Lesson From Q1 - Cramer's Mad Money (3/31/16)

by: SA Editor Mohit Manghnani


Europe has bottomed already.

Investing in biotech.

Lockheed Martin is inexpensive.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Thursday, March 31.

The first quarter of 2016 has seen the best and the worst of times. It was divided into two groups - those that lost money, and those that made huge gains. "The lesson of this winter of despair/spring of hope quarter is that if you own shares of a decent company, you will almost always get a better chance to sell," said Cramer.

Caterpillar (NYSE:CAT) reported a loss in January due to a huge restructuring charge. What people missed is that the company had a strong balance sheet, was cutting down costs, increasing dividend payout, reducing inventory and gaining market share. It said that CAT is well positioned for the future. The stock now trades at $76. Caterpillar was easy to sell back then, but those who held on won.

Next was Apple (NASDAQ:AAPL), which fell to $93 from $105 despite the company announcing a new phone and reporting a great quarter. Analysts had cut price targets, but those who held the stock won again. Apple's service revenue stream is growing rapidly.

As oil rebounded, Chevron (NYSE:CVX) rebounded to $95 from $78. After the Chinese stock market found a bottom, Wynn Resorts (NASDAQ:WYNN) rallied to $93 from $50 in January. Companies like Adobe (NASDAQ:ADBE), Salesforce (NYSE:CRM) and Home Depot (NYSE:HD) plunged on the market sell-off and Fed fears, but recovered quickly. Those moves were predictable.

With commodity prices, European banks and the Chinese economy, the market seemed a bad place until February. While there were many reasons to stay away from stocks, companies gave investors reason to stay. It was not the time to sell. "Please remember that even if you hate the market, there is almost always a better time to ring the register on stocks of great companies than into a maelstrom of selling, because panic is not a strategy," said Cramer.

CEO interview - Radius Health (NASDAQ:RDUS)

Lots of biotech stocks rebounded on Thursday after the takeover bid for Medivation (NASDAQ:MDVN), but not Radius Health. It is a development-stage biotech which is focused on treating osteoporosis and other endocrine-mediated disorders. Cramer interviewed CEO Robert Ward to know more about the new drug application with the FDA for its lead osteoporosis drug.

"When we think about osteoporosis, not many people realize that there are more Americans affected by osteoporosis than cancer. So, it's a huge, unmet medical need, and so, as new therapies come out, it readdresses this question: how do we get access, how do we get treatment to these patients?" said Ward. The company's studies include 2,400 patients in 20 countries.

Ward also mentioned that two-thirds of patients suffering from osteoporosis are never diagnosed or treated for the disease. The company is not looking to raise more cash currently, and its pipeline of drugs beyond osteoporosis is continuing with trials.

Is Europe recovering?

When everyone was against Europe, the analyst Michael Cembalest, chairman of market and investment strategy at J.P. Morgan, called the bottom and mentioned that Europe is recovering. That was also the time that the euro bottomed against the dollar, and it has been on a rise ever since.

Cembalest's newsletter in 2015 pointed out that Europe will take off. This was ignored, as people were worried about Greece. He said that based on the actions of the ECB President Mario Draghi, the economy can turn around.

"If you read other research reports and news stories published at the same time, it is clear that the short-termers and their acolytes in the media weren't seeing it, simply because a very small country, Greece, was grabbing all the headlines," said Cramer.

Cramer praised Cembalest's views, as he was able to see things before others did. In fact, industrial stocks are moving to their yearly highs now.

CEO interview - Seres Therapeutics (NASDAQ:MCRB)

Seres Therapeutics has been a victim of the biotech sell-off recently. The company is focused on creating drugs that restore the balance of the bacterial ecosystem in a patient's intestines. Antibiotics upset the natural balance of bacteria, leading to inflammation of the large intestine. Cramer interviewed CEO Dr. Roger Pomerantz to know more.

Pomerantz mentioned that there are trillions of bacteria in the intestine, which are affected by antibiotics, leading to reinfections and other illnesses. Seres' treatments aim to replace the missing bacteria and restore the balance. "You go to a high unmet need niche, you come up with a drug that is innovative and has tremendous data, and then you use it and price it right so that you can make a fair profit for your shareholders, at the same time returning money to the failing healthcare system. This is what drug development is, or should be, about," he added.

The company has partnered with Nestle Health Services for its treatment to reach patients across the globe. Cramer said this is an example of a great biotech seeing a drag following a biotech sell-off.

Should you invest in biotech?

The biotech group has been one of the hardest to invest in lately. It can be lucrative, based on the takeover bid received by Medivation, which led to the company's shares rallying 23%. It can also be tough - stocks like Incyte Corp. (NASDAQ:INCY) and Portola Pharmaceuticals (NASDAQ:PTLA) have seen their shares fall 45% and 60%, respectively.

The iShares Nasdaq Biotech ETF (NASDAQ:IBB) is still down 23% YTD, even after the market has recovered. It is tough to value biotechs, as most of them trade on clinical data and drug approvals instead of earnings and sales. It is also difficult to predict the market's reaction to political headwinds surrounding biotech.

It's too late to sell the group, in Cramer's opinion. Only those who can withstand the losses and speculation should invest in it.

Viewer calls taken by Cramer

Chipotle (CMG.B, CMG): Once the stock is under $450, buy it. You will not regret it in 18 months from now.

General Mills (NYSE:GIS): Rising dividends, stock buybacks and a natural and organic theme make it a marvel. Buy it when it goes below $60.

Celgene (NASDAQ:CELG): It is an inexpensive stock, although Cramer has become less aggressive after the CEO step-down.

Under Armour (NYSE:UA): It's a technology company that sells shoes and clothes, with a focus on health and wellness. Cramer is, however, questioning the $14B worth of NBA player Stephen Curry to Under Armour.

Ford (NYSE:F) vs. Fiat Chrysler (NYSE:FCAU): Ford is less expensive and has a better yield.

Lockheed Martin (NYSE:LMT): Cramer still thinks Lockheed Martin is inexpensive.


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