Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday January 23.
The current earnings season is actually two earnings seasons in one: the 499 other stocks of the S&P 500 and Apple (AAPL). Cramer says, "Apple is the most watched stock I've seen in my 31 years of trading." It moves most of the tech industry, and has devastated rivals Research in Motion (RIMM) and Google (GOOG). Apple reports Tuesday after the bell, but it has had a 15% run up ahead of the quarter. What should investors do about Apple?
Cramer discussed the empirical evidence of technical analyst Mark Sebastian. In 2010 and 2011, when Apple has had a rally ahead of the quarter it has tended to sell off hard following its earnings report. Cramer would be prepared for a decline in Apple after Tuesday, regardless of the big news of a product release. However, his worry is that investors will not be able to get back into Apple if it manages to defy its regular pattern. After all, with a multiple of 12 and an 18% growth rate, Apple is definitely a stock worth owning. Sebastian suggests buying Apple calls, but Cramer notes that calls can be costly. Investors can either get out of a portion of their Apple holdings ahead of the quarter and keep some on the table, or just hold on, since almost every decline in Apple following earnings has been a buying opportunity and the stock has moved higher.
Cramer took some calls:
Apache (APA) has moved up but is still one of the cheapest stocks in its cohort.
EMC (EMC) has been a laggard, but is an inexpensive stock. Cramer would buy it, but not above $24.
Big Pharma seems to be in trouble, but the worst just might be over. A total of $90 billion worth of prescription drugs have been scheduled to go off patent between 2010 and 2014. Stocks in this sector have been held down because of these worries, and Cramer thinks they will continue to show lackluster performance for a bit of time, but expects huge upside for some Big Pharma names, because they have been changing their strategies to deal with the onslaught of generics. Some have moved into specialty niche drugs that demand a higher price tag and are harder to copy. Others are creating new potential blockbuster drugs to make up for the drugs they already have that are scheduled to go off-patent.
With Pfizer's (PFE) highly successful Lipitor going off-patent, Merck (MRK) is developing a drug that could be the next Lipitor. While Lipitor was popular, it only prevented heart attacks in 30% of patients with high cholesterol. Merck had developed a drug that will mimic genetic permutations that increase levels of "good" cholesterol and decrease levels of "bad" cholesterol. Anacetrapib, which could produce $5-10 billion for the company annually, is in Phase 3 trials and might take 2-3 years to reach the market. Until then PFE pays a steady 4.3% dividend while investors wait, and increased its yield last year by 11%.
Merck has plenty of other drugs in its pipeline for diabetes, HIV, osteoperosis and insomnia. It has acquired new drugs through its Schering-Plough acquisition, even though its asthma drug will go off-patent later this year. The company has seen several quarters of solid execution and can provide steady growth for at least the next 5 years.
J.C. Penney (JCP), Martha Stewart Living Omnimedia (MSO), Sears Holdings (SHLD), Kohl's (KSS), Target (TGT), Macy's (M), The Gap (GPS), Wal-Mart (WMT), Amazon (AMZN), Bed, Bath and Beyond (BBBY), Ross Stores (ROST), TJX (TJX)
With Ron Johnson taking the helm at J.C. Penney (JCP) on Wednesday, things can only get better for this lackluster retailer. Johnson's ingenuity and vision brought around radical improvement at Target (TGT) where he created name-brand popular items. Johnson created the Apple Stores, which brought computers to retail. JCP's performance has been so bad, it should see a 10% pop no matter what Johnson does. However, Cramer would not necessarily buy JCP ahead of the big changeover on Wednesday, because Big Money might sell into the rally, and JCP could see a big decline the next day. However, such a drop may be a buying opportunity. Johnson bought a 16% stake in Martha Stewart Living (MSO), although it may be facing some litigation with Macy's (M) over the deal. Johnson will likely be able to market Martha Stewart's products with the same success he had at Apple. JCP also stands to gain where its competitors are failing; Sears Holdings (SHLD) had a run only because of a short squeeze on news that turned out to be false, Kohl's (KSS) seems to have lost its way after a few disappointing quarters, Target, Johnson's former employer, has gone back to being boring, The Gap (GPS) has never recovered from the departure of CEO Mickey Drexler, and JCP can take significant market share from Wal-Mart (WMT) with JCP's everyday low prices. While Macy's is still going strong, there is enough room in retail for both JCP and Macy's. Finally, Johnson is a charismatic figure who knows how to build enthusiasm and a strong team. JCP just might be interesting again.
Cramer took some calls:
Amazon (AMZN) is building its operations so it can blow out the competition, but this is not the quarter to expect huge gains.
Bed, Bath and Beyond (BBBY) seemed to have disappointed with earnings, but Cramer thinks it was a decent quarter, and a decline in its stock price is a buying opportunity. He thinks Ross Stores (ROST) and TJX (TJX) also tend to be buys when they decline after earnings.
Westport (WPRT) keeps expanding its reach with engines that run on natural gas and methane. It has successful joint ventures with engine makers, like Cummins (CMI) and has seen a terrific 16% run-up since November; the stock has tripled since Cramer got behind it in 2010. CEO David Demers discussed creating engines for trains, and eventually, for shipping. Westport is still producing engines for trucks, and Demers predicts that in 5-10 years up to 30% of the trucking industry will run on natural gas and methane. When asked if the company is going to do an equity offering, Demers doesn't see a need in the very near future, but thinks that an equity offering for a specific purpose might be necessary at some point. Cramer is bullish on Westport since "things are clearly going their way."
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