Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday February 9.
CEO Interview: Murray Martin, Pitney Bowes (NYSE:PBI)
While Pitney Bowes (PBI) is one of the most shareholder-friendly companies around with a 5.8% yield which it has raised every year for 29 consecutive years, it is not known as a growth company. In fact, at first glance, it might seem like a better idea to avoid buying Pitney Bowes, which has a near monopoly on mail services, because of the general transition away from snail mail to internet. Cramer points out that Pitney Bowes is not intended to become a dinosaur and is developing businesses to stay in step or even ahead of the trends. The question is, will it succeed?
Pitney Bowes reported a strong quarter with a 5 cent earnings beat, even though its revenues declined 1.5%. However, the gross margins were at 51%, partly due to its discontinuing low-performing sluggish segments. The company has developed a new cloud computing application that allows customers to take care of all of their "mailing" on the internet. Revenues for this program are strong even though it has been in existence for less than a year and has "taken the physical mailbox and made it digital." Cramer asked why the company decided to raise the dividend rather than invest more in the new software, and Martin replied the company wants to see how the program develops and fund allocations will be based on performance and demand. So far, Pitney Bowes' billers have been responding enthusiastically to the new software.
Martin said he saw revenues from post offices increase for the first time since 2007, and is seeing the effects of the economic recovery in its small business group, with improvements already in mid to large business and more potential upside expected for small businesses. Martin was pleased with the company's $961 million free cash flow and expects the amount to increase in 2011. Cramer thinks Pitney Bowes has always been a good dividend stock and now it is "getting exciting."
CEO David Demshur, Core Labs (NYSE:CLB)
With oil approaching $100 a barrel, more oil companies will need to find the most efficient ways to locate oil sources and drill them. Cramer has long been a backer of Core Labs (CLB), a "tech stock that happens to be in the oil patch." The stock has increased 53% since he recommended it last year, and the company helps its clients to figure out where to drill and determine the value of their assets. Core Labs produces software that monitors reservoirs in real time and gives data to clients in a similar way a CAT Scan gives biofeedback to patients and doctors. The stock is very shareholder friendly, has tripled the size of the dividend, and has paid out a special dividend for three consecutive years. Core Labs beat earnings estimates by 3 cents per share and raised revenue guidance.
David Demshur feels the latest quarter was successful not only in helping clients find places to drill but in maximizing the amount of oil produced from each location. Core Labs has helped produce "the cheapest oil available produced today." The company is expanding domestic drilling and has 11 new projects in Iraq, where 2.5 million barrels of oil are produced per day. Demshur thinks in the next 5 years, Core Labs can enable Iraq to surpass its former record high of 3.6 million barrels produced daily.
Core Labs is continuing its efforts to persuade the government that drilling for natural gas is safe; not a single case of ground water contamination has occurred, according to Demshur. The CEO says he is continuing his commitment to return the lion's share of profits to shareholders through raised dividends and special dividends and is considering another stock buyback. Cramer still think Core Labs is a great opportunity and thinks the story is "better than ever." The stock tends to dip on the quarter so "that is your time to buy."
CEO Interview: Bill Hankowsky, Liberty Property Trust (LRY)
A few years ago, many REITs looked like they were finished. Liberty Property Trust (LRY), an office and industrial REIT with a 5.6% dividend was in serious trouble two years ago when it slashed its dividend 24% and sold $3 million in stock. Since then, the company is much stronger. Even though the company missed estimates by one penny, it missed the year before by 14 cents. Occupancy rate is a solid 88.7% and the company rents 2.7 million square feet of office space, the highest volume in the company's history. Liberty is making the move away from suburban office space and into industrial locations as the U.S. transitions into an export economy.
Cramer said the company's conference call "read like a novel" that kept getting more exciting as the bullish story unfolded. The company reported the economy is gaining traction, and Cramer asked CEO Bill Hankowsky what is driving the momentum. The CEO responded that companies feel the worst is finally behind them and are making long-term decisions, like leasing space for longer amounts of time. The fact that the beginning of the year brings with it a new business cycle also helps the company. When asked about the transition from suburban to industrial space, the CEO says the degree of Liberty's exposure to suburban space has made him "nervous" as he sees that a lot of this business faded with the recession and is not coming back. Liberty has been taking the opportunity to reposition into industrial space.
Cramer asked about LIberty's dividend cut, and asked if it might be raised again. The CEO explained the dividend was reduced because of temporary problems with cash flow, and when the REIT can fill up vacant space, increase rents and restart development, the dividend may increase.
Cramer thinks these developments could occur in 2011 and says, "This is the kind of stock I love with a 5.7% dividend that could go higher."
The German deal to buy 60% of the New York Stock Exchange (NYX) is a sign that even the most quintessentially American brands and institutions are fair game to foreign takeovers. In fact, such deals are becoming "more visible and less risible," given PetroChina's (PTR) $5.4 billion offer to take over 50% of just one of EnCana's (ECA) assets.
What do these takeovers mean? American stocks are too cheap and American companies are now available at a good price. Why shouldn't American investors feel the same way about stocks and buy companies that are going to be the ideal targets for overseas brands. Even though Avon's (AVP) quarter was not inspiring, it could easily be bought as well as Clorox (CLX) which rallied even after a poor quarter. Heinz (HNZ) and Kimberly Clark (KMB) might also be attractive takeovers. Cramer thinks any natural gas play is a potential takeover target as well given that many of them have huge assets in gas rich shales, but little enthusiasm for the fuel in the U.S.
After tech company Cisco (CSCO) blew its quarter yet again, Cramer decided to focus on companies that are performing well and the CEOs behind them. Disney's (DIS) Bob Iger transformed an undermanaged company with a good brand to a "virtual powerhouse of consistent strength;" the company reported decent numbers for economically vulnerable theme parks even at the depth of the recession. Disney is now on fire with its indispensable brands.
Jim Skinner, CEO of McDonald's (MCD), deserves praise for bringing the company back to terrific numbers even with the challenge of commodity inflation. Coke (KO) is coming back to its global giant status and has strong growth and consistent yields thanks to CEO Muhtar Kent. 3M (NYSE:MM) is "one of the most consistent dividend raisers in the history of stocks" and is upping its dividend yet again, thanks to the good judgment of CEO George Buckley.
While Cramer has a Wall of Shame of delinquent chiefs, he calls good CEOs "heroes" and thinks they cannot be applauded enough.
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