Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday April 9.
Analysts are disagreeing over whether CBS (CBS) is a "buy" or a "sell." Deutsche Bank reaffirmed its "buy" rating, and raised estimates by 22%. However, Citigroup downgraded CBS from a "buy" to a "neutral" based on bearish views on the television industry as a whole. Cramer thinks Citi's downgrade is weaker than Deutsche Bank's upgrade, because industry-wide analysis can be lazy and lack details about individual companies. For instance, Citi didn't take into account how CBS has risen above its competitors and is dominant in ratings. Since CBS does not get involved with joint ventures, it retains 100% of redistribution rights and keeps 100% of the profits. For instance, an article in The New York Times mentioned the popularity of CBS' series How I Met Your Mother, already in its 7th year, with its highest ratings ever. CBS can allow viewers to catch up on past seasons and run shows over and over again for residual income. This business model can generate huge revenues, and Cramer thinks CBS is a buy; Citigroup is way too negative about media assets.
With the Dow falling 131 points, some investors think the sky is falling. Cramer pointed out that 67 times in the last 5 years, the Dow has plunged 250 points, and on 101 days in the same amount of time, stocks have lost at least 2% in one day. Monday's performance was nowhere near these lows, and yet many were urging investors to be more bearish. Cramer thinks causing people to miss a 20% gain in stocks is just as irresponsible as being too bullish and leading them into a 20% loss. "Perma bears and perma bulls are two sides of the same bad coin," said Cramer.
Cramer took some calls:
Avon (AVP) has a new CEO coming on board, and while some are hopeful that a new hand at the helm will turn around the company, the fact that former CEO Andrea Jung is still executive chairman keeps Cramer from being bullish on the stock. He believes Jung is such a destroyer of wealth, having her anywhere near the company will keep the stock down.
Microsoft (MSFT) is a cheap stock, and Cramer would buy between $29 and $30.
Cramer thinks the ultra trading that characterized the last decade might be coming to an end and that investing in great companies for the long-term might be coming back in style. Cramer began his week-long segment on great growth stocks starting with Apple (AAPL). While some feel this stock is overextended, Apple is expected to make $50 per share until 2013, but still trades at a multiple of 12, lower than the average multiple of 14. Apple was downgraded on Monday, but after dropping 7 points, it rebounded to close up $2; the resilience of the stock is amazing. The company has many revenue streams with its various products, and can still take market share, especially as the iPad replaces the PC. The company recently instated a dividend, which it may increase over time, is not dependent on a strong economy and is not vulnerable to raw costs. Apple's balance sheet is clean, and its management has not missed a beat since the passing of former CEO Steve Jobs last year. Cramer thinks Apple just might be the greatest growth stock of our lifetime.
Cramer identified another great growth stock, Starbucks (SBUX), which he analyzed according to 10 criteria.
1. Visible multi-year growth with multiple revenue streams: Starbucks' growth is 20%, and is especially in strong in China. It is developing single-serve coffee and has strong same store sales in the U.S. and abroad.
2. End markets? The company is going to benefit from the huge demand for coffee. Its ready-to-drink beverage business is worth $60 billion in the U.S. alone.
3. Can it stay competitive? SBUX is the dominant global brand and will continue to lead.
4. Can it return capital to shareholders? While its yield is not huge, SBUX increased its dividend by 31% last year and initiated buybacks. Combined, SBUX returned $1 billion to shareholders last year.
5. Can SBUX expand internationally? The company has been expanding internationally for many years, and expects to triple its store count in China by 2015.
6. SBUX has a very strong balance sheet and good cash flow.
7. The stock trades at a multiple of 25, which is good compared to its 19% growth rate. At its highest, the multiple has been 40 with a growth rate as low as 10%, so the current numbers are strong.
8. SBUX's management is one of the best there is, under the direction of CEO Howard Schultz, who grew the company to the monolith it is today. When Schultz left, the company lost its way, and same store sales reached a low of 1% in 2008. Since Schultz has returned, same store sales are up 9%.
9. SBUX is a secular growth story that does not depend on global or domestic growth.
10. SBUX has raw costs under control, especially with the decline in the cost of coffee.
Cramer would buy SBUX on its next decline, and would scale into it on the way down.
Cramer took some calls:
Millennial Media (MM) has a powerful story, but the stock went way too high. Cramer would wait for Google (GOOG) to report, and if it says that mobile advertising isn't moving, MM is likely to get hit and may be a buying opportunity.
Coach (COH) may or may not succeed with its men's line, but Cramer believes in management enough to think COH will do well either way. Concerning competition from Michael Kors (KORS), Cramer thinks there is room for both Coach and KORS.
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