Cramer's Mad Money - When Buybacks Mean Business (12/3/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday December 3.

Cypress (NASDAQ:CY), Texas Instruments (NYSE:TXN), Cisco (NASDAQ:CSCO)

When does a buyback mean more than a dividend? When a company buys back stock like it means business. Most buybacks are meaningless and cosmetic, to make shareholders feel better, but Cramer prefers to see buybacks that really move the needle of a stock, buybacks which involve a significant number of shares.

Cypress Semiconductor (CY) bought back $600 million worth of shares, a third of the company's market cap, and the stock has risen 38%. Texas Instruments (TXN) made a similar move, buying back 28% of the company's market cap and the stock saw a 33% gain. Cramer would wait until TXN's midquarter update on December 7th before buying the stock.

One example of a bad buyback is the one executed by Cisco (CSCO), which made a big deal about a buyback that was worth only 14% of the company's market cap, and issued so much stock that the buyback hardly mattered. The stock dropped 22% since the pointless buyback was initiated.

Mad Mail: Vera Bradley (NASDAQ:VRA), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), Chipotle Mexican Grill (NYSE:CMG), Ford (NYSE:F), Johnson & Johnson (NYSE:JNJ)

Cramer says the producer of soft, brightly colored bags, Vera Bradley (VRA), which had its IPO in October at the $16 level has had a huge run to $35. He thinks the company has a great long-term story but he would let the stock "take a breather" before buying. Recently, Cramer urged investors to cut their Netflix (NFLX) positions in half, since the stock has caught a double. A viewer asked if the same principle applies to Chipotle Mexican Grill (CMG), Ford (F) and Apple (AAPL) which have more than doubled. Cramer suggested taking some Ford off the table and playing with the house's money, he thinks Apple is inexpensive and would buy more and would not cut a position in Chipotle, since it declined on Friday.

Cramer is worried about Johnson & Johnson (JNJ) which he say is "not the JNJ that I know" and is seriously considering putting its CEO on the Wall of Shame. Finally, Cramer urged viewers to reinvest dividends to maximize the return on their investments.

Kohl's (NYSE:KSS), Target (NYSE:TGT), Wal-Mart (NYSE:WMT), TJX (NYSE:TJX)

With everyone talking about the success of high-end retail, mid-tier and low end is getting "no respect"...until now. With compromise over unemployment benefits, the middle level stores could really take off. Kohl's (KSS) is Cramer's favorite pick in the group, with its turnaround story, great balance sheet and aggressive store growth. The company intends to increase its store count from 1,100 to 1,400 in the next few years. With its private label brands, deals with Vera Wang and celebrities like Jennifer Lopez, Kohl's is becoming cool. The company has a large amount of cash and has an accelerated buyback which has a real impact on the stock price. In spite of the good news, the company's stock price dropped in the recent quarter and since it trades at a multiple of 12 with a 12-15% growth rate, Kohl's is cheap enough to buy.

TJX (TJX) and Ross Stores (NASDAQ:ROST) are faring well post-recession, with TJX the preferred Mad Money pick, since 25% of its revenues are generated overseas with Ross Stores firmly placed in the U.S. Going lower on the totem pole, Cramer would not buy Wal-Mart (WMT) or Target (TGT). Wal-Mart is currently range-bound and Cramer needs to see another quarter before recommending the stock. Target (TGT) has had a huge run on a terrific quarter and success with its credit card business. "Don't chase Target. Let it come to you."

Game Plan for Next week: Dollar General Stores (NYSE:DG), Costco (NASDAQ:COST), Family Dollar (NYSE:FDO), 3M (NYSE:MMM), United Technologies (NYSE:UTX), Pall Corp (NYSE:PLL)

By all logic, the market should have been down on Friday because of the disappointing employment number, and yet the Dow finished up 20 points. Granted, there was some good news, but the main reason for the upturn was the "buying panic" as hedge funds are looking to stuff their portfolios by the end of the year. So keeping in mind that there will be some big money buying in the coming weeks, Cramer told viewers about some stocks to watch.

On Monday, Dollar General (DG), the largest Dollar store with 20% market share has been flying high as the consumer continues to be more value conscious. Cramer wants to know how much upside is left in dollar stores, and what this means for Family Dollar (FDO).

On Wednesday, Costco (COST) reports. The company recently has seen strong growth in same store sales and Costco is a tell on the more affluent yet still value-conscious consumer. The main metric to look for with Costco is membership growth.

In the industrial space, Cramer would pay attention to 3M (MMM) on Tuesday and United Technology (UTX) on Thursday. He expects both calls to be "extremely bullish."

Pall Corp (PLL) might not seem to be an exciting company, but given that it sells filtration to industrials, it is levered to a wide range of businesses. Cramer would pay attention to Pall's call on Thursday as well as the unemployment number on the same day.


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