Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday August 15.
SodaStream (NASDAQ:SODA): Anatomy of a High Flying Earnings Meltdown. Other stocks mentioned: Costco (NASDAQ:COST), Green Mountain Coffee Roasters (NASDAQ:GMCR)
At first glance, Sodastream (SODA) reported an upside surprise, with a 2 cent earnings beat and revenues up 38.5%. U.S. sales were up triple digits, with soda maker sales rising 244% and CO2 canisters up 184%. The stock saw a 288% gain since its IPO in November, but in July, Cramer told investors to take some SodaStream stock off the table.
Last week, the stock lost 34% of its value on one day. What was the cause? The guidance was terrible. Management said that the 3rd and 4th quarters were going to be flat when analysts were expecting positive guidance, particularly for the holiday season. The company indicated that its growth rate would slow down to 30% from 40%, and implied that, while sales of SodaStream in the U.S.are strong, sales in the rest of the world are sluggish. When an analysts commented that its guidance indicated "a pretty big deceleration," management did not disagree.
Another problem was with Costco (COST). Management said they had issue with Costco because, in a nutshell, they weren't sure that the store would display the product well. The CEO said: "We want to get a better read on this type of account before we decide whether or where to expand."
"We decide?" asked Cramer, "You don't ever tell Costco what to do." Costco is too big a store to argue with. Another disappointment was with the company's statement that it wanted to make sparkling tap water for restaurants. Who wants sparkling tap water when consumers are concerned enough about what goes into their drinking water? While at first SodaStream looked like the next Keurig, "SodaStream is no son of Keurig," Cramer declared. Green Mountain's (GMCR) stock climbed after its recent earnings, mainly due to strong guidance.
The lesson to take away from SodaStream is that investors who listened to Cramer's warning in July, to take profits in the stock, saved themselves a huge loss. With high-flying momentum names, it is crucial to take profits on the way up and play with the house's money. .
With the Dow up 214 points on Monday, investors may wonder if last week's nightmarish volatility was just a dream. Cramer warned that the ban on shorting, which has temporarily allayed Europe's downward slide, will not prevent the bears from pouncing in at the end of the week. These bears need to see a European bank collapse, and such an event will bring U.S. stocks down. We have yet to hear from France and Germany about a resolution to the European problem, and unless there is positive action, stocks will likely sell off by the end of this week. Cramer would use the rally as a selling opportunity.
Cramer took a call:
The caller said: "Sony (SNY) is one of the worst stocks out there." Cramer replied: "Apple is the destroyer of Sony, but Sony still trades."
The analysts are having a showdown about Oracle (ORCL). Cramer examined the bullish and the bearish cases for the stock, and gave his opinion.
Bearish Case: Oracle is levered to hardware at a time when growth in the sector is slowing. There are concerns the company's operating margins might peak because of its acquisitions. Competitors might take market share from Oracle. Cramer added that his biggest concern would be that corporate clients might cut their budgets because of the slowing economy.
Bullish Case: Oracle is cheap, and the stock has been pounded from its high in the $30s in May to $27. Its multiple is 11 times forward earnings (the historical multiple has been around 16), and the company has a 15% growth rate. Oracle has high returns, a strong balance sheet, and thriving markets. Oracle's new products are taking market share, and it is more secure than many tech stocks; 40% of its revenue is recurring revenue. The company thrived through the recession with 17% earnings growth during the toughest period. Oracle has a diverse array of products and has made $35 billion in successful acquisitions that have broadened its offerings. Its customers are primarily higher-end corporate clients who can afford to keep spending even if the economy hits a rough patch. Software still generates 40% of the company's revenues, and it plans to expand its software growth by 10.5% annually. While Oracle's hardware sales declined 40%, hardware is becoming a higher-margin business, with prices up 120%. Oracle has a database product that combines hardware and software, and expects to triple this business in 2012. Oracle reported a great quarter and has a fortress balance sheet. This is one of the few tech stocks Cramer would consider buying now.
Cramer took a call:
Best Buy (BBY) has been knocked down, but Cramer doesn't see a catalyst that will bring the stock back up any time soon.
CEO Interview: Kieren Gallahue, Carefusion (NYSE:CFN). Other stocks mentioned: Cardinal Health (NYSE:CAH), Baxter (NYSE:BAX)
Carefusion (CFN) is an under-the-radar healthcare play on cost containment for hospitals. At a time when governments are slashing healthcare budgets, the company provides solutions to reduce costs while improving patient safety. The stock held up better than the S&P 500 this past month, falling 7% compared to the index's 9% drop.
CFN, which was formed from the companies spun off from Cardinal Health (CAH), has a diverse array of businesses, including pharmaceuticals, smart pumps and diagnostic products. The company recently reported a 2 cent earnings beat on in-line revenues that rose 3.7% and in-line guidance. CFN should benefit from recent recalls of Baxter's (BAX) products, has $1.2 billion in cash and sells at a multiple of 12.4 with a 13% growth rate.
CEO Keiren Gallahue admitted that the company name needs more visibility, but the essential thing is that hospitals recognize the power of the company's brands. Portfolio rebalancing is an important priority for the company as it spins off assets that are not working and continues to acquire new companies.
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