Cramer's Mad Money - Mao Theory (1/17/12)

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Includes: AN, AXL, CCL, F, GLD, GM, JJC, MGA, TRW, WFC, YHOO, ZLTQ
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday January 17.

Mao Theory

The bad news out of China is actually good news. The People's Republic announced a weak GDP number, demonstrating that the economy is growing at its slowest pace in 2.5 years, although the percentage of growth is still a respectable 8.9%. The Shanghai Composite rallied 4.2%. Why would China's stock market rally on news of a slow GDP number? China put the brakes on its rapidly growing economy last year by raising interest rates. Now that the news proves the orchestrated slowdown worked, the Chinese may be ready to start cutting rates.

Technical analyst Dan Fitzpatrick of TheStreet.com sees a strong correlation between the S&P 500 and the Shanghai Composite. He thinks it is at least as strong as the connection between the Dow and transports, or "Dow Theory." Cramer called the correlation between Chinese and the U.S markets "Mao Theory," and demonstrated how the two stock markets have moved up and down consistently for the last several years. With the Chinese market artificially kept low through interest rate hikes, a cut in rates could see the Shanghai Composite moving from 2300 to its benchmark 2400, which would mean a move even higher. If it rallies past 2537, then it will be clear that Chinese stocks are headed up. This news would indicate higher moves for the S&P 500.

JJC (NYSEARCA:JJC), SPDR GoldTrust ETF (NYSEARCA:GLD), Carnival Corporation (NYSE:CCL), Wells Fargo (NYSE:WFC), Yahoo (NASDAQ:YHOO)

With Germany implementing austerity measures and an apparent soft landing in China, the market could still rally in spite of downgrades. Good news from Wells Fargo (WFC) and Yahoo (YHOO) did not impact U.S. stocks as much as the news of an apparent solution for Europe's crisis and moderate growth in China. Cramer expects strength in the SPDR GoldTrust ETF (GLD) and JJC (JCC), the copper ETF, since the Chinese use 30% of the world's copper and growth ahead will mean more upside for the metal.

Cramer took some calls:

Carnival Corporation (CCL) has taken a hit, but it is a good stock in a bad situation. However, short-term selling isn't finished.

AutoNation (NYSE:AN), Ford (NYSE:F), General Motors (NYSE:GM), Magna International (NYSE:MGA), American Axle (NYSE:AXL), TRW Automotive (NYSE:TRW)

The auto industry is making a comeback, with AutoNation (AN) predicting up to 14 million vehicles to be built this year. Demand for cars is growing 7%, for trucks 9% and for SUVs by 28%. According to one poll, a third of all consumers is considering buying a new car this year. With European risks still plaguing Ford (F) and GM (GM), Cramer would look for pin action plays like Magna (MGA), a leading auto supplier. While the company's quarter saw a 5 cent earnings miss but with rising revenues, its backlog is the key metric to predict future success. The company is growing capital expenditure to keep up with growing demand, and between 2012-14, it should build 40 new facilities worldwide. The strength of the auto recovery and Magna's healthy backlog are not yet reflected in its stock price, even though it has risen 22% in the last month. The stock is still 20 points off its high and trades at a multiple of 8.6 compared to its 9% growth rate.

CEO Interview: Gordon Nye, Zeltiq Aesthetics (NASDAQ:ZLTQ)

Zeltiq Aesthetics (ZLTQ) is a small cap stock that could be the next big thing. The company has developed a non-invasive body contouring technology that destroys fat cells by freezing them to death. This "cool sculpting" method has met with a high level of satisfaction and is meant to remove those stubborn areas of flab that do not respond to exercise. The FDA has approved the cool sculpting method for the flank area, but in some other countries, it has been approved for everything below the neck. Cramer was initially worried about the retirement of the CFO, but Gordon Nye explained that the CFO's retirement was planned in advance. The stock has fallen 14%, now at 2 points below its IPO, but Nye believes with FDA approval for cool sculpting in other areas besides the flank, the company will see significant upside.

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