Cramer's Mad Money - The Year of Trading Obviously (3/31/11)

by: Miriam Metzinger

Stocks discussed on the in-depth session of JIm Cramer's Mad Money TV Program, Thursday March 31.

The Year of Trading Obviously: Deere (NYSE:DE), Caterpillar (NYSE:CAT) Weyerhaeuser (NYSE:WY), Manitowoc (NYSE:MTW), BHP Billiton (NYSE:BHP), Freeport McMoRan (NYSE:FCX), Companhia Vale (NYSE:VALE), Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL), Weatherford International (NYSE:WFT), Cummins (NYSE:CMI), Northrop Grumman (NYSE:NOC), Google (NASDAQ:GOOG), Teva Pharmaceuticals (NASDAQ:TEVA), Express Scripts (NASDAQ:ESRX)

Even as the Dow dropped 31 points on Thursday, the day marked the end of the best quarter for the Dow and the S&P 500 since 1998. What has driven the recent bull market is the "power of the obvious," since the trends that are working the best are the easiest to understand.

Deere (DE) is a buy on rising food prices, demand for construction in emerging market economies and following the disaster in Japan will drive Caterpillar (CAT), Weyerhaeuser (WY), Manitowoc (MTW) and Cummins (CMI) higher. As the world searches for more minerals, BHP Billiton (BHP), Freeport McMoRan (FCX), Companhia Vale (VALE) will see higher profits. Crude prices rising 16% has been good news for Schlumberger (SLB), Halliburton (HAL) and Weatherford International (WFT).

There is no reason to think these trends will cease, and Cramer thinks 2011 will continue to be "the year of trading obviously."

Cramer took a few calls:

Northrop Grumman (NOC) is not levered to the macro trends that are working, but is levered to a defense budget that is going to be cut. Cramer would not buy NOC because there is no catalyst.

Google (GOOG) is ridiculously cheap and has been kept down by China.

While Cramer tried to play the trend on generic drugs, since 2011 will see a large number of drugs lose their patent-protected status, Teva Pharmaceuticals (TEVA) "was doing everything right and no one cared." He would buy Express Scripts (ESRX) instead, since the company benefits from drugs going generic, but does not suffer from the low profit margins generic drug companies face.

Coca Cola (NYSE:KO), Wendy's (NYSE:WEN), B&G Foods (NYSE:BGS), McDonald's (NYSE:MCD), Chipotle Mexican Grill (NYSE:CMG), Soda Stream (NASDAQ:SODA), Pepsi (NYSE:PEP), Green Mountain Coffee Roasters (NASDAQ:GMCR)

With demand roaring for commodities and industrial stocks moving higher, why buy a defensive stock like Coca Cola (KO)? While the bullish trends seem to have staying power, it is helpful to have at least one "reserve defensive" name in every portfolio. Two reasons to buy Coke are that its great story has gotten even better and because it has declined lately. Since it is a best-of-breed play, the stock usually trades at 15-20% premium to its competitors, but now it is trading in-line. Historically, Coke has had a multiple around 19, but now it trades at 15. With the company growing aggressively worldwide and taking market share, the stock seems undervalued. A full 75% of Coke's sales are from overseas and the company spends a significant amount on marketing its product abroad to ensure it remains in the top spot. Diet Coke just inched out Pepsi (PEP) for the number two position as the most popular beverage (regular Coke is number one).

Coke recently acquired its bottler, which means that now 80% of the company's operations are controlled by Coke. This kind of control enables the company to keep costs down and to be flexible in making changes in production. While Japan comprises a large part of the company's revenues, it may be possible that the Japanese will stockpile Asani water in the wake of the disaster. Cramer thinks the stock is a buy at its current level but would buy more if the company drops to the low $60 range following its earnings.

Cramer took some calls:

Soda Stream (SODA) is a product and a stock Cramer says he loves, but he warned it is a wild trader and he is glad he got in early and took profits. He would bless it as a speculative play because he feels the device has a "Keurig feel" to it and believes SODA could be the next Green Mountain Coffee (GMCR).

B&G (BGS) could go higher and has been a "huge winner." Cramer likes the yield.

Wendy's (WEN) is not a stock Cramer feels he has had much luck with and refrained from commenting on it. He prefers McDonald's (MCD), and at the high end, Chipotle Mexican Grill (CMG).

Marriott International (NYSE:MAR), Starwood Hotels (HOT)

Not all hotel stocks are created equal, but sometimes they can trade as if they are the same. When Marriott (MAR) reported revenue per available room would increase only 7%, the low end of their guidance, the stock declined 6% and took Starwood Hotels (HOT) down with it. Starwood was unfairly punished because it is a completely different company than Marriott. It is known for its high quality, differentiated brands, while Marriott is more generic.

Only 30% of Marriott's revenues are from overseas, while the percentage is 50% for Starwood, which has a pipeline that is 80% from overseas, 60% in Asia. Starwood is smaller than Marriott, with just 1,000 hotels worldwide and plenty of room to grow, and the company has transitioned from an owner of hotels to a manager of hotels; the latter is a much higher margin business than owning hotels. Customer loyalty is a major factor in Starwood's success with a large number of its guests participating in the Preferred Guest Program. The company recently reported a 13 cent earnings beat and is seeing double digit growth.


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