Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday February 14.
"The most painful buys are often the most rewarding," said Cramer. Stocks that already have had huge runs may be difficult to pay up for, but if they happen to be Netflix (NFLX), Apple (AAPL), Chipotle Mexican Grill (CMG) or Arm Holdings (ARMH), the stocks are far from done going up. While there was some news driving these stocks, such as a telco conference in Barcelona that might have been partly responsible for Arm Holdings' gain of $1.50, or a rumor of a new phone that saw Apple up a few points, "These reasons leave me cold," said Cramer. In any case, who could explain why Chipotle Mexican Grill was up huge after four downgrades?
What is the real reason these stocks keep going up, even as they seem expensive? Simply, these stocks are in "anointed territory." These stocks act like they are in their own asset class, as fund managers will pay anything for these companies, since big money is addicted to growth at any price.
"These growth managers don't care about E/P multiples," explained Cramer, "they dream dreams....that Chipotle could be the next McDonald's (MCD)," and they are determined to buy Chipotle until it is a fifth the size of McDonald's rather than its current tenth. Since Arm Holdings is the brains of the smartphone revolution, money managers don't care about its multiple of 60, and there is no limit to what managers will pay for Apple's growth. The bottom line? Investors should realize that once stocks are in anointed territory, the sky is the limit.
CEO Interview: Kelly King, BB&T (BBT)
BB&T (BBT) is a bank with "brains, beauty and talent," and is Cramer's "kind of bank" because it paid off TARP early, way back in 2009 when it issued a secondary around the same time, which is now up 44%. BB&T is also a regional bank that is aggressively acquiring weaker banks, and recently completed a "takeunder" of Colonial Bank "for a song." BB&T has 1,782 branches in the South and Southeastern regions of the U.S., is one of the top ten largest banks and is the top 5 in deposit market share in 8 of the 13 states where it operates. It pays the fourth largest dividend in the S&P 500, currently 2.1%, and CEO Kelly King says he will recommend raising the dividend as soon as the bank gets permission to do so. The company reported a solid quarter in January, with earnings up 11.1%, beating estimates by 4 cents with better than expected loan growth.
When Cramer asked Kelly King how the bank could afford to increase loans while other banks complained this area was a weak spot, King responded the bank has consistently raised the number of loans even throughout the crisis. In fact, BB&T was "looking for loans." BB&T was one of the few banks to stay profitable during the recession.
"Kelly King is our kind of banker," said Cramer, "He is aggressively conditioned to pay the dividend."
When Akamai (AKAM) reported a disappointing quarter on seasonality, Limelight (LLNW) was taken down 8%. Since both companies are in the business of delivering video over the internet, Cramer was concerned about Limelight's quarter, which was actually a success, although the company also discussed the problem of seasonality which is the result of the move into advertising. The company beat estimates by a penny, reported a 64% rise in revenues with raised guidance. The company is still relatively small, with a $600 million market cap, but its revenue growth is expected to be 30% clip for the next three years. The stock is up 17% since Cramer recommended it in September.
CEO Jeff Lunsford discussed Limelight's two successful divisions, its content delivery segment, which generates two-thirds of its revenue and which grew 21% year over year. "The core business is healthy." The cloud business is seeing aggressive growth, with some parts of it tripling in revenue. When Cramer asked if Limelight could handle traffic from a company as large as Netflix, Lunsford responded in the affirmative, if the company gave Limelight 60-90 days' notice. Lunsford described the cloud revolution as allowing Limelight to provide customers with everything they need for their websites with one swipe of a credit card and without requiring special hardware or software licensing. Limelight is hiring salespeople and expects 15% growth from cloud alone with higher and higher margins. Cramer says he is a "backer" of Limelight.
When one viewer asked about the action in Hudson City Bancorp (HCBK), Cramer explained that when interest rates go down, HCBK tends to go up. He thinks the bank is too cheap to sell and it has a good yield. When asked to rate healthcare stocks, Cramer has no interest in Eli LIlly (LLY), but he would take some time to sell out of it because of its good yield. UnitedHealth (UNH) has seen the worst of Obamacare and is a good stock, but Cramer thinks WellPoint (WLP) is better. He praised Allergan (AGN) for its new drugs. When asked if Hain Celestial (HAIN) would be a good takeover target for Pepsico (PEP) since the latter wants to expand its offering of healthy snacks, Cramer criticized Kraft (KFT) for buying Cadbury instead of Hain, since KFT sells "a lot of junk" and it missed its quarter. He thinks Hain would be a great buy for some company, since it is so cheap, but he added Hain is also doing just fine on its own.
Four food stocks, Whole Foods Market (WFMI), Chipotle Mexican Grill (CMG), Panera (PNRA), Hain Celestial (HAIN), have three things in common; they have the same healthy theme, they are close to their 52-week highs and they are "blindsiding The Street with stellar earnings." With higher food prices, few would expect these companies to perform well, but Cramer emphasized that these are lifestyle choices and not just food companies. They depend more on customer loyalty than on commodity prices. While Yum Brands (YUM) defends Taco Bell for the percentage of real beef it has in its food items, there is no argument about Chipotle, which uses meat that is not only 100% real beef, but organic. These companies have met the challenge of keeping high price points without losing customers, and Cramer predicts more short squeezes in these stocks, even up at current levels.
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