Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Wednesday, August 13.
Cramer started Wednesday’s show with an explanation of the four signs he sees that hint at a bullish market. One is the bounce seen in the financials regardless of the SEC’s lax approach to enforcing key short-selling rules. Cramer is expecting still more pressure on this group from the bears, but said it looks like the worst of the number cuts and downgrades in the financials could be over. Even after a small pop in oil prices, which has been a negative, you couldn’t hold the banks back. Second is the fact that retail wants to go higher even though there are plenty of reasons why it shouldn’t.
Macy’s (M) – The stock finished the day up after reporting a less-than-stellar quarter. Retail, like the financials, held its own despite an increase in oil prices.
Toll Brothers (TOL) – The stock took a hit after reporting a 34% decline in third-quarter revenue but rebounded to finish the day up. To Cramer this reversal was a “loud and clear statement that things are getting better, not worse.” Toll reported a drop in cancellations, and that means more mortgage money is available to buyers.
Apple (AAPL) - The Nasdaq “just won’t quit.” Apple is rallying.
Applied Materials (AMAT) - The market actually believes that Applied Materials has hit its bottom, and even Cramer admitted that there’s momentum in tech.
Cramer’s so confident that biotech will work in this environment that he said even a laggard, like Vertex Pharmaceuticals in the group, is worth buying. While the Biotech HOLDRs, the biotech index, is up almost 18% since the beginning of July, Vertex dropped 16%. Cramer believes Wall Street has misread some recent study data and took Vertex down unnecessarily. The company’s drug, Teleprevir, a treatment for chronic hepatitis C currently in Phase III trials, took a hit when Schering-Plough’s rival drug, testing in Phase II, reported better results. Cramer pointed out, the two tests weren’t a true one-to-one comparison. The test designs were different, and Schering had fewer test subjects and lower drop rates. Further, Vertex’s drug seemed to have less severe side effects. Most important, Teleprevir works on patients with treatment-resistant hepatitis C, while Schering’s drug does not. Teleprevir is much closer to market than Schering’s drug. In the U.S. alone, the expected sales top out at $1.2 billion. Vertex is cheap with a promising outlook, both from its cystic fibrosis pipeline and the hepatitis C drug. Cramer mentioned a number of upcoming catalysts that should move the stock – two new studies this quarter and a key conference at the end of October.
Orbital Sciences reported a fabulous earnings beat, and Cramer said the stock is a buy, but not yet. Orbital Sciences is among the group of companies that wowed Wall Street with its most recent quarter. So far this week Cramer has Pointed to Jones Apparel and Tyco from this group. The problem is that they are all up since the report, so they can’t be bought right now. Orbital Sciences is an aerospace and defense company that makes rockets and space systems (think satellites and launch vehicles), and it is number one in five of the six markets it serves. Orbital also has one of the best growth rates of any company in the sector at 17.5%. Cramer said a number like that will get a higher multiple in this new low-inflation environment.
Orbital delivered 12 cents more per share than the Street’s expected 23 cents – a 52% upside surprise. The company also raised its full-year profit guidance and reported a $4.2 billion backlog. That’s 2.7 times the size of the entire market value of the company. Cramer likes Orbital as a play for the Democrats. If the Democrats take the White House, it could be good news for Orbital. In fact, Cramer suggested you buy it on any weakness that results from a decline in the polls for Obama. There’s a catalyst in the $2 billion in outstanding bids, including one possibly coming in November that would involve cargo transporting supplies to the International Space Station. Orbital has plenty of cash laying around to initiate a new buyback, thereby providing the stock with a nice safety cushion.
So what’s the right price for Orbital? It’s a buy at the $24 level. Of course, there’s a chance Orbital won’t drop that far – it’s at $26.80 now. If that’s the case, then Cramer recommended taking a pass and looking for a new way to make money.
Natural Gas - Equitable Resources (EQT)
As the price of natural gas has fallen, so too have the stocks that deal in it. Take Equitable Resources a natural gas producer with sizable holdings in the Appalachia Basin that also pipes the fuel to market. This latter business isn’t dependent on the price of natural gas, but still Equitable has dropped 33% from its peak on May 21. Chairman and CEO Murry Gerber agreed with Cramer that there’s plenty of industrial demand for natural gas at $8 to warrant more respect for Equitable. Gerber said, calling it “the absolute deal of the century.” The company has a massive drilling program running on 3.3 million acres, and is pioneering a new horizontal air drilling initiative as well. “We’ve just got tremendously more opportunities at this point,” Gerber said, “than we ever imagined that we would.”
“These stocks got oversold,” Cramer said of the natural gas sector. At these levels, Equitable “could be worth buying.”
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