Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday March 12.
Verifone (PAY) was a laggard stock, but has turned itself around and may be a promising acquisition. The company weathered accounting irregularities and earnings misses, but customers did not flee. Its new management is revamping the company, which now focuses on replacing and installing new pay terminals, and PAY recently saw a 5% increase in organic growth in Europe and Asia compared to -15% a year ago. The stock rallied 11% and can be bought at $50 for its stellar fundamentals. Cramer could envision eBay (EBAY) spinning off its PayPal division and PayPal acquiring PAY to increase its exposure to brick and mortar stores. Starbucks (SBUX) could also buy PAY to add to its successful mobile strategy. Regardless of takeover predictions, PAY is a buy.
The Dow fell 11 points on Thursday, and Cramer said one way of understanding the action in stocks is to keep "three eyes" on the market. Investors need to look at stocks, bonds and commodities to comprehend movement in the averages. Commodities are being hit, as indicated by the JJC (JJC), a copper ETF that tends to correlate with China. While numbers from the Chinese government might be hard to rely on, commodities, especially copper, are often a "tell" on the Chinese economy, and commodity prices have fallen, in addition to oil prices. The rally in bonds means lower interest rates, and this is also a sign to be cautious about the economy. In addition, Europe reported slower than expected production numbers, and as a result of these factors, industrial stocks were punished.
However, low commodity prices are good for companies that use a lot of raw materials, so consumer goods and restaurant stocks went higher. In addition, tech stocks that are not so levered to the world economy, like Salesforce.com (CRM), might see a lift. An important lesson from Thursday's action is to stay diversified and to be prepared for a rotation from industrials into defensive stocks. However, Cramer mentioned that any decent economic number could also bring up industrial stocks again.
Cramer took some calls:
Kinder Morgan Partners (KMP) is a buy at this level, and Cramer is "shocked" KMP fell as far as it did, even with worries of an oil glut.
Northwest Biotherapeutics (NWBO): Cramer thinks stocks in this sector are too high.
CEO Interview: John Schiller, Energy XXI (EXXI)
A few days after Cramer interviewed Energy XXI (EXXI) CEO John Schiller, the company announced a deal to acquire EP Energy at a 37% premium. EXXI got hit on the news, because the deal is being funded by stock, but Cramer pointed out that EXXI has a history of successful acquisitions, and thinks the stock could be a bargain. He spoke once again with Schiller, who said the "properties fit together like gloves ... the synergies are amazing." The deal will make EXXI the largest public oil company in the Gulf of Mexico shelf. The companies complement each other well, with EP's focus on geoscience and EXXI's aggressive production growth through technological innovations in drilling. Schiller expects growth to be realized from the acquisition within the year, and Cramer would buy EXXI at its current level.
Activist investor Dan Loeb bought a large stake in Dow Chemical (DOW) 2 months ago and recommended that Dow split itself up into a commodity petrochemical business and a proprietary chemicals company. While Cramer likes spin-offs, he thinks Dow can make a case for staying together. He praised the decision of DuPont (DD) and PPG Industries (PPG) to get rid of their commodity chemicals, so what is different about Dow? Dow had been sluggish for a while, but is now in "self-help" mode with improving fundamentals. Dow is more vertically integrated than many other chemical companies, because its commodity petrochemicals are used to make its specialty chemicals; this is the chief reason to keep both segments under one roof. The company reported a 22 cent earnings beat with a 3.4% rise in revenues. Dow is up 10% for the year and has risen 50% in the last 12 months. It is buying back 7.6% of its market cap and has increased the dividend by 15%. Dow may not be a buy after such a huge run, but it has certainly improved as a company.
Cramer took some calls:
Trinity (TRN) is a great company but Cramer says he "has to find another train to ride. We missed it." TRN is a buy on any dip.
Stay Diversified: EOG Resources (NYSE:EOG), Google (NASDAQ:GOOG), Salesforce.com (CRM), Johnson Controls (NYSE:JCI), Costco (NASDAQ:COST), Whole Foods (NASDAQ:WFM), Merck (NYSE:MRK), Gilead (NASDAQ:GILD), CBS (NYSE:CBS), Time Warner (NYSE:TWX)
Forget about "buy and hold." Cramer's motto is "buy and homework." He recommends a diversified portfolio with no less than 5 stocks, so that no single stock or sector represents more than 20% of a portfolio, but no more than 10 stocks, because an alert investor needs to do an hour of homework per week, per stock. This involves reading or listening to the company's earnings conference call, keeping aware of macro trends that affect sectors, and to research a company's fundamentals. Cramer thinks a diversified portfolio should hold an oil and gas company, like EOG Resources (EOG), a tech company, like Google (GOOG) or Salesforce.com (CRM), an industrial, like Johnson Controls (JCI), a retailer, like Costco (COST) or Whole Foods (WFM), a healthcare company, like Merck (MRK) or Gilead (GILD) and an entertainment play, like CBS (CBS) or Time Warner (TWX).
Get Cramer's Picks by email - it's free and takes only a few seconds to sign up.