Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday July 10.
Cramer thinks the street underestimates Dean Foods (DF). If the stock can even be "okay," it is likely to beat estimates and run up. DF has 40% share in milk in the U.S. and is a low-cost producer. The stock declined 19% in the last 12 months because of a 33% rise in milk prices. Many analysts are acting as if high milk prices are the "new normal," but milk prices are starting to decline. As these milk costs go lower, Dean Foods will head upward.
Supply constraints in the U.S. and New Zealand were responsible for higher prices, but as this problem is resolved, the prices will fall. Corn and soybeans are declining, which will lower the cost of feed for cows. Milk futures for December are already down 25%; "this is not a conjecture," said Cramer, "This is a fact." The analyst estimates are not taking this into account. Once analysts realize this, there may be a wave of upgrades. Cramer prefers DF's spinoff White Wave (WWAV) for the longer term, but DF works on the catalyst of cheaper milk. Cramer expects a 35% gain for DF.
European Weakness Is a Reason to Buy: Bank Espirito Santo (OTC:ESFHF), Lumber Liquidators (NYSE:LL), Tractor Supply (NASDAQ:TSCO), TRW Automotive Holdings (NYSE:TRW), United Continental (NYSE:UAL). Other stocks mentioned: Rambus (NASDAQ:RMBS), Skyworks (NASDAQ:SWKS), Intel (NASDAQ:INTC), Texas Instruments (NYSE:TXN), GoPro (NASDAQ:GPRO), Isis Pharmaceuticals (ISIS), Seattle Genetics (NASDAQ:SGEN)
"Weakness in Europe is not a reason to sell," said Cramer, "It is a reason to buy." The averages opened down over worries about Portugal, when Bank Espirito Santo (OTC:ESFHF) was showing extreme accounting irregularities. However, Bank Espirito Santo may be "too big to fail," at least in Lisbon. There are domestic problems among retail stocks and housing. Lumber Liquidators (LL) and Tractor Supply (TSCO) reported disappointing results. However, there was some good news with the takeover bid of TRW Automotive (TRW), a positive number from United Continental (UAL) and a rally in "old tech" stocks. Negative European news is not a reason to dump domestic stocks. A better idea is to invest in U.S. companies insulated from European woes.
Cramer took some calls:
GoPro (GPRO) is a cult stock and it is hard to find an accurate valuation for it. Cramer says he can't justify buying it "up here."
"This might be the first inning in a big surge in mergers and acquisitions," said Cramer, who pointed out major deals in pharma and in food companies. Hormel (NYSE:HRL) is shelling out $450 million to buy CytoSport Holdings which makes Muscle Milk, a drink for body builders. Monster Beverage, the maker of the #1 energy drink domestically with 40% market share in the U.S., might be another target. It was once a turbo-charged growth stock, but its reputation has been tarnished since 2012 because of negative news stories concerning safety of energy drinks. The stock was nearly cut in half from $70 to $40 on lawsuits, and its unit growth in convenience stores declined dramatically.
Cramer thinks the health worries have blown over, and he sees growth in Monster returning. The stock rose even after another news story alleging that a fatal heart attack was caused by excessive consumption of Monster's products. There is chatter that growth-starved Coca-Cola (KO) might buy Monster, perhaps for as much as a 25%-30% premium. It isn't just beverage companies like KO and PepsiCo (PEP) that may want to buy Monster. The company is likely to be valuable on its own with its own products, expanding into the coffee, juice and protein supplement category. If Monster successfully takes market share in these new categories, it can dramatically increase earnings. While the energy drink market is approaching saturation in the U.S., it has many opportunities to expand internationally. Energy drinks are classified as nutritional supplements, and Cramer thinks that it is unlikely that the FDA will be able to regulate them effectively.
Cramer took some calls:
Krispy Kreme Dougnuts (KKD): Cramer would "take the money and run." The stock has caught a double, so it is worth getting out.
CEO Interview: Mark Sirgo, BioDelivery Sciences International (NASDAQ:BDSI)
BioDelivery Sciences International (BDSI) is developing a drug-delivery platform for pain management and drug addiction. It already has a drug on the market and is a small speculative stock. Cramer would be cautious with the stock, because it is small and has rallied 187% in the last 12 months and has risen 12% since the beginning of the week because of positive Phase 3 data. "Opioids are here to stay .... the question is how do we help doctors identify patients who may be at risk for addiction." The company produces a safer alternative to traditional opioids. BDSI produces pain-management alternatives that do not have the euphoric effects that encourage addiction. Currently, pain medication addiction is a growing problem worldwide, and BDSI is producing a viable remedy for the problem.
Is the consumer in a funk? Or is she only in a funk when she goes to The Container Store (TCS)? Management's comment that "the consumer is in a funk" is coursing through investors' heads after disappointing results. Williams Sonoma (WSM) and Restoration Hardware (RH) aren't experiencing a funk after the bitter weather. First, some of these retailers blamed the weather, now they are alleging it is mood. Cramer thinks these managements lack soul searching. Tractor Supply had consistent growth, but now the stock seems too expensive. Lumber Liquidators said the same store sales drop was because of delays in purchases, but Cramer thought this excuse was "fatuous." Single-purpose retailers are having difficulty delivering numbers consistently. Possibly, broader-based retailers can be more reliable as investments. Home Depot (HD) and Costco (COST) may show more strength. Cramer advised avoiding retailers whose managements blame the weather long after it has cleared up or the consumers. For investors who prefer specialty retailers, choose stocks whose managements show superior execution.
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