Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday October 12.
Off the Charts: Cisco (NASDAQ:CSCO)
Cramer is on the lookout for stocks that have high risk/reward, stocks that may have been unfairly punished like Cisco (CSCO), which has spent time in the penalty box after being taken down following CEO John Chambers' rather "run of the mill" cautious remarks about mixed demand trends. However, the charts indicates that Cisco is a stock that is about to "get its groove back."
Cisco had been unable to close above its downtrend resistance line or its 34-week moving average since August, however, this trend was reversed in mid-September, and technician Tim Collins thinks Cisco is going to move higher on strong volume. The daily chart shows Cisco coming into a bullish ascending triangle pattern. Cramer thinks more companies are going to increase their IT spending and the company may use its $40 billion in cash for acquisitions. The stock trades at 11 times earnings with a 12-17% growth rate.
Cramer is focusing on two major themes in biotech: takeovers, like the $3.6 billion Pfizer (PFE) deal announced on Tuesday and biotech conferences, where drug companies discuss the potential of their treatments.
There are several opportunities in the Hepatitis C market. Nearly 7.4 million people are infected with Hepatitis C in the U.S. This form of the disease is particularly nasty, but so are the available treatments, which create side effects that some patients find so unbearable that many unfortunately live with the symptoms of the disease rather than seek treatment. In addition, the cure rate for treatment is only 51%, so some patients don't think it is worthwhile.
Drug companies are on the lookout for better Hepatitis treatments, which is the main reason Bristol Myers (BMY) was willing to pay an 84% premium for ZymoGenetics (BMY gave investors a 50% gain after Cramer said it was a buy on April 15th).
Vertex Pharmaceuticals (VRTX) is developing a drug called Telaprevir which will cut treatment time in half from 48 weeks to 24 weeks and will increase the treatment rate to 75%. While Merck (NYSE:MRK) may be creating a competing drug, research shows Vertex's drug works better, and the company is submitting its report to the FDA in the fourth quarter for approval by next year. The company has great management, a lot of cash and should see 90% gross margins after the drug is launched. Cramer thinks Vertex should be able to earn $6 a share and should be bought before it submits its FDA application.
Pharmasset, Inc. (VRUS) is developing a drug that is complementary to other treatments and won't hit the market until 2014. The drug is licensed to Roche, so if the drug is successful, it will naturally be taken over. Pharmasset is also developing a second Hepatitis drug. Cramer called Pharmasset "highly speculative" and thinks it could increase 29% to $41. He would buy it before the end of the month.
Where is the Shame? Ford (NYSE:F)
Cramer was sharply critical of bank executives who are giving themselves a record $144 million in bonuses this year, even though the financial sector is the worst group in the S&P 500. "Did they turn around Ford (F)?" asked Cramer, "Did they invent the iPad? All they did was destroy value." In a just world no bank executives would get bonuses until their bank was in order and they gave their shareholders a solid dividend. "It's common sense," said Cramer.
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