Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday July 21.
The tech sector is increasingly being divided between the winners and the losers, with the winners making old companies seem obsolete. One of these winning themes is cloud computing, and Red Hat, which produces LINUX, is one of the pioneers of the cloud. Red Hat gives away its software and makes its money from subscription fees for customer support and upgrades. The subscription model gives the company earnings visibility, and subscriptions generate 80% of Red Hat's revenues. The company reported a 2 cents earnings beat on a 26% increase in revenues. The company raised its full year guidance and is 5 points off its high. The stock has risen 6% since Cramer got behind it last February.
CEO James Whitehurst described how Red Hat is aggressively taking market share and the fact that many competitors have derivatives of its software is actually an advantage, since it enables Red Hat to lure away customers from its competitors with better service and upgrades. The company is growing at a 25-30% clip and has substantial cash which it had been using for buybacks, but Whitehurst says he wants to hold onto some cash for a possible acquisition opportunity. The company is responsible for virtually all of the technology that goes into a Dreamworks Animation (DWA) film; "They make the cartoons and we take care of the rest." No one else in the business, according to the CEO, has capability like Red Hat to produce such sophisticated animated films.
"This tech is still working," said Cramer, "for the rest of tech, let's wait until September."
CEO Interview: Dan DiMicco, Nucor (NUE)
Nucor (NUE) is the largest, most diversified steel company that just reported an excellent quarter with a 13 cent earnings beat and a 21% rise in revenues. Cramer thinks the company could have performed even better if it weren't for unfair policies of trading partners; Chinese tariffs are ten times higher on U.S. companies selling steel than they are for Chinese companies selling to the U.S. Dan DiMicco says the policy is unfair and not in the company's control, but Nucor is still ramping up supply to deal with increasing demand. The slow construction industry in the U.S. is not impacting Nucor, since the company is significantly diversified to perform well in other areas.
Dan DiMicco outlined a 3 point plan for America: 1) energy independence, including natural gas, domestic oil and green energy 2) control of the trade deficit and to make American companies competitive against the government-owned outfits overseas 3) infrastructure building to create jobs.
Things look brighter for the banks, now that hedge funds have stopped dumping the stocks. One of the best in show is U.S. Bancorp (USB) which reported a remarkable quarter and has shown one of the largest percentage moves up of late. PNC Financial (PNC) gave an excellent earnings report, but it fell flat after its report. Cramer thinks PNC is unfairly hated. Bank of America (BAC) is the "worst of the worst" and is not worth owning, no matter how cheap it is. The "love is back" for Wells Fargo (WFC), but the affection is misplaced because of mortgage and regulation problems. Morgan Stanley (MS) proved that "if you've got it right, you can make a fortune." Cramer is still not excited about global banks, but would consider buying regionals like First Niagara (FNFG) and First Horizon (FHN).
There are so many ways to win in this market, said Cramer. Analysts expected VFCorp (VFC) to report a bad quarter because it had to raise prices, but sales increased because customers were willing to pay up for quality and cotton prices declined. If investors had believed in the company, they would have caught a 6 point gain. Union Pacific (UNP) reported a fantastic quarter, and Cramer is bullish on UNP along with CSX (CSX). While tobacco is a controversial area, Cramer predicted that Philip Morris (PM) would do well on international cigarette sales, and the stock rose $3.30 on strong earnings. A not well-loved staffing company, SFN Group (SFN) caught a 25% gain on a takeover bid. Cramer praised investors who got into the Zillow (Z) IPO and cashed in on the stock's bounce upward. As with many IPOs, Cramer told investors to "take the money and run."
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.