Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday June 6.
It is hard to know whether the Groupon (GRPN) IPO is going to be well-priced or overvalued, but that doesn't matter; Cramer would buy Groupon for a quick trade regardless, as long as investors are careful not to hold on to it for too long. For those who can't wait for Groupon, Cramer would buy Expedia (EXPE), which has a deal with Groupon for discount travel services. This deal is a great marketing opportunity for both companies, and the news is not baked into the stock. Travelzoo (TZOO) had a similar deal with Groupon for local discounts and saw its stock price rise 50% since the deal began when Travelzoo's CEO appeared on Mad Money.
Expedia is also a buy on the value of its Trip Advisor review site which would be more valuable if it were spun off into a separate company. Trip Advisor is growing revenues at 20% but with a multiple of 13. Cramer thinks Expedia is worth buying for its deal with Groupon, but he is bullish on Expedia for its Trip Advisor segment alone.
CEO Interview: Michael Gross, Solar Capital (NASDAQ:SLRC). Other stocks mentioned: NXP Semiconductors (NASDAQ:NXPI)
Solar Capital (SLRC) is a specialty lender with a generous 9.7% dividend. The company provides loans to private middle market businesses that often can't receive loans from regular banks. The high interest allows Solar Capital to pay its large yield. Solar offers more flexible terms than conventional banks. In spite of the apparent risks involved, CEO Michael Gross says its default rate is very low and the company's performance rate is 100%. Solar's secret to success is its deep and detailed underwriting process which can take 6 weeks to 6 months. With the lack of liquidity in the market, Solar Capital is not seeing significant competition. The company was involved with NXP Semiconductors' (NXPI) IPO last year and expects other IPOs in the future. SLRC's dividend is secure because the company is quite unlevered and has not borrowed significant amounts. Michael Gross discussed the company's level of repayment risk, which is relatively low.
Who Is Right About Heinz (HNZ)? Other stocks mentioned: McDonald's (NYSE:MCD), Yum Brands (NYSE:YUM), Darden (NYSE:DRI)
Goldman Sachs recently downgraded Heinz (HNZ) and UBS upgraded the stock. Who is right? The analysts with opposing opinions sounded like they were discussing two different companies. According to Goldman Sachs, Heinz is a fading company with stale brands, and the company would be doing worse if it didn't need to slash prices. Goldman Sachs sees no innovation or conviction and not enough investment in reviving the company. Even if there is hope in emerging markets, 85% of sales are in developed markets, and in the U.S and Europe, private label brands are taking market share from Heinz.
UBS told a story of a company with huge potential in emerging markets where it expects to grow its sales from 21% to 30% in the next few years. The company is poised to grow earnings at 9%, above the 7% The Street has forecasted. Heinz raised its revenue estimates from 4.5% to 7% and is trading at a multiple of 15, which is a lower rate than that of competitors. The company has strategic partnerships with McDonald's (MCD) and Yum Brands (YUM), which will increase Heinz's emerging markets exposure.
Cramer related an anecdote from when he began his hedge fund. Heinz was one of his first holdings as a fund manager, because he didn't think foreign competition could trump the Heinz brand. However, at that time, the market was turning around and the stock dropped 10%. Cramer realized Heinz is not necessarily a stock for all seasons, but also relies on economic cycles.
Cramer thinks UBS's analysis is more accurate than Goldman's but he cautioned that the macro picture might matter more right now than fundamentals. Those who believe the economy is improving should sell Heinz, and those preparing for a double-dip recession should buy.
Cramer took some calls:
Darden (DRI) is not a buy on its potential stock split, but on its fundamentals. If gas prices rise, however, Darden may suffer and may get stuck at the $47 level or drop to $45. Even in that scenario, Cramer still likes the stock.
Is the Worst Over?
There are some on The Street who believe that because the market has been down for five straight weeks, it is due for a rally. However, Cramer doesn't think this is necessarily so. What if this market is like a losing team that will keep on losing? Cramer cautioned he was being realistic; "I have been a bull for the last 6,000 points (in the Dow) and maybe for the last 600, I have overstayed my welcome." Maybe a drop in stocks is needed so the market can heal. "Don't start betting now."
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