Cramer's Mad Money - I Was Wrong About Refiners (9/5/12)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday September 5.

CEO Interview, Michael Jennings, HollyFrontier (NYSE:HFC)

While Cramer hasn’t liked refiners in a while, the sector has been on fire, and many refining stocks have reported terrific earnings. HollyFrontier (HFC) is up 70% so far this year, and has more room to run. HFC is benefiting from the price spread between Brent’s higher price and WTI’s lower price; HFC buys oil at the WTI price and sells it at the rate of Brent crude. While its dividend seems deceptively small at 1.5%, the company issues special dividends, three so far this year, that bring its yield to 6.5% compared to the industry average of 2.5%. The company has generated a 20% return on capital, and is reaping the rewards of what CEO Michael Jennings calls the “domestic shale revolution.”

Jennings said that HFC is buying up fuel at even lower prices than WTI, in some cases. The increase in domestic fuel production may lead to an increase in exports, a move that HFC would welcome. When Cramer asked Jennings why HFC doesn’t open gas stations like other refiners, Jennings replied that HFC wants to concentrate on its strength, which is refining and selling fuel and not to have to worry about “merchandizing to sell high margin Twinkies” at gas station convenience stores. Cramer apologized for having been excessively negative about the refiners; “I was wrong. But it’s not too late to buy.”

FedEx (NYSE:FDX), UPS (NYSE:UPS), iPath DJ-UBS Copper Total Return Sub-Index ETN (NYSEARCA:JJC), CurrencyShares Euro Trust ETF (NYSEARCA:FXE), Questcor (QCOR), Hershey (NYSE:HSY)

After FexEx (FDX) announced missed numbers, one might have expected stocks to get slammed; after all, what company is a more reliable barometer of growth than FedEx? However, the calamity failed to happen, as the Dow finished up 15 points and the other averages declined only slightly. Why didn’t stocks decline more on FedEx’s disappointment? The stock itself only lost 2%, and one would expect a bigger drop after the company’s first down quarter in three years.

Cramer thinks the reason why FedEx did not bring down stocks is that investors are more concerned with the European Central Bank and China than they are with FedEx. Also, since its peer UPS (UPS) made a lackluster announcement in July, FDX’s news wasn’t really news. The fact that copper, as measured by the JJC (JJC) was up, and the FXE (FXE), or the euro, looked strong, might have mattered more than negativity from FedEx. There are a lot of good things happening domestically, including strong auto sales and a rebound in housing. FedEx’s news might have been more of a rear view mirror on things people were aware of than news about coming weakness.

Cramer took some calls:

Questcor (QCOR) is a battleground stock, and Cramer said he needs to do more research before opining on it.

Hershey (HSY) needs to drop a bit, around 5% to 8%, before it can be bought.

Speculate wisely: Nokia (NYSE:NOK), Heckmann (HEK), Sprint (NYSE:S), Sunrise Senior Living (SRZ). Other stocks mentioned: Lexmark (NYSE:LXK), The United States Natural Gas ETF (NYSEARCA:UNG), Chesapeake Energy (NYSE:CHK), Conoco-Phillips (NYSE:COP)

Some stocks are worth buying when their future seems hopeless. Sunrise Senior Living (SRZ) saw its nadir at 27 cents a few years ago, and now after fixing its debt and improving management, the stock is at $14. Sprint (S) looked like it had been left in the dust by competitors, but the company now has the iPhone, is getting rid of non-performing assets and has a clean balance sheet. Heckmann (HEK) plummeted along with the price of natural gas, but it has made a strategic acquisition that will enable the company to diversify its way into a comeback scenario.

Many people are tempted to think that Nokia (NOK) is unjustly an underdog, but Cramer thinks there is no analogy between Nokia and the above-mentioned stocks. While he admits the stock may be too cheap to sell, it is not a decent speculative play. At least the above-mentioned stocks had decent long-term bullish stories; Nokia’s products are not well-liked, and its fundamentals have fallen into the doldrums, trounced by competition. As much as followers on Twitter try to persuade Cramer otherwise, he will not endorse Nokia, even as a speculative play.

Cramer took some calls:
Lexmark (LXK) is a loser in a losing business.

UNG (UNG) is a very problematic ETF, and doesn’t effectively track natural gas. For those who want exposure to natural gas, Chesapeake (CHK) is a better bet, but the most secure of the three is Conoco-Phillips (COP), which is not a pure play on natural gas, but has sizeable exposure and is a stable company.


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