Cramer's Mad Money - Let Cisco Rally (4/6/11)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday April 6.

Let Cisco (NASDAQ:CSCO) Rally

Cisco (CSCO) was up huge at long last, but Cramer is still skeptical. CEO John Chambers is behaving more like a stock trader than a CEO; he has repurchased $70 billion worth of shares in the last ten years, and the stock is down 10% during the same period. Not only is Chambers not a good stock trader, he hasn't been successful as a CEO. Cisco's $34 billion worth of acquisitions in the low-margin consumer sector has brought the amount Chambers has spent, combined with the $70 billion in buybacks, over the $100 billion mark, which is what Cisco is worth. Chambers has declared he will offer a dividend, but at a paltry 1.2%, not nearly enough to make it worth buying the stock.

"Let Cisco rally," said Cramer, but unless the company undergoes a sea change, investors will regret not selling Cisco into its rally.

Euro Trust ETF (NYSEARCA:FXE), SPDR Gold Trust ETF (NYSEARCA:GLD), Goldcorp (NYSE:GG), Cerner (NASDAQ:CERN), MedcoHealth (NYSE:MHS), Allscripts (NASDAQ:MDRX), JP Morgan (NYSE:JPM), Westport (NASDAQ:WPRT), Hershey (NYSE:HSY), iShares Dow Jones US Healthcare Providers ETF (NYSEARCA:IHF)

How could news of a government shut-down bring up stocks? While Cramer conceded the paralysis of the U.S. government makes us look like a "Mickey Mouse country," to the rest of the world, Wall Street works best when the government isn't hampering business with regulations. While these difficulties are not good for the dollar, which Cramer would hedge against with Euro Trust ETF (FXE), SPDR Gold Trust (GLD), or Goldcorp (GG), a weak dollar doesn't necessarily affect stocks negatively.

During the government shut-down in 1996 during the Clinton Administration, stocks were up to record levels. It is no secret that even talks about government regulations can send stocks down. Healthcare stocks, particularly HMOs were hit hard during the discussion of Obamacare, but in the seven months since the proposed reforms have been a distant memory, iShares Dow Jones US Healthcare Providers ETF (IHF) is up 36%, and healthcare cost containment plays Cerner (CERN), MedcoHealth (MHS), and Allscripts (MDRX) have all risen, 47%, 23% and 28% respectively.

A government hiatus will be a chance for banks to take a breather. While banking reform has been necessary, the restriction on derivatives has been, "witless, uninformed, has shown a lack of sophistication and is downright idiotic," said Cramer. Sloppy lending and bad mortgages caused the credit crisis, not currency and interest rate swaps. Cramer quoted Jamie Dimon, CEO of JPMorgan (JPM); "If I can't offer you a foreign exchange swap or a credit derivative at a price you like, you will do it elsewhere... and that place could be Singapore." U.S banks are in such poor shape and Chinese banks are so strong that the Chinese might challenge the U.S.'s dominance in finance and hire our best bankers away.

While some government regulation can be friendly to business, especially if Congress passes a bill to require trucks to run on natural gas, in the words of Mark Twain, "No man's life, liberty or property is safe while the legislature is in session."

Cramer took a few calls:

Hershey (HSY) is still not done going up even after a 30% gain for the year. The company is well-managed and has been able to absorb rising raw costs by raising prices on its popular products. Cramer thinks the stock may reach $60.

Westport Innovations (WPRT): Cramer likes the company, but he would take some off the table, since the stock has risen substantially.

CEO Interview: Mike Ward, CSX (NYSE:CSX)

Rails are definitely a great way to play high oil prices as even trucking companies are teaming up with rails to keep their costs down. A train can haul a ton of freight for 500 miles on only one gallon and is four times more energy efficient than an average truck. Rails are benefiting from the world demand for coal, and are also gaining strength from recovery in metals, chemicals and agriculture. CSX (CSX) has its "finger on the pulse of America," with a multiple of 13 with a 16% growth rate and a 60% gain since Cramer got behind the stock in November 2010 and 25% since February.

Mike Ward discussed the company's improving operating margins and its "pipeline of productivity improvement." With China building a new coal plant every week and India expected to double its coal use, CSX sees a boom in its coal business. The company is expected to transport 35-40 million tons of coal for export in 2011 compared to just 22 million tons in 2009. CSX is spending an additional $2 billion on new cars, repairing rails and getting ready for the "rail renaissance."

"It may be just the beginning for CSX," said Cramer.


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