Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday June 28.
What to Expect from Earnings Season: Nike (NKE), Paychex (PAYX), Automatic Data Processing (ADP), Chipotle (CMG)
"Many stocks aren't going to make the quarter," Cramer predicted, noting that with earnings season approaching, stocks are going to trade on reality rather than macro news. He made predictions for 8 sectors:
1. Financials, the largest component of the S&P 500 have been facing a dearth of activity, with few share offerings, mergers and little trading activity.
2. Housing stocks have run, so they might go lower, but with the gradual housing recovery, Cramer thinks this sector will be "just fine, but not great."
3. Tech will face severe disappointments, given the seasonal slowness and the fact that many of these stocks are very levered to Europe. Tech is not worth owning right now.
4. Oils are "downright disastrous," with oil prices down to $77.78. Earnings estimates will be slashed. Cramer would not own any oil unless it yields at least 3.5%.
5. Healthcare is the sector to buy now that Obamacare has been ratified by the Supreme Court.
6. Retail has been "worrisome," evidenced by Nike's (NKE) disappointment and the fact that the stock did not hold $100. However, low gas prices are a tailwind for the sector and, since these stocks have been so badly beaten, it might be the right time to buy retailers.
7. Consumer packaged goods companies are facing dramatically lower commodity costs. Things look bright for this sector.
8. Industrials are expected to perform poorly, given their European exposure.
Cramer took some calls:
Paychex (PAYX), Automatic Data Processing (ADP) are not stocks to buy right now given the weakness in employment.
Prudential (PRU) reported a disappointing quarter the last time around, and "is not tempting."
Chipotle Mexican Grill (CMG) has been hit hard on bearish statements from analysts. Cramer thinks the company is good and will "wait and see" about CMG.
Bed, Bath and Beyond (BBBY), Macy's (M), Chesapeake Energy (CHK)
Bed, Bath and Beyond (BBBY) lost nearly all of its gains for the year in just one week, only because management committed the "sin" of being too conservative. Cramer thinks it is a good strategy to underpromise and overdeliver, but the reward for such a tactic can often be delayed. BBBY is an example of how a momentum stock can get punished for any flaw, major or minor. The company beat earnings by 5 cents, revenues were a bit light, and same store sales were up only 3%. Guidance was lower than The Street wanted, coming in at 97 cents to $1.03, when analysts expected $1.08. The stock lost $12.50, or 16.9% in a single day. The stock continued to sell off until it lost 20% of its value in a week; before earnings, BBBY was up 27% for the year. Cramer thinks that BBBY is still a great company; much of the disappointing guidance was due to issues with integrating its acquisitions. This is a temporary problem, and will lead to further cost cutting down the line. With housing coming back and gas prices low, BBBY should see an upswing in business. The stock is now cheap, with a multiple of 11 and a growth rate of 13%. Cramer would buy half a position now and the other half after its earnings report in September.
Cramer took some calls:
Macy's (M) does not have to do as well at $33 as it did at $42. "We are okay with Macy's," Cramer said.
Chesapeake Energy (CHK) is a stock to stay away from, not primarily because it is a natural gas company, but mainly because of problems with its balance sheet.
Mad Mail: Ironwood Pharma (IRWD), Liquidity Services (LQDT), MasterCard (MA), Visa (V), Petrobras (PBR), Apple (AAPL), Micron (MU)
Ironwood Pharma (IRWD): this speculative pharma company has yet to turn a profit. The performance of the stock depends entirely on the approval for its constipation drug in the U.S. and in Europe; news about approval is expected in September and at the end of the year, respectively. This stock might be an attractive spec for some, but it is basically a gamble on the FDA decision.
Liquidity Services (LQDT) has some dark clouds. Management indicated that margin expansion may slow, and the CEO sold a large number of shares. Cramer would sell LQDT.
MasterCard (MA), in spite of rising a higher dollar amount than Visa (V), has not seen as dramatic percentage gains as Visa has. Cramer thinks Visa is the better stock.
Petrobras (PBR) is down to a 5 year low. Cramer would sell; "This one is not going to get there."
Cramer does not believe the rumor that Apple (AAPL) is planning to buy Micron (MU). He would sell Micron; "That is one nasty little stock."
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