Cramer's Mad Money - Which Stocks Earn The Right To Rally On China? (9/27/12)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday September 27.

Which Stocks Earn The Right To Rally On China? Alcoa (NYSE:AA), Vale (NYSE:VALE), Freeport McMoRan (NYSE:FCX), Caterpillar (NYSE:CAT), Cummins (NYSE:CMI), Schlumberger (NYSE:SLB), National Oilwell Varco (NYSE:NOV), Ensco (NYSE:ESV), Alpha Natural (ANR), Wynn Resorts (NASDAQ:WYNN), General Motors (NYSE:GM)

There is some excitement over the possibility of a Chinese stimulus, but there are many reasons to be cautious. Many stocks will automatically rise on such news, but not every stock that rallies on bullish data from China really deserves to. For instance, raw material stocks see an upswing on news of a stimulus in China, although China has plenty of its own raw materials, especially aluminum. Alcoa (AA) is often a stock that gets taken up in such a climate, although the rise isn't always justified. Concerning steel, investors should buy stocks levered to the ingredients of steel, such as iron, which Vale (VALE) produces, and copper, which is strongly associated with Freeport McMoRan (FCX).

Machinery should see a justified bump on a Chinese stimulus, which means buying Caterpillar (CAT) and Cummins (CMI), although CAT has said negative things about the business and the data doesn't come in time to rescue its next earnings report. On the oil side, international plays like Schlumberger (SLB), National Oilwell Varco (NOV) and Ensco (ESV) are worth looking at. It is important to consider which stocks are having deserved rallies on a Chinese comeback, and which stocks are merely along for the ride and will get punished more harshly later.

Cramer took some calls:

Alpha Natural (ANR) is not a stock Cramer wants to gamble on.

Wynn Resorts (WYNN) is down far too much, and Cramer would buy it. Although he thinks it might have 10 points of downside, he believes it has 25 points of upside.

General Motors (GM) is not a buy because business in Europe is poor, it might not benefit from a comeback in China, and since the U.S. government still owns a major stake in the company, shares may be dumped if there is a rally in the stock.

Both Sides of Stocks: General Electric (NYSE:GE), Encana (NYSE:ECA), Pulte Group (NYSE:PHM), MetroPCS (PCS), Joy Global (NYSE:JOY), Dupont (NYSE:DD)

Cramer discussed the bearish and the bullish case for stocks. While some pre-announcements have been negative, and there is discord domestically, at least on the political scene, there are signs of some improvement in Europe and indications of a Chinese stimulus. General Electric's (GE) management implied that there is too much gloom about China, and things might be looking up in the Middle Kingdom. A similar message was given by management of Dupont (DD) and Joy Global (JOY). It seems like stocks could go either way, and right now, a great deal of the movement depends on China and Europe.

Encana (ECA): While fracking fears might be overdone, Cramer thinks natural gas has to go to $3.50 or $4 before Encana is a buy.

Pulte Group (PHM) housing starts are up, and every decline in homebuilding stocks has been buyable; "I want to own Pulte."

MetroPCS (PCS) doesn't seem likely to be bought, contrary to rumor. PCS is a spec story.

CEO Interview: Doug Michels, Orasure (NASDAQ:OSUR)

Orasure (OSUR) is a biotech company that develops saliva diagnostic products for Hepatitis C and most recently, for HIV. Its new over-the-counter HIV test, which is being released in October, will be a game changer, since it will be the first test of its kind. Retailers are enthusiastic about stocking the product, which is expected to sell well, since many people are hesitant to go to a doctor's office for an HIV test and prefer to be tested through a non-invasive saliva collecting procedure in the privacy of their own homes. It is estimated that 25% of people who are HIV positive are unaware of their status, and those not knowing they are infected are responsible for 50-70% of new infections in others.

Orasure has already seen success with its Hepatitis C saliva test. This illness is 5 times more prevalent than HIV, and two-thirds of those infected are unaware that they have Hepatitis. It has been recommended that all baby boomers (an especially vulnerable age group) be tested for Hepatitis C.

While analysts disagree about the expected success of Orasure's HIV test, Cramer recommends viewers do homework on the stock and decide if it is a stock they want to include in their portfolios.

CEO Interview, Bryan Martin, 8x8 (NASDAQ:EGHT). Other stocks mentioned: (NYSE:CRM)

When a caller asked Cramer about 8x8 (EGHT), he responded that the stock has seen disappointments, has doubled for the year and added he prefers (CRM) as a cloud play. However, Cramer invited 8x8 CEO Bryan Martin onto the show to explain his side of the story. The company has been in existence for decades, but had to make major changes after the bubble burst. The company is now a service provider that sells its technology to customers and businesses, and Martin reports the business is growing rapidly. For many customers, EGHT replaces regular long-distance service, and provides additional features for cloud and mobile. While smaller businesses have not been faring well in the U.S. macro environment, Martin thinks that small businesses are beginning to stabilize, and that EGHT will soon see the same success with businesses that it has seen with private customers. Cramer admits that he was too quick to dismiss EGHT, which doesn't have the same business model as Salesforce, but is a cloud play in its own right. He urges investors to do their own research on this "compelling story."


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