Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday October 6.
Here Comes the Solar: MEMC Electronics (WFR)
Cramer has been leery about solar for awhile now because the sector is overheated and solar companies rely on subsidies to be profitable. However, with rising oil and new solar plants in the works, Cramer says the facts are changing and it is now worth "sticking your toe" into the solar pool, but to be on the lookout for stocks with high risk/reward. In fact, Cramer would go for the "most despised" stocks in the sector, namely MEMC Electronics (WFR).
MEMC is is a company that makes polysilicon wafers which are the building blocks of solar panels and semi-conductors. While the stock is hated, Cramer thinks it is done going down. Cramer thinks MEMC is one of the best risk-reward situations, with 10 points upside, 2 or 3 downside, and after a series of disappointing quarters, the stock has been rising, and is up 31% since August. MEMC is seeing some significant insider buying; according to some analysts, next year's earnings estimates are too low. Its Sun Edison acquisition has been highly successful and the company is finding new ways to make silicone wafers more energy efficient.
MEMC is diversified into the semi sector, which makes up over half of its business, so it isn't overly tied to solar. Best of all, MEMC is cheap and trades at 9 times expected 2012 earnings with a 17.5% growth rate.
Wednesday's action proves why the old-fashioned "buy and hold" strategy doesn't work. Some great stocks were flying too close to the sun: Salesforce.com (CRM), was down $9, VMware (VMW) declined $8, Citrix (CTXS) was off $10 and Netflix (NFLX) also declined. Was it a mistake ever to buy these stocks? No, but if investors did not take profits while the stocks were hot, they lost some serious money. Cramer reiterated the importance of doing homework, actively managing a portfolio, taking profits when stocks get too hot and buying winners on declines.
CEO Interview: Howard Levine, Family Dollar Stores (FDO)
Cramer read a Wall Street Journal headline he thought was something from a comedy routine; "Weak Economy Saps Dollar Stores' Strength." Dollar stores perform well in a weak economy, so how could such a statement make any sense?
Family Dollar (FDO) beat its most recent earnings estimates by 5 cents and saw a 6% increase in same store sales. The company is buying back stock aggressively. Of the $750 million of shares earmarked for the buyback, $250 million are being repurchased at an accelerated rate. High unemployment is driving more consumers to shop at Family Dollar, while the company has revamped its appearance and selection to attract even more customers. Not only is Family Dollar renovating stores, but it is increasing its rate of opening new stores by 50%.
Howard Levine says the dollar store space is stronger than ever as more consumers are starting to trade down, or those who did trade down during the great recession are becoming committed to a more frugal lifestyle for the long-term.
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