Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday May 1.
Sell Block: 3D Systems (NYSE:DDD). Other stock mentioned: Hewlett-Packard (NYSE:HPQ), Paccar (NASDAQ:PCAR), Staples (NASDAQ:SPLS)
3D Systems (DDD) represents the street's jilted love affair with all things momentum. With the slight relief from the sell-off in growth stocks, the market is providing an opportunity to quietly exit stocks like 3D. The stock almost doubled into the momentum run, but has since given up almost all of its gains in the past few months. Even after this drop, 3D belongs in the Sell Block.
These companies are in a fast-growing industry, but they rallied so hard because of hype rather than fundamentals. Buyers thought 3D printers would revolutionize industrial production and would be in every home. This might happen, but is likely to take 20 years. Currently, the machines are too expensive, and the space is seeing heavy competition. These companies can't afford to raise prices for fear of losing market share. Old-line tech players like Hewlett-Packard (HPQ) are getting into the market and may wipe out smaller players.
Even though 3D has been cut in half, it still trades at a multiple of 61, more than double its 23% growth rate. The earnings estimates are also too high, and 3D has an inflated $5.2 billion market cap, when the industry as a whole is expected to have $6.5 billion in annual sales by 2018. The company has missed and guided down in its last 3 quarters. 3D has made a slew of acquisitions rather than growing organically. It has used up its cash hoard and has issued stock while management was executing roughly one deal per month. Now 3D has run out of viable takeover targets. There is too much that can go wrong with 3D Systems, while insiders and money managers are selling it off. 3D had a terrific rise, a subsequent fall, and is not done going down.
Paccar (PCAR) is good, given the truck bull market. "Paccar is one of the finest companies out there."
Staples (SPLS) is not making a big comeback. Even if it gets "its act together," it is only "one up and one down," which is not what Cramer is looking for in a growth stock.
Momentum Reversal: Salesforce.com (NYSE:CRM), Yelp (NYSE:YELP), Clorox (NYSE:CLX), Church & Dwight (NYSE:CHD), Hershey (NYSE:HSY), T-Mobile (NYSE:TMUS), Exxon Mobil (NYSE:XOM), Cardinal Health (NYSE:CAH). Other stocks mentioned: Conn's (NASDAQ:CONN), World Wrestling Entertainment (NYSE:WWE)
The big money managers lost faith in the high-flyers a while ago after a period during which they were beloved. The momentum stocks stalled and crashed at the end of February; the trend began when Salesforce (CRM) reported a decent quarter, but was sold off. The momentum stocks on Thursday came roaring back. What broke the pattern? Yelp's (YELP) earnings was one factor.
Yelp traded down after its report, but then reversed. Why didn't Yelp break down? Because it already had taken losses prior to the quarter. The IPO glut, the plethora of secondaries and insider selling brought down the momentum sector enough to set the stage for Yelp's rally.
Meanwhile, Safety stocks took a vacation: Clorox (CLX) and Church & Dwight (CHD) failed to meet expectations, Hershey (HSY) showed slower earnings and T-Mobile (TMUS) saw a 10% decline in capital. Exxon (XOM) has no production growth, and Cardinal Health (CAH) also disappointed. The money that had been parked in safety stocks was looking for a new home in growth stocks on Thursday.
Cramer took some calls:
Conn's (CONN) reported a hideous quarter, and Cramer doesn't see it snapping back. Cramer would exit the position
World Wrestling Entertainment (WWE) beat the estimates, but Cramer thinks the stock has peaked.
CEO Interview: Patrick Doyle, Domino's Pizza (NYSE:DPZ). Other stocks mentioned: Facebook (NASDAQ:FB)
Domino's (DPZ) reported a great quarter, but the stock declined. However, DPZ has had a multi-year run, with a 670% return since Cramer got behind it 4 years ago. Same store sales were up 4.9%, and international sales grew 7.9%, but the stock dropped 3.5%. Some were expecting a larger earnings beat and were worried about raw costs. It has a great international growth opportunity and an effective online order platform. It trades at a reasonable multiple of 22 when compared to its 15% growth rate.
CEO Patrick Doyle said business in India is "terrific." Weather in the U.S. affected DPZ not through orders, but commodity prices, with dairy prices particularly high. DPZ's digital ordering app is enjoying huge popularity, and the company has 9 million "likes" on Facebook (FB). DPZ continues to invest a substantial amount in social media advertising. "The first quarter is always the slowest quarter," said Doyle, "We tend to open more stores in the second half of the year." Cramer is bullish on DPZ.
CEO Interview: Dinesh Paliwal, Harman Industries (NYSE:HAR)
Harman Industries (HAR) produces high-end audio systems, including info-tainment systems for cars. It is the number one player in every area where it competes, with proprietary patented technology. It reported a 12 cent earnings beat on revenues that rose 32% yoy. It raised its guidance for the full year, and the stock traded erratically and finished down. The stock has risen 33% since the last time Cramer spoke to the CEO in October. The stock trades at 20 times earnings and has a 22% growth rate.
CEO Dinesh Paliwal said Harman shipped the largest order in the industry in the past quarter. The street is concerned about gross margins with the company's many launches. Paliwal said that margin expansion has been consistent. Barriers to entry are very high, in part because of confidence in the brand. Cramer would buy more Harman stock on a decline.
Get Cramer's Picks by email - it's free and takes only a few seconds to sign up.