Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday April 11.
11 Things To Watch In The Week Ahead: Citigroup (NYSE:C), Coca-Cola (NYSE:KO), Intel (NASDAQ:INTC), Google (NASDAQ:GOOGL), (NASDAQ:GOOG) IBM (NYSE:IBM), McDonald's (NYSE:MCD), Chipotle Mexican Grill (NYSE:CMG), PepsiCo (NYSE:PEP), Bank of America (NYSE:BAC), Sabre (NASDAQ:SABR). Other stocks mentioned: Ford (NYSE:F), Hain Celestial (NASDAQ:HAIN), Wal-Mart (NYSE:WMT), JPMorgan (NYSE:JPM)
The Dow fell 143 on Friday. JPMorgan (JPM) reported a disappointing quarter, when the bank doesn't usually miss numbers. Cramer thinks the negativity surrounding financials could continue, although that might mean a bottom for Bank of America (BAC) prior to its earnings. The pivotal day will be Wednesday when both Google (GOOGL), (GOOG) and IBM (IBM) report. The rotation has been away from high-multiple growth stocks and into high-yielding value plays. The performance of Google versus IBM should indicate whether this rotation will continue.
Cramer discussed earnings and an IPO to watch in the week ahead:
Citigroup (C) flunked government's test for returning capital. Cramer thinks the quarter could be okay, but that doesn't matter, because this market loves dividends, and Citi can't increase the yield. Stay away.
Coca-Cola (KO) is considered a cheap growth stock, but it is neither growing nor cheap. If it reports a bad number but doesn't go down, that will be an indication that the rotation into bond equivalents isn't over yet.
Intel (INTC) reports after the close. Often when it runs up, it gets sold off, but this time "feels different." It yields 3.4% and is usually profitable, even though it has almost no growth. The market likes this scenario. If management of either Coke or Intel announces cost cutting or restructuring on Tuesday, there should be some upside.
Google is perceived to be a high-flyer, but Cramer thinks it is inexpensive. The stock has been sold off because of the rotation, but Cramer's charitable trust has been buying the decline.
IBM will probably not report a good quarter, but stocks like IBM are loved by the market right now. Warren Buffett will likely buy more even if IBM disappoints, so those who want to buy IBM might pick some up after earnings.
Bank of America reports on Wednesday. It might benefit from a possible reset in attitude about banks, which are likely to continue selling off until Wednesday. It might catch a bottom ahead of earnings, and this could be an opportunity.
McDonald's (MCD) has been performing well, but last earnings were poor. It might have some upside, because it is a popular stock right now.
Chipotle Mexican Grill (CMG) has not been performing well, but not because of its fundamentals; it reported a 9% increase in same store sales last quarter. Its earnings might be an "eye-opener," but it could see a decline.
Sabre (SABR) IPO: Sabre is one more "giant, steaming piece of IPO merchandise." Excess IPO supply is crushing the market. Look out below.
General Electric (NYSE:GE) is a holding in Cramer's charitable trust, and he has been worried about how poorly it has acted. GE has some dividend protection, but it is a "tough own, even though it is dirt cheap."
PepsiCo (PEP) has been a good performer during the rotation. Cramer expects "genuine fireworks." Activist investor Nelson Peltz is likely to continue putting pressure on PEP. It might be a buy after its report.
Cramer took some calls:
Ford (F) can't move out of its range until it is clear that Europe has improved.
Hain Celestial (HAIN)- there is a question of whether Wal-Mart (WMT) is going to drive down the price of Hain's goods with its deal to sell the Wild Oats brand at a discount. CEO Irwin Simon thinks Hain is diversified enough to avoid this problem posed by Wal-Mart. Even without the Wal-Mart news, Hain might have dropped anyway, because it has a high multiple; "Give Hain some room. I don't think it is necessarily done."
Rite Aid (RAD) soared on Thursday and Friday on a winning earnings report in which it crushed expectations. This $7 stock is up 30% year-to-date and has doubled since Cramer recommended it since August. Even after the rally, Cramer thinks RAD is likely to go higher. RAD has reached "inflection point," and is a former "turnaround story." It is no longer a turnaround story, because it has already turned around.
RAD will benefit from the Affordable Care Act, with possibly 14 million new customers. Aging baby boomers will also create upside for RAD. In 2014, there will be $35 billion worth of patent expirations, and since generics carry higher margins, this will be a catalyst for RAD. The company has taken on an aggressive remodeling as well as providing general health and wellness services. The locations with these new services offer same store sales 300 basis points higher than regular stores. RAD has been shutting down underperforming stores, and has been offering flu shots, which generate more traffic. The company has been using data analytics for targeting marketing efforts. RAD beat earnings by 2 cents, improved revenues and gave bullish guidance. The company has a multiple of 15, which is cheaper than that of its competitors. Cramer would wait for a pullback before buying.
Cramer took some calls:
Actavis (ACT) is an expensive stock without a dividend. Cramer would look to a bigger pharma play, like Pfizer (PFE).
Bristol-Myers (BMY) keeps going down because it was the most expensive of the drug companies. Now it is one of the cheapest, and when it declines so that it yields 3%, it is a buy.
"Maybe Twitter (TWTR) holds the key to this market," Cramer said. However, it may also be Microsoft (MSFT), since it has slower growth, a decent yield and has a new CEO, Satya Nadella, who might initiate a value-adding restructuring. The opposite of MSFT is Twitter; it is cool and hip, but it has no dividend and lacks earnings. It might break even in 2014, but it is "obscenely expensive" compared to MSFT. Retail investors adore the product and tend to buy the stock, and it was these buyers that brought up TWTR's stock price. The recent IPOs have produced losses, and TWTR is definitely more stable than these, but it has been guilty by association. If TWTR starts to rally and MSFT starts to decline, that would be a signal the rotation is going to reverse. As long as TWTR declines and MSFT goes higher, the rotation will continue.
Cramer's Playbook: Multiples, Growth Rates and PEG Ratios
How do potential investors determine the right price to buy or sell a stock? One way is to look at the P/E multiple, which is the price of a stock divided by its future earnings. This gives an "apples to apples" form of comparing one stock to another. The P/E multiple tells you what investors are paying, but not why. Comparing a slower-growing stock to a momentum stock based on the multiple alone does not give the full picture. The multiple should always be compared to its growth rate.
A better metric is the PEG ratio, which involves dividing the multiple by the long-term growth rate. One rule of thumb is not to pay more than two times the company's growth rate for the stock. This means that a PEG ratio of above 2 is an indication that the stock is too expensive. On the other hand, stocks with a PEG ratio of under 1 are inexpensive. Of course, research into fundamentals is required in addition to looking at the multiple, growth rate and PEG ratio.
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