Cramer's Mad Money - How B&G Foods Spoiled Wall Street (7/27/11)

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Includes: AMZN, BGS, CMI, DOW, ETP, KO, LINEQ, MCD, PPG, WMT
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday July 27.

CEO Interview: David Wenner, B&G Foods (NYSE:BGS)

In a tough economic environment, defensive stocks like B&G Foods (BGS) should be doing well, but the stock got hit with an 8.9% decline on decent earnings. The company reported a modest earnings beat and in-line revenues. The owner of favorite brands like Cream of Wheat, Ortega and B&G Pickles yields 4.5% and has seen a 59% gain since Cramer got behind it in October 2010. The company has a winning strategy of buying tired brands and revamping them. This quarter, prices were down because of coupons and increased competition. While management said it could raise prices, there is concern that this will hurt its business.

"I think we spoiled investors and analysts by having quarter after quarter of increasing projections," CEO David Wenner explained."We are still projecting an increase. Nothing is broken here." The company raised projections, but not at a high enough level to satisfy The Street. When asked if the dividend was in danger of being lowered, Wenner responded, "That's ridiculous...the dividend is not at risk at all." Wenner conceded that it is sometimes necessary to sacrifice higher prices for promotions that will encourage consumers to buy new products and ward off competition, since promotions help keep volumes at high levels. Most of B&G brands are not affected by promotions, Wenner explained, and even the company's brands with the weakest performance are at the industry average. While B&G has been a master at acquiring brands from struggling companies, there are fewer of these brands to buy, because companies want to hold onto their brands for increased growth and don't need the cash. The rising cost of packaging is another challenge B&G is facing. However, Wenner is confident that his company is still strong; "Whatever Washington does, people still need to eat, and we have the right products."

"The stock is just fine," Cramer said.

Amazon (NASDAQ:AMZN), Coca-Cola (NYSE:KO), McDonald's (NYSE:MCD), Cummins (NYSE:CMI), Dow (NYSE:DOW), PPG Industries (NYSE:PPG), Energy Transfer Partners (NYSE:ETP), Linn Energy (LINE)

With the Dow down 199 points, it is clear that the general feeling on The Street is not as confident about a solution to the deficit crisis as it was last week. Cramer outlined two possibilities: a soft default and a hard default. While he doesn't think the situation will become so dire that Social Security checks won't be mailed out, there is about a 50/50 chance of at least a soft default, which will cause a major pullback for stocks.

While earnings have been trumping bad news from Washington, companies are starting to feel the pain. Consumer confidence may wane and companies may delay making acquisitions or investing in growth. What to buy in this environment? Gold dropped, creating a buying opportunity for the yellow metal. The second on the list are high-growth stocks that reported great earnings like Amazon (AMZN), Coca-Cola (KO) and McDonald's (MCD). Finally, there are cyclical smokestack stocks with strong international exposure like Cummins (CMI), Dow (DOW) and PPG (PPG). The previously mentioned stocks should be bought on the pullback if there is a soft default. The best stocks to buy for the remainder of the week are high dividend MLPs like Energy Transfer Partners (ETP) and Linn Energy (LINE), which just raised its distribution.

Amazon Is Still a Giant. Other stock mentioned: Wal-Mart (NYSE:WMT)

When looking for stocks to buy, it is essential to look for accelerated revenue growth, and Amazon has it in spades. The stock exploded higher on its strongest growth in a decade, and Amazon is showing a return on its capital investments in improved customer service. The company is now a cash machine with dramatic rises in total sales and media sales. The company is fast becoming the online Wal-Mart (WMT), the Kindle is on fire, and online shopping is growing, especially overseas. The stock sells at twice its growth rate. Amazon is a stock to buy if there is a major pullback because of deficit woes.

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