Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday July 19.
With fantastic earnings from IBM (IBM), VMWare (VMW) and Apple (AAPL), does Cramer regret his bearishness on tech, and is it time to buy the sector? Cramer explained that, in the last ten years, tech stocks have consistently underperformed the S&P 500 from June until September. A few strong tech earnings reports in the past few days can't fight against the general trend that summer is not the time to buy tech. The sector starts to decline in January, after the holiday season, and doesn't recover until after the Back to School rush is over and inventories are cleared out. Another reason tech is slow in the summer is that Europe basically goes on vacation and stops buying, and with the European economy in the doldrums, lackluster performance on the continent is even more pronounced. Cramer would wait until September to buy tech.
CEO Interview: Greg Boyce, Peabody Energy (NYSE:BTU)
Coal may be the dirtiest fuel, but it is also the fastest growing energy source on Earth. While coal is hated by environmentalists, it is among the cheapest sources of energy and is popular in emerging market countries, especially China, which builds a new coal plant every week. The king of coal is Peabody (BTU), the largest coal company in the world with 60% of its earnings from Australia, close to hungry Asian markets. The stock is up 15% since Cramer recommended it in October, and it reported in-line earnings with a 5 cent beat. While guidance was weaker than expected for the quarter, guidance for the full year was raised.
CEO Greg Boyce said coal opponents need to realize that it is crucial to have a "people first" energy policy that will keep electricity costs down and will enable America to remain competitive. China is fast becoming Peabody's best market for coal, since its electricity and steel needs are growing 15% and 10% per year respectively. Boyce called renewable energy sources "niche" options, since only 2% of the world's energy comes from alternative energy sources, and even then, only with substantial government subsidies. BTU is developing ways to make coal cleaner, to remove sulphur during production and decarbonize coal electricity. Boyce emphasized the company's 20% revenue growth and 60% increase in earnings per share. Cramer said, "Fossil fuels are here to stay. Peabody is a very inexpensive stock that can make you a lot of money."
Baidu (NASDAQ:BIDU), Cypress Sharpridge (NYSE:CYS), KinderMorgan Partners (NYSE:KMP), Energy Transfer Partners (NYSE:ETP), Google (NASDAQ:GOOG)
Sometimes doing nothing is the best strategy, and this strategy is the luxury of the retail investor who can wait for the right price to buy stocks with good fundamentals. Hedge fund managers, said Cramer, who ran a hedge fund for 20 years, are like sharks that need to keep moving or they will die. The unexpected good news from Washington about the deficit and Apple's blowout quarter brought the Dow up 202 points while shorts had to cover their positions frantically. "Homegamers" who buy good companies for the long-term and don't have to trade on moment-to-moment macro data or gamble on earnings can handle large market moves, upward or downward.
Cramer took some calls:
Cypress Sharpridge (CYS) has a huge 19% yield, but Cramer thinks this is a fairweather stock that will only perform well in a strong economy. For the more conservative investor who likes a generous yield, Kinder Morgan Partners (KMP) or Energy Transfer Partners (ETP) are better options.
Cramer decided to pit Pier One Imports (PIR) against Williams-Sonoma (WSM) to see which home accessories stock is a better buy. PIR is more for the budget-conscious shopper than WSM, which specializes in luxury items. Pier One's gross margins increased from 37% to 40%, while WSM plans to grow its gross margins from 38% to 39% by the end of the year. WSM inventory is at 5.9% exceeded by its 7% sales growth. PIR's inventories are at 3.9% compared with 9% sales growth. Both companies have significant cash: WSM has $4.50 per share in cash or 11% of its market cap, while PIR has $2.60 per share in cash or 21% of its market cap.
While it seems at first glance that PIR is the obvious choice, Cramer would buy WSM because of the fact that 35% of its sales are from e-commerce, it has strong international growth and WSM is a master at developing multiple concepts. In addition, WSM is down 15% from its 52-week high. While both companies are performing well, Cramer would recommend WSM.
Jim Cramer was up 31% in 2009. Click here now to sign up for Jim's Action Alerts PLUS and trade alongside him. Special discount for Seeking Alpha users.
Get Cramer's Picks by email - it's free and takes only a few seconds to sign up.