Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday September 23.
Freeport McMoRan (FCX)
Metals are sending mixed messages. Gold's rise is usually not such a good sign and signals fears of inflation and other economic and political problems. However, these worries are belied by the rise in copper, a metal that is usually a very good tell for the economy in general. Cramer consulted technician Tim Collins, who says that copper's action strongly reflects the S&P 500. He notes that not only is copper rising, but it is rising on higher and higher volumes.
Freeport McMoRan (FCX) will benefit from this rise in copper. Collins explained:
Freeport will be on the way to 100. If copper breaks out, I would say Freeport is on its way to 100... once we get past these highs in the 88s and 90s... there's not very much resistance at all. The weekly chart in fact says Freeport should be at 100 by the end of the year.
The action on Thursday was odd; the market opened down, then after disappointing jobless claims and data out of Europe, oddly the market rallied, only to close down with a 77 point drop in the Dow. With such volatile action, Cramer outlined a game plan for Friday; get rid of marginal stocks you've been wanting to get rid of. For instance Johnson & Johnson (JNJ) was an accidental high yielder, but now its dividend has fallen from 4% to 3.5%. Cramer said JNJ has "some of the worst fundamentals of any pharmaceutical company" and has substantial generic competition.
Cramer would also unload Wells Fargo (WFC) as well as Exxon (XOM) which overpaid for its XTO Energy acquisition. Instead of owning Exxon at 3%, Cramer would own ConocoPhillips (COP) at 4%. What to buy after selling these stocks? Cramer still thinks Apple (AAPL) is going from $288 to $325, but it is not rising in a straight line. Cramer would buy some Apple on declines.
It is always a good idea to buy stocks with strong dividends, but how to sort out the dividend wheat from the chaff?
Frontier Communications (FTR) yields a hefty 9.3%, but Cramer doesn't think the dividend is safe. While Frontier's deal with Verizon (VZ) tripled its size, the company had to slash its annual dividend and is expected to make additional cuts. The company is now opting for a more conservative capital structure and is paying down debt rather than returning capital to shareholders. Cramer's rule of thumb is if earnings per share are double the size of the dividend, the yield is safe. However, with Frontier, it is the opposite; the dividend is twice the size of earnings. Cramer prefers CenturyTel (CTL) and Windstream (WIN), yielding 7.5% and 7.8% respectively. Both companies are making sustainable acquisitions as well as increasing their dividends.
CEO Interview: PerkinElmer (PKI) CEO Robert Friel
PerkinElmer is like a "laboratory assistant on steroids," with a diversity of businesses, including early detection gear for genetic disorders, medical imaging products for the diagnostics industry, and a host of technologies that help researchers, in the pharma and biotech industries, discover new drugs.
The stock is trading at 13.8 times earnings with a long-term growth rate of 13.4% and is up just 12% after its 5 cent beat last quarter. Sales were up 19% in the environmental health division. CEO Robert Friel says the diagnostic business is where the bulk of the macro trend lies, because diagnostics can save companies a lot of money. China will be the main driver of the environmental business as it will require more clean drinking water in the coming years. When Cramer asked how increasing consolidation in pharma will affect the company, Friel replied it might actually help, since companies tend to increase their spending in research and development when they make mergers.
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