Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday January 10.
7 Samurais of Tech: Qualcomm (NASDAQ:QCOM), Atheros (NASDAQ:ATHR), Acme Packet (NASDAQ:APKT), Netgear (NASDAQ:NTGR), Cirrus Logic (NASDAQ:CRUS), Motricity (MOTR), Akamai (NASDAQ:AKAM), Nvidia (NASDAQ:NVDA), ARM Holdings (NASDAQ:ARMH), Intel (NASDAQ:INTC), Cisco (NASDAQ:CSCO)
On the news of Qualcomm's (QCOM) takeover of Atheros (ATHR), QCOM rallied hard but didn't decline, as often happens to the stock of an acquirer. Cramer thinks QCOM is starting a trend in tech; some tired companies may start to make acquisitions in order to get their stocks moving again. Cramer listed seven tech stocks, or the "seven samurais," that will send the stock price of their acquirers higher if bought.
1. Acme Packet (APKT) has seen an 84% gain since August 2010 and facilitates delivery of voice, video and data over networks. The company has 60% market share, and its high 55 multiple is offset by its 32% growth rate.
2. Netgear (NTGR) is up 32% since Cramer recommended it on October 8th and makes home networking equipment. It is a duopoly with Cisco (CSCO) but is "eating Cisco's lunch." The company has a multiple of 17 and a 17.5% growth rate.
3. Cirrus Logic (CRUS) makes chips that help convert data to sound and vice versa. Its technology is used in the iPad, iPod and smart phones. The stock has been on a rollercoaster and its disappointing performance prompted Cramer to suggest waiting to see if its next quarter will be better, but Cramer is hopeful about the stock, which will supply parts to major gadgets. Cirrus trades at a multiple of 12 with a 20% growth rate.
4. Motricity (MOTR) has pulled back ten points after its IPO in June. The company makes technology that enables internet access for non-smart phones. The company has 80% market share, strong subscriptions and is expanding overseas. Motricity has a 25 multiple with a 25% growth rate.
5. Akamai (AKAM) makes the web faster, especially for video. The stock is up 81% since Cramer recommended it in January 2010 and has more room to run. The company has a multiple of 29 with a 17% growth rate. If Cisco bought the company, "it would turn that beagle (Cisco) into a greyhound."
6. Nvidia (NVDA) is a graphics chip maker for netbooks, tablets and smartphones. Cramer predicted in July that the company had seen its last bad quarter and the stock is up 89% since then. The multiple is a pricey 28 but it has a 14% growth rate. The stock is up after a deal with Intel, and Cramer would let it come down before buying.
7. Arm Holdings (ARMH): This semi play has seen a huge 200% gain. ARMH licenses its chip designs, and its technology is in 95% of all smart phones and it has a "serious relationship with Apple." The company has a multiple of 50 with a 20% growth rate. Cramer predicts Intel (INTC) will shoot up 5 straight points if it buys ARMH.
Gadgets aren't the only way to make money; the guts of gadgets, or rather, their circulatory systems are in high demand. Ciena (CIEN) handles the physical infrastructure of the mobile internet tsunami and is directly benefiting from roaring demand for high-tech gadgets. The stock is up 305% since Cramer got behind it in 2008 and 36% since its analyst day last April. Ciena is a fantastic play on the transition of network infrastructure which can handle an exponential increase of traffic from video and mobile. Ciena has its critics; some panned the company's acquisition of Nortel's (NT) optical network business and some analysts even downgraded the stock on the deal only to change their tune as it becomes clear how smart the deal was. Even though Ciena has rallied, there is still room to run before it reaches its $30 price target.
CEO Gary Smith commented, "We are still in the early stages of a broad multi-year cycle of network transition and optimization." Greater geographical diversity and applications help fuel this cycle forward. The deal with Nortel gave Ciena "leading technology" and "great engineering talent" which have enabled Ciena to have a "global reach. We are now leaders in every single space we are in." Ciena now leads in market share for 100G and is growing its cloud computing segment. Ciena's story continues to look bright for the future.
Duke Energy (NYSE:DUK), Progress Energy (NYSE:PGN), Dominion (NYSE:D), National Fuel Gas (NYSE:NFG), NiSource (NYSE:NI)
Duke Energy's (DUK) acquisition of Progress Energy (PGN) is the latest takeover in a wave of consolidation in the utilities sector. There is talk that Dominion (D) might be shopping for a takeover. Cramer thinks the time for consolidation in the industry has finally come; "For ages we have been a nation with too many utilities," and fears of monopolies in the sector are outdated. Acquisitions give companies more earning power, and such deals make sense economically.
What is going to be the next takeover target for utilities? National Fuel Gas (NFG) has a lot to recommend it, but the stock has had a huge 60% run since Cramer recommended it on August 31, and this mosiac of a company, with utilities, natural gas pipeline, and exploration and production is perhaps too risky and complex to be an ideal takeover target. Cramer would take profits in NFG and buy a much simpler utility, NiSource (NI), which is an integrated natural gas utility with less exposure to high-risk drilling. NiSource serves seven states, with gas transmission and storage as its largest segment, generating 40% of its operating income. The company has a network extending from the Gulf of Mexico to Lake Eerie and has attractive transmission in the Marcellus Shale. The company is seeing a 17% return on the $450 million it invested into transmission projects and even though the price of natural gas is low, companies are still drilling aggressively. Electric operations, in the form of a Northern Indiana public service company, comprise 22% of the company's operating income.
Cramer calls NiSource "one of the most consistently earning utilities in the whole country." It offers a 5.1% yield and no analysts yet have a "buy" rating on the stock (all rate it as a "hold"), in spite of bullish insider buying.
Apple (NASDAQ:AAPL), Verizon (NYSE:VZ), Ford (NYSE:F), Netflix (NASDAQ:NFLX), Microsoft (NASDAQ:MSFT), Dover (NYSE:DOV), Eaton (NYSE:ETN)
"The whole discounting concept is over," declared Cramer, who was not talking about what retailers do when they hold sales, but The Street's tendency to discount news that should already have moved a stock. Old news or fluffy stories, however, are driving stocks higher. For instance, Verizon's (VZ) iPhone has been a news story for awhile, but instead of dropping, Apple (AAPL) rallied. Ford's (F) fuel efficient cars have garnered attention in the press, but the stock is up on the Detroit Auto Show, "and that show hasn't moved stocks in ages." Netflix (NFLX) climbed $8 on a story in the Huffington Post about the company's international expansion. But didn't we know Netflix was heading overseas?
While the headlines have often worked against stocks, Cramer welcomes this new trend of fluffy stories moving stocks higher, because it shows a weariness with cynicism and a willingness to be bullish.
Cramer took some calls:
While the news of Microsoft (MSFT) using Arm Holdings chips has been out for months, Intel's stock has yet to move. Cramer thinks Intel will burst up on any positive news, or better yet, if it buys Arm Holdings, Intel will go higher than ARMH. Verizon has had an amazing performance with a 29% increase and will "creep higher" to $40. Cramer likes both Dover (DOV) and Eaton (ETN), but if given the choice, he would choose Eaton on the strength of its superb CEO Sandy Cutler.
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