Cramer's Mad Money - A Powerful, New Cycle (8/4/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday August 4.

A Powerful New Cycle: Power-One (NASDAQ:PWER), Ingersoll-Rand (NYSE:IR), United Technologies (NYSE:UTX), Lennox International (NYSE:LII), Johnson Controls (NYSE:JCI), Honeywell (NYSE:HON)

Cramer continued his series on looking for green companies that are not dependent on government subsidies, but search for new ways to conserve power. Power-One (PWER) at first glance looks like an excellent play on the conversion of solar and wind power, but the majority of its sales come from Germany and Italy, two countries that are likely going to reduce subsidies. In addition, Power-One has had a huge run, up $3,245 since March 2009.

Instead, Cramer would look at energy savers in the heating, air conditioning and ventilation space or HVAC. Ingersoll-Rand (IR) made a game-changing acquisition of Trane, a strong player in the HVAC market. Trane was responsible for 45% of IR's revenues in 2009. Recently, commercial orders are up 9%; "I smell a new cycle coming," said Cramer.

United Technologies' (UTX) Carrier division is the largest manufacturer and distributor of HVAC refrigeration systems, and makes up 21% of UTX's sales. Organic sales are up 7% and demand for energy efficient products is growing. Lennox International (LII) gets 65% of its sales from HVAC and recently beat earnings by 12 cents with an 11% rise in revenues. Johnson Controls (JCI) might seem like just an auto business, but 38% of its sales are from a building efficiency segment, which includes energy efficiency. Cramer identified Honeywell (HON) as another player in this space.

This Resilient, Forgiving Market: Ford (NYSE:F), Goldman Sachs (NYSE:GS), IBM (NYSE:IBM), Johnson & Johnson (NYSE:JNJ), Amazon (NASDAQ:AMZN), (NASDAQ:PCLN), Ralph Lauren (NYSE:RL), Jones New York (NYSE:JNY), VF Corp (NYSE:VFC)

Wednesday should have been a down day, but with the Dow up 44 points, even after several disappointing earnings reports, it seems clear that right now the market is "hard to kill." However, Cramer added a caveat;

Now, before I describe what resilience looks like, before I wikiCramer it, let me point out that virtually every time I thought a market was hard to kill, it instantly gets bruised or hurt if not completely poleaxed.

Therefore, he added, "There's no crime in taking a little profit right now."

The market is not only resilient, it is forgiving; Ford (F) had disappointing sales in July, and after a quick hit, the stock turned around on Wednesday. The once-maligned Goldman Sachs (GS) earned an upgrade and has rallied 11 points this quarter. Shares of IBM (IBM) and Johnson & Johnson (JNJ) are above where they were before they reported disappointing quarters. Amazon's (AMZN) quarter was also not so hot, and the stock fell from $121 to $108, but not only did Amazon bounce back, it now sits at $127.

While companies that report lackluster numbers usually take other stocks in the sector as prisoners, there is virtually no negative pin action on The Street right now. The Standard & Poor's Oscillator, which is an indicator of whether the market is overbought or oversold, is at plus 10 in the red light territory; the market should be extremely unsafe, but stocks don't seem to notice. Shorts are getting squeezed on every bearish scheme, whether it is China, (PCLN), Ralph Lauren (RL), Jones New York (JNY) or VF Corp (VFC).

The market is playing chicken with the jobs number coming out on Friday, instead of selling off in anticipation of doom. Even though the market is eventually going to have a correction, it's on a wild ride right now; "It wants to go higher."

CEO Interview: David Pyott, Allergan (NYSE:AGN), Medicis (MRX)

Cramer reiterated his thesis that the wheels of late-stage capitalism are greased by the desire of the aging population to look younger. Allergan (AGN) seems to confirm this thesis with its recent earnings beat of 4 cents per share, a rise of revenues by 10% and a 4 point addition to its stock price. As the baby boomers age and the economy recovers, more people are willing to spend money to look better. However, Botox is not just for the wrinkle-averse anymore; the famed beauty product is now being used to treat chronic headaches. Allergan is also developing treatment for eye problems. Allergan's opthalmological pharmaceutical business grew 10% worldwide while pharma companies are seeing declines.

CEO David Pyott said, "If we look at a single largest opportunity in the short term, that would indeed be the approval of Botox for chronic migraines, that is patients with more than 15 headache days per month." There is a sizeable untapped market, with 1.2 to 1.6 million suffering from chronic migraines in America alone. Most treatments deal with the problem through drugs only after symptoms have started. Botox can be injected into the top of the head where it acts as a prophylactic to prevent headaches from happening. Clinical studies have shown a dramatic reduction of headaches by about 50%.

Cramer asked if Allergan could be bought, but Pyott discussed the billion dollars in free cash the company generates, and implied his company may more likely buy than be bought. While most of Allergan's businesses have been back "with a vengeance" since the depth of the recession, many are still having trouble coming up with the money for a lapband procedure, which requires a large out-of-pocket expenditure.

When asked about Medicis' (MRX) Dysport giving Botox a run for its money, Pyott said around the world, there is no market where Medicis has more than 20% market share, and Pyott doesn't see any reason for this to change.

Cramer says he is surprised to see the stock down ahead of the quarter and would buy Allergan.


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