Cramer's Mad Money - What the Tech? (7/26/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday July 26.

What the Tech? Apple (NASDAQ:AAPL), IBM (NYSE:IBM), Seagate (NASDAQ:STX), Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC), Cirrus Logic (NASDAQ:CRUS), Skyworks (NASDAQ:SWKS)

With the Dow up 101 points, the S&P500 rising 1.1% and virtually every sector seeing a bounce, Cramer wondered why tech is being left behind. Most of the tech stocks that reported recently beat estimates, with only IBM (IBM) and Seagate (NYSE:S) disappointing. So what's up with tech?

Cramer thinks the sector is being divided into the Apple (AAPL) or "haves" camp and the "non-Apple" or "have-nots" camp. He called this "a tech-tonic shift that has implications far beyond the estimates."

Tech has seen several revolutions in recent decades, from PCs to internet search to the smartphone. However, recently Apple has created a sea-change that might be the biggest revolution of all. With other huge trends, there were usually at least 3 companies that stood at the top, but in this case, Apple is the sole king of tech, with no other contenders for the crown. Apple reported that half of the companies in the Fortune 100 are using the iPad, which Cramer calls a "Trojan Horse that lets the entire Apple lineup into the workplace."

Cramer says he is "throwing his hands up" with Microsoft (MSFT), but is sticking by Intel (INTC) because of the server revolution. He suggests looking for strong plays on Apple like Cirrus Logic (CRUS) and Skyworks (SWKS).

C.A.N.D.I.E.S. Are Still Sweet: Chipotle Mexican Grill (NYSE:CMG), Apple (AAPL), Netflix (NASDAQ:NFLX), Deckers (NASDAQ:DECK), Intuitive Surgical (NASDAQ:ISRG), Express Scripts (NASDAQ:ESRX) and (NYSE:CRM).

Cramer reviewed the recent performance of his C.A.N.D.I.E.S. stocks, a group of consistent growers that bounce back well after they are hit; Chipotle Mexican Grill (CMG), Apple (AAPL), Netflix (NFLX), Deckers (DECK), Intuitive Surgical (ISRG), Express Scripts (ESRX) and (CRM). Recently, they have been underperforming the S&P 500 because the trend now is in industrials and cyclical stocks and away from safer plays. Only Chipotle has outperformed the index, and is up 5% since June 3rd with the S&P 500 rising a mere 1.1%. Cramer reviewed earnings from the C.A.N.D.I.E.S. that have reported so far.

Chipotle: Reported an "absurdly unbelievable" quarter on Thursday July 22nd, with rising same-store sales, 12-15% store growth and a 20% annual growth rate.

Apple: Reported an "insanely great beat," with strong performance for all of its products, 66% growth in Europe and 160% growth in Asia.

Deckers: Its 13 cent earnings beat and 34% revenue growth prove there is indeed a bull market in shoes.

Intuitive Surgical: Beat earnings by 15 cents a share and reported 34% revenue growth. The company sold 108 DaVinci surgical systems compared to 76 last year.

While shares of and Intuitive were hit initially after their earnings reports, they bounced back soon after.

One of these CANDIES doesn't seem so sweet; "Everyone is freaking out about Netflix," said Cramer. The company remained down 14%, as it was before its earnings report and saw a "hideous" selloff on Monday of 5 points. Cramer still stands by Netflix, "because of its stable and growing subscription business."

Even though Netflix beat estimates and raised guidance, it reported a 7% decline in revenue per customer. Some analysts think streaming video will be the death of Netflix, which rents DVDs by mail. What these analysts fail to realize, said Cramer, is streaming video is a very important part of Netflix's business, and while revenue per customer is declining, the company is signing up many more subscribers. The number of Netflix subscribers has reached 15 million, up 42% from last year and 7% from last quarter.

Cramer would keep the "N" candies.

CFO Interview: John Hartung, Chipotle Mexican Grill

Cramer discussed one of his favorite food stocks, Chipotle, a stock that reported a strong quarter, has fabulous growth prospects, is up 11.6% since its earnings, but is still well below its level in June. The real story of the report was its 8.7% increase in same store sales, which was well above the 5% target set by Wells Fargo.

The company plans to open 120-130 new restaurants this year; it just opened its first store in London and is planning to expand further into Europe. Chipotle is exploring ways to make service more efficient and is opening restaurants in lower-occupancy areas to save money on real estate. Chipotle's balance sheet is "a thing of beauty," and Cramer said the company is "one of the most impressive growth stories I have ever seen."

CFO John Hartung says Chipotle has been successful because of its "food with integrity" principle and it has met the challenges of securing organic, natural products from its suppliers. The company's aim is "to change the way people think about and eat fast food in this country" and abroad.

Hartung says England is embracing Chipotle "with open arms." The company's growth strategy is gradual, and involves building a relationship with quality suppliers and making employees of the initial store future leaders and promoters of the Chipotle brand in Europe.

When asked if Chipotle would expand into China, Hartung replied expansion in the U.S. and Europe are the main priorities and moving into China might eventually be successful, but is "not on the radar screen right now."

Farewell Party for Wayward Hayward: BP (NYSE:BP), Microsoft (MSFT), AMR (AMR)

Now that BP (BP) CEO Tony Hayward is handing in his resignation, there is a blank spot on Mad Money's CEO Wall of Shame. A couple of names have been showing up recently in e-mails, among them, AMR (AMR) Gerald Arpey and Microsoft's (MSFT) Steve Ballmer. Although AMR is the worst-performing airline, Arpey has been valiantly struggling to keep the company out of bankruptcy, and AMR's stock price has increased 130% since Arpey took the helm in 2003. While Microsoft has been flat for ten years, Cramer doesn't think Steve Ballmer deserves to take Hayward's place either, even though Microsoft's stock is down 56% since Ballmer took over in 2010. Cramer is announcing the new inductee to the CEO Wall of Shame later in the week.


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