Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday October 24.
CEO Interview: Sandy Cutler, Eaton (NYSE:ETN)
It's never a good idea to trade off a headline. The news indicated that Eaton (ETN) had reported a tepid quarter, but when investors looked more closely at the conference call, shares of ETN rose 4.7% by the end of the day. Every division was strong except for overseas electronics, and the company would have beaten numbers solidly if it weren't for issues with commodity hedges. Bookings are increasing and demand is strong, even in Europe and China. The stock yields 3%, and CEO Sandy Cutler says he is committed to raising the dividend. Eaton sells at a multiple of 9.7 compared to its historical multiple of 11 and has an 11% growth rate. Eaton has seen a 147% gain since Cramer got behind it in October 2008, and "its upside is far from over."
Sandy Cutler discussed the soft-landing in China with the positive PMI number of 53. The CEO says he is seeing a comeback in non-residential construction with an increase in orders for the second and third quarter. While there have been issues with pricing and commodities, both are coming into line.
"This is still an inexpensive stock," said Cramer. "If you do not have a stock that it is an industrial, it is still not too late....Eaton is still at a good price."
How do investors decide if a stock that has great long-term prospects is worth buying? Dick's Sporting Goods (DKS) illustrates the principle that a strong company with a fantastic story is not necessarily a buy. While VFCorp (VFC) beat earnings estimates and raised guidance, and Nike (NKE) has indicated that business is booming, DKS's stock has risen nearly ten points in the last month, and Cramer does not see any near-term catalyst to take the stock higher. Even as DKS is accelerating its store count, has abundant cash and is seeing robust demand, shares have simply risen too high too quickly. It has reported only a 2% increase in same store sales and is facing tough competition and challenging comparisons in the second half. DKS trades at a multiple of 17.4, nearly as high as Deckers' (DECK) multiple of 18, and the latter has a higher growth rate. Instead of Dick's, Cramer would buy Deckers or VFC on a pullback.
Cramer took some calls:
Finish Line (FINL) : "That is one of my favorites..." Cramer thinks FINL is undervalued and hasn't received enough praise.
Iconix Brands (ICON): Cramer is dubious about recommending licensing plays.
Juniper (NYSE:JNPR), Ralph Lauren (NYSE:RL), Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Macy's (NYSE:M), Home Depot (NYSE:HD), CNH Global (NYSE:CNH), Deere (NYSE:DE), Potash (NYSE:POT), iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX)
The fundamentals have spoken, and the stock market seems less of a hostage to Europe than it has been in recent weeks. Industrials and tech were strong in spite of no firm resolution on the European debt crisis. Juniper (JNPR) which admitted to weakness because of Europe has seen a significant rise in its stock price. Apparel stocks which are often vulnerable to European woes have been performing well, with VF Corp beating estimates and raising guidance and strength from Ralph Lauren (RL). Financials like Goldman Sachs (GS) and JPMorgan (JPM) are on the road to recovery.
While it is important not to be complacent and to keep in mind that bad news from Europe can send stocks reeling again, there is no reason to believe that American companies necessarily are suffering terribly because of problems overseas. Cramer would consider stocks like Macy's (M) and Home Depot (HD) which have unjustly been knocked down in the current malaise, but have little or no European exposure. There may be down days ahead because of Europe, but those down days might provide buying opportunities.
Cramer took some calls:
iPath S&P 500 VIX Short-Term Futures ETN (VXX): Instead of hedging against the market, being short stocks or buying VXX, Cramer suggested that those who are bearish on stocks should simply sell them; "Don't listen to these guys who have all these hedges...they don't know what they are doing."
CEO Interview: David Brain, Entertainment Properties Trust (NYSE:EPR)
Cramer spoke with David Brain, the CEO of Entertainment Properties Trust (EPR), a REIT that specializes in movie theaters and charter schools and yields 6.5%. The stock has fallen 14% in the last few months, and Cramer wondered if the stock is a buying opportunity or if its decline should cause concern. David Brain admitted that Vineyard Investments was not successful, and the company is going to divest and focus on cinemas and charter schools. The core business of movie theaters is doing well, with almost no vacancies in many centers for 14 years and 95% occupancy in other areas. While charter schools is a fairly new area, the company is seeing strength. Government cuts in education funding are a concern, but Brain pointed out that the majority of these cuts are for high school education, not elementary education, which is the area EPR focuses on.
"This business throws off a lot of cash and the yield is well-protected," Cramer commented.
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.