. With new emissions controls proposed in many countries, it may even be illegal in some cases to use an old truck.

Cramer discussed three pure plays on trucks: Cummins (CMI), Paccar (PCAR) and Navistar (NAV). The weakest is Navistar, which sells 80% of its trucks in the U.S. Cramer thinks Navistar is a risky stock because its last quarter was disappointing, but it has scored some big contracts. The stock trades at a multiple of 7 with a long-term growth rate of 13%. Next in line is Paccar (PCAR), which generates 51% of its revenue from the U.S. It is a fairly good stock with a multiple of 10 compared to an 11% growth rate.

Cramer's favorite in the space is Cummins, which has the most advanced technology and produces diesel and natural gas engines. Cummins makes 30% of its sales in Asia and had a huge earnings beat on its most recent quarter. Cummins has a clean balance sheet, $1 billion in cash and with a low multiple of 10 compared to a 14% long-term growth rate, Cummins is cheap.

EastGroup Properties (NYSE:EGP), Federal Realty Investment Trust (NYSE:FRT), Boston Properties (NYSE:BXP)

The Dow's surge on Wednesday was a "reprieve from the agony" of the general market, and was punctuated by a Wall Street Journal headline that indicated increasing exports are driving the domestic economy up. Cramer said U.S. manufacturing is "stronger than ever," and he would be on the lookout for a high-yielding REIT than can profit from this trend.

Investors who bought Boston Properties (BXP) last year have seen a 53% gain, and Federal Realty Investment (FRT) has increased 46% since 2009. Cramer thinks East Group Properties (EGP) has "survivor written all over it" and may have a similar story to BXP's and FRT's. The REIT is trading just 4 points off its 52-week low and is 20 points off its high. It has exposure to industrial and office property in the Southern U.S., a region that is experiencing a comeback.

Why does Cramer believe in EGP so much? He admits one of his "biggest blunders" in his hedge fund days was betting against EGP, which was a "short selling head banger" when the stock shot up. Cramer thinks shorts will make the same mistake since they never learn, and praised EGP for "literally calling a bottom" in real estate. Other REITS have given good data, but EGP has yet to see a rise in its stock price. Cramer predicts the company will raise its dividend and continue to have "stupendous performance."

6 Things To Look for Before Being Bullish: NetApp (NASDAQ:NTAP), Cirrus Logic (NASDAQ:CRUS), (NYSE:CRM), SanDisk (SNDK), Cree (NASDAQ:CREE), Apple (NASDAQ:AAPL), 3M (NYSE:MMM), United Technologies (NYSE:UTX), Cooper Industries (CBE).

While the Dow rallied 266 points and the S&P rose 2.6%, Cramer urged investors to be cautious. After the worst May in 40 years, stocks were oversold and were bound to rally at some point. Cramer listed 6 things he needs to see happen before he can truly be bullish on stocks.

1. The fine print on financial legislation. Until then, the uncertainty about bank reform is too hard to bear.

2. Stabilization of Spanish banks which are the canary in the coal mine of the European crisis. Cramer thinks these banks needs a TARP-like program and should cut their dividends.

3. A drop in unemployment.

4. Containment of the oil spill. Oil-related stocks comprise 12% of the S&P 500, and the crisis needs to end.

5. A statement from China that its soft landing will be accompanied by an increase in industrial output.

6. The euro has to hold its current level.

Only after every item on the list is crossed off, Cramer would buy: NetApp (NTAP), Cirrus Logic (CRUS), (CRM), SanDisk (SNDK), Cree (CREE), Apple (AAPL), 3M (MMM), United Technologies (UTX), Cooper Industries (CBE).


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