Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday October 11.
Keeping Up With The Dow Joneses: McDonald's (NYSE:MCD), Coca-Cola (NYSE:KO), IBM (NYSE:IBM), Chevron (NYSE:CVX), Home Depot (NYSE:HD), Kraft (KFT), Apple (NASDAQ:AAPL), Exxon (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), Merck (NYSE:MRK), Pfizer (NYSE:PFE), Caterpillar (NYSE:CAT), Boeing (NYSE:BA), United Technologies (NYSE:UTX), Cisco (NASDAQ:CSCO), Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC), Cisco (CSCO), Verizon (NYSE:VZ), AT&T (NYSE:T), Wal-Mart (NYSE:WMT), Linn Energy (LINE), Cheniere Energy (NYSEMKT:CQP)
With double-digit destruction in Europe's stock markets and China's averages down a staggering 23%, the Dow has only declined 1% year over year, the S&P has dipped 5% and the Nasdaq is down just over 2%. While investors at home are glum, the decline in U.S. stocks is nothing compared to how stocks have been hammered overseas. Investors who reinvested dividends could have seen gains of as much as 20% in McDonald's (MCD), Coca-Cola (KO) and IBM (IBM), and would have seen similar upside even without reinvesting dividends in Chevron (CVX), Home Depot (HD) and Kraft (KFT). Cramer gives Fed Chairman Ben Bernanke credit for making stocks a more attractive investment than bonds, since interest rates are low; Bernanke's objective is to solve major economic problems and not merely to prop up the stock market, but the positive effect is felt by shareholders.
Still, many hedge fund managers persist in shorting 11% of their holdings on the assumption that European woes will spread to the U.S. However, is Apple (AAPL) a hostage to Europe? Is Verizon (VZ) and AT&T (T)? Exxon (XOM) is still a great play on the price of oil, and Johnson & Johnson (JNJ), Merck (MRK) and Pfizer (PFE) are poor shorts that trade according to dividends and not earnings. While some tech and industrials seem like appropriate short candidates, Caterpillar (CAT), Boeing (BA) and United Technologies (UTX) are seeing full order books, and even though Microsoft (MSFT) and Intel (INTC) are perennial short candidates, they still offer enough yield to make shorting them not worth it. Cisco (CSCO) is too cheap to short now. With robust retail and car sales, a major recession does not seem to be on the horizon. While Cramer has been bearish on financials, U.S. banks are outperforming other financial institutions the world over, except for Canada. "No one is keeping up with the Dow Joneses," said Cramer, and if the U.S. sees real growth "Who knows how high we could go?"
Cramer took some calls:
Wal-Mart (WMT) has decent management, and there is no reason to worry about the store closing in China. Cramer calls WMT a "stealth performer" and predicts a breakout.
Linn Energy (LINE) has a safe dividend, but Cheniere Energy (CQP) with a 12% yield "looks dicey. It's a red flag."
Nucor (NUE), the largest steel producer and recycler in North America with a 4.2% dividend is an example of a high-yield stock that will offer protection and pay shareholders to wait until there is an upside. While steel might not seem like a safe place to invest, Cramer thinks steel is bottoming, and China is headed for a soft landing. The company is seeing a double-digit increase in capacity for most of its products and is making a smart acquisition of a sheet steel company, which is a shrewd strategic move, given the increase in domestic auto production. The company has $2.2 billion in assets, low debt, and its dividend is secure. Construction, which produces 50% of Nucor's revenues, is improving, even though housing is slow, and if there is a pick up, Nucor will shine. While overcapacity in the steel industry is a concern, Nucor specializes in low-cost production that will minimize losses.
Cramer would start a position in Nucor now and buy more when it reaches $32, when it will yield 4.5%. The worst case scenario is Nucor will go higher, and shareholders will make a small profit from their initial position.
After outperforming in 2010, Cummins (CMI) has had a "hideous pullback," but according to the charts, it could be a performer once again. According to technical analyst Tim Collins, the stock could pull back to a soft zone of support to $88 or $90, but if it breaks through $94, the stock could head past the $100 range. Cramer would take profits if CMI reaches past $100 and thinks the stock has been unfairly sold off with industrials. He would buy Cummins at or under $90.
Cramer took some calls:
Cemex (CX) does not have a good balance sheet and is a "dangerous stock."
Globe Specialty Metals (GSM) has been beating numbers and has been unfairly sold off.
Special Guest: Herb Greenberg of Street Signs, CNBC
Herb Greenberg declared that stock picking is dead, or at least stock picking the way it existed 5-10 years ago. "This is a trader's market," said Greenberg, and ETFs, which are not going away, are mainly to blame for dramatic volatility in stock movement. Cramer disagrees, he thinks it is still possible to make money in this market by picking winners and eliminating loser stocks. Herb Greenberg replied that investors stand to lose more money than they did in the past. Cramer stated his bottom line: "I represent the virtue of reward and Herb, you represent the worry of risk, and between the two of us, people can still make a lot of money."
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.