Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday October 4.
Pretty Girls Index Getting Ugly: Netflix (NASDAQ:NFLX), Green Mountain Coffee Roasters (NASDAQ:GMCR), Deckers (NASDAQ:DECK), Salesforce.com (NYSE:CRM), Priceline.com (NASDAQ:PCLN), Wynn Resorts (NASDAQ:WYNN), Baidu (NASDAQ:BIDU), Whole Foods (NASDAQ:WFM), Chipotle Mexican Grill (NYSE:CMG), Fossil (NASDAQ:FOSL), Lululemon (NASDAQ:LULU)
Momentum stocks, which were once Mad Money favorites, have seen better days, and will most likely bottom before they see more surges. Cramer urged viewers to take technical analyst John Roche "very seriously" when he says that high-flying stocks have further to fall. Roche includes these stocks in what he calls the "Pretty Girls Index" because they have been well-loved stocks adored by many. This index includes momentum stocks: Netflix (NFLX), Green Mountain Coffee Roasters (GMCR), Deckers (DECK), Salesforce.com (CRM), Priceline.com (PCLN), Wynn Resorts (WYNN), Baidu (BIDU), Whole Foods (WFM), Chipotle Mexican Grill (CMG), Fossil (FOSL), Lululemon (LULU), and others.
Looking at the chart of the Pretty Girls Index, Roche sees a dreaded head and shoulders formation, which indicates a serious decline in stocks 95% of the time. The index soared up 650% since 2008, but will most likely fall 15% across the board before there is any improvement. Netflix has already fallen 65% from its high in mid-July, and other momentum stocks may well follow suit. While the Pretty Girls Index has been outperforming the S&P 500, it is now underperforming the index, and the chart shows a definite "absence of pulchritude." Cramer would wait for these stocks to fall at least 15% before buying, and in the meantime, would concentrate on buying stocks that have dividends of 5% or higher.
Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS), Ford (NYSE:F), General Motors (NYSE:GM), Cummins (NYSE:CMI), Caterpillar (NYSE:CAT), AIG (NYSE:AIG), Macy's (NYSE:M), VF Corp (NYSE:VFC), Yum Brands (NYSE:YUM)
The action in the stock market on Tuesday was part whipsaw and part roller coaster as the Dow struggled only to rally up 360 points to close up 53. The bears were saying the dramatic action in the averages is reminiscent of 2008, but Cramer doesn't think a huge recession is on the cards. While financials are hurting, they are unlikely to sink to the single digits, and Goldman Sachs (GS) and Morgan Stanley (MS) have strong balance sheets and have been raising capital. Ford (F), which surged 7.5%, may suffer from weakness in Europe, but with labor strikes off the table, it is unlikely to decline. General Motors (GM) is also in good shape. Cummins (CMI) and Caterpillar (CAT) reported strong quarters. Even retail is strong in this environment, particularly Macy's (M) and VFCorp (VFC). AIG (AIG) actually has an amazing balance sheet. While Cramer says caution is the name of the game, he doesn't see a repeat of the misery that was 2008.
Cramer took some calls:
Ford may not make it in a straight line to $15, but those who are holding the stock "are in fine shape."
Yum Brands (YUM) just reported, and Cramer says he wants to look over the conference call carefully before opining on the stock.
Freeport McMoRan (NYSE:FCX), Thompson Creek (TC)
Cramer used a specific example to prove that a 2008 scenario is not happening right now. Freeport McMoRan (FCX) was a stock that got slaughtered during the Great Recession, and fell from $60 to the single digits. While FCX does not have a huge dividend, 3.2%, during 2008 it had to suspend its dividend. Cramer thinks the stock will become an accidental high-yielder on the fall in copper prices and would buy it at around $30. In addition, the company has enough cash to not only continue paying its dividend, but to raise it or offer a special dividend, as it did in 2010. In 2008, FCX was overloaded with debt and had a terrible balance sheet, but now it has a large enough cash hoard to deal with further declines in copper. Its cash flow in 2008 was $3.2 billion and now it is at $8 billion. The stock has fallen 50% since last year, and copper has declined 30%; the slowdown in copper is priced into the stock, according to Cramer, who thinks disaster scenarios for the metal are "fanciful." FCX management says that demand is still strong in China, the country that accounts for 40% of worldwide copper demand. While there are labor disputes at two of FCX's mines, a strike might actually be good for copper prices, and the willingness of management and workers to hammer out a deal indicates that the dispute will not be long-lasting. Cramer would buy FCX on the way down.
Cramer took some calls:
Thompson Creek (TC) is very speculative and is a "pure dice roll." While the company has a good story in a bull market, Cramer would be careful.
Cramer reiterated his bullishness on gold, which has performed well in any kind of economic scenario, and has risen in value every year for the last decade.
CEO Interview: James Whitehurst, Red Hat (NYSE:RHT)
With tech bottoming, Red Hat (RHT) is a good bargain-hunting stock which rose 11% after a strong 3 cent earnings beat and 28% revenue rise, but has fallen back down. The company is a leading provider of open source software and has a subscription-based model. Customers get the Linux operating system for free and pay for updates and support. The stock is a play on cloud computing since 80% of cloud technology runs on Linux.
In spite of the dismal macro situation, James Whitehurst says its clients in Europe, the financial sector and the government are still buying. One reason is that updating with Red Hat saves money, since it is often cheaper to update the system than to continue running on the older system. Whitehurst discussed the acquisition of Gluster, which will expand the company's storage solutions to use only software and eliminate expensive and inconvenient hardware storage. The company raised guidance and has a robust pipeline. Cramer is bullish on Red Hat.
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