Cramer's Mad Money - Great Expectations Not So Great for Cisco (8/18/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday August 18.

Great Expectations Not So Great for Cisco (NASDAQ:CSCO), Nvidia (NASDAQ:NVDA)

Why did Cisco (CSCO) sell off after it beat estimates by a penny and Nvidia (NVDA) gain 4.7% after an 8 cent loss? What was the problem? Cisco suffered from very high expectations which made the stock fall after CEO John Chambers reported mixed signals from consumers and uncertainty about the business. With so many analysts with a "buy" rating, a pullback was inevitable.

However, Nvidia (NVDA) was so hated, it could only have gone up; “People had become so pessimistic about Nvidia's prospects,” Cramer said, “that every negative was already baked into the stock.” A mere 1% expected improvement in gross margins helped the stock rally. Cramer said of Nvidia: “The downside [is] limited. The upside? Potentially enormous.” Cramer thinks both stocks are buys and likes Cisco's growth rate of 12-17%; "Now that Cisco has been humbled, it can rally again."

GeoEye (NASDAQ:GEOY), Digital Globe (NYSE:DGI)

Cramer discussed a virtual duopoly in the geospatial imaging space: GeoEye (GEOY), Digital Globe (DGI). Both companies have as a major client the U.S. government and benefit from the sky high barriers to entry in the industry; there are no other companies that have the expertise to put up satellites with the efficiency of GeoEye and Digital Globe.

While both companies generate large amounts of cash and both are strong growers, Cramer prefers Digital Globe. GeoEye's current satellite has been up since 2008 and it won't be sending up another until 2013. Digital Globe has two satellites up and is putting up a third in 2014. The company plans to increase capacity by 60% and has a contract with the Geospatial Intelligence Agency which will be more lucrative in the long term than the Agency's deal with GeoEye. DGI is up 25% for the year, while GEOY has already increased 35%, but DGI is trading at a 7% discount to GeoEye. Expectations on The Street don't seem to be too high for DGI, and Cramer would wait for a pullback before buying.

Potash (NYSE:POT), BHP Billiton (NYSE:BHP), Hasbro (NASDAQ:HAS), Praxair (NYSE:PX), Airgas (ARG), Cooper (NYSE:COO), Polypore (NYSE:PPO).

With speculation that BHP Billiton (BHP) may buy Potash (POT), and talk of other takeovers hitting Wall Street news, Cramer thinks the markets could be invigorated by mergers.

“You get takeovers,” Cramer said, “it changes the psychology of the market.”

After the crash of 1987, when companies felt the worst was over, there were a slew of mergers. Cramer thinks this pattern might happen again, since many of the stocks on the 52-week high list are takeover targets: Hasbro (HAS), Praxair (PX), Airgas (ARG), Cooper (COO), Polypore (PPO).

However, the market is dominated by negativity, but ultimately Cramer thinks the bears will be proven wrong.


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