Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday June 21.
Has Celgene (CELG) lost its momentum? This once-great growth stock got punished and fell 11.5% after pulling its European application for expanded use of Revlimid, which treats a deadly blood disease. At the same time, Onyx Pharmaceuticals (ONXX) received FDA approval for a drug that treats the same condition. Yesterday's news about Celgene continues a decline for the stock from $80 a few months ago to $59. Celgene's Revlimid franchise, which comprises two-thirds of Celgene's revenues, is in jeopardy, but should Celgene be abandoned? Management says it intends to re-apply after more data is compiled, but in the meantime, Onyx's star seems to be rising, and it could be a great takeover target. Celgene needs to make a credible claim that Revlimid is superior to other treatments while diversifying away from the drug. Right now, the stock is very inexpensive.
"I am a buyer of Celgene down here," Cramer said, "but I'm a chastened buyer. I believe in the company, but boy, this was a stunner."
The Dow fell 250 points, partly due to worries over the decline in commodity prices and concerns over Europe. While inexpensive oil, cheaper food prices and lower interest rates are good for consumers, Wall Street pessimists fear that the trend signals a slowdown in the economy, especially given sudden and dramatic declines, such as a $3 drop in oil. However, Cramer believes the fall in the Dow is just a "garden variety decline on a drought of good news." Once governments around the world take steps to try to stall the problem in Europe, better times might be ahead.
Cramer took some calls:
Red Hat (RHT) reported a largely misunderstood quarter; it beat on earnings but billings had declined. Cramer thinks the issue with billings was a hang over from a previous quarter. RHT reported that business was solid in Europe. "The stock was up huge. That mattered more than anything," Cramer said. "I'm a believer in Red Hat, but let's give it a few days (before buying)."
Expedia (EXPE), the largest online travel company, is up 65% year to date. However, EXPE was downgraded by an analyst at Piper Jaffray after the same analyst had raised the price target on EXPE just a month earlier. Cramer thinks this indicated that either this analyst is "easily rattled" or there is a cause for concern. The price target was raised on the idea that business was strong in Europe, but it was downgraded shortly after due to concerns about Europe. Cramer thinks this analyst is "spooked" about EXPE's European business, and believes it is a good idea to pay attention.
EXPE beat earnings by 10 cents in April, largely due to the technical upgrades to the website. Bulls believe that not all of these upgrades are baked into the stock price. However, bears point out a deceleration of unique visitors, up only 15% in May compared to 30% in April. Even though Expedia is a solid company, given the rise in its stock price, it cannot afford the slightest stumble. Bed, Bath & Beyond (BBBY) fell $12 or 17% on a slight disappointment, so with as large a problem as Europe threatening Expedia, the stock could see a dramatic decline.
While Cramer does think Expedia has some upside potential because of its technical upgrades, he agrees with the Piper Jaffray analyst, who he thinks is more prudent than bearish. Even if the bull case is correct, "You will get a better chance to buy this one at a lower price," he said.
Investors are selling industrial stocks because of the slowdown in the global economy, but some of these stocks have been so severely punished, they might be worth buying. Eaton (ETN) has been pounded, down 29%, to the point where it has an accidentally high yield of 4%. This dividend is creating a floor under the stock, and it is a level that has worked before as a bottom. Even if the economy goes into recession, Eaton has held up when its dividend rose to 4% or 4.5%, as it did in 2009. Management is disciplined and its strategy is expressed in CEO Sandy Cutler's motto "Stay lean and keep inventories taut." The stock is trading at a multiple of 7.7 which is very cheap, considering its historical multiple of 13.1 and 12.3 for the industry. The company is buying a stake in Cooper Industries (CBE). The deal will greatly expand ETN's electrical business and increase its footprint domestically. Cooper will also enable ETN to be less cyclical and vulnerable to the world economy, and will also give it exposure to non-residential construction, which is weak this year, but should grow stronger by 2013. Eaton already has exposure to the growing trucking and aerospace industries. Cramer is bullish on Eaton.
Cramer took some calls:
General Cable (BGC) is down on its luck, because it has significant European exposure. It might be a buy for investors who are willing to "take the pain" of a decline.
Atlas Pipeline Partners (APL): "They are the real guys, and we believe the yield is real. Yes, I want to own that stock."
United Technologies (UTX) is not a buy now, but Cramer would wait for the stock to decline to where it yields 3.5% and to buy more when it yields 4%.
CEO Interview: Kelsey Warren, Energy Transfer Partners (NYSE:ETP). Other stocks mentioned: Energy Transfer Equity (NYSE:ETE), Southern Union (NYSE:SUG), Sunoco (NYSE:SUN), Sunoco Logistics Partners (NYSE:SXL)
Energy Transfer Partners (ETP), along with many other MLPs, has seen a decline of late, but its 8% yield might attract many investors. The company has a complicated story concerning acquisitions; its parent company, Energy Transfer Equity (ETE) is merging with Southern Union (SUG), and will drop down some of its assets to ETP. Meanwhile, ETP is buying Sunoco (SUN) for $5.3 billion, and will get 32.4% of Sunoco Logistics Partners' (SXL) assets. CEO Kelsey Warren acknowledged that the stock might have gotten punished "because our story is complicated. We need to simplify the story," and he added, "I wouldn't reverse any of it." Warren said the company will need to raise capital to spur growth; "We are in the right place with the right diversification." While the storage business is not strong, Warren feels the natural gas glut will be rectified. Cramer thinks "ETP is a bargain. It is a terrible market, but an 8% yield is maybe the protection you need."
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