Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday June 8.
2 Big Data Stocks: EMC (EMC), NetApp (NTAP). Other stocks mentioned: Ciena (CIEN), VMWare (VMW), Eaton (ETN), Activision Blizzard (ATVI), Intel (INTC)
The recent sell-off has been bad for most stocks, but few sectors have been hit as hard as tech. The sector is usually weak in the summer, but tech stocks have sold off harder than is usual for this time of year. Ciena's (CIEN) disappointing quarter didn't help; the stock dropped 16.2% and took other tech names along with it.
Is it still worth investing in tech? While Cramer isn't pushing the sector as a whole, he would take a look at the Big Data story, the explosion in digital volume growth. The amount of digital information produced worldwide doubles every 18 months, and all this data needs to be processed, stored and analyzed. EMC (EMC) has transformed itself from a high-end storage name to a play on data centers and cloud computing. Cramer's charitable trust swapped out of VMWare (VMW), of which EMC owns 80%, to EMC, because the latter is a lower-risk play on the same trends. EMC recently bought Isilon, a company specializing in scale-out network attached storage, an industry that is expected to grow 35% in the next year. EMC trades at a multiple of 15 with a 13% growth rate. Earnings per share is in the upper teens and it is a best-of-breed play.
For those who like the Big Data story, but think EMC is too conservative, there is NetApp (NTAP) which is a dominant player in network attached storage. The company beat earnings by 6 cents and reported a 30% increase in revenue. The stock rose after the quarter, but has been since knocked down along with the rest of the sector. NTAP is making smart acquisitions and is taking market share, but Cramer cautioned, "in this kind of market, who knows where this stock can go."
Cramer took some calls:
Eaton (ETN) is delivering but is down because the economy is slowing down and gas prices are high. Cramer says he wants to buy Eaton but thinks it could go lower first. "I won't pound the table, but it is a great company and a great situation."
Intel (INTC) seems like a value play, but people don't buy tech for value or dividend. The company's McAfee acquisition has been unpopular on The Street. Cramer thinks Intel's stock is stuck in the mud, but it is a good company.
Activision Blizzard (ATVI) is in a sector that is in flux. Cramer doesn't see any upside for the stock.
Cramer has long backed natural gas, and it looks possible that Congress might pass a Natural Gas Act. If this happens, a main beneficiary will be Westport Innovations (WPRT) which transform diesel engines to those that run on natural gas. WPRT is the first mover in an area that has high barriers to entry because it employs complex technology. The company has contracts with major companies like Cummins (CMI), but its earnings were disappointing; the company reported a 14 cent loss in earnings when The Street expected a 3 cent gain, and revenue was up only 10%. The stock fell 15.5%, although the stock has seen a 73% gain since January 2010 and a 30% rise since the CEO appeared on the show in February.
While CEO David Demers acknowledged the company has seen a rough patch. He said; "We have a bright year coming," with an expected 30% growth. One problem was the delay in tax credits companies were expecting from the government; many clients decided to delay deals, but Demers says they will eventually come to fruition. The company has a backlog of 500 trucks and is moving into lighter vehicles. "We are seeing interest in Detroit," said Demers, where WPRT is providing "complete system solutions" for auto companies.
"They are building for the future," said Cramer. "Once they get approval from Washington (Natural Gas Act)...Boom!...but they don't have approval yet."
Cramer has discussed the investing theme of the battle against obesity. This time, the market itself is obese and badly needs a diet. "Financials are pure flab," said Cramer, since they make up 15% of the S&P 500 and the sector is sluggish. The cellulite is tech, which comprises 17.9% of the S&P. The indexes are not benefiting from higher oil, since oil makes up only 12% of the S&P 500, which is filled with retail and discretionary stocks that suffer when prices at the pump are high. While industrials could potentially prop up the market, since they benefit from a weak dollar and overseas growth, industrial stocks comprise only 11% of the S&P 500.
The only thing that will help this obese market is a radical diet, meaning that stocks have to go down before they can recover. However, the process might feel more like amputation than a diet plan.
Cramer took some calls:
Ferrellgas Partners (FGP) is not as steady a stock as Cramer thought because he is having second thoughts about the propane sector, which is more levered to the economy and not as conservative as he once believed.
McMoRan Exploration (MMR) can be huge long-term, since it is starting to drill in the Gulf of Mexico again. It is a dice roll, but a good one, and Cramer told viewers that MMR might require years of patience, since it will take some time to get out the oil.
CEO Kelcy Warren, Energy Transfer Partners (ETP)
Energy Transfer Partners (ETP) is an energy pipeline play with a 7.9% yield, and owns the largest intrastate pipeline in Texas. It has exposure to unconventional shales and a propane business. ETP has stumbled of late, missing earnings estimates by 31 cents with weakness in every category. Can the company continue to pay its rich 7.9% dividend?
CEO Kelcy Warren said the factors that impacted the quarter were not company-driven, but had to do with price differentials, which made it harder to move fuel from one area to another. Seasonal disruption affected the company's storage, but Warren says he has never seen this happen two years in a row in his 33 years in the business. The propane business was sluggish because of seasonal and economic factors. Warren says in the next 18 months, the company will grow its natural gas transport business and has plans to start exporting the fuel in the near future. Warren commented it is unfair that ETP's stock was knocked down when the company is fit and is still able to pay its dividend.
"I agree with Warren," Cramer said. "Why is it being lumped with those other companies that are cutting their dividends? ETP is a buy. I think you should own it."
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