Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday October 18.
When Analysts Disagree: Ingersoll-Rand (NYSE:IR)
Analysts aren't always worth believing, but they are always worth listening to, especially when they disagree. Cramer gave viewers a crash course on how to decide whether or not a stock is worth buying when analysts say contradictory things about a company. He gave the example of Ingersoll-Rand (IR), an industrial play which Citigroup had a "sell" rating on and Credit Suisse and Bernstein made a "buy" call. Cramer agrees with Credit Suisse and Bernstein, and thinks Citigroup is being far too cautious, because it is concerned that Ingersoll-Rand is a "late cycle" stock, in that it is in a sector that tends to improve late in a recovery. Cramer thinks by the time Citigroup will be bullish on the stock, it will already make a significant move, and it has already; those who believed Citigroup's bearish call on September 14th missed a 12% run in the stock.
IR's fundamentals are sound. A full 60% of Ingersoll-Rand's HVAC revenues come from parts, services replacement and construction, a pretty regular business in any economic environment, and a business that does not need a full recovery to thrive. The company sold its Bobcat machinery business and bought Trane; its restructuring might mean an upside in the near future. IR is expanding in Asia and currently trades at a 12% discount to its peers. Cramer is bullish on IR.
While the names Ethylanine and Propyline might not sound very interesting, anyone who wants to make money may do well to look a bit into these chemicals which go into many commercial products on the market these days. Cramer discussed the best way to play them.
Chemical stocks are on fire, with PPG (PPG) up 16 points since Cramer recommended it at $60 and DuPont (DD) rising 12 points. He devoted the segment to discussing LyondellBasell Industries (LYB), a company emerging from bankruptcy with significant upside potential. LYB is the product of a merger and went bankrupt soon after the deal closed, but since then, it has done some radical reorganization and has one of the lowest debt levels of any companies in the industry. LYB is very well diversified in its chemical products and has 50% overseas exposure. The company does more than supply chemcials; it develops proprietary technology which it licenses to other companies. LYB benefits from the low cost of natural gas, since that is one of its chief raw materials. The company trades at just 11 times earnings and has only five analysts covering it.
Cramer says the name of the game in China is still copper, even though it has had a big run, rather than steel. For that reason, Cramer wouldn't buy AK Steel (AKS) but might consider Nucor (NUE) as a long-term play. While Cramer says he usually thinks a CFO leaving a company abruptly is a red flag, the departure of Chesapeake's CFO does not reflect badly on Chesapeake, which has a 26% stake in the second company. Finally, Cramer would buy more gold, to the point of making a portfolio 20% gold, and buy more Apple (AAPL) which is heading to $325.
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