Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday July 20.
IBM (IBM) seemed to have a lot going for it. The company beat earnings estimates by three cents and reported the expected 2% growth. Yet the stock was "hammered mercilessly" and was sent down 3% on what was otherwise a good day for tech. The CFO proudly said the company met all of their targets laid out in the April conference call. So what happened to IBM?
IBM had an analyst day in May during which it made bold statements about its growth prospects out of "sheer bravado." Although the roadmap IBM laid out on the analyst day was for the longer term, to 2015, its promises were extravagant: double digit growth every year until then, $20 earnings per share by 2015. The stock was sent down because of the company's hubris in May, and Cramer thinks this is a serious credibility issue; "IBM has greatly diminished its credibility for no good reason whatsoever." He would therefore not buy the stock, even though it is down, but is bullish on IBM rival Accenture (ACN) which delivered a "blowout" quarter in June and has more growth worldwide than IBM.
What Brought Up Stocks on Tuesday? Goldman Sachs (GS), Whirlpool (WHR). Johnson & Johnson (JNJ), PepsiCo (PEP), Texas Instruments (TXN), Apple (AAPL), VMware (VMW), Freeport McMoRan (FCX), Yum Brands (YUM), Caterpillar (CAT), Bucyrus (BUCY), Joy Global (JOYG)
Cramer predicted Tuesday's housing numbers would send stocks down, but it was actually headlines about earnings that had a greater effect on stocks. Those who simply read the headlines would have believed that Goldman Sachs' (GS) quarter was a disaster, when looking at the fine print, even taking the company's huge fine into consideration, Goldman Sachs actually earned $2.75 per share. Investors who paid attention to the conference call rather than the headlines could have made some money picking up Goldman for cheap.
Whirlpool (WHR) threw cold water on the headlines with its cautious statements that belied the optimism in the media. Johnson & Johnson (JNJ) blamed a recessionary mood for the decline in sales, but if that were indicative of a larger trend, defensive stock PepsiCo (PEP) should have been down when it saw an uptick Tuesday.
Gloom about tech after IBM's disappointing quarter and Texas Instruments' (TXN) lackluster report might have made investors miss a 20 point swing in Apple (APPL) from the beginning of the day to when it reported a magnificent number after the close. Tech pessimism might also have kept people out of Salesforce (CRM) which started down 3 points in the morning and took off like a rocket or VMware (VMW), which reported a great quarter.
So if all of these other factors failed, what actually sent stocks up on Tuesday? Chinese markets have exploded upward and in the past few days, the Chinese have been buying up commodities "like gangbusters." Their orchestrated soft landing has worked wonders, and Cramer thinks growth in China will ultimately trump the doom and gloom of domestic media spin. The main beneficiaries of the trend are Yum Brands (YUM), Caterpillar (CAT), Bucyrus (BUCY), Joy Global (JOYG), which helped create a lift in stocks by the end of the day.
Is it worth it to buy individual stocks anymore? With the so-called "commoditization of stocks" (i.e. stocks of the same sector trading in lockstep with each other) does it really matter which one you buy, and is it a better idea just to buy an ETF? Cramer chose a stock perceived as doing well, JPMorgan (JPM), a stock perceived as doing poorly, Bank of America (BAC), and weighed them against the Financial Select Sector SPDR ETF (XLF). He consulted with technical analyst Tim Collins to weigh the options from a technical as well as a fundamental viewpoint.
Cramer and Collins found that JPMorgan moved in 91% correlation with the XLF; "they are basically the same thing," said Cramer, and Bank of America is trading at 80% correlation. JPMorgan's volatility is 1.14% and Bank of America's volatility is 1.4%, but "they end up the same place," added Cramer. Collins said he would prefer to own the ETF, because it is a smoother ride to the same destination. Cramer insists that there is still value in owning individual stocks, and demonstrated JPMorgan has gone up over time more than Bank of America.
Special Guest, Senator Ted Kaufman, Delaware
In the wake of Goldman Sachs' historically high $550 million fine, Senator Ted Kaufman discussed the need to keep an eye on Wall Street and how the Goldman Sachs settlement represented a credible first step towards reform. While Goldman Sachs might be spinning the settlement as a victory, since it is the highest fine ever paid by a Wall Street firm, Senator Kaufman thinks the victory belongs to the SEC. He described the pervasive "arrogance" on The Street and commented, "that is why we need the regulators back on the beat."
"Somebody on Wall Street has got to wake up and say, this is despicable."
Closing Remarks: Apple
"The internet tsunami is alive and well… particularly because Apple is saying that both the iPhone and the iPad had terrific sales… you know that I think Apple goes to $300... I am reiterating that price target."
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