Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Tuesday, July 22.
Oil is the Standard: Apple (NASDAQ:AAPL), Texas Instruments (NYSE:TXN), SanDisk (SNDK), American Express (NYSE:AXP), Kimberly-Clark (NYSE:KMB), Fannie Mae (FNM), Freddie Mac (FRE), Chesapeake Energy (NYSE:CHK)
Oil is all that matters right now and the price of oil is on the decline, Cramer said. After companies such as Apple, Texas Instruments, SanDisk and American Express all disappointed with their earnings report Monday, everybody was expecting the market to “get crushed” Tuesday. “People were crying. Nearly everyone thought there would be some serious bloodletting on the Street today,” he said. “That didn't happen, the sky didn't fall.” Instead the Dow surged with triple-digit gains Tuesday. No one knows why the market pulled through, except me, said Cramer. The market was up because of the decline in price of oil and gas, he said. “Oil and gas have come down hard,” said Cramer. “Oil is down to $128 a barrel and I think it is going to $120.” The last time oil was at $126 a barrel, the S&P 500, which represents the broadest view of the market, was at 1,403. That's about 10% higher than the index is now. When natural gas was $9, the same index was 3.5% higher. That means on an average, the S&P 500 is 6.7% lower and will head higher, said Cramer. “The arithmetic of oil and gas and the decline in oil and gas are irrefutable,” he said. “We are 6.5% too low (in the S&P) as of this evening and market is heading up there.”
Fannie Mae and Freddie Mac have protection. Fortress banks soared. We have the makings of a bull run here. Consumer companies such as Kimberly-Clark are likely to benefit, he said, since that is exactly the kind of defensive play that big institutional investors like to put their money into. Cramer said he is predicting gasoline at $3.50 a gallon if oil prices fall to $120 a barrel. “I need you to stop reacting to only the earnings and look at the bigger picture: prices of oil and gas and newfound health of banks,” he said. “This market's a buy.”
Natural gas prices are likely to go lower. That means Chesapeake Energy is a bargain at $51, which is where the stock closed Tuesday. “I like to buy when I can, not when I have to,” said Cramer.He also warned retail investors against trading during after-hours. “No trading after hours,” he said. “Everyone loses money.”
In the past, Campbell Soup has been a serial underperformer. The company missed four straight quarters before “recently guiding to the high end” but everybody ignored it, he said. Grain prices are down and the ethanol mandate may be removed after the election. Campbell has been a really poor investment over last 10 years, having fallen almost 35% from $54.90 to $34.30 currently. But now the company is looking better, he said, and is a possible “recession-proof turnaround play.”
General Mills and Kellogg are at or near their 52-week high, which means Campbell looks cheap and institutional money could flood to the stock and raise its price, he said.
“While I have liked many a food stock, especially Heinz, I have trashed Campbell,” said Cramer. “Now I am changing mind and tune and getting behind it.” Campbell has launched new products such as its range of Select Harvest light soups, which could be give its rival Progresso tough competition. The company is making record high investments in marketing and expanding into international markets such as China and Russia. “It may finally get its groove back,” he said. Campbell also has big buyback going on with plans to repurchase $1.2 billion worth of its shares, or 9.2% of its market cap. “I like big buybacks and I cannot lie and you can't get any bigger than Campbell,” he said.
A weak dollar also means that a European buyer could in and buy the company for almost 25% less than where it was two years ago, said Cramer. “A name brand like Campbell hasn't been this cheap in years,” he said.Cramer said there is no play for food going higher and also advised a listener to sell Kraft and recommended Tyson Foods.
Not all financial services stocks need to go down because of the “simply miserable quarter” American Express had, Cramer said. American Express was down nearly 7% following its earnings and it affected other banking stocks. Bank of America and JP Morgan all stayed down Tuesday. But there is no reason to believe that bad news at American Express is bad news for JP Morgan, said Cramer. “That's kind of stupid thinking,” he said. “Don't panic because of traders who can't see the difference between American Express and JP Morgan,” he said. The difference between American Express and banks is that the former makes money from transaction fees, membership fees and interest on loans. For banks such as JP Morgan and Wachovia, deposits are the key.
If anything, American Express has more in common with retailer Target. Target has a big credit card business, but it also has a retail component to fall back on, which is not the case with American Express. That why Cramer prefers Target. “American Express has unfairly brought down all banks. Use it as an opportunity to buy,” he said.Cramer suggested Wachovia, Bank of America, US Bancorp and JP Morgan as his four strong financial plays.
In this segment, Cramer said he has lost a lot of money on Annaly Capital Management and would not recommend it. It has too much leverage and he cannot go back to the stock after the money he has lost on it.
Cramer also explained the term, “multiplier,” when it comes to assessing a stock's value. It refers to the price-to-earnings multiple. Some stocks have a big multiple because they grow fast, he said.Stocks such as Exxon Mobil and ConocoPhillips have a low multiplier because people expect lower growth in oil consumption.Finally, Cramer suggested listeners look at Google as an attractive trade, in light of Yahoo's weak earnings.And instead of Wachovia, consider US Bancorp for their trade.