Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday May 16.
BJ's Restaurants (BJRI), Sysco Corporation (SYY), Buffalo Wild Wings (BWLD), Texas Roadhouse (TXRH), Sonic (SONC), Archer Daniels Midland (ADM), United Natural Foods (UNFI), Whole Foods (WFMI), Hain Celestial (HAIN), Jack in the Box (JACK)
When commodity prices were rising and oil was over $100, restaurant stocks were on death row. However, their sentence has now been commuted with the decline in commodities and oil and they seem to be "ready to roar." Even before the decline in raw costs, there was good news from the sector. Sysco (SYY), a supplier to restaurants reported a strong quarter which lifted the stock 11%.
Cramer initiated the week-long series on restaurants, the "Mad Money Zagat Guide," with his discussion of regional to national growth stories. His two "five star" picks are BJ's Restaurants (BJRI) and Buffalo Wild Wings (BWLD). He prefers the former over the latter because BJ's has more opportunity to grow.
1. BJ's Restaurants is a California-based pizza and beer chain with just 100 locations in 13 states. The company plans to triple or quadruple the business to 300 to 400 locations. BJRI is opening 15 more stores this year, a 14% increase in its expansion rate. The company is taking market share and managing costs. While the multiple seems rich at 38, BJRI is one of the few restaurant stocks with a growth rate over 20%; BJRI is growing at a 22% clip. Analysts have yet to hop on the wagon, with 10 "holds" and just 5 "buys." BJRI looked expensive last spring when Cramer recommended it, but the stock has caught a 92% gain since then.
Buffalo Wild Wings is Cramer's "runner-up" five star regional to national growth pick. It is second to BJRI only because it has many more locations: 700 in 45 states. However, the company can expand dramatically and is only just getting started on college campuses. Even though BWLD attracts a sports-centric crowd, there are very few locations on the East Coast. The company reported a 3.3% rise in same store sales and its franchise growth is accelerating. BWLD sells at a 19.8 multiple with a 21% growth rate.
Cramer discussed three other regional to national growth stories that didn't make the top ranking:
Texas Roadhouse (TXRH) could double its store count, but the quarter fell short of expectations.
Sonic (SONC) is a decent chain, but it missed its new franchise opening goals.
Jack in the Box (JACK) has gotten too big and it will be hard for them to grow fast enough.
Cramer took some calls:
Archer Daniel Midland (ADM) is a play on ethanol and as long as the alternative fuel is in glut, ADM will suffer. Cramer will sell, sell, sell.
Whole Foods reported a strong quarter but it reported it at a time of great turmoil. Cramer would wait a few days before buying the stock.
Good Riddance to the Great Seducer
S&P Futures fell on the scandal involving IMF Managing Director Dominique Strauss-Kahn's alleged assault on a hotel maid. Cramer thinks Strauss-Kahn was not only a moral failure, but botched the job in Europe, where there is continuing weakness and where problems are not being solved. Cramer looks forward to John Lipsky taking the helm at the IMF. Lipsky is cut from the same cloth as former IMF Deputy Managing Director Stanley Fischer who brought tough love and stability in the Asian markets when they were threatened with destruction in the 90s. Fischer took these indebted and overheated economies and put them on track to the expansion in Asia we are seeing today. Lipsky, like Fischer, is a behind the scenes man, someone who is just doing his job, and provides a welcome change from the "blowhard" Strauss-Kahn. Cramer welcomed Lipsky and said, "Good riddance to the Great Seducer."
Never do a quick trade based on post-earnings headlines. Cisco (CSCO) is a prime example; the headlines screamed that Cisco had a better than expected quarter and the stock soared, until the conference call revealed that the company lowered guidance, and shares subsequently fell. Lowe's (LOW) had the opposite story and reported what seemed to be a downside surprise. The stock fell 5% in premarket trading, but those who listened to the conference call and did their homework realized that nothing was surprising about Lowe's report and there was also good news.
Lowe's missed earnings by 2 cents and revenues fell 1.6%. However, it was one of the "worst kept secrets on The Street" that Lowe's would report a lackluster quarter. Expectations were very low and the company was downgraded a week before its earnings report. The company's earnings suffered because of inclement weather, rough comparisons, a housing market in the doldrums and skyrocketing oil prices. However the aspects of the business Lowe's management had some control over were strong; gross margins expanded 20 basis points, operating expenses decline 48 basis points, inventory was down 2.4% and the company bought back $1.2 billion worth of stock. Management proved that it could deliver, and Lowe's decline was a buying opportunity, especially since it made a forecast of a 2% rise in same store sales. Of course, Home Depot (HD) reported a stronger quarter than Lowe's did, but HD is in its third year of recovery while the turnaround at Lowe's is in its early innings.
JC Penney (JCP) was another example of a stock that deserved a closer look before trading on it. JCP seemed to have reported an upside surprise, but it gave up most of its gains when it became clear that inventory had grown faster than sales. Expectations for JCP were elevated and the stock had already seen a monster run. Those who did their homework stayed away from JCP.
While the averages fell on Monday, Cramer thinks stocks will reverse, especially restaurants, retail, autos and materials, because of the decline in oil. Prices for oil were artificially kept up as hedge fund managers bought on margin, but now that margin requirements have increased, these margin buyers are being forced to sell, and stocks are declining. However, the decline in oil prices is ultimately good for stocks, even drillers like Schlumberger (SLB) and Halliburton (HAL) which should see a turn around if there is an increase in domestic drilling, as indicated by President Obama. The important thing to consider before buying or selling stocks is where they are headed, not where they have been or where they are. Cramer sees an upward trend, thanks to lower prices at the pump.
A viewer asked Cramer about worries over issues of debt limit and the end of QE2. While there are jitters, Cramer doesn't think Fed Chairman Ben Bernanke will let the economy fall and believes the debt issues will be resolved; "...but we are in no man's land and it is really hurting stocks."
Kraft (KFT) is forecasting the drop in commodity costs. Cramer thinks the stock might have 1 or 2 points of upside, but it has had a monster run "and these stocks don't continue having monster runs, because there is not much growth."
Hess (HES) is a great play on natural gas in Europe.
Banco Bradesco (BBD) is the stock to buy on growth in Brazil. The stock is 20% off its high.
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