Cramer's Mad Money - Takeovers and Takeunders (7/22/10)

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 |  Includes: AAPL, AIQUF, AMRC, APD, CTL, ETN, GDOT, HK, KMP, NFLX, NUE, PEP, T, VOD
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday July 22

Takeovers and Takeunders: Qwest (NYSE:Q), AT&T (NYSE:T), Vodafone (NASDAQ:VOD), Air Products and Chemicals (NYSE:APD), Airgas (ARG), Green Dot (NYSE:GDOT), Aermesco (NYSE:AMRC), Netflix (NASDAQ:NFLX)

Takeovers are a great way to make money. Sometimes it pays to get in fast and then take the money and run, but some acquisitions are better to hold for the longer term.

Qwest (Q) is a high-yielding telco name that has risen 16% since March, but since it received a takeover bid, Qwest's upside is capped, and at $5.64, it probably will not go higher than $5.91, when the deal closes in 2011 -- a long time to wait for a stock to rise just 27 cents. Cramer suggests selling Qwest and investing a solid telco like AT&T (T), which reported strong earnings, or Vodafone (VOD), for its high yield and impressive growth.

Airgas (ARG), the largest packaged gas business in the country, received a "ridiculously low" hostile takeover bid of $60 from Air Products and Chemicals (APD). The two companies have been fighting, with Airgas rejecting APD's most recent bid of $63.65. Cramer thinks investors could make money in Airgas whether it takes a higher bid or stays independent. Airgas is outperforming APD, after reporting its second highest revenues in the history of the company and record operating margins. Even though revenues still have to reach full recovery mode, Airgas raised guidance, forecasted 18-23% growth and raised the dividend by 14%. Since it went public in 1986, Airgas has increased seven times more than Air Products and has create more a more diverse range of products. One analyst called Air Products' bid a "takeunder" not a "takeover," and Cramer thinks APD is just trying to take advantage of temporary weakness in the company; Airgas is headed to $80 even without the takeover bid.

Netflix (NFLX) declined 16 points after a "better than expected quarter that wasn't 'better' enough for the analysts," said Cramer, who thinks the takedown was a severe overreaction. Subscriber growth has risen 42% over last year, churn is down from 4.5% to 4%. Cramer would buy, not sell Netflix.

Cramer gave an update on his "tortoise and the hare" IPOs, Green Dot (GDOT) and Ameresco (AMRC). Both performed as expected; Green Dot rose 20% from where it was priced and has moved higher. Cramer would take profits in Green Dot, but would hold onto Ameresco, which was priced below its expected range and moved up a modest 2%. Ameresco represents slow, steady growth that will will the race.

Let's Get Cyclical: CEO Interview with Dan DiMicco, Nucor (NYSE:NUE)

Now that China and Latin America are the locomotives of the global "love train," and the world economies seem to be getting back on track, it's time to look once again at cyclical stocks. Cramer noted that Nucor (NUE) reported an unexpectedly strong quarter. Nucor is "the best-of-breed way to play the stabilization of the steel markets." The stock is down 21% from its high for the year of $49.93 reached in January, and is a bargain with a solid 3.6% yield. The company is vertically integrated, and uses its own scrap steel rather than costly iron ore. Cramer calls CEO Dan Dimicco one of the best executives in industrial America.

The company beat estimates by 3 cents on revenues that were slightly lower than expected, but were up 69.2% from last year. Prices and numbers of shipments both rose over last year, and the balance sheet is "a thing of beauty," said Cramer. One cause for concern is the cautious guidance given by Nucor and the use of the term "double dip recession." However, Cramer thinks Nucor "is the best way to play a long-term recovery."

Cramer told Dan DiMicco that he expected to hear more about North America on his conference call, rather than Latin America and South America, and DiMicco replied that the Nucor's realism about the markets has never hurt the company's performance. "We are doing better than most everybody else in this lousy market. But it's still a lousy market and, you know, you cannot be unrealistic about that. I do not want to create false expectations." He added, " All the things about Nucor in the medium and long-term are still in tact, and still a growth story."

DiMicco believes that America executing a recovery incorrectly, and a traditional recovery led by infrastructure spending to get Americans back to work, would be the best way to improve the economy. Finally, DiMicco explained that he is proud of Nucor's track record of holding on to employees during tough times and not simply laying hundreds of workers off in a dismal economy and wasting valuable resources to rehire and retrain when the economy recovers.

Hail to the Chiefs: Pepsi (NYSE:PEP), Apple (NASDAQ:AAPL), Eaton (NYSE:ETN)

With uninspiring housing numbers, disappointing employment claims and sluggish growth, one would expect stocks to get hammered, but the Dow was up 202 points and the S&P 500 jumped 2.3% on Thursday for one reason: CEOs.

CEOs can't just give into the pessimism generated by negative headlines, but they roll up their sleeves and get to work to affect the economy in a way that really matters: through business.

Cramer dedicated the segment to praising great CEOs as "the nameless, faceless heroes" of America. Teenagers should take down posters of "celebrity fatheads" and instead mount posters of Pepsi's (PEP) Indra Nooyi, Eaton's (ETN) Sandy Cutler and Apple's (AAPL) Steve Jobs on their bedroom walls.

"Let's celebrate the people who can allow us to retire in style, and put our kids through college," said Cramer, "not the people who wear orange jumpsuits, or star in hack reality shows."

CEO Interview: Richard Kinder of Kinder Morgan Energy Partners (NYSE:KMP), Petrohawk (NYSE:HK)

"The only thing we like more than a stock with a big juicy dividend, is one that consistently raises that dividend."

Cramer called Kinder Morgan Energy Partners (KMP), with its 6.3% dividend, an ATM because of its consistent return of cash to shareholders. The company reported a strong quarter with growth in all five of its business segments, a 4% rise in distribution, and an 18% increase in total distributable cash flow. KMP is growing aggressively, extending its pipeline in Marcellus shale and recently purchasing a 15% stake in Petrohawk (HK). There are rumors that KMP's partner, Kinder Morgan, may go public.

Richard Kinder commented, "we had a very good quarter. We're a toll road (i.e. KMP is immune to the fluctuation in natural gas prices). All of our volumes held up very well in our products' pipelines... we are solely in business to produce cash, and to distribute that cash to our unit holders. So it's a pretty good time to be in that business."

When Cramer asked Kinder about the possibility of KMP's partner Kinder Morgan going public, Kinder replied that it will be as a C corp that will not be competitive with KMP. When asked if the U.S. will become an exporter of natural gas, Richard Kinder says there is still reason to believe that natural gas might become dominant in the U.S as a cleaner and cheaper form a fuel.

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