Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday August 3.
Wither Apple (AAPL)?
Sometimes stocks behave as if the fundamentals didn't matter. While Cramer is not a technical analyst, he is concerned that investors should not avoid charts at their peril. While charts could become a kind of hocus-pocus, even the most ardent fundamentalist should at least be aware of the influence of the charts on stock movement.
Cramer is bullish on Apple's (AAPL) fundamentals, but technical analyst Tim Collins thinks Apple is a coiled spring meeting heavy resistance. It could either explode upward or fall apart. The stock has a pennant formation that indicates it could either go up to $280 or fall back to $245. One problem Collins notes is the fact that volume has been decreasing with every breakout in Apple; this is a sign that big money might be unloading the stock.
However, Cramer doesn't see a decline in Apple as a problem, given the company's stellar products and incredible earnings momentum. Analysts have increased their estimates for the stock by 15%; this is a vote of confidence for Apple. Even if the stock falls to $245, it is eventually going to $300, according to Cramer, and he would use any decline as a buying opportunity, especially since many businesses seem ready to adopt the iPad.
The Smart Grid is going to be a big business that will save companies money; General Electric (GE), for instance, reported its Smart Grid orders were up 50% from last year to 200 million. The difficulty is figuring out how to play the Smart Grid. An obvious choice seems to be Itron (ITRI), which has 50% of market share for smart metering in the U.S. and Canada. While the stock rose in the early part of the year, lately it has gotten crushed, and dropped 5 points on Tuesday because of a rumor of a lost contract. Although he recommended the stock last fall, Cramer now wants nothing to do with Itron, because the stock has performed poorly and faces increasing competition.
Skyworks Solutions (SWKS) and Cirrus Logic (CRUS) are semiconductor companies with significant Smart Grid exposure. Cirrus gets 30% of its sales from energy products including power meters, and introduced its digital power factor correction chips in June. Cirrus saw its energy revenues grow 119% since last year. Skyworks reported smart meter-related products are major drivers of its non-handset portfolio, and 20% of its linear product segment, which in turn makes up 20-25% of Skyworks' sales, comes from meter reading technologies. However, as good as these stories are, they are a far cry from pure plays on the Smart Meter and are mainly tech stocks.
Cramer would approach Smart Meter investing through finding a demand response play like EnerNoc (ENOC). EnerNoc looks at data on energy use and helps companies reduce their consumption. EnerNoc receives a set fee from companies, so it generates revenue on regular intervals. EnerNoc is the third largest demand response company, and holds 6% of a highly fragmented market. Cramer thinks the company is going to score some big contracts, and would pay attention to EnerNoc's conference call Wednesday after the close. He would buy the stock on any pullback because of its strong multi-year theme.
There are many aisles in the investment supermarket: the stock aisles, real estate, commodities, but in one particular aisle, instead of a sale, there is a huge rip-off: the 2 year government bond, which has a yield of just half a percent.
Even though stocks can be risky, Cramer urged investors to return to the stock aisle and get some Verizon (VZ) which has the distinct advantage over bonds in that it has a generous dividend payout that can be raised, whereas the return on bonds stays fixed.
Cramer feels the same way about Dupont (DD) which is at $41 and has a 4% dividend. While the stock could drop from $41, its dividend will just get bigger. He includes Weyerhaeuser (WY) which is about to become a REIT and issue a 4% dividend, in this group.
Even if there is uncertainty and some fear, why run to 2 year Treasurys with half a percent gain? Even occasional losses in stocks are preferable to such gains in bonds.
CEO interview: Michael Johnson, Herbalife (HLF)
Cramer discussed Herbalife's $5 jump after its better-than-expected earnings report; the company beat analysts' estimates by 39 cents. The company boosted its guidance and raised the dividend by 25 cents. Herbalife bought back 1.1 million shares which is substantial, given its $3.3 billion market cap.
Michael Johnson said the marketing concept of daily consumption, or the idea of getting a product in front of people every day, is paying off. Also, the idea that Herbalife is a social network with a built-in support system is also a plus. Johnson said, "the acceleration is moving even faster than we anticipated." The company's top product is its meal replacement shake, which comprises 40% of its sales. Through extending its period of discounts Johnson said the company recently changed its marketing plan; "We've taken the pressure off distributors putting recruiting as their primary focus, and balance it out between retailing and recruiting."
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