Cramer's Mad Money - Why The Fall Tech Trade Isn't Working This Year (10/10/12)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday October 10.

Why the Fall Tech Trade Isn't Working This Year: Apple (NASDAQ:AAPL), Jabil Circuit (NYSE:JBL), Red Hat (NYSE:RHT), (NYSE:CRM), Verizon (NYSE:VZ), AT&T (NYSE:T)

Autumn has always been the prime time to trade tech, but it is already October, and the tech sector is not showing its characteristic fall strength. Two major reasons the fall has been historically good for tech are pre-holiday shopping, and the fact that IT segments in companies need to exhaust their IT budgets before the end of the year. While the consumer seems to be doing alright domestically, the global consumer spending slowdown is an obstacle to tech. In addition, companies are increasingly using technology from (CRM) and Red Hat (RHT) to streamline their IT budgets, or reduce the need for a separate IT arm altogether. Telco companies, like AT&T (T) and Verizon (VZ), are dramatically cutting down on spending in favor of cutting edge alternatives. Poor performance from Avnet and Jabil Circuit (JBL), which are usually strong in the fall, confirms this trend. Finally, there is the ongoing zero sum game with Apple (AAPL); Apple's gain spells pain for almost everyone else in tech.

The rules have changed about the fall tech trade; it just doesn't seem to be happening this year.

Yum Brands (NYSE:YUM), Cummins (NYSE:CMI), Alcoa (NYSE:AA), Chevron (NYSE:CVX), Costco (NASDAQ:COST), Wal-Mart (NYSE:WMT), Boeing (NYSE:BA), Airbus (OTCPK:EADSF), FedEx (NYSE:FDX), Avnet (NYSE:AVT)

With the averages tumbling on Wednesday and the Dow down 129 points, Cramer discussed how both good news and bad news on a given day can still result in what seemed like a lopsided victory for the bears. There were some great earnings reports; Yum Brands (YUM) reported a "dynamite" quarter, and is aggressively putting up stores overseas. China was strong for YUM, and same store sales for Taco Bell were up 7%. Costco (COST) reported that the consumer is still strong, and customers don't seem to mind the increase in membership dues. News from Wal-Mart (WMT) shows the giant retailer is taking aggressive market share.

However, while retail was strong, the news from industrials, oils and tech was not so hot. Cummins (CMI) pre-announced a poor growth rate, and although this should not have been too much of a shock, given another bad pre-announcement this summer, the bears took Cummins down. Alcoa (AA) delivered on earnings, and aerospace orders were good, but China was Alcoa's Achilles' heel. Chevron (CVX) imploded with results that were substantially worse than expected. Avnet (AVT), a "supermarket of all things tech," lowered estimates, and the stock sank.

There is no doubt some sectors seem to carry more weight in the minds of bulls and bears than others, especially sectors like oils, tech and industrials which are seen as tells on the broader economy. A bit of good news from retailers was not enough to prevent Wednesday's bear raid.

Cramer took some calls:

Boeing (BA) is winning while its European competitor Airbus (OTCPK:EADSF) is lagging. With aerospace still strong, Cramer thinks BA is the cheapest stock in the Dow.

FedEx (FDX) has been a besieged stock recently, but Cramer thinks the bear case for FDX is over; "It isn't done going higher."

4th Quarter Hot List: Ulta Salon (NASDAQ:ULTA), Tractor Supply (NASDAQ:TSCO), Lowe's (NYSE:LOW), Home Depot (NYSE:HD), Cabela's (NYSE:CAB), Coach (NYSE:COH)

Cramer continued his week-long series on hot momentum stocks money managers will be looking at for the fourth quarter. Ulta Salon (ULTA) is up 48.9% for the year, and Tractor Supply (TSCO) has risen 40% year to date. Both are regional to national growth stories; Ulta is expanding its store count by 22%, and TSCO could double its locations before it becomes saturated. TSCO has the advantage of lacking competition, and it tends to take market share from Mom and Pop stores in its heavily fragmented market. Neither stock offers a huge dividend, but what the stocks lack in yield they make up for in growth. Ulta trades at a multiple of 29 with a 25% growth rate, and TSCO has a multiple of 18 with an 18% growth rate.

Cramer took some calls:

Lowe's (LOW) is not best-of-breed like Home Depot (HD), but Cramer would still "bless" it as a buy, because it is making a comeback and may have some upside.

Cabela's (CAB) is on fire. Cramer thinks the stock will continue to go higher.

Coach (COH) is too risky. Cramer would wait and see about Coach.

CEO Interview: Ron Shaich, Panera Bread (NASDAQ:PNRA)

Panera Bread (PNRA) is up 259% since Cramer got behind it a couple of years ago, and has risen 14% the last few months. However, bears are worried about higher food costs and think the company's valuation might be rich. Panera trades at a multiple of 24 with a 19% growth rate, and Cramer thinks it is reasonably priced, especially given the strength of the healthy eating trend. Ron Shaich said that Panera's demographic tends to be customers between the ages of 25-50 who are attracted to casual dining and are willing to pay a bit more for quality, healthy food. Panera has been in the forefront of the healthy food revolution, and was the first chain to post calorie counts on menus. While many are worried about food prices given the recent drought, Ron Shaich said the company is prepared to deal with modest inflation through reasonable price increases. Panera will expand its pasta offerings and currently has 12 million members of its loyalty program. Cramer would buy Panera.


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