Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday May 5.
General Motors' (NYSE:GM) Problems Are Inherently Finite. Other stocks discussed: BP (NYSE:BP), XPO Logistics (NYSE:XPO)
Cramer said he is "tired" of hearing that General Motors (GM) is "toast" after recalls over faulty ignition switches. Monday saw a renewed recall, and Cramer would "buy into the teeth" of the newest recall. Cramer owns GM for his charitable trust. When companies make horrible mistakes that generate persistent, negative headlines, they usually provide a buying opportunity. BP (BP) was cut in half after the Macondo spill in 2010, but it has been edging up since then.
GM discussed the ignition switch problem 3 months ago, and there have been 13 deaths in connection with the faulty switches. GM has already lost $5.5 billion in market cap, and the stock has fallen from the $40s to $34. It is possible that the stock has been punished enough, and that it can absorb the loss and rebound, given the fact that GM has been profitable. The issue is "inherently finite," and the stock will eventually stop going down.
The recall issue might be baked into the stock. It has been showing decent growth and has a 3.5% dividend. Sales increased 6.9%, which was better than many other car companies. The latest quarter was excellent, excluding the cost of the recalls, and GM has been streamlining and cutting costs. The company has rolled out 17 new products, many of them trucks, which bring higher margins. The Chinese business is also quite strong. GM is trading at a multiple of 7, which is "absurdly cheap." Warren Buffett praised the management of GM.
Cramer took some calls:
XPO Logistics (XPO) is in a "challenged group," and Cramer would not recommend it now.
Why Can't The Market Break Out? Bank of America (NYSE:BAC), Realogy (NYSE:RLGY), Target (NYSE:TGT). Other stocks discussed: Babcock & Wilcox (NYSE:BWC), Time Warner (NYSE:TWX)
Why can't the market break out, with better-than expected earnings and data showing an improving economy? One factor is global headaches: Europe is not growing quickly enough, China is showing weakness on every number, and Russia's Vladimir Putin "wants to teach the West a lesson." Japan has failed to repair its economy, and Brazil's economy is in a tailspin. Financials are seeing bad news, with Bank of America's (BAC) costly accounting error, which might cause it to delay its dividend hike and buyback. Cramer thinks Bank of America is going to have bad times ahead. Realogy (RLGY) reported extremely disappointing numbers, and management cited tough credit standards, rapid housing cost appreciation and low inventories. Interest rates might be coming down, but mortgage rates are not. Target (TGT) fired CEO Greg Steinhafel over the security breach that affected countless customers. Cramer thinks if TGT had seen good business, it might not have fired the CEO, even while a huge number of customers were hacked. However, there are some bright spots in retail.
Cramer took some calls:
Babcock & Wilcox (BWC) is an engineering and construction company and is inherently risky.
Time Warner (TWX): "I thought the quarter was amazing," said Cramer. Management discussed improvements that needed to be made. "TWX is going higher."
Coca-Cola (KO) and PepsiCo (PEP) are leading soft drink brands, but these two stocks have lagged behind Dr Pepper Snapple (DPS), which has rallied 15% so far this year, while PepsiCo is up 3.6% and KO has declined 1.3%. DPS gets more than 90% of its sales from North America, but this alone would not explain DPS's success, since carbonated beverages have been in decline in North America. However, research shows cola has had a larger decline than non-cola fizzy drinks, and Dr Pepper is the original "uncola." DPS has a strong following among the Hispanic community in the U.S., a demographic that is seeing higher, rather than lower, carbonated beverage consumption.
Investors see DPS as more of a safe haven. PepsiCo may be hurt by its Russian exposure. DPS has been aggressive about cost-cutting and returning capital to shareholders. The company beat earnings by 15 cents and beat revenues slightly. The gross margins increased dramatically and costs were lower. However, DPS has already trimmed so much that it might have trouble sustaining this lead, if it was based on cost-cutting. Its revenues are not strong, and it didn't raise guidance. DPS's multiple is 16.2, PEP's multiple is 18.9 and Coke sells for 19.6 times earnings. Historically, DPS has traded at a larger discount. Cramer thinks that PEP and KO might play catch-up, since DPS is weak on revenues. KO reported strong earnings, and its revenue growth was 4%. Management said it saw improvement in North American sales. The company generates huge amounts of cash, which it reinvests in the business and returns to shareholders, with a 3% dividend.
Cramer's favorite is PepsiCo, which has a great international growth story and a robust snack business, Frito-Lay. Growth in snacks is stronger than beverages, and its quarter was impressive. It reported an 8 cents earnings beat and mid-single digit organic revenue growth. The company forecasted 7% revenue growth, and management said it sees the North American beverage business improving. Activist investor Nelson Peltz urged a break-up, which management didn't agree with, but even so, Peltz's influence is likely to create upside. It has a smaller yield than KO at 2.7%, but Cramer thinks PEP is the cheapest of the three.
Cramer took some calls:
J.M. Smucker (SJM) is "hit or miss," and Cramer would look for a more consistent stock.
CEO Interview: Neil Cole, Iconix (NASDAQ:ICON)
ICON is an "under the radar" house of 35 brands, many of them are household names. ICON owns the brands and charges royalties from retailers. With ICON's business model, there are no worries about inventories, the bane of much of retail. The company beat earnings by 9 cents with higher-than-expected sales. Management raised guidance and has bought back 37% of its stock since October 2011. The stock has risen 40% since Cramer spoke with CEO Neil Cole last year, and it trades at a low multiple of 15. A lot of ICON's growth is coming outside of the U.S., representing about 40% of revenue, with the U.S. a "bit choppy" for the consumer. However, the CEO said he has seen somewhat of a comeback since April. ICON is benefiting from ecommerce, since most of its clients have an internet presence. ICON has been working with "virtually every retailer" on apparel related to the upcoming Peanuts movie, and ICON owns the Peanuts brand. Cramer thinks ICON can go much higher.
Who Will Buy B/E Aerospace (NASDAQ:BEAV)? Stocks discussed: United Technologies (NYSE:UTX), General Electric (NYSE:GE), Honeywell (NYSE:HON), Rockwell Collins (NYSE:COL)
B/E Aerospace (BEAV) rallied $8.26 to an all-time high on news that management might consider a takeover. It could be a natural fit for United Technologies (UTX), General Electric (GE) or Honeywell (HON), except that the latter sold off a segment to BEAV a few years ago. Rockwell Collins (COL) might consider buying BEAV. Cramer cautioned, "Don't sell this." Aerospace is a strong sector and BEAV has a huge backlog of orders. Cramer thinks that, up until now, BEAV has been undervalued.
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