Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday March 25.
IPOs: Apollo Global Management [APO], Qihoo Technology [QIHU], GNC Holdings (no symbol available at time of posting)
Cramer reviewed earnings and IPOs to watch in the coming week:
Phillips Van Heusen (PVH) reports after Monday's close. The main question is if the company is a hostage to raw cost concerns or will it be like Ralph Lauren (RL) and, with its superior management, be able to transcend cotton prices. If you are a buyer of PVH, hope for a little negativity that will send shares down and provide a good entry point.
McCormick (MKC) is a winner among food stocks, regardless of commodity prices: "As we used to say when I was working at Goldman Sachs, no one ever got hurt recommending McCormick."
Family Dollar (FDO) should explain why it should stay independent. The company has a solid long-term story but it has been squeezed by margin problems. "We are in listen mode," for this company.
Mosiac (MOS) with the 15 year peak in corn exports to China and an endless desire of the U.S. government to burn corn in the form of a fuel called ethanol, agricultural will continue to be a strong sector. While Cramer expects Mosaic to tell a good story, he prefers Potash (POT) because it is cheaper. Cramer would buy Potash ahead of the quarter.
Carmax (KMX) is one of best retailers in country, and its quarter should do much to dispel the gloom created by the recent bear market in autos.
Cramer discussed 3 IPOs:
Apollo Global Management (which will trade under the symbol: APO) is not a buy, because Cramer tends to stay away from private equity IPOs. It is hard to know what these companies own and they are not easy to analyze and therefore, not worth owning.
Qihoo Technology (which will trade under the symbol QIHU) is the number three internet company in China. While Cramer has said that Baidu (BIDU) is the only China stock he is recommending, he has lately included Sina (SINA), the Chinese Twitter, on his list of China buys. In fact, Cramer says Sina is "the most aggressive growth path of any internet company." Cramer would also get into Qihoo.
GNC Holdings (no symbol available at time of writing) is a good play on the health and wellness trend and might follow in the footsteps of Vitamin Shoppe (VSI) which has gone up in a straight line and has doubled since its IPO in October of 2009.
When a caller asked about BP (BP), Cramer responded that while the sector is in pretty good shape, he doesn't like the controversy that still surrounds BP. He prefers Conoco Phillips (COP) or Chevron (CVX).
Cramer revisited some stocks suggested by Lightning Round callers. After having done some research, he gave his opinion of the companies:
MedAssets (MDAS) is a healthcare technology company that helps hospitals cut costs. This is a space Cramer likes, but he does not recommend buying MedAssets because the company has terrible execution, its stock lost a third of its value in 24 hours after its "gruesome" quarter, and it has taken on substantial debt from a costly acquisition. Cramer sees no reason to buy MDAS unless he sees a couple of good quarters from the company, a cleaner balance sheet and a catalyst. For healthcare technology, Cramer prefers Allscripts (MDRX).
Momenta Pharmaceutical (MNTA) is a healthcare generic biotech drug that got a huge boost in its stock price after approval of its blood clot drug, but shares have come down hard since then. Cramer would not buy the stock because its fate is in the hands of Teva Pharmaceutical (TEVA) which may receive approval for its own blood clotting drug. In addition, Momenta is in litigation over its version of Teva's drug for MS and won't receive approval from the FDA until the issue is resolved. Ultimately, Momenta is too event-driven. "If you want to gamble," said Cramer, "Go to Vegas."
Columbus Mckinnon (CMCO) this industrial equipment producer is generating sales, but in the wrong places; 60% of its revenues come from the U.S and 30% in Europe. The company needs to expand into Asia before Cramer would consider buying the stock. Instead, he prefers Caterpillar (CAT), which will benefit from the reconstruction of Japan, and Cummins Engine (CMI) which could jump ten points on the truck shortage.
Growth is the key to knowing what a stock is worth and where it is going, but not all types of growth are the same. Cramer took a look at two sportswear growth stories: Nike (NKE) and Lululemon (LULU). While Nike has long been the sportswear titan, Lululemon is picking up steam and is showing itself as a secular play, immune to economic cycles where Nike (NKE) is fast becoming cyclical and showing some vulnerability to macro trends. LULU is up 82% since September 2010, while Nike has increased just 4% since last March.
LULU and Nike reported on the same day, Thursday March 17. LULU beat earnings estimates by 7 cents and saw an amazing 53% rise in revenues since last year, with a 28% gain in same store sales. Nike missed estimates by 4 cents with a mere 7% rise in revenues and future orders up 9%, which was a lower increase than the previous quarter. LULU's gross profit margin rose by 58.5% while most retailers' numbers are getting worse. Nike is struggling with raw costs that are rising higher than it can raise prices; in addition, it has an inventory glut. LULU has the quality problem of not enough inventory. LULU is a mid-cap stock on its way to becoming a large cap, while Nike has already made that journey, and is resembling a "pitiful helpless giant" that has grown so large it can no longer control its destiny. LULU, on the strength of its brand, has incredible pricing power and can charge $100 for yoga pants.
While LULU trades at a steep 37 times earnings compared to NIke's multiple of 18, LULU has a 25% long-term growth rate, and money managers are likely willing to pay almost double its multiple for that kind of growth. Compare that to Nike's much smaller 11% growth rate. LULU's story has just begun while Nike seems to have finished the race.
Cramer took a call from a viewer asking about Under Armour (UA). He responded that he likes UA more than Nike but less than LULU. Under Armour has solid growth but is a bit expensive.
CEO Interview: Robert Toth, Polypore (PPO)
Polypore (PPO) is taking charge with its battery business. The company makes membranes that divide the negative from the positive electrodes, and these membranes comprise 72% of its business. The old-fashioned battery business is still a cash cow with loads of recurring revenue while the high barriers to entry in the lithium space mean that Polypore is a member of a "happy oligopoly."
Polypore reported an 8 cents earnings beat with 36% growth year over year which will only grow with the increase of battery-operated cars. Its lithium ion business, if it is spun-off, could be worth $58 a share, more than Polypore's combined segments. Polypore's shares have risen 115% since August of last year and it is up 26% since Cramer recommended the stock in January. The stock trades at a multiple of 22 with a 16% growth rate.
CEO Robert Toth says all of Polypore's businesses have tremendous growth trends, with four expansions in its car battery plants and one expansion in its consumer electronics plant in Korea. None of the company's manufacturing plants were located in Japan, so the disaster had little effect on Polypore. Its water filteration business is generating steady cash, especially with increasing concerns about the environment. While debt has been an issue, it is now at a "manageable and appropriate level."
Cramer said of Polypore, "This story is the most explosive industrial story on Earth right now."
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