Cramer's Mad Money - Merger Mania In The Supermarket Aisles (5/29/14)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday May 29.

Merger Mania In The Supermarket Aisles: Hillshire Brands (NYSE:HSH), Pinnacle Foods (NYSE:PF), Pilgrim's Pride (NYSE:PPC), Tyson Foods (NYSE:TSN), Kraft (KRFT), Kellogg (NYSE:K), General Mills (NYSE:GIS). Other stocks mentioned: DSW (NYSE:DSW), Ensco (NYSE:ESV)

Merger mania is happening again, but this time, in the supermarket aisles. In a slow growth world where it is difficult for management to raise prices, companies buy other companies. Once consolidation breaks out, it tends to spread like "wildfire."

There were two bidders for Hillshire Brands (HSH), which earlier this month made a bid for Pinnacle Foods (PF). Pilgrim's Pride (PPC) and Tyson Foods (TSN) are both gunning for Hillshire, which rose $7.94 in one session. Both Pilgrim's Pride and Tyson need Hillshire's proprietary brands to compete in the supermarket aisles. Pinnacle also has a reputation of buying up brands, and Hillshire wanted to buy Pinnacle to get more exposure to healthy brands. Another reason for the bid might be that Hillshire wanted to make acquisitions to avoid being acquired itself. Among consumer goods, it is hard to know who is going to be predator and who is prey. Kraft (KRFT), Kellogg (K) and General Mills (GIS) might be looking for acquisitions to diversify their offerings.

The supermarket is a "vicious place," and, given the intensity of competition, it might be the location for acquisitions and mergers. Cramer noticed that lately, stocks of the acquirers also go up as well as shares of the takeover target. This sector also has many high-yielders that can pay investors to wait before an M&A announcement.

Cramer took some calls:

DSW (DSW) had the "worst conference call of the year. That one can go lower."

Ensco (ESV) is a holding in Cramer's charitable trust, and Cramer bought more because of an upgrade in the sector and its yield.

Is This the Dotcom Bubble All Over Again? Marketo (NASDAQ:MKTO), The Rubicon Project (NYSE:RUBI), Rocket Fuel (NASDAQ:FUEL), (NYSE:CRM), Yelp (NYSE:YELP), Concur Technologies (NASDAQ:CNQR), Twitter (NYSE:TWTR), Tableau Software (NYSE:DATA), Splunk (NASDAQ:SPLK)

What happened to the fledgling e-commerce IPOs in the 2000s era, and what does that tell us about the recent IPO frenzy? In the dotcom era, there was a tremendous pressure for these companies to go public before they were profitable. The median stock in this group was trading at 32 times trailing sales, which was a "lunatic valuation." Looking at today's tech IPOs, the median trades at only 5 times sales, with many of them profitable. "We have a lot less garbage than we did back then," said Cramer. Software as a service is a legitimate business model, but there is reason for concern. The recent e-commerce category can be more perilous than the cloud sector, and many e-commerce IPOs may have viability issues.

In the dotcom era, e-commerce stocks rocketed higher, but many of them went bankrupt and were sold off at a loss. Cramer would proceed into the current small e-commerce plays like Marketo (MKTO), The Rubicon Project (RUBI) and Rocket Fuel (FUEL) with caution. Most of these have fallen dramatically from their highs, but Cramer would avoid buying them on weakness. Better choices would be Concur Technologies (CNQR), (CRM) or Yelp (YELP).

Cramer took some calls:

Twitter (TWTR) is fine, and Cramer would buy it.

Tableau Software (DATA) is analytics, and Cramer is "not crazy" about this category. He is not bullish on Splunk (SPLK) either.

Have Faith in Apple (NASDAQ:AAPL) CEO, Tim Cook. Other stocks mentioned: Netflix (NASDAQ:NFLX), Harman International (NYSE:HAR), DirecTV (DTV)

The level of scrutiny surrounding Apple (AAPL) and its CEO Tim Cook is "downright insane." Its $3 billion deal to buy Beats has been criticized as a waste of money, and the street thinks that Apple is desperate. Cramer wanted Apple to buy Netflix (NFLX), DirecTV (DTV) or Harman International (HAR), but it is now too late to buy NFLX or DTV. Who can complain about Apple's stock, which has risen dramatically in one year, and as long as Cook is "doing a lot of things right"? Cook has been listening to shareholders and analysts, and has improved iPhone sales with software innovation, revamped its retail stores and has expanded in China. Cook has implemented an aggressive buyback. The decline in iTunes might be behind Cook's acquisition of Beats. Cramer thinks the street should have more faith in Tim Cook.

CEO Interview: Cheryl Bachelder, Popeyes Louisiana Kitchen (NASDAQ:PLKI)

Popeyes Louisiana Kitchen (PLKI) soared 14% on Thursday on a strong quarter. Popeyes is a great turnaround story, and could expand its locations, which are mainly franchised. It beat earnings by one cent with revenues that rose 16% and a same store sales rise of 4.3% domestically. The company boosted its guidance aggressively. It has gained 80% since Cramer got behind it in 2012.

"We tackled the quarter with a good plan," said CEO Cheryl Bachelder, who said the company was thriving in spite of the inclement weather in the winter. The company is innovating with new products, like Waffle Tenders. The company has remodeled 60% of its stores and that number should reach 80% by the end of the year. "There is a lot of upside in our current restaurants, and the ones we are growing at a fast clip," said Bachelder. Popeyes opened restaurants in Vietnam; "We feel we are participating in something exciting there." Cramer thinks that in spite of the rise in its stock price, PLKI is still on the "ground floor," and has plenty of upside.

CEO Interview: Joseph Papa, Perrigo (NASDAQ:PRGO)

Perrigo (PRGO) has had some headwinds in 2014, and is down 10% for the year. The company produces private label products, and has made an acquisition in Ireland to reduce taxes. The company reported a 20 cent earnings miss and management cut guidance. Management blamed a milder cold and cough season, lower foot traffic in stores over the winter and manufacturing problems with its generic Mucinex product.

CEO Joseph Papa explained the the raw material supply was at fault for issues with its generic Mucinex. In addition, the cold and flu season was down 12%. However, Papa sees potential with the number of popular drugs going off-patent, and opportunities with e-commerce and social media.


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