Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday January 14.
4 Things That Will Bring Citigroup (NYSE:C) to $6 with JP Morgan (NYSE:JPM), People's United Financial (NASDAQ:PBCT), First Niagara (NASDAQ:FNFG), KeyCorp (NYSE:KEY), Huntington Bancshares (NASDAQ:HBAN)
Cramer wished a happy birthday to Citigroup (C) CEO Vikram Pandit on Friday. The CEO received the perfect gift of his stock's breakout above $5. Cramer, who has been behind the stock since its $3 level, says the rise was "pretty fabulous," but added this is a "what have you done for me lately," business. Citigroup reports earnings on Tuesday and is already up 8% so far this year. The stock can roar much higher, especially since the Treasury Department has almost finished selling off its stake in the company. However, the stock has gotten hammered after nearly every earnings report for the past two years.
Before 2010 ended, Cramer said his price target for Citi was $12 by the end of 2012. The stock is now 400% up from its bottom in 2009, and now that it is at $5, the stock is now at a psychological level where institutional investors are willing to buy it; under $5 is not considered as "investment grade" for a stock. While Citigroup is Cramer's "speculative stock of 2012," it might not fare so well in the next week, since it might compare unfavorably to JP Morgan's (JPM) stellar results when it reported last week and wrecked the curve for the rest of the banks. The following are four things that need to happen for Citigroup to reach $6:
1. At least a 25% earnings beat. The Street's estimates are for 8 cents a share, but Cramer fears a sell-off for Citi if it reports less than 10 cents per share.
2. 65% International. Citigroup is already considered the ideal play on international banking, with 60% of the company levered to overseas growth. Once this number climbs to 65%, it will no longer be compared to the likes of JP Morgan, because it will be considered to be a truly international bank.
3. Reverse stock split. This will give investors one share for every three they already own. "This gets people excited," Cramer said, although he thinks a dividend boost would be more interesting.
4. Get rid of the bad bank. During the credit crisis Citigroup split into two divisions and spun off its bad loans into Citi Holdings. While Citigroup insists that the loans in Citi Holdings aren't as bad as they once were, Cramer thinks Citigroup needs to get rid of Citi Holdings entirely.
If all four of these things happen, it is likely that Citigroup's stock will be "off to the races." If not, the stock will likely be stuck at $5 until the next quarter, but even in that scenario, the stock should be held because it is going higher.
Cramer took some calls:
People's United Financial (PBCT) is "starting to rock" and First Niagara Financial Group (FNFG) is going up. PBCT made a recent acquisition that many on The Street don't like, but Cramer thinks it was a shrewd move and added "they have more cash than they know what to do with." While he doesn't usually recommend a stock solely on the chance of a takeover bid, PBCT is also a buy for its solid fundamentals.
A viewer asked about CenturyLink (CTL) and Verizon (VZ) after both have dropped. Cramer says there is "nothing wrong with the companies" especially since they have high yields, but right now they are "too high." Cramer discussed Cypress Semiconductor (CY) as a play on touch screen technology, but mentioned it is up 9 straight points since CEO T.J. Rogers appeared on Mad Money last October. He would wait for the stock to drop a few points before buying.
Cramer called Sprint (S) a "pure spec," and he prefers AT&T (T) which is "not as exciting" but has a "good yield" and is well-run. While some think the stock is a sell on its loss of exclusivity for Apple's (AAPL) iPhone, "I think there is more to AT&T than that," said Cramer.
Cramer's biggest worry about Ford (F) is that the Republican Party will draft CEO Alan Mulally as a presidential candidate. This comeback artist, who also revived Boeing (BA) before becoming chief executive of Ford, has a special talent for bringing all of his constituents together. Jamie Dimond, CEO of JP Morgan (JPM) would be an ideal candidate for political office, since he used the financial crisis as an opportunity to make the institution stronger. Both men are "trusted, liked, respected, revered and get the job done."
At a time when CEOs are the whipping boys of Washington and business is blamed as the root of the country's evils, Cramer sees many CEOs behaving "far more honorably" than the average politician and "live to serve their institutions." He urged viewers to stop and take a look at the "heroes among us," the businesspeople who are models of greatness.
"Dividends don't lie, but sometimes they dissemble," said Cramer, pointing out Vector Group's (VGR) "salacious" 9.6% dividend which is a huge red flag. Vector has a great dividend but is a terrible long-term prospect. While in the last decade, domestic tobacco plays have outperformed the S&P 500, but with increasing regulations and the decreasing number of smokers, the fortunes of the industry are changing. Only the best-of-breed plays like Altria (MO) with recognizable brand names will survive. Only hardened smokers can even name Vector's obscure brands.
Altria has the ability to diversify to survive, even though tobacco is "the most universally despised industry in America." Altria has 50% market share for cigarettes, 50% for smokeless tobaccco and 30% for cigars. In addition, the company has a 28% stake in SAB Miller (OTCPK:SBMRY).
On the other hand, Vector saw a 28% operating income decline and massive earnings shrinkage in its latest earnings report on September 30. Altria's cigarette business grew 5.6% and operating income for smokeless tobacco was up 96%. While Altria's yield is 6.3%, lower than Vector's, it is definitely sustainable. While Cramer confesses he doesn't know why anyone would want to own a stock in a sector so fraught with difficulty, the one pick for the industry is Altria.
Four words define this market; "We should be down," Cramer said. The Dow rose 55% after a "hideously ugly morning" on Friday that saw the announcement of China's raised interest rates and JP Morgan's rising loss estimates for its Washington Mutual division. The Street didn't even care about Intel's (INTC) beautiful quarter ("but they hate Intel anyway," remarked Cramer). What Friday's action demonstrated is that when stocks dip, buyers rush in and lift them up. Investors are waiting for that big 4-5% down day to provide buying opportunities, but Cramer thinks it is going to be a while before this happens.
Cramer would use the earnings reports in the coming week as a chance to formulate views on key sectors. On Tuesday, Citigroup reports. While Cramer is bullish on the bank, he admits it is likely to be a casualty to JP Morgan's fantastic earnings that have raised the bar for the entire sector. JP Morgan's strong point was its net interest margins, its "fortress balance sheet" and declining credit losses. Citigroup might suffer in comparison to JP Morgan as may Bank of America (BAC), which reports on Friday, and is likely to see a pullback anyway since it is up 14% so far this year. Comparisons with JPM are "deeply unkind" to BAC because they are not really comparisons; BAC is a bad bank becoming good and JPM is a good bank becoming great.
Apple (AAPL) sets the standard for tech, and reports on Tuesday. Even though the company has overrun its $325 price target, some "Johnny come lately" analysts are just now getting on board, even as the stock has risen 94% since 2009. Cramer is sticking with Apple, but reminded viewers that the company is known for its conservative guidance, so if the stock drops, he would pick up some more.
In spite of its dollar amount, Google (GOOG) is cheap. Still, Cramer thinks it is risky to pay the $624 price tag and would buy deep in the money call options, specifically the February 595 calls before the company reports. He predicts that if the stock rises 6 points it will be able to ride out the rest of the year nicely.
Parker Hannifin (PH) reports Thursday, and its report will help determine if big industrial stocks have run too much. Cramer thinks PH and Eaton (ETN) are the "best performing stocks in the diversified manufacturing universe." Schlumberger (SLB) is "the most important oil call out there...as SLB goes, there goes the rest of oil." The company reports on Friday, and Cramer thinks its call is the only one to listen to, to decide if oil is going higher.
Cramer suggests viewers "stop, look and listen" to earnings reports the coming week, but would not buy stocks before reading the conference call transcripts and analyst reports.
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