Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday June 30.
Cheap stocks can be value traps if the fundamentals of their companies are broken. Cramer discussed two stocks that will not be lifted by the mobile internet tsunami: Nokia (NOK) and Research In Motion (RIMM). Cramer told viewers to sell RIM a year ago, and since then, it has dropped 46%. Nokia has fallen 52% since Cramer suggested getting rid of it in 2009.
RIM has given endless indications that trends have been weak and it is a loser in the smartphone war. It cut its first quarter guidance on slow BlackBerry shipments and weak prices. The company maintained its earnings outlook, because it thought things would get better in the second quarter. Many analysts believed them until June 16 when the company cut its full year forecast, and only then analysts downgraded the stock. By then, however, the stock had already dropped 20%. There are some analysts who still think RIM is a value play, and Cramer wonders how bad RIM has to be before these analysts will face reality.
Nokia has a similar story. Analysts clung to their bullish calls on Nokia because of its partnership with Microsoft (MSFT) and its cheap valuation, but they didn't realize the deal with Microsoft was out of pure desperation. Nokia's market share had fallen year over year from 40% to 20%, and yet some analysts refused to abandon the stock. When the company lowered expectations for the second quarter, Nokia was finally hit with downgrades. Cramer urged viewers to learn from the lessons of Nokia and RIM: a stock that is cheap is not necessarily a value play, but it could go even lower.
CEO Interview: Bob Hugin, Celgene (NASDAQ:CELG)
Healthcare seems to be potentially a strong sector with the aging of the baby boomers, but big pharma companies are threatened with generic versions of their drugs, and "one drug wonder" small cap pharmas are lottery tickets on FDA approval. One strong stock in the sector is Celgene, which has an exceptional 40% growth rate and a stellar blood cancer drug, Revlimid, which is expected to generate $4 billion. The company is expanding internationally, especially into Japan and China. Celgene has been the second best S&P 500 stock over the past 15 years.
When asked why his company performs better than other pharma names, Bob Hugin gave credit to the company's focused investments into research and development and creating meaningful treatments that are worth their price tags and save lives. Celgene currently has 25 drugs in Phase III trials, and expects to be a major international oncology company. Hugin said the company does not need to spend money on acquisitions, given its strong research and development investments, and is going to use its extra cash to buy back stock. The company is moving into stem cell research with six different drugs in Phase II trials.
"I'm excited because of their record," Cramer said, "and I like Bob Hugin."
Kraft (KFT), Green Mountain Coffee Roasters (NASDAQ:GMCR), Gap (NYSE:GPS), Oshkosh (NYSE:OSK), Boeing (NYSE:BA), Target (NYSE:TGT), Whole Foods (NASDAQ:WFM), Wynn Resorts (NASDAQ:WYNN), Las Vegas Sands (NYSE:LVS), Costco (NASDAQ:COST), Wal-Mart (NYSE:WMT), Family Dollar (NYSE:FDO)
The Street tends to get excited when companies introduce new products, but how do investors know if these innovations will move the needle for the stocks? Kraft (KFT) introduced a new drink product called the MiO, which many people think will dramatically increase earnings. However, Cramer disagrees. He discussed other companies with potentially exciting announcements: Gap (GPS) is opening its first stores in Egypt and Morocco, Oshkosh (OSK) and Boeing (BA) have deals with U.S. government defense agencies, but these deals will not necessarily affect stock prices.
Kraft's MiO may be innovative, but Kraft is the second largest packaged food company in the world and needs to innovate to survive. The company is so large that MiO will probably not move the needle in the stock, according to Cramer. However, Green Mountain Coffee Roasters (GMCR) whose Keurig has generated the lion's share of its sales, was transformed by the introduction of this product. Wynn Resorts (WYNN) and Las Vegas Sands (LVS) had similar stories when they moved into Macau, which is a bigger market for them now than Las Vegas.
The rule of thumb of when a product or a strategy will move the needle in a stock: if the company is very large, it is unlikely a new product will affect its stock price significantly. However, if a company is small or if a product is huge, the stock will likely rise.
Cramer took some calls:
Target (TGT) is caught in the crossfire between Costco (COST) and Family Dollar (FDO) and is getting competition from Wal-Mart (WMT). Cramer thinks Target will eventually find its way, but right now, it doesn't have direction.
Whole Foods (WFM) is poised to shoot higher, but has been paused recently. Cramer thinks WFM is resting, and he would use the decline as a buying opportunity.
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