Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday January 4.
Many voters and shareholders are wondering which presidential candidate will be the best for the stock market. Cramer thinks the main force that has made the market so volatile is uncertainty, and once this uncertainty is resolved, stocks will be more stable. The stock market has been strong under President Obama, but the one concern is that if he is re-elected the EPA might clamp down more harshly on the oil and gas sector. Gold will be worth buying on an Obama victory as well as MLPs and some steady retailers like Ross Stores (ROST) and TJX (TJX). While few of the other candidates have spoken about business, a Romney victory will be good for a wide range of stocks, and perhaps banks could be owned again, as well as industrials.
Cramer took some calls:
Mosaic (MOS) should be up more, but has been missing quarters. Deere (DE) is a good agriculture stock, but Cramer doesn't think food inflation will propel this sector upward; "I think food inflation is going to be benign this year," he said.
Exxon (XOM) has been a "serial buybacker" for many years, and it hasn't been a great strategy. Cramer doesn't recommend Exxon.
Commercial Metals (CMC) is an inexpensive stock, but Cramer isn't expecting stunning results on the upcoming quarter.
Diamond of the Dow: Kraft (KFT)
In a volatile year, the Dow finished up 5.5% (8% with re-invested dividends) for 2011. While some advocate buying the "Dogs of the Dow," these underperformers kept performing badly. Cramer's strategy is to look for diamonds of the Dow, or those Dow stocks that have been executing well and should have continued upside. Kraft (KFT) is the largest packaged food company in the U.S. and its products are in 99% of American households. Kraft has seen a 17% gain in the past year, and it is planning to split into two companies: a high-growth global snack company, called Snacko, and a more steady, consistent grocery products company, Groceryco. The snack company will contain its original snack and candy brands as well as those acquired through Cadbury, and will yield 3.1%. The grocery company will have a dividend of 5% and will sell familiar household brands like Maxwell House, Planter's Peanuts and Kraft cheese. While the two companies look similar, they have very different distribution channels and growth prospects. The breakup is expected to happen by the latter half of 2012, but investors should buy Kraft in the meantime, and its recent strong quarter inspires confidence.
Cramer has been devoting a segment a day this week to discussing top performers in the Dow, S&P 500 and the Nasdaq. On Tuesday, his pick was Cabbot Oil & Gas (CAG) which rose $5 on Wednesday on news of aggressive production growth and a raised dividend. On Wednesday, Cramer compared Alexion (ALXN) and Ross Stores (ROST) which rose 78% and 50% in 2011 respectively.
1. PEG Ratio. This compares the price to earnings multiple by the growth rate. Alexion sells at a high multiple of 43 but with a 35% growth rate. Ross Stores has a multiple of 14.9 with an 11% growth rate. Alexion's PEG ratio of 1.2 and Ross' ratio of 1.4 make them appear pretty similar, according to this metric.
2. Takeout potential. Alexion has a $13 billion market cap and Ross' market cap is $11 billion. There are not a lot of buyers for a retailer like Ross, but with Alexion's niche market in orphan drugs, it has much greater takeover potential.
3. Pipeline. Ross can expand its store count and take market share from other retailers, but Alexion's pipeline is more exciting, with multiple uses for its current drugs and new treatments in Phase 3 awaiting approval.
4. Dividend. Ross yields 1.8% and Alexion doesn't yet pay a dividend, because it spends a significant amount on research and development.
Cramer thinks Alexion is better than Ross Stores, but ALXN wins "by a hair."
Cramer took some calls:
Covidien (COV) has a better short-term catalyst than Johnson & Johnson (JNJ), but if the latter "gets its act together" it might be preferable as a long-term investment.
Vertex Pharmaceuticals (VRTX) may be a buy for those who have strong conviction in its cystic fibrosis drug.
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