Cramer's Mad Money - Anatomy of a False Shortfall (7/12/11)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday July 12.

Anatomy of a False Shortfall: Alcoa (NYSE:AA)

What appeared to be a disappointing earnings report from Alcoa (AA) was not an unexpected shortfall. The company had warned that raw costs were rising, and Goldman Sachs and Citigroup lowered their estimates for the company a few weeks ago. Before the report, Cramer predicted earnings would not be above 32 cents per share, and urged Alcoa investors not to panic on lackluster earnings. The company reported earnings that were above 32 cents, but the headlines reported a disappointing quarter for Alcoa. Those who actually kept an eye on Alcoa knew that its quarter was not disappointing, but the company performed as well as had been expected.

CEO Chip Johnson, Carrizo Oil and Gas (NASDAQ:CRZO). Other stock mentioned: Marathon (NYSE:MRO)

Cramer discussed Carrizo Oil and Gas (CRZO), a domestic oil and gas exploration company that is on the way to becoming more levered to oil than gas. While the company derives 71% of its revenues from oil, it expects to raise the number to 80% by 2012. Carrizo has assets in the Eagle Ford and Marcellus shales and spends less money for these assets than companies like Marathon Oil (MRO) which recently bought some Eagle Ford assets for $3.5 billion. The company is forecasting a dramatic 63% growth in production and sells at a multiple of just 8.5. The stock has risen 62% since Cramer got behind it in March 2010 and 12% since the CEO last appeared on Mad Money in April.

Chip Johnson discussed the recent sale of $100 million worth of Barnett shale assets, which are mainly natural gas, to a hedge fund. Johnson said Carrizo is one of the most undervalued stories, with 14 analysts predicting the company will make $10.40 per share. Transportation is a challenge, but the company has access to a strong pipeline in Texas and ways to transport oil to Louisiana where it can fetch up to $7 more per barrel than in Texas. While there is hope for the adoption of natural gas with the increase of fueling stations and government disincentives for coal, Johnson said that supply of natural gas can shoot up so quickly that it will be a while before prices will rise.

CEO Interview: Andrew Littlefair, Clean Energy (NASDAQ:CLNE). Other stock mentioned Chesapeake Energy (NYSE:CHK)

Chesapeake Energy (CHK) announced that it is going to invest $1 billion into developing the technology and infrastructure for natural gas powered vehicles. Clean Energy (CLNE) is following suit by expanding its buildout of natural gas stations. CLNE was already the dominant player in developing natural gas fueling stations, and the move by Chesapeake might be a game-changer for both companies. CLNE's stock shot up 15% on Chesapeake's announcement.

Andrew Littlefair said Chesapeake's announcement along with CLNE's expansion plans might be the biggest investment in natural gas vehicle infrastructure ever. He predicts a buildout of 150 stations in the next 2 years. While natural gas engines are more expensive in diesel, the price will fall with increased production. With natural gas in 70 million homes, there are pipelines available which can be used by the new stations. Littlefair added that laying more pipelines will create thousands of jobs.

CEO Interview: Rick Hill, Novellus (NASDAQ:NVLS-OLD)

Summer is the wrong time for tech, and Cramer wouldn't invest in the sector until August. Novellus fell 11% after its disappointing guidance and the fall of capital spending by its clients. Cramer wants to know if this chipmaker's problems are just seasonal or are rooted deeper in the fundamentals.

Rick Hill acknowledged that business might be slow for the company for a while, but sees it as a soft pause rather than a longer-term bearish story. The customer will come back into the stores and will start buying smartphones and tablets again. As companies look for more innovation, Novellus expects more orders. In the meantime, the CEO is using extra cash to buy back stock. "Secular growth is not going away," Hill said, "it is a tough day today, but there are better days ahead."


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