Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday August 16.
Whole Foods (WFMI), Safeway (SWY)
Cramer compared and contrasted Safeway (SWY) and Whole Foods (WFMI) to demonstrate the principle that it is always worthwhile to pay up for best-of-breed. Both companies recently reported in-line quarters which were considered disappointing. However, Cramer thinks Whole Foods is going forward while Safeway will be "left in the dust," because WFMI is a play on the long-term trend toward quality, healthy food while Safeway is still just a supermarket.
While Safeway's 52% increase in earnings per share for the year looked good on paper, expectations for the chain were so high that Safeway failed to beat expectations and fell 5%. Whole Foods raised guidance while Safeway cut it, and WFMI beat The Street's growth estimates. Same store sales increased 8.8% compared to a 2.5% decline last year. While the shorts claim that consumers are too frugal to shop at Whole Foods, the numbers show customers are willing to pay up for quality. In fact "Whole Foods is a bit of a cult," Cramer said. "It is more than a supermarket, it's a lifestyle. It's a culture, even. Safeway is just a place where you go to buy food and toilet paper." Even though WFMI sells at a higher multiple, its growth rate is much higher as well.
There's Nothing Left to Sell
With stocks "bombed out, in tatters, blown totally to bits", Cramer discussed why the Dow declined only one point; "Stocks didn't get hammered because there was nothing worth selling... I used to say at my old hedge fund that the selling stops...when the only people left are the braindead."
Cramer discussed the kind of stocks short-sellers hate, namely, dividend stocks, companies that would benefit if the Fed cuts rates and takeover targets. Right now nothing much is going to move in tech or in the financial sector. The Fed can't cut rates any lower, housing is stagnant and there are not takeovers in banks right now. Concerning tech, Cramer said, "These stocks were once viewed as secular growers, then they were cyclical growers and then cyclicals...now they're seen as secular decline."
Owens Corning (OC)
Owens Corning reported an "allegedly" disappointing quarter, missing estimates by 3 cents, and since then the stock is down 18%. However, Cramer thinks all three of the company's businesses - composites, building materials and roofing - are going to see significant upside. Revenues for insulation grew 16% year-over-year, and even though the business still lost money, Cramer thinks issues with insulation should be resolved in the next few months.
OC's roofing business is mainly dependent on repairs, so it is not tied to slow housing. In roofing, OC is one of only 4 companies that make up 90% of the market. Selling at 9.8% next year's earnings, Owens Corning should have 30% growth in 2011 and has initiated a sizeable buyback program.
While Cramer likes Nanometrics Incorporated's (NANO) business, he thinks the company is just too small to get behind. He says Nvidia (NVDA) will decline after reporting a bad quarter and says he prefers DryShips (DRYS) and Diana Shipping (DSX) to Navios Maritime (NM). In spite of a "malaise of a stock market," Cramer still likes Apple (AAPL), and is also bullish on Disney (DIS). Finally, Cramer said he doesn't think Geron Corporation (GERN) is "for real."
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