Cramer's Mad Money - I'm Obsessed With Mellanox (8/20/12)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday August 20.

Don't Hate the Rally. Stocks discussed: CME Group (NASDAQ:CME)

The recent rally hardly changed the opinion of cynics. Cramer urged investors "not to hate the rally," and discussed several reasons why there wasn't more confidence in the swing upwards:

1. The rally was on low volume.

2. There is a concern about complacency.

3. Banks have tenuous balance sheets.

4. The political situation domestically is uncertain, and there doesn't appear to be a potential improvement in employment numbers.

5. Earnings might be strong, but revenues are less bullish.

Cramer would tune out the negativity, but would use caution. He suggests that investors concentrate on stocks that are doing well.

Cramer took a call:

CME Group (CME) the whole industry is challenged and is in secular decline.

I'm Obsessed With Mellanox (NASDAQ:MLNX). Other stocks mentioned: Intel (NASDAQ:INTC), Arena Pharmaceuticals (NASDAQ:ARNA)

Most rapidly growing stocks hit a a wall at some point. Mellanox (MLNX) is an Israeli semiconductor company that rallied 69% in the second quarter and 248% year to date. Among stocks with rapid rises, Mad Money viewers on Twitter voted for Arena Pharamceuticals (ARNA) to occupy the number-one position as rising star, rather than MLNX. Cramer thinks the love for ARNA was a red flag; the stock has since fallen 30%. MLNX has the advantage of having analysts consistently underestimate it. The Street's expectations are low, so the stock keeps blowing away numbers.

Why is MLNX so successful? The company is a play on Big Data and makes "interconnects" to manage this information. The company has the best technology in the field, and has 60% market share for high-performance interconnects. The Street incorrectly lumps MLNX in with other semis, but MLNX has proprietary, highly specialized technology. The only competitor is Intel (INTC), and even INTC is keeping away from this niche. Therefore, MLNX was able to deliver 110% revenue growth when analysts were expecting a mere 30% rise. The stock still trades at a multiple of 30, which is modest, considering its 49% growth rate. As long as MLNX keeps exceeding expectations, Cramer thinks the stock has more room to run, even after an astounding move so far.

Fantasy Stock Football Draft: Wells Fargo (NYSE:WFC), 3M (NYSE:MMM), Honeywell (NYSE:HON). Other stocks mentioned: McDonald's (NYSE:MCD), Linn Energy (LINE)

Cramer chose three "running backs" for his Fantasy Stock Football Draft: Wells Fargo (WFC), Honeywell (HON) and 3M (MMM).

Wells Fargo (WFC), which handles a third of all mortgages in the U.S, is a clear play on the comeback of housing. WFC is the nation's largest bank by number of branches and is 100% domestic. The company is coming off a bad season, but has been upgraded, yields a solid 2.5% and is trading at a multiple of 9, well below its historical average.

3M (MMM) is a diversified manufacturer that is taking market share with its winning brands, and it has high margins. It wasn't hurt by its 62% international exposure, and offers a 2.5% dividend, which has been raised annually for the past 54 consecutive years. Management has seen success with its strategic initiatives.

Honeywell (HON) is a diversified manufacturer with cutting edge solutions for energy conservation, security, aerospace and much more. The company has been executing admirably and raised guidance. This is a truly best of breed company with a 2.5% yield.

Cramer took some calls:

McDonald's (MCD) is a coiled spring with a possible dividend boost in the fall. Historically, the stock is too cheap to ignore, and Cramer would buy.

Linn Energy (LINE) has "done better than almost anyone in that segment." Cramer would stick with LINE.

Home Depot (NYSE:HD), Lowes (NYSE:LOW), Aetna (NYSE:AET), Zagg (NASDAQ:ZAGG)

Why have Lowes (LOW) and Home Depot (HD) been performing so differently from each other? Both are housing plays, and the upturn in the space has been good for HD. However, Lowes reported an income decline and falling same store sales; obviously its strategic initiatives aren't working. The stock dropped 5%, but at least management took full responsibility for the decline, and didn't try to blame retail or housing.

Aetna (AET) made the smart acquisition of Coventry, and the stock jumped 5.6%. Aetna is a company that may actually benefit from Obamacare.

Zagg (ZAGG) performed badly, and fell 13% after it reported tepid sales for cellphone accessories. Its products can be easily imitated and are not proprietary enough. Zagg is a sell, even down 13%.

CEO Interview: Jeff Gardner Windstream (NASDAQ:WIN)

While dividend stocks are popular in the current uncertain environment, investors should be wary of dividends that may be overly generous if the company doesn't have the fundamentals to back it up. Windstream (WIN) is a telco that has a yield of 10.6%, but the stock got crushed after an earnings miss. Jeff Gardner insists that the dividend is safe, and the miss was the result of a broadband promotion that didn't pan out; "I think you will see a different story," when changes are implemented. In spite of the loss, the company grew broadband revenue by 4.4%. Cramer challenged Gardner, reminding him that a year ago, the CEO declared that 2012 would be a "breakout year," but the stock is down 20%. "I think it has been a fine year," said Gardner, but investors should be patient with WIN because it is a long-term, steadily growing story.


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