Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday August 21.
The market is taking a breather, trying to digest its gains after testing the ceiling. Cramer urged investors not to panic over the decline in stocks on Tuesday; reversals and pullbacks are to be expected. Apple (AAPL) also needed to have a rest after its steady climb upwards. A lot of things are going right: gold is climbing, the euro looks more healthy and the decline in copper prices seems to be reversing. Pullbacks might scare traders, but they should not intimidate investors.
Cramer took a call
CEO Interview: John Richels, Devon Energy (NYSE:DVN)
Devon Energy (DVN) is down 3%, and has suffered along with other natural gas stocks. However, like similar companies, DVN is increasing its exposure to oil; the question is, can it make this transformation fast enough? CEO John Richels admitted the quarter was disappointing, but discussed the company's capital discipline and acquisition of assets. Oil production increased 26% year over year, and by the end of the year, 40% of revenue for Devon will be produced by oil and liquids. Meanwhile, the improvement in natural gas prices is also good for the company. DVN completed the sale of offshore properties and is reinvesting in other oil projects. While these projects and joint ventures are in the early stages, Richels was confident that they will soon contribute to the cash flow. Devon has one of the strongest balance sheets in the industry, and Cramer conceded that some of Wall Street's bias against Devon might be unfair.
For investors who believe that natural gas prices are going to recover, Devon might be a buy, according to Cramer.
Cramer is drafting top stock players for his fantasy football league, particularly momentum players with strong execution.
Disney (DIS) has a host of great businesses, including television stations, theme parks, a cruise line and films. The company reported a 9% rise in revenue and a 21% increase in operating income. Its films, thanks to the 3rd highest grossing film in history, The Avengers, saw a 100% increase in operating income. The only reason the stock didn't rise dramatically after its earnings report was that the stock had already rallied 12% prior to its report, and expectations were high. Disney trades at a 14.2 multiple with a 12.5% long-term growth rate. The company boosted its dividend by 50%, and while the yield is a modest 1.2%, Cramer thinks there will be further dividend raises.
Google (GOOG) has the main market share in internet advertising. The company has a pristine balance sheet and has exposure to mobile, social and cloud. There were worries about possible declerating revenue and its Motorola Mobility acquisition, but the company reported an excellent quarter, in spite of the fact that 50% of its revenues are from Europe. The company trades at a multiple of 13.7 with a 15.7% growth rate. Cramer thinks Google is "insanely cheap."
Cisco (CSCO) is making a comeback after reporting a spectacular quarter. The company is taking market share, and its end markets are rebounding. Sales of enterprise equipment grew 90%, and Cisco is benefiting from telco carriers upgrading their technology. Cisco is taking share worldwide, is doing particularly well in China and is weathering weakness in Europe. Cisco raised its dividend by 75%, which is a vote of confidence by management that business is getting better.
Cramer used the technical analysis of Carolyn Boroden, of Fibonacciqueen.com, to demonstrate charts that are changing from bearish to bullish. Reliably bullish chart signs include lower lows and higher highs and when the 5 day exponential moving average crosses above the 13 day moving average. VMWare (VMW) had been roaring until April, when it dropped and made lower lows and lower highs. Boroden has noted that a stock is about to reverse from bullish to bearish if it has a pullback of 50% to 78% of its previous move up. After VMW pulled back 50% of its previous move upward, the stock began making a bullish pattern of higher lows and higher highs.
Lululemon (LULU) has been making lower highs for months, but last week, it broke out above its previous high, and its 5 day exponential moving average crossed above the 13 day moving average. Boroden thinks that if the stock stays above $52, it could jump to $70. LinkedIn (LNKD) was making lower lows and lower highs until it pulled back and gave investors a great entry point. Boroden thinks if it holds above $92, it could climb to $116 or even above $120. JoyGlobal (JOY) broke its pattern of lower highs and lower lows, and according to the weekly chart, JOYG could see a 33% gain to $77.55.
Cramer cautioned investors not to buy solely based on these charts, but to keep in mind the principles of reading charts, and which patterns are indicative of possible moves up or down.
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