Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday October 7.
6 Earnings to Watch in the Coming Week: Alcoa (AA), Pepsico (PEP), JPMorgan (JPM), Safeway (SWY), Google (GOOG), Mattel (MAT) other stocks mentioned: Paychex (PAYX), TransCanada Corporation (TRP)
After a few terrific rallies, it may be time for investors to make sure they don't overstay their welcome. The Dow was volatile on Friday and closed down 20 points. Before investors can feel confident about the market, we need to hear that the European Central Bank will cut interest rates and that there will be a solution about Greece. Cramer discussed earnings to pay attention to in the coming week:
Alcoa (AA) sets the tone for the quarter, and it tends to be a "first half darling and a second half nightmare." The company has a small dividend and has faced endless number cuts. This might be good news, because now estimates are so low that Alcoa will likely meet them. Unless management says something horrible, the stock may go up.
Pepsico (PEP) has received endless number cuts, and Goldman Sachs released a negative note about downside risks. Cramer thinks investors have an opportunity to buy a premier global company with a 3.5% dividend, which may be raised. "I want in," said Cramer.
JPMorgan (JPM) has done almost everything well, but it has meant nothing for the stock. CEO Jamie Dimon needs to be aggressively positive and to distinguish JPM from the losing banks. Cramer wants to hear news of a dividend boost.
Safeway (SWY) should give another "horrible" number, and it has been gunned down by the competition. "I can't see why you would own Safeway," Cramer said.
Google (GOOG) has been accused of spending too much and losing mindshare to Facebook. Cramer thinks the company may give a good number.
Mattel (MAT) is a good speculative stock with a 3.4% yield.
Cramer took some calls:
Paychex (PAYX) has a 4.57% yield, and is a buy. The company is doing a lot of things right, and investors are getting paid to wait.
TransCanada Corporation (TRP) is a "screaming buy," since it has exposure to the Canadian oil pipeline and has a 4% yield.
When asked about options, Cramer admitted that options might be too sophisticated and complex to discuss on a stock program, and referred viewers to his books for more detail. He likes to use deep-in-the- money calls, thinks covered calls cut off the upside too much and doesn't see the logic of buying puts when it might be better to just sell the stocks instead.
Ulta Salon Products (ULTA) is a "supermarket of beauty," selling products at every price point in huge 10,000 foot stores that provide shoppers with a complete beauty experience, including an in-store salon. The company has it all for hair care, nails, skin care, cosmetics and fragrance. Ulta consistently delivers numbers, and its stock is up 90% since the beginning of the year only to pull back from its 52-week high. There are 415 Ulta stores in the U.S, and management thinks this number can grow to 1,000 before there is an issue of saturation. The company is opening stores at a 16% rate per year, and can keep this up for 10 years before it reaches 1,000. Ulta is one of the few retailers aside from Chipotle Mexican Grill (CMG) that consistently delivers a double digit, same-store-sales increase with nearly every quarter.
The earnings growth is a staggering 80%, and its last quarter saw a 6 cent earnings beat with 22.6% revenue growth and a 11.3% increase in same store sales. Operating margins expanded 320 basis points, and inventory was down 1% per store. The stock shot up 15% after its previous earnings, and it might repeat the performance following its next earnings in December. Ulta has been taking share left and right, and has a clean balance sheet and $3 per share in cash. The one drawback is its rich multiple; the company trades at 30 times next year's earnings, and even though it has a 24% growth rate, high-flying momentum stocks are getting punished in the current environment. While it pays to be cautious about these kinds of stocks right now, there is no need to wait for a good long-term growth story to pass by. Cramer would consider buying Ulta on any decline.
Dividends provide the best protection in the current market, especially stocks that pay investors to wait for future upside. Conoco-Phillips (COP) yields 4.1%, and while it doesn't have the biggest yield in the business, the company is restructuring and is taking control of its own destiny. COP is selling $25-30 billion of non-core assets, and when this process is finished, COP will have more exposure to finding and producing oil than refining. In fact, it is spinning off its refining business, a move that proved profitable for Marathon (MRO) earlier this year. While oil has been volatile, Cramer encouraged viewers to embrace the fluctuations by using COP as a trading vehicle and buying on dips, selling on rips. For those who want to stay in COP long-term, its restructuring should begin to bear fruit in 2013, when it expects to begin its major production increases. Management is committed to buying back stock and raising its dividend. While Cramer is skeptical about many buybacks, this proposal will significantly shrink the float. COP is one of the most shareholder-friendly companies around, and current reforms will make it even more friendly.
Cramer took some calls:
Total (TOT) is a terrific company with a 6.8% yield.
Exxon Mobil (XOM) has not dropped enough, and its dividend is not as strong as COP's.
Mad Mail: ReachLocal (RLOC), ARMOUR Residential REIT (ARR), Telecom New Zealand (NZT), Ultra Petroleum (UPL), Mosaic (MOS), Deere (DE), Dominion Resources (D), Silver Wheaton (SLW), Randgold (GOLD), Annaly Capital Management (NLY)
ReachLocal (RLOC) is an online advertising company that has dropped from $28 in mid-January to $10. Cramer likes its small to medium business niche and its international upside potential, but can't find a near term catalyst that would justify buying the stock. Real earnings growth is not expected until 2013; "It's too early and too risky."
ARMOUR Residential REIT (ARR) is an externally-managed mortgage real estate investment trust with a 20% yield. While this might seem like a sky-high dividend, its competitors yield around 17%. Cramer would stay away from ARR here, since its leverage levels are higher than its peers. Annaly (NLY) has the best track record of any REIT and has a transparent management style.
Telecom New Zealand (NZT) is breaking up its business, and its returns are still unclear.
Ultra Petroleum (UPL) has been one of the best performers, but natural gas prices are low, and the stock is "in the doghouse." However, Cramer added that the stock is "terrific."
Cramer told another viewer that, in general, he prefers buying real estate to REITs, especially given low mortgage rates.
Dominion Resources (D) has done well and is one of the 2 or 3 best utilities. Cramer would stick with it.
Dollar Tree (DLTR)
Cramer likes Dollar Tree (DLTR), its stores and the stock, but he is disappointed that management decided to buy back $1.5 billion worth of stock when it has already ramped up. With a 17% growth rate and a multiple of 21, the stock is not cheap. Why didn't management decide to build more locations or offer a dividend? Cramer still likes the stock, but questions its management's judgment on this issue.
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.