Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV program, Tuesday April 12.
Is Apple (AAPL) Still Leading?
Apple (AAPL) is a stock that usually leads the market; where it goes, the S&P 500 often follows. When comparing the chart of Apple and the S&P 500, it is clear that Apple runs up ahead of other stocks, a pattern that distinguishes Apple as a market leader. However, lately the generals are being taken out and shot. In the past few weeks, Apple has gotten hammered until Tuesday, when Apple was up on a terrible day for the averages. Could Apple be leading the rest of the market higher?
Dan Fitzpatrick, technician at TheStreet.com, thinks Apple might well be standing on a precipice. The $350 level was a floor for the stock, but now it is a ceiling. He thinks that if Apple falls below $350, nothing will bring it back up. He also noted institutional selling; In March when Apple plummeted, it fell a full 5% in one day. Such dramatic declines are hallmarks of big money moving a stock. When Apple has risen lately, it has been on low volume, also not a good sign.
Cramer is more confident than Fitzpatrick. Apple's fundamental story is still intact. It is still the greatest retailer and manufacturer in the world, and is going to be heading higher. Cramer thinks this might be a bottom for Apple.
CEO Interview: John Richels, Devon Energy (DVN)
Oil and natural gas stocks got hammered on Tuesday, and Cramer suggested picking among the rubble for high quality names in the sector. Devon has significant production growth and is generating a lot of cash. Since natural gas prices are low, Devon is becoming more "oily" and is reducing its ratio of natural gas to oil. Currently, 68% of revenues come from natural gas, but by 2012, this percentage should be reduced to 60%. The company sold off most of its international assets for $10 billion to increase its domestic business. The company forecast overall production growth of 68% for 2011, and reported a "thing of beauty" quarter in February with a 16 cent earnings beat. The stock is up 200% in the last decade and has risen 34% since Cramer got behind the stock in October.
When asked how he foresaw the boom in domestic oil production, John Richels discussed the revolutionary change in the industry with horizontal drilling techniques Devon developed in the Barnett shale. "This opened up a resource on the gas side that is nothing short of remarkable." With the new technology, investment in North America, rather than overseas, seemed better on a risk adjustment basis. Devon has been buying back shares but has also put in place robust exploration and production programs. The company has signed an agreement with Brazilian producers that should be worth $3.2 billion.
Devon managed to sell significant assets in the Gulf of Mexico shortly before the disastrous oil spill; "the timing worked out well," said Richels. The CEO decried the misinformation about the environmental risks of natural gas, which are actually minimal. When asked about where natural gas prices are going, Richels responded that given the copious supply of natural gas, prices are unlikely to rise significantly in the near-term, but "there is no question that natural gas is the fuel of the future, because it makes sense."
Cramer calls Devon "one of the best stocks we have ever recommended and now it is coming down...now there is an opportunity to buy it."
Chipotle Mexican Grill (CMG), Netflix (NFLX), Panera Bread (PNRA), Procter & Gamble (PG), Philips Van Heusen (PVH), F-5 Networks (FFIV), Amazon (AMZN), Deckers (DECK), Perrigo (PRGO), McDonald's (MCD), Abbott Labs (ABT), Merck (MRK), Pfizer (PFE), Darden Restaurants (DRI), Alcoa (AA), Expedia (EXPE)
Why did the Dow take a 118 point nosedive? The money managers think it is the economic slowdown of 2008 all over again and are selling furiously. Last week, Cramer urged caution, but with the current sell-off, he would be willing to take some risk, because the current market is not a replay of 2008. The paranoia was only flamed by Alcoa's (AA) allegedly disappointing quarter, which Cramer thinks was not so hot, but did not spell the end of the world. Big Money is now pulling its money out of oil and industrials and into safety stocks and companies like Chipotle Mexican Grill (CMG), Netflix (NFLX), Panera Bread (PNRA), Procter & Gamble (PG) and Philips Van Heusen (PVH), that grow regardless of the economic environment.
Cramer thinks the assumption that the 2008 downturn is seeing a sequel is unfounded. In 2008, oil kept rising on speculation to $147, a far cry from its current $113 high, buoyed by crises in the Middle East. The problem with oil in 2008 was demand destruction, not civil unrest. Retail numbers have been strong and consumer confidence is still robust. China seems to be at the end of its interest rate hikes, and Japan will need materials to rebuild. Cramer thinks investors can begin to pick at industrial stocks and thinks oil might be a buy before long. He would keep an eye on F-5 Networks (FFIV), Amazon (AMZN), Deckers (DECK), Perrigo (PRGO), McDonald's (MCD), Abbott Labs (ABT), Merck (MRK), Pfizer (PFE) and Darden Restaurants (DRI).
Cramer took a call:
Expedia (EXPE) is an example of the kind of stock people think would do worse in an economic slowdown, but might perform better, since consumers may still want to travel but are looking for the best deals. However, he doesn't think Expedia is a wealth generator and "there is not enough there to move the chairs."
CEO Interview: Mike Sutherland, Joy Global (JOYG)
Even though Joy Global's (JOYG) stock has been "wrecked" by the sell-off, its story is still intact. This producer of equipment for mining coal, iron ore and minerals is a great long-term play on growth in Asia. A full 68% of its revenues are from the coal sector, and Chinese demand should continue to grow as a new coal mining plant is opened in the country every week. JOYG customers have increased their capital expenditures by an average of 30%. The stock is up 430% since March 2009, and has risen 41% since Cramer recommended it in September. With a 10 point pullback, it may be time to buy Joy Global.
CEO Mike Sutherland sees a multi-decade growth cycle for commodities, especially from emerging markets. The company has an operating capacity of 95%. Joy Global has a significant backlog even as it has improved time efficiency for its projects. Growth in China and India creates much of JOYG's revenues, and the company has little competition in these countries.
"The stock is down 10 points," said Cramer. "This is when you pounce."
Taking OpenTable (OPEN) off the Table?
"When a stock shifts in price, I shift my opinion," said Cramer, answering critics for allegedly switching his bullish call on OpenTable (OPEN). He explained that his suggestion to take some shares of a good company off the table when it has had a run is not an indication that the company is flawed; it is simply a good idea to take profits when "great stocks exceed their speed limits." However, those who do not look closely at the story claim Cramer has "flip-flopped" on OpenTable. However, a different price on stock means it is a different situation. "My method has worked for 30 years...so if this is flip-flopping, I plead guilty. Staying the course when you don't believe in it subverts every principle in my financial life, and I'm not going to do it."
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