Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday August 2.
What makes an ideal earnings beat? Cramer thinks VMware (VMW), "the best earnings beat I've seen this season," and explains why. VMware is the exception to the "it's all about Apple" rule in tech and produces virtualization software, which allows one to turn a single machine, like a server, into multiple machines.
VMware's numbers were great, revenues grew 48% from last year, income jumped 125% for the same period, growth in Asia was up 80%, in Latin America up 85% and Europe was strong. However, these numbers wouldn't have meant anything, said Cramer, if VMware hadn't beaten expectations.
The company beat consensus earnings estimates by 2 cents, and also beat on revenues and margins. While the multiple is at 40 the company has a high growth rate of 20%. "VMware didn't just do better than anyone expected; it did better than everyone expected." VMware raised guidance and was congratulated by 5 out of 13 analysts (Cramer thinks the number of congratulations a company receives when it reports is also a sign of strength).
While the stock is soaring, Cramer would still buy VMware for its strong growth rate and the fact that only 42% of servers have virtualization software. The company has a new product cycle and an upcoming partnership with Salesforce.com "The king of cloud computing." For those who are still worried about VMware's rapid rise, Cramer suggests buying EMC (EMC) which owns 80% of VMware and has 96% voting power.
With Dow rising 208 points and S&P 500 up 2.2%, The Street is still finding reasons to be pessimistic and ignore good earnings; "It's almost as if talking about profits or anything good has become forbidden," observed Cramer. Investors are traumatized, afraid of being fooled again after the shocks of the housing decline and credit crisis in 2008, the fall of Bear Stearns and Lehman.
However, Cramer thinks it is time investors start to believe in the good news again:
You can tell in the mindset, who cares about Apple (AAPL)? How about catching a double? Who cares about Salesforce.com (CRM)? Well how about catching more than a double? Well how about catching a triple in the Ford Preferred (F.PS)? How about the quadruple in the Cirrus Logic (CRUS)?
It's okay be be skeptical, said Cramer, but he warned viewers, "Those pessimists are not trying to make you money."
CEO Interview: Sandy Cutler, Eaton (NYSE:ETN)
A major theme in many recent conference calls is energy efficiency; "Power management, fuel management, power quality, these have become the global megatrends of our era."
Eaton (ETN) is a diversified industrial company which helps it customers improve energy efficiency; on its conference call, management says demand for power management systems has never been greater. The stock has risen steadily, and has just seen a recent gain of 27% to nearly $80, but Cramer thinks it has more room to run and has set the target at $100.
Sandy Cutler agreed power management is a "bankable megatrend," and says Eaton is committed to helping people use power safely and cheaply. Cutler sees his overseas business shifting from Western and Eastern Europe to Northern and Southern Europe, and sees both regions as potential places to grow. Cutler said 2009 was the worst year for trucking in 20 years, but he sees pent up demand in the space as a driver for profitability in 2011 and 2012.
Virtually everything we're involved in, whether it's our truck franchise or automotive franchise, our aerospace or hydraulics franchise, they are all involved in helping customers use less energy and use it very safely. So we're convinced we've got this right portfolio balanced over half outside of the US in equally early, mid and late cycles. That's what we think investors are looking for.
Cramer says Citrix (CTXS) is not as good a play on cloud computing as Salesforce and VMware. He told another viewer that Boeing is on a seven year upward cycle and will take Precision Castparts (PCP) with it.
Jim Cramer was up 31% in 2009. Click here now to sign up for Jim's Action Alerts PLUS and trade alongside him. Special discount for Seeking Alpha users.
Get Cramer's Picks by email - it's free and takes only a few seconds to sign up.