Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday March 29.
"The banks have become the tobacco stocks of this era," said Cramer. This hated group is treated like Public Enemy Number One and keeps getting hammered with endless investigations, lawsuits and negative press. However, according to the technicals, there might be a light at the end of the tunnel, and not the light of an approaching locomotive. Cramer thinks the turn in banks will happen in slow motion, but when the turn comes, it is going to be big.
JP Morgan (JPM) is a bank with the best management and has recently reinstated its dividend at 2.2%. The weekly chart shows JPM's repeated failure to break through its ceiling of $48.10. While the stock's attempts to surpass this level have been frustrated, once it breaks through, it is likely to soar higher. The monthly chart shows JPM's reverse head and shoulders pattern, but when the stock goes out of this pattern, it could rise 36 points to $89, a near double, but the rise might take a couple of years.
The fundamentals support an end to the worst of the banks' woes, and Cramer thinks the banks will reach a similar deal the tobacco companies made with the government to accept a certain amount of pain to stop the lawsuits. However, such an agreement will put an end to the litigation and the devastating headlines, and when that happens, the group is poised to break out.
Cramer took a call about Bank of America (BAC) and Wells Fargo (WFC). He said BAC is "maybe the worst-acting stock I have ever seen." Wells Fargo hasn't been so hot, but since BAC is in the "ultimate House of Pain," it should see a more dramatic rise. The stock is broken, but not the bank, and when BAC is ready to issue a dividend, the stock should rally.
Nike (NKE) created worry about retail with its disappointing earnings report during which management cited rising raw costs as the main obstacle to its success. However, Phillips Van-Heusen (PVH) faced the same headwinds, and took decisive action to take control over its own destiny by using alternate fabrics, finding cheaper labor sources and raising prices on its most sought-after brands. Nike instead decided to sit back and let the crisis pass, but it didn't, and while Nike raised prices on a few items, the changes were too little and too late. PVH has proved that an apparel company "with the brains and the brands" can withstand a tough environment, and while Nike has the brands, they were not aggressive enough in their strategy for dealing with raw costs problems. Cramer congratulated PVH for its successful quarter and the 5 point uptick in its stock following its earnings report.
Chipotle Mexican Grill (CMG), McDonald's (MCD), OpenTable (OPEN), Netflix (NFLX), Lululemon (LULU), Amazon (AMZN), Google (GOOG), Apple (AAPL), American Eagle (AEO), Gerdau S.A. (GGB), Banco Bradesco (BBD)
Why are stocks powering higher when the news seems to be so bad? Housing is "ridiculously horrible," a consumer confidence survey may indicate hard times for discretionary stocks and QE2 is reaching its final stages. Yet, with the Dow up 81 points on Tuesday, investors are buying stocks hand over fist. What is driving the market are aggressive growth stocks like Chipotle Mexican Grill (CMG), which was up 8 points on Tuesday. With rising raw costs, increasing consumer caution and higher prices at the pump, why would someone want to pay more for a burrito? Why would anyone want to pay 39 times earnings for a restaurant stock in the current environment?
The answer: nothing can stop growth stocks in a genuine bull market. Chipotle rose even in the face of downgrades. People who buy Chipotle don't care about burritos, they care about earnings momentum. It would seem more logical to own McDonald's (MCD) as protection where macro trends seem unfavorable, but Cramer says investors need to appreciate the fact that fund managers will pay anything for a stock with pristine growth and earnings momentum. Once that momentum ceases, the same managers will drop Chipotle like a hot burrito. Phillips Van-Heusen's story is similar; The Street expected it to go the way of Nike and to get taken down on high raw costs. Instead, PVH reported a fantastic quarter. Other high octane growth stocks include: Lululemon (LULU), OpenTable (OPEN) and Netflix (NFLX). Even as their valuations seem "insane," money managers are willing to catch a grenade for growth.
Cramer tooks some calls:
Amazon (AMZN) seems to have beaten Google (GOOG) and Apple (AAPL) to cloud computing. Cramer said people were asking if he was bearish yet on Apple. His response is that while Amazon (AMZN) managed to grab a good headline recently, he has been behind Apple for six years and doesn't see a reason to change his position.
American Eagle Outfitters (AEO) is not a stock Cramer would buy because he will not play the teenage apparel game. "I don't understand teenagers as it is," so why should he buy a teenage apparel stock?
CEO Interview: John Pinkerton, Range Resources (RRC)
With Range Resources (RRC) close to its 52-week high with natural gas selling at low prices, will America finally start adopting the fuel. Cramer is not optimistic about natural gas's prospects in the U.S., but particularly in the wake of the disaster with nuclear energy in Japan, foreign investors are increasingly buying U.S. natural gas assets. Range Resources has called itself "the inventor of the Marcellus shale," and has even sold its assets in the Barnett shale to buy more in Marcellus. John Pinkerton said he acquired these Marcellus assets at a very low price and is a low cost producer, spending as little as a dollar per thousand cubic feet. Range Resources expects to increase production by 25% in the next year, and the stock is up 33% since Cramer got behind it in November, with the S&P 500 up only 10% for the same period.
While many natural gas companies like to talk about their business in terms of acres, "earnings is how you are going to make money, not acres...the low cost guys are going to win. We think it is important to grow but to grow at a low cost," said Pinkerton. Range Resources is the second largest natural gas company in the U.S. and had the advantage of getting into the Marcellus early now that major companies are buying up assets there; "We've got the premiere land position."
The irony is that while the U.S. has abundant natural gas, it is not a popular fuel in Washington. Pinkerton thinks this is because "we have no real energy policy," and the energy ideas the government does have are severely flawed. He pointed out that the U.S. burns as much corn for ethanol as is produced in Mexico, the world's fifth largest corn producer. "That is pure silliness." While there are environmental concerns about natural gas fracking, Pinkerton thinks these worries are unfounded and the public needs to be educated that natural gas drilling is safe and clean.
"This is one of the best performers in the group," said Cramer. "They are the best drillers. This is just a terrific stock."
Jim Cramer was up 31% in 2009. Click here now to sign up for Jim's Action Alerts PLUS and trade alongside him. Special discount for Seeking Alpha users.
Get Cramer's Picks by email - it's free and takes only a few seconds to sign up.