Cramer's Mad Money - Tech Is Not a Monolith (3/24/11)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday March 24.

Tech Is Not a Monolith: Sanmina - SCI Corp (NASDAQ:SANM), Jabil Circuit (NYSE:JBL), RF MicroDevices (RFMD), Skyworks Solutions (NASDAQ:SWKS), Intel (NASDAQ:INTC), Arm Holdings (NASDAQ:ARMH), Cisco (NASDAQ:CSCO) Juniper (NYSE:JNPR)

While the movement of a stock is largely influenced by the sector it is in, there are times when the performance of a best-of-breed stock can trump the fact it is in an out-of-favor sector. Jabil Circuit (JBL) was taken down 4% on Sanmina-SCI Corp's (SANM) terrible quarterly report in which it painted a dire picture of the state of the industry and lowered its forecast. SANM's stock was "annihilated" dropping 22% in one day. However, those who sold Jabil on SANM's bearish report made a huge mistake.

Jabil's quarter was outstanding, and the stock jumped 11% following its earnings. While Jabil usually rises after its earnings, the jump was more dramatic than usual because of the decline prior to its report. How could Jabil do so well and SANM do so poorly? Basically, Jabil is a well-run company. "Knowing the difference between a winner and a loser is the essence of stockpicking," said Cramer.

Both companies can be at the mercy of the fluctuations in demand, and are hostage to end markets, since they assemble the products for other companies but don't market or sell them directly. However, Jabil can thrive in this situation, while SANM is a victim. Even though SANM's multiple is just 5 and Jabil's is 8 times earnings, the latter is a cheaper stock because it has more value. A third of Jabil's revenues come from the consumer market which has grown 27% since last year. Nearly half of SANM's revenues come from the communications networks business which is the part of tech that is really suffering. Jabil also gets 32% of its revenues from infrastructure for cloud computing, which also has tremendous growth prospects. Jabil also has an industrial and clean tech business which has grown 47% since last year. SANM is levered to defense which is a vulnerable area, given threats of government cutbacks.

The story of Sanmina and Jabil is a reminder that tech is not a monolith and not all techs stocks are created equal. Cramer tooks some calls:

RF MicroDevices (RFMD), Skyworks Solutions (SWKS): Cramer prefers Skworks to RFMD, but notes that both stocks have taken a pause and have slowed. He admits he is not sure when they will get better, but they will eventually.

Intel (INTC), Arm Holdings (ARMH), Cisco (CSCO): Cramer is lukewarm in Intel, and says it has some upside potential but no real catalyst until it comes up with another chip. Arm Holdings is taking mindshare from Intel and Cisco is "quintessentially what I am talking about when I say I don't like tech now." Cisco was down even on a good day for the sector.

Juniper (JNPR) is one of the biggest positives, according to Cramer, because it is taking share from Cisco. "Juniper is a good one."

CEO Interview Robert Friel, PerkinElmer (NYSE:PKI)

With the tragedy in Japan and fears of radiation contamination, PerkinElmer (PKI) is the ideal company to assist the country with its national disaster. PerkinElmer creates tools to improve environmental and human health, with equipment for detection of genetic diseases, diagnostic imaging and products to aid in the discovery of new treatments. The company also creates technology to check contamination in food and drinking water, and has loaned the Japanese government kits for this purpose. CEO Robert Friel emphasized supplying the kits was a goodwill gesture in the form of a loan, but the company foresees a significant opportunity for its business in Japan; Cramer views the water and food contamination screening story as a "needle mover" for PKI. The company reported a terrific quarter and has seen a 16% gain since February when Cramer recommended it.

Friel said that while many governments are basically prepared for an environmental disaster, the events in Japan have opened the dialogue for increased protection, which PerkinElmer can provide. With news of poor water and air quality in China, PerkinElmer has helped the country improve its environmental screening and Friel praised the Chinese for "stepping up to this challenge."

PerkinElmer recently made two acquisitions at $220 million each of two software companies that will enable PKi to better manage, update and share its data. Cramer says PKI "continues to be a great story. This is the first company that is directly able to help Japan and is going to be an amazing business over time. PerkinElmer is a great growth stock for multiple years."

CEO Interview: Daniel Patrick, Ebnridge (NYSE:ENB), Enbridge Energy Partners (NYSE:EEP)

For the past few weeks on Mad Money, Cramer has been discussing domestic drillers on the historical find of oil in the Bakken. The question is not just how to get the oil out of the ground, but how to transport it. Domestic drillers have been complaining that they are able to get the oil, but lack the means to get it to the marketplace. Enbridge (ENB) is "one of the greatest growth businesses in the world," said Carmer, since it builds pipelines to prevent the bottleneck of oil and gas that needs to be transported. The company also has an MLP, Enbridge Energy Partners (EEP), but Cramer prefers the parent company for more aggressive growth, and it offers a solid 3.3% dividend.

CEO Patrick Daniel said that since Canada has the second largest oil reserves in the world and America is the largest oil consumer, "there is a logical marriage." Daniel says growth in the Bakken is so aggressive and consumption is happening so fast it is a challenge to keep up. The company is also working on ways to transport natural gas in the form of liquified natural gas overseas. While the company has had two spills in the past summer, it takes environmental concerns seriously and is honoring its commitment to clean up the damage.

Enbridge is currently working on a major pipeline to transport West Texas Intermediate crude to the Gulf Coast, since the light crude is bottlenecked and the result is poor pricing for producers. The company's Monarch Pipeline should provide the ideal solution for this problem.

Micron (NASDAQ:MU), Red Hat (NYSE:RHT), EMC (EMC), (NYSE:CRM), (NASDAQ:DSCM), Walgreen (WAG), Apple (NASDAQ:AAPL), Research in Motion (RIMM), Finisar (NASDAQ:FNSR), CVS Caremark (NYSE:CVS), Banco Santander (STD), Wal-Mart (NYSE:WMT), Panera Bread (NASDAQ:PNRA), Chipotle Mexican Grill (NYSE:CMG), Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN)

Even bad news from Portugal and the Mid-East couldn't frighten investors out of good stocks. While tech was beginning to look as bad as the banks, there were some stellar performances in the tech sector. Micron (MU), which was one of the worst performers in the S&P 500 last year reported good numbers, mainly due to its transition from DRAM to flash memory and its lack of exposure to Japan. Red Hat had red hot numbers, and it powered up other cloud plays like EMC (EMC) and (CRM). (DSCM), "the biggest dog of the dot.coms," caught a takeover bid from Walgreen (WAG), and Amazon (AMZN) was upgraded by William Blair. Google (GOOG) has a bad news bottom and the stock was unaffected by investigations in the U.S. and problems with restrictions in China. Finisar (FNSR), a stock that has been pummeled lately, rose on takeover rumors. However, the news in tech was not all good as Research in Motion (RIMM) disappointed yet again.

A break in the rise of oil prices was good for retail and restaurants, with gains for Wal-Mart (WMT), Panera Bread (PNRA) and Chipotle Mexican Grill (CMG).

Cramer tooks some calls:

CVS Caremark (CVS): Cramer doesn't think CVS' acquisition of Caremark worked out and the combined company has not been delivering. Management badly needed a shakeup that didn't happen.

Banco Santander (STD): This Spanish bank resisted being downgraded and is "terrifically underrated," said Cramer.


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