Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday August 22.
10 Things That Need to Happen Before Stocks Go Higher. Stocks mentioned: JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), Ameresco (NYSE:AMRC), Duke Energy (NYSE:DUK), JJC (NYSEARCA:JJC), Pandora (NYSE:P).
After another dog day for stocks, many investors are tempted to "sell everything and just go home." Some believe the market is on a momentary pause on the way to lower levels, and while Cramer acknowledged that "nothing is going right at all," it wouldn't be foolish to subscribe to the view that things might just get better. However, before brighter days come for stocks, 10 things need to happen:
1. U.S. and European leaders need to return from vacation.
2. Banks need to stop selling off. The best, JPMorgan (JPM) and the worst, Bank of America (BAC), of this sector need to see their stock prices stabilize or rise. With the financial sector comprising so much of the S&P 500, this is a requirement.
3. The negativity surrounding tech, much of which is seasonal, needs to end. One sign of a bottom is if CEOs of tech companies report in-line earnings and the stocks rise.
4. More mergers need to take place to demonstrate that companies are worth more than their stock prices indicate.
5. Stock prices and gold prices need to drop. Gold is overheated, and gold's upward march indicates an anxiety about a Lehman-like collapse of a major European bank.
6. Europe needs to prevent a Lehman-like collapse by bailing out banks and encouraging them to raise capital. Buying bonds in the secondary market is not enough.
7. Brent Crude has to drop below $100.
8. The Chinese need to see a better inflation situation and say they are finished raising interest rates.
9. The current form of the euro is not tenable. There needs to be currency reform in Europe, even if this means some pain.
10. Momentum stocks need to go higher. Right now, there are no stock leaders; all of the generals have been shot.
Cramer took some calls:
While the Copper ETF, JJC (JJC) has come down $10, copper is "no man's land" and copper investors "have no edge whatsoever."
Pandora (P) is one of the few IPOs of late that Cramer doesn't recommend trading at all, because "they have taken a pledge against profitability." He would not touch the stock and those who own it should sell on any rise.
CEO Interview: Christopher Loughlin, Travelzoo (NASDAQ:TZOO)
Travelzoo (TZOO) was the quintessential momentum stock that rose 140% from the beginning of the year until April. The company reported a disappointing quarter, with a 9 cent earnings miss on weaker than expected sales. The stock dropped 30 points, and may be considered cheap, trading at a multiple of 16 with a 27% growth rate. Management announced a buyback of 500,000 shares. Analysts, however, cited "much worse than expected Q2 growth" because of slow growth in TZOO's core business and investment in its local deals business. However, CEO Chirstopher Loughlin pointed to the company's 35% revenue growth as a sign that investment in its local deals business has been a success. Television ads and a record number of new hires have been a substantial investment, and he believes it is paying off.
When asked if consumers are travel-shy because of the economy, Loughlin answered that when times are tough, Travelzoo benefits, because it provides discounts on quality hotels, restaurants and entertainment. He added that the focus on top quality is not seen among competitors, and TZOO is taking market share. "We are building a great business," said Loughlin, "and we are happy about what we are doing."
Cramer recommends investors take a look at TZOO because it is "the cheapest stock in this universe."
Hewlett Packard (HPQ) is a travesty everyone on The Street is talking about. After the ailing giant reported a disappointing quarter, it announced plans to get out of PCs and to shut down its Tablet business. HPQ also intends to buy a British software company, Autonomy, for $11 billion. Cramer thinks this company is just a second-rate clone of Salesforce.com (CRM). If HPQ had bought CRM while it was still cheap, it would have exposure to cloud and not have to throw money away on reinventing itself. Shares of HPQ declined 25% since these announcements, and yet Salesforce is down 50 points from its high after reporting a stellar quarter. How could both stocks be down so much?
Salesforce.com is cheap, given its revenue growth rate, and has been the pioneer on cloud computing, the biggest trend in tech. While HPQ management groaned that the quarter was one of the most difficult in a long time, CRM CEO Marc Benioff was upbeat, noting that just two quarters into the year, the company exceeded its $2.2 billion revenue rate and was raising guidance. HPQ complained about problems in the PC sector, competition, the economy and the slow recovery in Japan. However, Salesforce's management didn't even seem to notice the very problems that were bringing HPQ to its knees.
It would have been better, at least, if HPQ had announced a clean break from PCs, but the company seems to be dithering, saying it will keep its PC business running until it conducts a review before making a decision. HPQ has been throwing money away on its failed Tablet business and spending $1.6 billion on futile buybacks. The fact that Salesforce.com is still so cheap is clearly due to erroneous thinking, and Cramer would buy CRM even before September. As for HPQ, Cramer would hold the stock, in case former CEO Mark Hurd may make a bid for the company from his current "perch" at Oracle (ORCL).
Cramer took a call:
Cramer's strategy for investing in tech is derived from ten years of empirical evidence; sell tech from the third or fourth week of February, and stay away from the sector until the third or fourth week of September, when tech can be bought.
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