Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday January 13.
Ag is Busting Out All Over: Deere (NYSE:DE), Potash (NYSE:POT), Mosaic (NYSE:MOS), CF Industries (NYSE:CF), Market Vectors Agribusiness ETF (NYSEARCA:MOO), Rio Tinto (NYSE:RIO), BHP Billiton (NYSE:BHP), Vale (NYSE:VALE)
Agriculture stocks are having a bumper crop of upside; Mosaic (MOS) is at its 52-week high, Potash (POT) is up 50% since Cramer recommended it in August, Deere (DE) is up four points in the last two sessions and has seen a 40% gain since Cramer got behind it in July. Cramer would ring the register on part of these positions, but would let the remainder run, since we are "just getting started" in the agriculture bull market.
While Cramer frequently makes the fundamental case for agriculture stocks, he also discussed the technical analysis of John Roche, Managing Director of WJB Capital. Looking at agricultural stocks in relation to the S&P 500, it is apparent that these stocks are poised to break out of their lengthy 19 month base which will act as a launching pad. Agriculture stocks are ready to spiral higher as money managers notice how they are outperforming the S&P 500 benchmarks, and big money will start to load up agriculture exposure out of desperation to catch up with the bull market.
A worldwide food shortage and the emerging market countries' growing middle class with its increasing appetite for meat will continue to drive demand for grains and fertilizer. The USDA reported a decline in inventories for wheat and corn. Agriculture is not done even though the sector has seen significant gains.
Cramer took some calls:
A viewer asked about CF Industries (CF), which Cramer said is "darn good" but not as good as Potash. He also recommended Market Vectors Agribusiness ETF (MOO). When asked whether he prefers Rio Tinto (RIO) or BHP Billiton (BHP), Cramer responded that he likes Vale (VALE) better than either of them.
CEO Steve Mueller, Southwestern Energy (NYSE:SWN)
Here is a paradox: which stock was one of the top performers of the S&P 500 in the last decade, with an astounding 3,000% increase, and yet was one of the ten worst S&P 500 performers for 2010? The answer: Southwestern Energy (SWN), a quality company Cramer thinks has been brutally punished only because it is 100% levered to the natural gas industry which is reeling on the fall of the fuel's price. While other natural gas companies have scrambled to diversify into oil, SWN has stuck to its guns, but its stock price has gotten shot. However, Cramer thinks the company will be richly rewarded for its loyalty to natural gas in the coming year.
CEO Steve Mueller says that while The Street has punished the stock, Southwestern's business is as strong as ever, even with the decline of natural gas prices. The reason for this is SWN is a very low cost producer of the fuel, and even with the price of natural gas at very low levels, the company is seeing record profit margins, cash flow, production and growing reserves. "We don't mind the low price," said Mueller. "We think it is a good thing for the country." Mueller thinks it is just a matter of time before the market realizes how valuable a low cost producer of natural gas can be in the present economy. Mueller says the company's ethos is to "stick with what it knows best" and has a new project in Arkansas which should yield gas for many years. "With our costs going down and better wells, the cost of natural gas is not so important," he said.
Southwestern sees the possibility of monetizing some midstream assets, and finds hope in Washington's statements about natural gas. On the state level, utility commissions are looking into using more natural gas, and Mueller expects to see "some real progress in 2011" for the adoption of natural gas as a bridge fuel.
Cramer said "it's time to pull the trigger on Southwestern. I'm a believer."
While Cramer urges investors not to be greedy and take profits on gains, haste sometimes makes waste. If a stock has a huge potential upside, there is no need to be in too much of a rush to take profits or to take too much off the table at once.
One case in point is Marathon Oil (MRO), which was up after announcing that it is unlocking value by splitting into two companies, one devoted to exploration and production and the other to refining and marketing. Oil continues to be a precious commodity, and Marathon has one of the most generous dividends in the industry as well as great properties. Cramer feels the stock is and was "supremely undervalued," especially since it was taken down after an otherwise strong quarter during which it missed its production goals in the Gulf of Mexico. The Street was unforgiving on this data point and MRO got hammered, but recovered gradually.
Cramer, not wanting to be greedy, took profits on the way up and scaled out of Marathon and into Hess (HES), which is an even lower-cost producer than Marathon. However, when the news hit about MRO's spinning off its segment into two companies, the stock made a 9% move higher which Cramer confessed he might not have missed if he had remembered that the potential value was the reason he bought MRO in the first place.
As a hedge fund manager, Cramer said he learned the value of studying missed trades and the case of Marathon Oil is no different. Never quibble with investments that make a profit. He urged looking for the next large company, like Bank of America (NYSE:BAC) that seems ready to unlock its potential value and perhaps spin off assets. While discipline against losers will always trump conviction about winners, and investors should always take some profits after a rally, in cases where value still needs to be unlocked, investors need not be in too much of a hurry to cash in.
Cramer took some calls
Even though Merck (MRK) has dropped 6%, Cramer doesn't feel the stock is cheap or a buy. He said he thought this company "wasn't going anywhere" and the fact it fell rather than stayed stagnant is an even clearer sign that he doesn't want to touch Merck; "This whole group is bad. Merck is worse than the others."
While Cramer says he needs to look carefully into Intel's (INTC) quarter before opining on it, he prefers it to Advanced Micro Devices (AMD) which has had a recent management change. "I'd stick with Intel until further notice."
He told another caller, "There is more to MIPS Technology (MIPS)...we caught a really good gain...there is more to MIPS and this group is red hot."
Jim Cramer was up 31% in 2009. Click here now to sign up for Jim's Action Alerts PLUS and trade alongside him. Special discount for Seeking Alpha users.
Get Cramer's Picks by email - it's free and takes only a few seconds to sign up.