Cramer's Mad Money - The Market's Moronic Phase (5/21/14)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday May 21.

The Market's Moronic Phase: Home Depot (NYSE:HD), Tiffany (NYSE:TIF), Target (NYSE:TGT), Lowe's (NYSE:LOW), (NYSE:CRM). Other stocks mentioned: Canadian Solar (NASDAQ:CSIQ), First Solar (NASDAQ:FSLR), Whole Foods (NASDAQ:WFM).

Can the direction of the averages be affected by bonds and good news from Tiffany (TIF) and Target (TGT)? The Dow roared 159 points Wednesday after a devastating drop on Tuesday. "The stock market is in a particularly moronic phase of its life right now," since higher interest rates usually signal lower stock prices. Higher interest rates are like a tax on the consumer, so it doesn't make sense that stocks rose in tandem with interest rates. The expectation of many is that the economy is going into a recession, but the economic numbers aren't showing this. Interest rates are going higher because there is a lower supply of bonds. Home Depot (HD) CEO Frank Blake expressed surprise that interest rates jumped last summer. Cramer thinks that when rates finally stabilize, housing could come back.

Lowe's (LOW) management said that May has been robust, and Target and Tiffany both reported that sales were strong. While some blamed the consumer for weak retail prior to Tuesday, the thesis changed on Wednesday to suggest that brick and mortar retailers that have not navigated ecommerce effectively are the ones doing poorly. (CRM) dropped 5% even after reporting one of its best quarters, but Cramer thinks it is because momentum cloud stocks in general are out of fashion in the current market environment. Industrials are the stocks the market likes right now.

Cramer took some calls:

Canadian Solar (CSIQ) is good, but First Solar (FSLR) is better, cheaper and less speculative than CSIQ.

Whole Foods (WFM) is still an inexpensive stock after its decline and is the best-of-breed stock in its sector. However, Cramer doesn't think the stock has finished going down, and would wait for an additional drop before buying.

The Oil and Gas Renaissance: EOG Resources (NYSE:EOG), Anadarko Petroleum (NYSE:APC). Other stocks mentioned: Rex Energy (NASDAQ:REXX), Spectra Energy (NYSE:SE), Kinder Morgan (NYSE:KMP), HollyFrontier (NYSE:HFC), Occidental Petroleum (NYSE:OXY)

The move in oil and gas stocks signals an energy revolution, and much of it is based on production growth. These companies have taken control of their own destinies as improved technology and bountiful shale assets are driving growth. Companies are reaping more from their investments as horizontal drilling is yielding more oil and gas and depletion rates are slowing. Among Cramer's favorites are EOG Resources (EOG) and Anadarko Petroleum (APC). EOG Resources benefits from its rich assets and APC is emerging from litigation and could be a takeover target. APC is trading at $100, but Cramer thinks it should be priced at $120 based on production alone.

Cramer took some calls:

Rex Energy (REXX): With natural gas back in fashion, this stock may be a buy.

Spectra Energy (SE) is the largest growing pipeline company and is terrific.

Kinder Morgan (KMP) is very undervalued. It isn't growing as fast as some of the others, "but it is fine."

HollyFrontier (HFC) is alright, but Occidental Petroleum (OXY) has a terrific breakup story, and Cramer prefers it to HFC.

CEO Interview: Matt Maloney, GrubHub (NYSE:GRUB). Other stocks mentioned: OpenTable (NASDAQ:OPEN), Yelp (NYSE:YELP)

GrubHub (GRUB) is the largest food delivery and takeout platform. Cramer suggested getting in on its IPO, and the stock rose 40%, but is down 9% from where it closed that day at $34. GRUB is profitable, and takes a 13% commission on every order. GRUB offers a tremendous value proposition to its clients. It reported a 5 cent earnings beat with a 50% increase in revenue. However, the stock trades at a multiple of 72 and is expensive by any metric. The company has a base of 30,000 restaurants, and the delivery service is a high-margin part of the business. Before GrubHub, restaurants had to rely on the paper menu to advertise. Cramer asked the CEO if he is worried about competition from Yelp (YELP). Maloney replied that the market is massive and there is room to expand, given that many restaurants still rely on paper menus. In addition, each company does something different: OpenTable (OPEN) is about reservations, GRUB deals with orders and Yelp enables discovery of new restaurants. As more customers adopt mobile and apps, the opportunity will continue to expand.

CEO Interview: Steven Udvar-Hazy, Air Lease Corp. (NYSE:AL). Other stock mentioned: Boeing (NYSE:BA).

In an increasingly volatile market, Cramer would look to long-term themes like aerospace. With increasing demand for fuel-efficient planes, Air Lease Corp. (AL) may see some upside. The company beat earnings by 7 cents with revenues rising 28% yoy and higher gross margins. AL has great visibility and sells at an inexpensive multiple of 14. CEO Udvar-Hazy says that the current replacement cycle is huge. Earnings are based on fundamental demand, and increasing numbers of companies are leasing airplanes. Since airlines tend to face uncertainty, leasing helps these companies avoid the risks of buying planes. Boeing (BA) and Airbus like to do business with AL, because it buys in bulk and promotes BA's and Airbus's products through leasing. The company is well-capitalized and has the highest profit margins and the best growth in the industry; "We have all the ingredients for a real success story on a long-term basis," said Udvar-Hazy. Cramer thinks AL could be a stock that will be strong for multiple years.


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