Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday May 27.
Parsley Energy (PE) is a recent IPO that produces oil in the Permian Basin. The stock rose 20% on its first day of trading. CEO Bryan Sheffield is the son of Scott Sheffield, CEO of Pioneer Natural Resources (PXD), which has assets in the same region. PE has a market cap of $3 billion and has 100,000 acres in the Permian with 60%-70% in the core area. PXD is a giant, with a market cap of $29 billion with 825,000 acres in the Spraberry-Wolfcamp area alone, which is the second largest oil field in the world. PXD has been using horizontal drilling to recover more oil. PE is growing production dramatically, and tripled its output compared to 2013. Since PE is smaller, it has more growth opportunity. PXD is ramping up its rig count in the Permian, but since it is large, it is unlikely to double its rate. However, PXD is a consistent player with its diverse locations.
Both PE's and PXD's balance sheets are good. Cramer would rather invest with PXD than PE, because of Scott Sheffield's extensive experience working with an oil company. PXD has a multiple of 9.5, compared to PE's 8.5, but Cramer thinks it is worth paying a premium for PXD, although PE should give a good return. Cramer is willing to endorse either stock; "It just depends on your investing style."
Cramer took some calls
Exxon (XOM) has a 50-year plan. It is not Cramer's favorite, but is a consistent, long-term stock.
What A Bull Market Is Supposed To Look Like: FedEx (NYSE:FDX), American Airlines (NASDAQ:AAL), Wal-Mart (NYSE:WMT), Target (NYSE:TGT), Michael Kors (NYSE:KORS), Salesforce (NYSE:CRM), Workday (NYSE:WDAY), Biogen Idec (NASDAQ:BIIB), Celgene (NASDAQ:CELG), Gilead (NASDAQ:GILD), Regeneron (NASDAQ:REGN), Isis Pharmaceuticals (ISIS), Seattle Genetics (NASDAQ:SGEN), AstraZeneca (NYSE:AZN), Pfizer (NYSE:PFE), Manitowoc (NYSE:MTW)
"This is what a bull market is supposed to look like," said Cramer, with the Dow rising 69 points. A real bull market is one that climbs a wall of worry, and many rallies have followed negative chatter from gurus. These worries shake out the weak holders and leave the true believers still standing. A healthy rally needs strong leadership, and transports characterize a strong economy. FedEx (FDX) broke out, and rails were strong. Cramer would buy American Airlines (AAL).
The bank stocks have been horrendous performers, and retail has been disappointing, but Cramer thinks Wal-Mart (WMT) and Target (TGT) have been unfairly casting a pall over all of retail. The dollar stores are strong and are taking market share, and the drug stores are being unjustly ignored. High-end plays are doing well, and Cramer thinks Michael Kors (KORS) will give a good earnings report. J.C. Penney's (NYSE:JCP) stock is a buy on its turnaround. Toll Brothers' (NYSE:TOL) report will be a "tell" on housing. Software as a service plays might be returning. Salesforce.com (CRM) fell initially after its strong report, and then reversed; this shows cloud plays may have some upside, as shown by WorkDay (WDAY), and Cramer would buy Oracle (NASDAQ:ORCL) on weakness. Biotechs like Celgene (CELG), Gilead (GILD), Biogen Idec (BIIB) and Regeneron (REGN) are coming back and have more upside. Cramer likes speculative biotechs Seattle Genetics (SGEN) and Isis Pharmaceuticals (ISIS). Pfizer (PFE) walked away from a deal with AstraZeneca (AZN), but there might be more takeovers in the sector.
Cramer took some calls:
Manitowoc (MTW) should split up, and Cramer would stay long.
What The VIX Says
The S&P 500 hit an all-time high, but lately, the market has been having temper tantrums. One way to measure anxiety about the market is to look at the VIX, or the Volatility Index.
Mark Sebastian's technical analysis predicted the bull market run, and by looking at the VIX, he may be able to see where the market is going. Sebastian looked at the run from 2002-2007. In 2002, the VIX dropped as stocks recovered. From 2005 to 2007, when the S&P 500 peaked, the VIX often spiked, but then dropped to lower lows. However, in 2007, the VIX ran up, but didn't dip as low as it did previously, and this was a signal that the S&P 500 was topping.
Sebastian sees a similar pattern; the VIX is making lower lows, which means stocks can still rally. What investors should watch out for is if the VIX stops dipping so low. The CBOE Russell 2000 Volatility Index [RVX] compared with the Russell 2000 shows less dramatic pullbacks, and Sebastian sees this as a red flag. While stocks might have a bit more upside, Cramer recommends caution.
Organic and natural food is a great long-term trend. Whole Foods' (WFM) loss is the industry's gain, as more competitors jump into the marketplace. SunOpta (STKL) is a top producer of organic soy products, fruit snacks and oat flour. The company is focusing on becoming a pure play on healthy food; it beat its earnings estimates by 2 cents, and revenues roseby 16%. It has rallied 35% so far this year, and 80% since Cramer recommended it 3 years ago. STKL trades at a multiple of 24, with a 30% long-term growth rate.
The company has strong brands and produces private label products for other companies. Cramer noted that while the stock is up a lot, it may be a buy for the long term.
The banks have been a nightmare, but Bank of America (BAC) rallied 3.5% on Tuesday. Are banks just a repository for legal fees? Is the Justice Department's war against the U.S. banks ending? BAC's valuation error might be a tempest in a teapot. An end to litigation might mean upside for financials, and banks are cheap compared to historical rates. Fund managers are underweight this group, and it is only a matter of time before big money comes back. BAC re-filed its report, JPMorgan (JPM) and Wells Fargo (WFC) are also good picks. Cramer thinks the sector could rally 5%-10% and still be cheap.
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