Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday May 6.
Flash Crash Flashback. Stock discussed: Procter & Gamble (NYSE:PG)
On the fourth anniversary of the Flash Crash, Cramer discussed the event that undermined confidence in equities after a 900 point intraday drop in the Dow. While the Dow began its dizzying decline on that fateful day, Cramer recommended buying with limit orders, particularly the stock of Procter & Gamble (PG). The stock was down to the $40s, but jumped to the $60s once the market normalized. Cramer thinks the machines are "the enemy of all the investors I care about." The flash crash demonstrated the fragility of the system and exposed the dangers of high-frequency trading. "The flash crash was about the lack of integrity in the system." One of the reasons Cramer felt so confident in recommending PG amid that 30 minutes of insanity was due to his "cynicism" about the machines; he knew it would just come snapping back, because of the absurd level of volatility on that day.
Sometimes there is a tug of war in the market. On a day the Dow sank 130 points, Cramer would continue to bet on value rather than growth, since momentum stocks yet again got pulverized. The fast growth stocks lately have been declining on both up and down days, while value stocks have been more resilient. It isn't the sector itself that is hurting stocks, but what matters is profitability and valuation. Alibaba filed its IPO and is said to have growth and profitability. That is a rare and desired combination in the current market. Alibaba could be one of the largest IPOs in recent history, and it is likely to be "irresistible," since it is profitable as well as a growth company.
Twitter (TWTR) and Apple (AAPL) speak volumes about what is working and what isn't working. Apple is up 6% for the year, while TWTR has been laid to waste and has fallen 50% this year, dropping 17% on Tuesday's session alone. Apple broke out on Tuesday before it was brought down by mid-day. There didn't seem to be anything extremely positive to bring Apple up so high, aside from an interview with activist investor Carl Icahn, who owns a large stake in Apple; he said he doesn't intend to sell Apple.
Twitter's lockup expiration ended, which caused a lot of selling. The insider sellers showed some restraint up until Tuesday, but it was clear that they wanted to exit the stock. Even with Tuesday's decline, Twitter is still expensive, and with no dividend and no buyback, there is little to cushion the blow.
FireEye (FEYE) gave disappointing guidance and Yelp (YELP) is off 13% on Tuesday and is erasing all of its gains. Yelp is a good company, but it will be a while before it recovers, if it isn't bought first.
Cramer took some calls:
Iridium (IRDM): Cramer admits he got "burned badly on this one." He recommended it, but it didn't work; "I'm not a fan of Iridium."
Off The Charts: Housing Sector. iShares US Home Construction ETF (NYSEARCA:ITB). Other stocks discussed: Foster Wheeler (FWLT), The Scott's Miracle-Gro Company (NYSE:SMG), Realogy (NYSE:RLGY).
How is it we can have interest rates at low levels while the housing sector is doing poorly? The positive jobs number should also be an indication that housing should be higher. Technical analyst Bob Lang, founder of explosiveoptions.net, notices that, according to the long-term charts, there is an indication of a lag between the time when interest rates fall and when mortgage activity picks up.
The iShares US Home Construction ETF (ITB) has climbed back to where it was in 2007 and 2008 when interest rates on the 10 year Treasury were double where they are now. The ITB hasn't had a nasty correction since 2011, and is showing a bullish cup and handle formation. A chart comparing ITB to the yield on the 10-year treasury shows that each time these yields have fallen, the ITB has gone up. When the Fed talked about tapering bond buying, the homebuilders fell dramatically. When bond yields pulled back, the ITB rallied. When bond yields stabilized in January, the ITB declined.
The yield on the ten-year treasury has fallen to its lowest level in 3 months, and is testing its February lows. Lang thinks a decline in mortgage rates could follow, and interest in homebuilding stocks could be on the rise. Lumber futures have retraced 50% of their down move from March 2013. Since then, lumber futures have been finding their way higher. Lang predicts a rebound in mortgage activity, and he believes the lull recently is because of short-term factors, like weather and seasonality. Cramer is not as confident as Lang that housing will come back soon. There is not enough inventory and the prices are too high, as indicated by Realogy's (RLGY) results. However, Cramer believes in Lang's track record of success, and thinks his arguments should be taken into account.
Cramer tooks some calls:
Foster Wheeler (FWLT) is "too dicey" here. Cramer would stay away from these "momentum construction" names.
Scott's Miracle-Gro (SMG) is very weather-related, but it reported a good quarter.
Zebra (ZBRA) is a manufacturer of specialty printers, software supplies and identification solutions. Zebra's management announced it was buying Motorola Solutions' (MSI) Enterprise Business, and the stock got slammed because investors were skeptical. However, the stock climbed back to an all-time high after reporting a strong quarter. Zebra has been working side-by-side with the Motorola Solutions segment for around 20 years, and the synergies of the deal are positive, said CEO Anders Gustafsson. While the two businesses are complementary, there is no overlap, which makes the merger an ideal strategy. Zebra has technology to provide efficient biofeedback for athletes and patients. This technology can improve a sports team's effectiveness, cut costs and reduce the risk of malpractice in hospitals.
Zebra is active with ecommerce clients in managing inventory and other services. The CEO said; "We are comfortable with our debt structure," since the company has a strong cash flow. Zebra is up huge right now, and while Cramer likes the company, he wouldn't chase it, but would wait for a pullback.
CEO Interview: Marc B. Lautenbach, Pitney Bowes (NYSE:PBI). Other stock mentioned: eBay (NASDAQ:EBAY)
Pitney Bowes (PBI), a company that has long been an established name in "snail mail" supplies, such as mail meters, is re-inventing itself, and is expanding into outsourcing and digital communications. It has partnerships with ecommerce companies, including eBay (EBAY). It reported a solid quarter, and the stock has rallied 140% in 18 months. The stock was cut in half so it could invest in its business and fix its balance sheet, but it still yields a decent 2.8%. "We have incredibly exciting growth opportunities," said the CEO Marc Lautenbach, especially in the area of ecommerce, although mail meters are still a major generator of revenues for Pitney Bowes. The digital business is growing 23% and is already 35% of the company. Pitney Bowes' software enables companies to calculate costs of sending merchandise. The postage meter business is one in which Pitney Bowes has huge market share and it generates a lot of cash. "There is a lot more upside here," said Cramer.
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